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Bountiful Investment Group, Inc. has made an offer to purchase the St.
George Sleep Inn. If the sale goes through, BIG would own a 100 percent interest
in the hotel. The purchase price is $1,200,000, plus BIG would have a commitment
to make approximately $130,000 in renovations. The Sleep Inn has 68 rooms and is
located at 1481 South Sunland Drive in St. George, Utah
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 1997
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 98168-4664
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 901-3000
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- -------------------- ------------------------------------------
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained in this Form 10-K, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ X ]
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The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant on March 13, 1998 based on the closing price on
the OTC BB System of such stock on such date was $70,373,778.
Registrant's Common Stock outstanding at March 13, 1998 was 64,223,685 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None.
2
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WADE COOK FINANCIAL CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
<TABLE>
<CAPTION>
CAPTION PAGE
- ------------- --------
<S> <C>
PART I
Item 1. - BUSINESS ........................................................ x
Item 2. - PROPERTIES ...................................................... xx
Item 3. - LEGAL PROCEEDINGS ............................................... xx
Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............. xx
PART II
Item 5. - MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS ................................. xx
Item 6. - SELECTED FINANCIAL DATA ......................................... xx
Item 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................... xx
Item 8. - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA ...................... xx
Item 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE ........................................ xx
PART III
Item 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............. xx
Item 11. - EXECUTIVE COMPENSATION ......................................... xx
Item 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT ................................................. xx
Item 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................. xx
PART IV
Item 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K ............................................ xx
</TABLE>
3
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NOTE REGARDING FORWARD LOOKING INFORMATION
This Form 10-K contains forward looking statements identified by the use of
"believes", "expects", "anticipates", and similar expressions. Such statements
are subject to risk and uncertainties that could cause actual results to differ
from those contemplated by the forward looking statement. Such risks and
uncertainties include any change in the market acceptance of the Company's
products and services, the risk of the Company being able to finance its
business operations, and other similar business and market risks. Readers are
cautioned not to place undue reliance on such forward looking statements.
PART I
ITEM 1. - BUSINESS
GENERAL
Wade Cook Financial Corporation (OTC BB:WADE) is a Nevada
corporation which serves as a holding company for the common stock and other
ownership interests of a group of business entities collectively referred to
in this Form 10-K as "WCFC" or the "COMPANY." The most significant asset of
the Company is its wholly owned subsidiary Wade Cook Seminars, Inc. ("WCSI")
through which the Company conducts its educational seminar business.
Prior to May 1995, the Company's educational seminar business was
conducted by United Support Association, Inc. ("USAI"), a Nevada corporation
founded in 1989 by Wade B. Cook. Profit Financial Corporation, a publicly
traded shell, was formed in 1979 as a Utah corporation under the name
Profiteer Corporation ("Profit"). In May 1995, USAI engaged in a transaction
with Profit effectively constituting a reverse merger. Profit was the legal
acquirer and USAI was the accounting acquirer. As a result of the
transaction, Profit became the holding company and parent of USAI which was
renamed Wade Cook Seminars, Inc. in February 1997. Another corporation owned
or controlled by Wade B. Cook named USA/Wade Cook Seminars, Inc. was renamed
Money Chef, Inc. ("Money Chef") which corporation is an affiliate of the
Company. See "Certain Relationships and Related Transactions."
Profit Financial Corporation changed its name to Wade Cook Financial
Corporation in September 1997 which change of name was ratified by the
shareholders of the Company at the annual meeting of shareholders held in
December 1997 (the "Annual Meeting"). The shareholders of the Company also
authorized at the Annual Meeting, among other things, the reincorporation of the
Company from the State of Utah to the State of Nevada.
On December 19, 1997, WCFC filed the Articles of Merger, Agreement
and Plan of Merger, Certificate of Correction, Articles of Incorporation, and
Articles of Amendment to Articles of Incorporation of WCFC in Nevada. On
December 22, 1997, the Articles of Merger and Agreement and Plan of Merger
were filed in the State of Utah. These filings changed the state of
incorporation for WCFC from the State of Utah to the State of Nevada and
increased the total authorized number of the common stock of the Company (the
"Common Stock") from 60,000,000 shares to 140,000,000 shares. The designation
of the common stock of the Utah corporation as "Class A" was not carried
forward to the new Nevada corporation but the par value of $.01 remained
unchanged.
The Company's headquarters address is 14675 Interurban Avenue South,
Seattle, Washington 98168-4664 and its telephone number is (206) 901-3000.
Subsidiary Companies
The Company's wholly-owned subsidiaries are:
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<TABLE>
<CAPTION>
Corporation Name Abbreviation State of Incorporation
---------------- ------------ ----------------------
<S> <C> <C>
Wade Cook Seminars, Inc. WCSI NV
Lighthouse Publishing Group, Inc. Lighthouse NV
Left Coast Advertising, Inc. Left Coast NV
Bountiful Investment Group, Inc. BIG NV
Entity Planners, Inc. EPI NV
Ideal Travel Concepts, Inc. Ideal NV
Origin Book Sales, Inc. Origin UT
Worldwide Publishers, Inc. Worldwide UT
Gold Leaf Press, Inc. Gold Leaf NV
Get Ahead Bookstores, Inc. Get Ahead NV
Quantum Marketing, Inc. Quantum NV
Information Quest, Inc. IQI NV
American Newsletter Co., Inc. ANC NV
Unlimited Potential, Inc. Unlimited NV
Hotel Associates Management #1, Inc. Hotel Associates NV
Entity Planners International, Inc. EPI NV
</TABLE>
Of the subsidiaries listed above, only Unlimited, Hotel Associates and EPI
do not carry on a trade or business and therefore are not further described in
this Form 10-K. Not listed above is Evergreen Lodging, L.P., a limited
partnership in which WCSI owns a 65% limited partnership interest and an
affiliate of Wade B. Cook is the general partner. Evergreen Lodging, L.P. is
consolidated in the consolidated financial statements of the Company presented
elsewhere in this Form 10-K.
Wade Cook Seminars, Inc.
Wade Cook Seminars, Inc., ("WCSI"), creates, designs, produces, owns,
markets and sells a variety of seminars and workshops focused on investment
strategies, financial planning and personal wealth management. WCSI also
produces and sells audio tapes, videotapes, books and other written materials
designed to teach various investment strategies and financial planning
techniques. In addition, WCSI hosts a web site on the Internet at
http://www.wadecook.com as an additional tool to recruit students and market
its programs, products and services. WCSI accounted for approximately 91% of
the Company's net sales for the fiscal year ended December 31, 1997,
approximately 97% of the Company's net sales for the fiscal year ended
December 31, 1996, and approximately 100% of net sales for the fiscal year
ended December 31, 1995.
In 1997, WCSI conducted approximately 3,293 seminars in approximately
379 cities across the United States. Average attendance at the seminars was 123
persons. In 1996, WCSI conducted approximately 437 seminars in 42 cities with an
average attendance of 81 persons. Prior to 1996, the Company did not keep
records sufficient to provide the data necessary to determine statistics for
prior periods similar to the statistics presented for 1996 and 1997.
Seminars Offered by WCSI
The Financial Clinic is a three-hour seminar explaining the various
financial education products and services offered by WCSI and providing an
introduction to investing in the stock market. The Financial Clinic is designed
to serve as an introduction to the Wall Street Workshop. This seminar is
currently taught nationwide 43 times a week. The price to attend the Financial
Clinic is $22 to $33 depending on whether the customer prepays the price of
attendance. Occasionally, the Financial Clinic is offered for free to serve the
promotional purposes of WCSI.
The Wall Street Work Shop ("WSWS") is a two-day seminar teaching
investors the investment strategies set forth in Mr. Cook's books, Wall Street
Money Machine and Stock Market Miracles. Students are taught basic stock market
terminology, how to choose a brokerage firm, stock market strategies, and how to
place an order to buy and sell securities ( a "trade"). Students are taught how
to practice paper trades in class. The seminar is taught nationwide 7 times a
week and is taught in conjunction with the Business Entity Skills Training
seminar. The price to attend Wall Street Workshop ranges from $695 for
individuals who have attended Cook University to $4,695 depending on the
particular options selected by the person or persons attending the seminar and
depending on the particular discount or promotion in effect
5
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at the time of payment to attend the seminar. The Company also offers the
seminar Youth Wall Street for younger individuals. This seminar is taught 2
times per week nationwide. The Youth Wall Street is free to registrants 18 years
of age and younger.
Fortify Your Income ("FYI") is a half-day seminar reviewing the
strategies taught at the Wall Street Workshop. FYI is a refresher course offered
to WSWS graduates at no cost. FYI was taught nationwide 30 times during 1997 and
60 times during the first three months of 1998.
The Entity Structuring Workshop ("ESW") is a half-day seminar
explaining the use of entities to protect assets and reduce taxes. The ESW is
designed to serve as an introduction to the Business Entity Skills Training
seminar. The workshop was taught nationwide 210 times throughout 1997. The price
to attend the workshop ranges from $22 to $33.
Business Entity Skills Training ("BEST") is a one-day seminar teaching
students personal finance management strategies such as asset protection and tax
reduction using corporations, limited partnerships, qualified pensions, and
living trusts. BEST is taught immediately after the last day of each WSWS,
either in the evening or the following day. The price to attend BEST is $995 if
no other seminar is also attended. Otherwise, the price of Best is included in
the price of attending certain companion seminars.
WINSTOCK is a two-day workshop teaching stock market strategies and
various related topics in a roundtable forum. WINSTOCK was taught for the first
time in 1997 to 620 attendees. The workshop is taught in conjunction with the
Super BEST and is priced at $997.
The Super BEST is a one-day seminar taught the third day following
WINSTOCK. Super BEST teaches students personal finance strategies such as
asset protection and tax reduction strategies using corporations, limited
partnerships, qualified pensions, and living trusts. The seminar was
introduced in and taught once during 1997. The seminar is priced at $997 and
includes the WINSTOCK.
The Next Step is a two-day seminar for participants who have already
attended the WSWS. Advanced stock market investment strategies are taught in a
format in which students can actively participate in making investments. Next
Step was taught nationwide seven times in 1997 and has been taught three times
in the first three months of 1998. The price to attend Next Step ranges from
$1,495 to $7,995, depending on whether it is attended separately or with other
seminars offered by the Company and depending on the particular discount or
promotion in effect at the time of payment to attend the seminar.
The Wealth Academy, now known as the Wealth Institute, is a three-day
seminar teaching wealth accumulation and asset protection formulas using
various business strategies and corporate income tax planning to assist
students in better managing their personal finance and business activities.
The Wealth Institute is currently taught nationwide ten times a year. The
price to attend Wealth Institute ranges from $4,995 to $7,995 depending on
whether it is attended separately or with other seminars offered by the
Company and depending on the particular discount or promotion in effect at the
time of payment to attend the seminar.
The Executive Retreat is a two-day workshop designed for participants
who own or control Nevada corporations to gain a broader understanding of the
mechanics of using a corporation for tax advantages, limited liability and
estate planning purposes. The workshop is currently taught four times a year.
The price to attend the Executive Retreat ranges from $1,295 to $2,495
depending on whether it is attended separately or with other seminars offered
by the Company and depending on the particular discount or promotion in effect
at the time of payment to attend the seminar.
Cook University is a package of workshops and products promoted by WCSI
that are individually tailored to the needs of the student. The package
generally sells for $12,345 to $16,345 depending on the combination of seminars
and products selected and the discount or promotions in effect at the time of
6
<PAGE>
payment to attend the seminars.
Building Perpetual Income ("BPI") is a three-hour workshop introduced
in 1997, which summarizes cash-flow strategies related to the real estate
market. This workshop is intended to serve as an introduction to the Real Estate
Workshop. BPI was offered three times in 1997 and has been offered four times to
date in 1998. The price to attend the Building Perpetual Income seminar is $22
to $33 depending on whether the student prepays.
The Real Estate Workshop is a one-day event introduced in 1997, which
teaches students the strategies outlined in Mr. Cook's book the Real Estate
Money Machine. Students are taught how to look for real estate investments and
how to turn them into cash-flow investments. The Real Estate Workshop was
offered once in 1997. The price to attend the Real Estate Workshop ranges from
$995 to $1,495 depending on the discounts or promotion in effect at the time of
payment to attend the seminar.
The Real Estate Bootcamp is a two and one-half day event introduced
in 1997 which teaches students the strategies outlined in Mr. Cook's book the
Real Estate Money Machine in greater detail. The class often takes a field
trip to various parts of the local area in an effort to become more familiar
with the types of real estate available. The Real Estate Bootcamp was offered
once in 1997. The price to attend the Real Estate Bootcamp ranges from $3495
to $4495 depending on the discounts or promotion in effect at the time of
payment to attend the seminar.
High Octane Options Performance Seminar ("HOOPS") is a one day seminar
created for WCSI and introduced in 1997 by speaker Steve Wirrick. Mr. Wirrick
goes into greater detail about investing in options. HOOPS was offered sixteen
times in 1997 and has been offered fifteen times during the first three months
of 1998. The price to attend HOOPS ranges from $1995 to $3295 depending on the
discounts or promotion in effect at the time of payment to attend the seminar.
The Options Bootcamp is a two day seminar created for WCSI by speaker
Steve Wirrick which was introduced in 1997. Mr. Wirrick expands on his HOOPS
workshop in greater detail relating to his option investing. Students take a
tour of the Option Exchange in Chicago as a part of the class. The Options
Bootcamp was offered five times during 1997 and has been offered three times
during the first quarter of 1998. The price to attend the Options Bootcamp
ranges from $2995 to $5995 depending on the discounts or promotion in effect at
the time of payment.
WCSI typically conducts its seminars and workshops in major cities in
the United States with populations of over 100,000. The majority of WCSI's
seminars are held in Los Angeles, California, Denver, Colorado, Seattle,
Washington, Las Vegas, Nevada, Washington, D.C., Orlando, Florida and Dallas,
Texas. WCSI derived more than 10% of its revenues in fiscal 1997 from seminars
taught in the states of California and Florida. As of March 13, 1998,
approximately sixty-nine speakers conducted seminars for the Company throughout
the United States, of which the majority were independent contractors. The
Company provides training to its speakers, including two-day, bi-monthly
workshops with an experienced trainer. Most speakers review training tapes and
attend training sessions for six months prior to becoming "technicians" and
graduate to becoming "second speakers" on tour. The best of these second
speakers eventually rise to the role of primary speaker. Typically, the
Company's speakers are required to enter into an agreement not to compete with
the Company for a period of generally three years after the termination of their
contract with the Company.
The seminars provided by WCSI accounted for approximately 70%, 52%, and
53% of the Company's net sales in 1997, 1996, and 1995, respectively.
Products and Services marketed by WCSI
WCSI's seminars and programs are supplemented by audio tapes, video
tapes, books and other printed materials that are licensed to the Company.
Sales of these products accounted for 20%, 22% and 20% of the net sales of the
Company for 1997, 1996 and 1995, respectively.
7
<PAGE>
The books promoted and marketed by WCSI include best-selling books
written by Wade B. Cook such as the Wall Street Money Machine, Stock Market
Miracles, Bear Market Baloney and Business Buy the Bible. The Company also sells
Brilliant Deductions, The Real Estate Money Machine, How to Pick Up
Foreclosures, Owner Financing, Cook's Book on Creative Real Estate, 101 Ways to
Buy Real Estate without Cash, Cook's Book on Creative Real Estate, Don't Set
Goals, How to Build a Real Estate Money Machine, Real Estate for Real People,
Unlimited Wealth, Wealth 101, and 555 Clean Jokes. Each of these books was
written by Mr. Cook. These books are sold at prices ranging from $12.95 to
$26.95 depending on the title and excluding shipping and handling.
Other publications licensed from author Wade B. Cook and marketed by
WCSI include: 12 Special Reports, The Incorporation Handbook, How to Incorporate
in Nevada Special Report, Legal Forms, Owner Financing, Property Analysis Forms,
Real Estate Record Keeping System, Real Estate Special Reports, Stock Analysis
Forms, The Corporation Kit, and To S or Not to S Special Report. Publications
licensed from author Steve Wirrick and marketed by WCSI include: 7 Special
Reports, High Octane Reference Charts, High Octane Options Supplemental Charts,
Use of Profit and Loss Charts Special Report, The Secret to Pricing
Options---Never Pay Too Much Again Special Report, and Owner Financing. These
publications are sold at prices ranging from $6.50 to $34.95 depending on the
title and excluding shipping and handling.
The audio tapes promoted and sold by WCSI and authored by Wade B. Cook
include the multi-tape audio seminars Financial Fortress Home Study and Zero to
Zillions. In addition, WCSI sells single tapes that generally address the ideas
and concepts taught in its seminars. The single audio tapes include: Financial
4x4, Financial Power Pack, Paper Tigers, Unlimited Wealth, High Octane
Performance Entities, Retirement Prosperity, Money Mysteries of the
Millionaires, The Power of Nevada Corporations, Entity Structuring, Outrageous
Returns, Double Your Money Update, Everything You Ever Wanted to Know About:
Cook University, Everything You Ever Wanted to Know About: The Wall Street
Workshop, Everything You Ever Wanted to Know About: The Real Estate Cash Flow
Boot Camp, Everything You Ever Wanted to Know About: Becoming a Travel Agent,
Income Formulas, Income Streams, Stock Market Power Strategies, Smarter Money,
100 Fold Return, Are We Headed for a Bear Market, Covered Calls, Financial Jump
Start, Living Loving Trusts, Money Machine I, Money Machine II, Red Hot
Financial Seminars, Paper Chase, Pension Power, Real Estate Start-up, Sail
Through Life, SAIL: Scriptural Applications in Life, Stock Market Power
Strategies, Wealth Academy and Wealth, Riches, & Covenants. Mr. Cook is the
primary speaker in each of these tapes. These audio tapes are sold at prices
ranging from $26.95 to $1,695 depending upon the title of the audio tape or
collection of audio tapes. From time to time, WCSI distributes free "Update
Tapes" which are recorded by Wade B. Cook in an effort to promote the products
of WCSI.
The videotapes promoted and sold by the Company include the multi-tape
video versions of the Company's seminars Wall Street Workshop and Next Step, as
well as single-tape videos on Dynamic Dollars, Entity Structuring, 180 Cash
Flow Turnaround Seminar: 180 Degrees in 180 Minutes, Financial 4 x 4, Financial
Jump Start, High Octane Performance Entities, Second to None, Seven Strategies
to Success, and Winning Ways. Videos are sold at prices ranging from $33 to
$2,995.
Entity Formation Services
In 1997, WCSI provided information, forms packages and assistance to
individuals interested in preparing Nevada Corporations, Living Trusts,
Pension Plans, Limited Partnerships, Charitable Remainder Trusts, and various
business office services. After teaching students about the various entities,
the majority of actual entities which were formed were provided by various
independent outside vendors for a fee. Prices for the Company's entity
formation services range from $895 to $5,995 depending on the nature and the
number of the entities purchased The entity formation services of the Company
accounted for 6%, 14%, and 20% of the Company's net sales in 1997, 1996 and
1995, respectively. In 1998, the entity formation service activities were
separated from WCSI and placed in Entity Planners, Inc., a wholly-owned
subsidiary.
8
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WIN Subscriptions
Wealth Information Network ("WIN") is a subscription service provided
by the Company which can be accessed over the Internet 24 hours a day. WIN
provides detailed information on the trades made by the Company, it's
subsidiaries, and by Mr. Cook personally, using the investment strategies
discussed in Wall Street Money Machine and Stock Market Miracles and taught at
WCSI seminars. WIN also provides stock information and updates on the Company's
programs and products, including a schedule of events and seminars provided by
WCSI. The subscription rate for the WIN service ranges from $695 to $3,695 per
year, depending on the length of service, promotion offered at the time of sale,
and whether a subscriber is also an attendee at a seminar offered by WCSI.
Subscription to WIN accounted for 4% 12%, and 7% of the Company's net sales in
1997, 1996 and 1995, respectively.
Other Products Marketed by WCSI
WCSI has various marketing agreements or arrangements with other
companies to market and sell the products of these other companies and share
in the revenue generated by such sales. During 1997, WCSI obtained exclusive
marketing rights to the IQ Pager from Information Quest, Inc., a Nevada
corporation ("IQI"). Revenues generated by WCSI from sales of the IQ Pager
were split equally with IQI through December 31, 1997. On March 20, 1998, all
of the common stock of IQI was acquired by WCFC effective as of January 1,
1998. As a result of such acquisition, 100% of the revenue generated by WCFC
from IQ Pager sales will be retained by WCFC.
On September 12, 1997, WCFC entered into a purchase agreement with
Applied Voice Recognition, Inc. to purchase wholesale 10,000 units of a private
label automated speech recognition system including a self-contained contact
manager. WCFC received inventory under the purchase agreement in late 1997 of
2,500 units and will begin marketing the devices in 1998.
On January 20, 1997, WCFC entered into a software development
agreement with KnowWonder, Inc. ("KnowWonder") for the development of a family
finance software package. The software is to be completed for release on or
about August, 1998. Under the agreement, WCFC will own the intellectual
property for the software and will have non-exclusive rights to distribute the
software. KnowWonder will pay a royalty to WCFC for sales of the software.
Sales and Marketing
The Company creates interest and demand for its programs, products and
services through a mix of radio and television advertising, direct mail
advertising, Internet marketing and sports promotions.
Radio & Television Advertising
The Company's primary means of advertising to potential customer is
through various commercial radio spots nationwide, including radio infomercials.
Generally, the radio advertising contains information relating to a strategy
taught by Wade B. Cook and promotes a financial clinic to be offered within the
coming few weeks in the local area of the advertising. The customer may call the
toll-free number provided in the advertisement and, if he does, will be
encouraged to reserve a seat at the upcoming Financial Clinic. During 1997, the
Company advertised on a limited basis on television in connection with the
Company's sports promotion advertising and in a few other select markets.
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Direct Mail Marketing and Advertising
The Company markets its programs, products and services through direct
mailing to its mailing list of over 500,000 individuals, many of whom have
previously attended one of the Company's seminars or purchased the Company's
products. A centralized marketing department develops the Company's catalogs,
brochures and advertisements.
Sales Team
The Company's sales force consists of approximately 130 people who are
responsible for responding to phone, e-mail, Internet and facsimile orders and
inquiries received by the Company, as well as for following up with existing
clients to promote additional programs, products and services. The Company
provides its sales staff daily training aimed at refining their sales skills and
providing updates on new products, programs and services being offered by the
Company.
Internet Marketing
The Company maintains an Internet web site at http://www.wadecook.com
to market and promote its programs, products and services. The web site has
information on the Company's programs, products and services and certain limited
information on stock and investment strategies. A WIN subscriber can access WIN
through the web site. A web site visitor can purchase a limited number of the
Company's products on-line at the web site. In the future, the Company
intends to expand products offered at the web site to all of the Company's
products.
Sports Promotions
The Company sponsors a variety of sporting events including several
games of the Seattle Seahawks and Seattle Super Sonics. These sponsorships
enable the Company to advertise via giveaways which have in the past included
packages containing a free book, audio tape, video tape and other promotional
publications of the Company. All giveaway packages contain information about the
Company's products and the toll free telephone number to call to register for a
Financial Clinic or other upcoming seminar.
Lighthouse Publishing Group, Inc.
Lighthouse is engaged in the business of producing and publishing
books, audio and video tapes, and other written materials, mainly in the
categories of business, finance, real estate, and self-improvement. Many of the
current books are authored by Wade B. Cook including "Real Estate Money
Machine", "Business Buy the Bible", "Bear Market Baloney", "Stock Market
Miracles", and "Wall Street Money Machine." Lighthouse Publishing contributed
approximately 5% of the consolidated revenues of the Company in 1997, 12 % of
consolidated revenues of the Company in 1996 and no contribution to
consolidated revenue in 1996.
Left Coast Advertising, Inc.
Left Coast is engaged in the business of producing and placing
advertising in various media including radio, television, newspaper, and
magazines. Left Coast is a fully licensed advertising agency whose primary
client is WCFC and it's subsidiaries. Left Coast contributed less than one per
cent of the consolidated revenues of the Company in the year 1997, 1996 and
1995.
Bountiful Investment Group, Inc.
Bountiful Investment Group, Inc. (formerly Profit Financial Real Estate
Management Company) ("BIG") was formed in 1997 to manage and oversee the real
estate investment portfolio of the Company, primarily consisting of hotels.
10
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BIG contributed less than one per cent of the consolidated revenues of the
Company in 1997.
Hotel Investment Properties
WCSI owns a 25 percent interest in Airport Lodging Associates, L.C.
which owns the Airport Ramada Ltd. Suites. WCSI's purchase price for their
interest acquired was $250,000. The hotel is a new structure that opened in
November 1997. The Ramada Ltd. Suites has 58 rooms and 1 suite, and is
located at 315 North Admiral Boulevard in Salt Lake City, Utah.
WCSI owns a 12 percent interest in 45th South Hotel Partners, L.C.,
a limited liability corporation, which owns the Murray Hampton Inn and the
Murray Fairfield Inn. The 12 percent interest was purchased for $220,000,
which was paid $160,000 in cash and 10,000 shares of Common Stock in the
Company. The Hampton Inn is a 65 room hotel located at 606 West 4500 South in
Murray, Utah. The Fairfield Inn is a 61 room hotel located at 4500 South in
Murray, Utah.
WCSI owns a 10 percent interest in Airport Hilton Partners, L.C.,
which owns the Airport Sheraton Suites. The hotel is located at 307 North
Admiral Boulevard in Salt Lake City, Utah. The purchase price for the
interest acquired was $250,000. The Sheraton Suites is due to open in April
1998 with 108 suite-style rooms.
WCSI purchased a 8 percent interest in Woods Cross Hotel Partners,
L.C. which owns the Woods Cross Fairfield Inn. The 8 percent interest was
purchased for $119,269 paid in the form of 11,636 shares of Common Stock of
the Company at $10.50 a share. The Woods Cross Fairfield Inn has 80 rooms and
is located at 2437 south Wildcat Way in Woods Cross, Utah.
WCSI owns a 4 percent interest in the Park City Hampton Inn &
Suites. WCSI paid $225,002 for its 4% interest which consisted of $200,000 in
cash and 4,167 shares of Common Stock in the Company. The hotel has 61 rooms
and 20 suites and is located at 6609 North Landmark Drive in Park City, Utah.
BIG owns a 100 percent direct ownership interest in the Best Western
McCarran House. The total purchase price was $5,250,000 with a commitment to
make $1,000,000 in renovations. The payment for renovations is to be made in
installments over the course of 1998. The Best Western McCarran House has 220
units and is located at 55 East Nugget in Sparks, Nevada.
BIG owns a 50 percent interest in Red Rock Lodging Associates, L.C.
an entity which owns the St. George Hilton Inn. The purchase price was
$3,850,000 of which BIG has contributed $800,000 in cash. The Hilton Inn has
98 rooms and 2 suites and is located at 1450 South Hilton Drive in St.
George, Utah.
Rising Tide Limited Partnership had negotiated to purchase a 100
percent ownership interest in the Provo Fairfield Inn for $3,450,000, of
which $1,310,000 has been placed in escrow. In order to retain the Marriott
franchise, the ownership of the Fairfield Inn is being restructured such that
the original franchisee will retain 51 percent ownership interest and the
Company will obtain a 49 percent interest. This transaction is scheduled to
close in the second quarter of 1998. The Company intends to have its interest
in the Provo Fairfield Inn held in Bountiful Investment Group, Inc.. Any
funds that have been paid in excess of the 49 percent purchase price will
either be returned to the Company or credited towards the acquisition of
other hotel properties. The Provo Fairfield Inn has 66 rooms and 6 suites and
is located at 1515 South University Avenue in Provo, Utah. BIG has made an
offer to purchase the St. George Sleep Inn. If the sale goes through, BIG
would own a 100 percent interest in the hotel. The purchase price is
$1,200,000. Additionally, BIG would have a commitment to make approximately
$130,000 in renovations. The Sleep Inn has 68 rooms and is located at 1481
South Sunland Drive in St. George, Utah
Raw Land
WCSI owns a 65% percent interest in Evergreen Lodging, L.P.. Evergreen
owns a 100% interest in undeveloped property located near the 7200 South
off-ramp of the I-15 Interstate near Salt Lake City, Utah. Evergreen purchased
the land for $690,000. The land was purchased with the original intent of
building a hotel on the property.
WCSI owns a 42 percent interest in Lake View Lodging Associates,
L.C. which owns the property located at 215 West 1300 South in Orem, Utah.
The purchase price for its interest acquired was $560,000.
BIG owns a 100 percent interest in an undeveloped lot located in
Reno, Nevada. BIG purchased the property for $590,000.
Entity Planners, Inc.
EPI provides entity planning information and education to WCSI
customers attending Business Entity Structuring Skills Training and Entity
Structuring Workshop. EPI had no financial activity in 1997.
Ideal Travel Concepts, Inc.
As of August 13, 1997, the Company acquired Ideal from a director of
the Company. In addition to providing travel arrangements for the Company,
the Company markets travel agency training kits at its seminars for a price
of $495. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"
Origin Book Sales, Inc.
In August 1997, WCFC acquired all of the issued and outstanding
common stock of Origin in exchange for the issuance of 30,269 shares of
restricted Common Stock of the Company pursuant to a Share Exchange Agreement
effective as of August 15, 1997. Origin, a Utah corporation, is a book
distribution company which sells books on consignment. Origin also offers
select titles to national bookstore chains. Origin is the exclusive
distributor of products for Worldwide Publishers Inc.
Worldwide Publishers, Inc.
In August 1997, WCFC purchased all of the issued and outstanding
common stock of Worldwide for $1.00 pursuant to a Stock Purchase Agrement
effective as of August 8, 1997. Additional consideration for the acquisition
of Worldwide was the extinguishment of the obligation of Worldwide to repay
two promissory notes in the total amount of $275,000. The obligation to repay
the amounts loaned to Worldwide are eliminated as intercompany transactions.
Worldwide is a Utah corporation doing business under the identifying
publishing insignias ("imprints") as Aspen Books and Buckaroo Books. Aspen
Books publishes religious books or books with a spiritual emphasis. Buckaroo
Books publishes children's books and books of whimsy.
Gold Leaf Press, Inc.
In August 1997, WCFC acquired all of the outstanding common stock of
Gold Leaf in exchange for 7,692 shares of the restricted Common Stock of the
Company pursuant to a Stock Exchange Agreement effective as of August 15,
1997. Gold Leaf publishes fiction and non-fiction books.
Get Ahead Bookstores, Inc.
Effective January 1, 1998, WCFC acquired Get Ahead Bookstores, Inc., a
Nevada corporation. Get Ahead is housed within Wade Cook Financial Education
Centers in both Seattle and Tacoma. Get Ahead is staffed by Quantum Marketing
personnel in an effort to coordinate Quantum sales of WCFC products and
services. Get Ahead is a retail outlet for books, audio and video recordings
primarily related to finance, education, investments, and business and personal
development. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS"
Quantum Marketing, Inc.
Quantum Marketing, Inc., a Nevada corporation, was established in 1997
by Robert Hondel, a member of the Company's Board of Directors, to provide
alternative marketing of the Company's products and services. Currently, Quantum
maintains its own website on the Internet and provides local marketing through
its offices located within Wade Cook Financial Education Centers in Tacoma &
Seattle, Washington and Newport Beach, California. Another Quantum office is to
open in Santa Ana, California in 1998. Quantum pays WCFC a royalty of 70 percent
on all products and services sold by Quantum through WCSI. Quantum provides WCFC
with a 30 percent royalty on all products and services sold by Quantum through
its Wade Cook Financial Education Centers. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
The first Wade Cook Financial Education Center was established in 1997
in Tacoma, Washington.
11
<PAGE>
Each Wade Cook Financial Education Center contains a Winvest Center where WCFC
alumni can meet to network and obtain additional financial investment
information and information related to other WCFC products and services.
Effective January 1, 1998, the Company acquired Quantum as a wholly-owned
subsidiary. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Information Quest, Inc.
Information Quest, Inc. was organized in 1997 for the primary purpose
of marketing the IQ Pager. The Company acquired IQI effective January 1, 1998 as
a wholly-owned subsidiary. IQI is the distributor of the IQ Pager, a one-way
receiving paging device. IQI transmits stock market updates and various
financial information over the IQ Pager to subscribers. In addition, IQI
provides all supplies, packaging, and distribution of the IQ Pager and provides
all of the organizational support and maintains all contracts relating to the
base paging service. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
American Newsletter Company, Inc.
American Newsletter Company, Inc., a Nevada corporation, was
incorporated August 28, 1997 as a wholly-owned subsidiary of WCFC. American
Newsletter Company designs, produces, and distributes newsletters for commercial
purposes. Current products include the Navigator, a bi-monthly, single-sheet,
marketing newsletter targeted to bookstores which promotes Lighthouse
publications. American Newsletter Company also publishes EXPLANATIONS, a
promotional newsletter for WCSI products and services. EXPLANATIONS provides
continuing education focusing on cash flow generation and wealth strategies
taught by WCSI. EXPLANATIONS is a sixteen page monthly newsletter which is
shipped to WCFC customers at a retail subscription rate of $144 per year.
NET SALES BY OPERATING SUBSIDIARIES
The following table sets forth the Company's net sales by subsidiary:
PROFORMA NET SALES BREAKDOWN BY SUBSIDIARY
FOR THE YEAR ENDING DECEMBER 31,
(unaudited)
(Amounts in 000's)
<TABLE>
<CAPTION>
1997 1996 1995
Subsidiary Sales % Sales % Sales %
- ---------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
WCSI $ 99,616 89.85% $ 39,256 85% $ 7,567 46%
Left Coast $ -- 0.00% $ -- 0% $ 0%
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Lighthouse $ 4,840 4.37% $ 1,469 3% $ 0%
Origin $ 1,510 1.36% $ 1 801 4% $ 1 0%
Gold Leaf $ 26 0.02% $ 1 462 3% $ 1,330 8%
Worldwide $ 555 0.50% $ 971 2% $ 7,209 44%
Ideal Travel $ 4,321 3.90% $ 1,023 2% $ 182 1%
---------------------- --------------------- ---------------------
$110,868 100.00% $45, 982 100% $ 16,289 100%
---------------------- --------------------- ---------------------
---------------------- --------------------- ---------------------
</TABLE>
CORPORATE CONTROL BY WADE B. COOK
Wade B. Cook is the founder, majority shareholder, Chairman of the
Board of Directors, President, Treasurer, acting Chief Financial Officer and
CEO of the Company. Mr. Cook's wife is the Secretary of the Company and is a
member of the Board of Directors. Several of Mr. Cook's siblings and
relatives are in management positions at the Company. Mr. Cook maintains
control of nearly every aspect of the Company including, but not limited to,
setting corporate policy, determining strategic direction and determining
each acquisition of a company or assets made by the Company and the material
terms of such acquisition. Mr. Cook selects and approves every product and
seminar sponsored by the Company. Mr. Cook directs most marketing efforts of
the Company. Mr. Cook dominates the management of the Company.
CONTROL BY MANAGEMENT
As of March 13, 1998, senior management of the Company collectively
owns approximately 59% of the outstanding shares of Common Stock. Mr. Cook and
entities affiliated with Mr. Cook own approximately 56% of the outstanding
shares of Common Stock. Consequently, the senior management, and Mr. Cook in
particular, will continue to have a significant influence over the policies and
procedures of the Company and will be in a position to determine the outcome of
corporate actions requiring stockholder approval, including the election of
directors, the adoption of amendments to the Company's corporate documents and
the approval of mergers and sales of the Company's assets. See "Security
Ownership of Certain Beneficial Owners and Management."
BUSINESS STRATEGY
WCFC's business strategy is to generate revenue and earnings growth
through further market penetration of domestic markets for sales of the
Company's existing products, and the introduction of new product lines that
complement and supplement existing product lines which can be sold through
the same channels of distribution.
To accomplish its strategic objectives, WCFC has: (i) acquired
companies; (ii) increased advertising expenditures; (iii) further expanded into
smaller markets; (iv) developed and introduced new and ancillary product
categories; (v) continued to acquire licenses from Mr. Cook and to seek out new
licenses from new authors; (vi) and entered into relationships with others to
develop and market new products.
Substantially all of the Company's programs, products and services are
based on the financial and investment strategies of Mr. Cook. The Company has
the non-exclusive right to promote, produce and sell these programs, products
and services pursuant to the terms of a Product Agreement with Mr. Cook dated
March 20, 1998. Mr. Cook has based his programs and products on his belief that
people need to: (a) increase their wealth by increasing their cash flow; (b)
learn how to minimize their federal and state income taxes; (c) use entities,
such as Nevada corporations, family limited partnerships, living trusts,
qualified pensions and business trusts, to protect their assets; (d) be able to
retire with sufficient income from their assets to maintain a good standard of
living; and (e) be able to pass on their wealth and assets to their loved ones
without the problems of probate.
13
<PAGE>
COMPETITION
The Company does not generally conduct market research on
competitive companies or competitive products and does not therefore have
meaningful statistical data on competitors or competitive products.
The Company believes that the highly competitive market in which the
Company operates is fragmented and decentralized, with low barriers to entry.
The Company's competitors include other companies and individuals who promote
and conduct seminars and provide products on topics relating to investments,
financial planning and personal wealth management. Some of these competitors
offer courses and products similar to the Company at lower prices. In
addition, many of the Company's competitors sponsor and conduct seminars free
of charge as a marketing tool for other business. These competitors include
stockbrokers, franchisers of business opportunities and portfolio and tax
consultants.
LICENSING FROM WADE B. COOK
On March 20, 1998, the Company entered into a new Open Ended Product
Agreement with Wade B. Cook to be effective July 1, 1997 and expiring June
30, 2000. This agreement amended the previous Product Agreement dated June
25, 1997. Pursuant to this Open Ended Product Agreement, the Company has a
non-exclusive license with Mr. Cook which permits the Company to produce,
market and sell licensed original products and intellectual property in
exchange for a royalty of ten percent of the gross sales of the licensed
products. Royalties are paid to Mr. Cook on a quarterly basis under the terms
of the agreement, however, Mr. Cook is CEO of the Company and is authorized
to set Company policy which allows him to take draws against royalties in
amounts which he determines to be reasonable. In such cases, the royalties
owing under the license are then reconciled quarterly with the draws Mr. Cook
has taken. The license also grants the Company the right to use Mr. Cook's
name, likeness, identity, trademarks, and trade symbols. The Agreement is
open-ended in that it allows for future products developed by Mr. Cook to be
licensed under the same terms and conditions upon the execution of a form
"License Order". The Company does not have a contract which gives it the
first right to license or otherwise obtain the right to produce, market or
sell any future products developed by Mr. Cook. See "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS."
14
<PAGE>
RETURNS AND REFUNDS POLICY
Due to the nature of the intellectual property contained in the
majority of the Company's products and the ease with which the materials could
be copied, the Company has an "all sales are final" policy except as otherwise
required by state and federal law. The Company does give refunds on a case by
case basis as determined by the Refund Manager and/or the General Counsel.
During 1997, the average return refund rate was under 2% of sales.
INTELLECTUAL PROPERTY
The Company regards its seminars, products and other materials as
proprietary and relies primarily on a combination of statutory and common laws
regarding copyrights, trademarks and trade secrets to protect such rights.
Additionally, employee and third-party nondisclosure agreements and other
methods to protect said propriety rights are relied on by the Company.
The Company is currently attempting to identify and protect the
intellectual property of the Company. In general, Wade B. Cook selects the
trademarks for all products and the names of all corporate subsidiaries and
promotions based on his personal preferences. Mr. Cook has, in the past,
generally selected names which have common appeal and which contain descriptive
terms and/or descriptive acronyms such as "Business Entity Skills Workshop" or
"B.E.S.T." The Company has chosen not to register most existing trademarks
currently used by the Company.
15
<PAGE>
EMPLOYEES
As of December 31, 1997, the Company had 532 full-time employees,
including 422 full-time employees, 110 part-time employees and approximately
70 independent contractors. As of March 13, 1998, WCFC had approximately 519
employees of which 114 are part-time. The Company's employees are not covered
by collective bargaining agreements. The Company believes its relationship
with its employees is good.
SEASONALITY
The Company's business is not seasonal.
ITEM 2. - PROPERTIES
Commercial Property
The Company's headquarters is a three-story 63,000 square feet building
owned by it and located at 14675 Interurban Avenue South, Seattle, Washington
98168. The majority of the Company's operations, such as corporate offices,
in-house sales staff, in-house seminar staff, art department, accounting
department and legal department are based at this location. In addition, the
headquarters has 3 seminar rooms which the Company uses to hold some of its
seminars.
The Company leases space at 4479 South 134th Place, Seattle, Washington
98168, for its shipping and warehouse operations. The shipping warehouse is
approximately 10,000 square feet. The majority of the Company's shipping is
conducted at this location.
Worldwide leases 2,400 square feet of office space located at 6208
Stratler in Salt Lake City, Utah. Worldwide conducts the majority of its
operations out of this facility.
Origin leases 7,200 square feet of office space located at 6208
Stratler in Salt Lake City, Utah. Origin conducts the majority of its
business out of this facility.
16
<PAGE>
ITEM 3. - LEGAL PROCEEDINGS
Investigation by the Securities and Exchange Commission
17
<PAGE>
The Company is subject to a private investigation by the Securities and
Exchange Commission ("SEC") in the Matter of Wade Cook Seminars, Inc. The SEC is
investigating the possible violation of Sections 5(a), 5(c) and 17(a) of the
Securities Act, Section 1(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
stated 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 does not believe it or its executive
officers and directors have violated applicable laws, and the Company intends to
continue to cooperate with the investigation. The Company does not believe it
or its executive officer and directors have violated applicable laws.
Investigation by the State of Washington
The Assistant Attorney General for the State of Washington's Department
of Financial Institutions, Securities Division commenced an investigation of Mr.
Cook, WCSI, and the Company in September, 1996. Since that time, the State of
Washington's Department of Financial Institutions, Securities Division has
issued subpoenas to Mr. Cook, WCSI, the Company, the General Counsel, and the
former General Counsel requesting information related to the investigation. The
Company has not been informed as to basis for the State of Washington's
investigation. The Company does not believe it or its executive officer and
directors have violated applicable laws.
Wade Cook Seminars, Inc. v. Charles Mellon, Anthony Robbins, Options Management,
Inc. and Robbins Research International, Inc.
On October 4, 1996, WCSI and Mr. Cook filed a complaint in King County
Superior Court, State of Washington against Robbins Research International, Inc,
Anthony Robbins, Charles Mellon, and Options Management, 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, WCSI and Mr. Cook's unfair competition and
misappropriation of trade secrets claims were dismissed in a hearing on a Motion
for Summary Judgment brought by the Defendant. The Company and Mr. Cook are
appealing the decision to the Ninth Circuit Court of Appeals. WCSI and Mr. Cook
filed for a voluntary dismissal on the non-compete issues and were granted a
dismissal without prejudice.
Wade B. Cook v. Anthony Robbins, Robbins Research International, Inc. and
Charles Mellon
On June 18, 1997, Mr. Cook filed a copyright infringement suit in the
United States District Court, Western District of Washington, against Anthony
Robbins and Robbins Research International, Inc. seeking damages and injunctive
relief. Charles Mellon, a former speaker for Wade Cook Seminars, Inc., was added
as a defendant on August 5, 1997. Mr. Cook alleges Anthony Robbins copied or
caused to be copied significant portions of his best selling book, Wall Street
Money Machine. Mr. Cook authored and copyrighted the book which he claims
defendants used in creating their new seminar entitled "Financial Power". A
trial is scheduled for September 28, 1998.
Litigation with ART and ITEX
On February 4, 1998, WCFC filed a complaint against Associated
Reciprocal Traders, Ltd. ("ART") and its parent corporation, ITEX, in the
King County Superior Court, State of Washington in Seattle, Washington. On
the same day, Associated Reciprocal Traders, Ltd. filed a complaint against
WCFC in the King County Superior Court, State of Washington in Kent,
Washington. Both complaints have been consolidated and are related to a
dispute over the ownership of 1,800,000 shares of common stock that
originally was issued as 100,000 shares of common stock of WCFC on September
10, 1996 in exchange for $500,000 worth of media credits for radio spots to
Associated Reciprocal Traders, Ltd. pursuant to an agreement dated December
29, 1995.
18
<PAGE>
County of Fresno Investigation
On March 5, 1998, the Company received a letter from the County of
Fresno, California, Office of District Attorney Business Affairs Unit
("BAU"), informing the Company that the BAU believed that the seminar sales
contracts used in California by the Company were not in compliance with
sections 1678.20 through 1693 of the California Civil Code which provide for
a three-day right of cancellation on seminar sales solicitation contracts.
According to the BAU, potential penalties for such actions could include
restitution and civil penalties up to $2,500 for each violation. The BAU has
afforded the Company the opportunity to negotiate a settlement with the BAU
prior to any legal action being taken against the Company and a meeting has
been scheduled in April for such purposes. As a precautionary measure, the
Company has begun to offer the 3-day right of cancellation language in its
California seminar sales contracts until the Company has had an opportunity
to more fully review the legal requirements and make a determination whether
it has violated the cited provisions of the California Civil Code.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1997 Annual Meeting of Shareholders of the Company ( the "Annual
Meeting") was held at the Company's headquarters on December 10, 1997. At the
meeting the shareholders of the Company approved the following: (i) the election
of management's slate of directors for the forthcoming year (ii) the
ratification of the Company's name change from Profit Financial Corporation to
Wade Cook Financial Corporation (iii) the authorization of reincorporating the
Company in the State of Nevada (iv) the adoption of the 1997 Stock Incentive
Plan, and (v) the authorization of an increase in the total number of
authorized Common Stock of the Company to 140,000,000 shares from 60,000,000
shares.
The directors nominated by management and elected by the shareholders
were: Wade B. Cook, John Childers, Sr., Nicholas Dettman, Eric Marler, Robert
Hondel, Cheryle Hamilton, Pamela Andersen and Robin Anderson. Dr. Warren Chaney
was not nominated to stand for election as a director notwithstanding the fact
that his name was included in the Proxy Statement delivered to shareholders
prior to the meeting.
Voting Results
The total number of outstanding shares representing the total possible
number of votes that could be cast at the Annual Meeting was 6,715,032. The
actual number of votes cast by proxy or in person excluding abstentions and
broker non-votes was 4,118,659.
The following table sets forth the actual numbers of votes cast for,
against and those abstaining on each of the items voted on:
<TABLE>
<CAPTION>
ITEM FOR AGAINST ABSTAIN
- ---- --- ------- -------
<S> <C> <C> <C>
#1. Election of Directors 4,118,411 248 N/A
#2. Name Change 4,118,439 180 40
#3. Reincorporation 4,118,431 188 40
#4. Stock Incentive Plan 4,118,047 408 204
#5. Share Increase 4,117,809 284 566
</TABLE>
19
<PAGE>
PART II
ITEM 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has been traded in the OTC BB Market under
the symbol "WADE" since August 11, 1997. Prior to that time, the Company's
Common Stock was quoted under the stock symbol "PFNL" in the over-the-counter
market.
The following table sets forth the approximate high and low bid
quotations for the Company's Common Stock for the calendar periods indicated.
The quotations reflect inter-dealer prices which may include retail markups,
markdowns or commissions and may not reflect actual transactions.
<TABLE>
<CAPTION>
HIGH BID LOW BID
--------- -------
1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Quarter Ended March 31 4.25 2.00
Quarter ended June 30 5.94 2.63
Quarter ended September 30 13.88 4.88
Quarter ended December 31 15.44 7.63
1996
- --------------------------------------------------------------------------------
Quarter Ended March 31 2.12 2.00
Quarter Ended June 30 2.62 2.25
Quarter Ended September 30 3.75 3.50
Quarter Ended December 31 3.12 2.62
1995
- --------------------------------------------------------------------------------
Quarter Ended March 31 1.75 1.50
Quarter Ended June 30 2.37 2.12
Quarter Ended September 30 2.50 2.25
Quarter Ended December 31 2.00 1.87
1994
- --------------------------------------------------------------------------------
Quarter Ended March 31 1.87 1.62
Quarter Ended June 30 1.75 1.50
Quarter Ended September 30 1.75 1.50
Quarter Ended December 31 1.75 1.50
</TABLE>
(1) Prices reported reflect a 3 for 1 stock split effective September 15,
1997, a 3 for 1 stock split effective December 23, 1997, and a 2 for 1
stock split effective September 9, 1996.
20
<PAGE>
On March 13, 1998, there were approximately 1,373 shareholders of
record of the Company's Common Stock and approximately 9,333 beneficial holders.
On March 13, 1998, the closing bid price of the Company's Common Stock on the
OTC BB Market was $3.03 per share.
In February 1998, the Company changed stock transfer agents to
American Stock Transfer and Trust Company, New York, New York.
The Company has never paid any cash dividends on its Common Stock and
does not anticipate that it will pay dividends in the foreseeable future.
Instead, the Company intends to retain earnings to expand and develop its
business.
RECENT SALES OF UNREGISTERED SECURITIES
On August 13, 1997, the Company issued 13,491,438 shares of its
restricted Common stock for a three for one stock split to all shareholders
of record as of September 1, 1997, with an effective date of September 15,
1997.
On August 13, 1997, the Company authorized the issuance of 358,333
post split restrited shares of Common Stock for the acquisition of Ideal
Travel Concepts Inc., under a Stock Purchase Agreement dated August 1, 1997.
On September 12, 1997, the Company issued 500 post split shares of
its restricted Class A Common Stock at $5 per share (pre splits) to Kathleen
Mikos for payment in full of subscription notes receivables.
On September 12, 1997, the Company issued 20,000 shares of its
restricted Class A Common Stock at $1.00 per share ($3 per share pre split)
to Baker Street Investments, L.P. under the stock options available to Board
members.
On October 13, 1997, the Company issued 5,000 shares of its
restricted Class A Common Stock at $5.00 per share to Paul Christensen for a
finder's fee in the purchase of the Fairfield Inn in Provo, Utah.
On October 13, 1997, the Company issued 5,000 shares of its
restricted Class A Common Stock at $5.00 per share to Rex Griffiths for the
acquisition of the Hampton Inn & Suites in Park City, Utah.
On November 17, 1997, the Company issued 11,538 post split shares
of its restricted Class A Common Stock to Stan Zenk in exchange for 12,500
shares of Common Stock in Gold Leaf Press, Inc. for the acquisition of Gold
Leaf Press, Inc.
On November 17, 1997, the Company issued 11,538 post split shares
of its restricted Class A Common to Curtis Taylor in exchange for 12,500
shares of Common Stock in Gold Leaf Press, Inc. for the acquisition of Gold
Leaf Press, Inc.
On December 10, 1997, the Company issued______________shares of its
restricted Class A Common Stock for a three for one stock split to all
shareholders of record as of December 19, 1997, with an effective date of
December 23, 1997.
On December 19, 1997, the Company issued 3,637 shares of its
restricted Class A Common Stock at $10.50 per share to Rex Griffiths for the
purchase of a seven percent interest in Woods Cross Hotel Partners, L.C.
On December 19, 1997, the Company issued 6,545 shares of its
restricted Class A Common Stock at $10.50 per share to Paul Christensen for
the purchase of a seven percent interest in Woods Cross Hotel Partners, L.C.
On February 24, 1998, the Company issued a total of 13,650 shares
of restricted common stock for the issuance of 25 shares of Common stock to
all employees of record on December 22, 1997 as a year-end holiday bonus and
the issuance of 50 shares of its Common stock to all management personnel of
record on December 22, 1997.
On August 15, 1997, the Company issued 30,269 shares of its
restricted Common Stock to the following individuals in exchange for all of
the issued and authorized shares in Origin Book Salesman: Stan Zenk, Curtis
Taylor, Michael Hurst, Clarence Taylor, Delvin Jenks, Lonnie Hester, Stuart
Taylor, Mark Mendenhall, Susan Coon, Diane Mower, and Isaac Taylor.
On August 12, 1997, the Company issued 20,000 shares of restricted
common stock (10,000 pre split) at $3.00 per share to John Childers, Sr.
under the stock options available to employees and directors.
On December 10, 1997, the Company issued _____________shares of its
restricted Class A Common Stock for a three for one stock split to all
shareholders of record as of December 19, 1997, with an effective date of
December 23, 1997.
On August 12, 1997, the Company issued 20,000 shares of restricted
Common stock (10,000 pre split at $3.00 per share) to John Childers, Sr.
pursuant to September 20, 1995 resolution under the stock option available to
Board members.
ITEM 6. - SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's consolidated financial statements and the related
notes and with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE COMPANY" included elsewhere in this Form 10-K. The
selected consolidated balance sheet data presented below as of December 31, 1996
and 1997 and of the consolidated statement of operations data presented below
for the years ended December 31, 1995, 1996 and 1997 are derived from the
consolidated financial statements of the Company included elsewhere in this Form
10-K, which financial statements have been audited by Miller and Company,
independent certified public accountants. The selected consolidated balance
sheet data presented below as of December 31, 1995 and 1994 and the consolidated
21
<PAGE>
statement of operations data for the year ended 1994 are derived from financial
statements of the Company not included in this Form 10-K which have been audited
by Miller and Company, independent certified public accountants. The selected
consolidated balance sheet data and selected consolidated statement of operation
data presented below as of December 31, 1993 and for the year ended December 31,
1993 are derived from financial statements of the Company audited by other
auditors not included in this Form 10-K.
SELECTED CONSOLIDATED FINANCIAL DATA
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales $ 728 $ 1,973 $ 6,504 $ 40,725 $ 104,908
Cost of sales $ 147 $ 862 $ 2,877 $ 15,683 $ 39,068
------- --------- --------- ---------- ----------
Gross proft $ 581 $ 1,111 $ 3,627 $ 25,042 $ 65,840
Operating expenses $ 116 $ 1,134 $ 3,333 $ 20,302 $ 50,099
------- --------- --------- ---------- ----------
Income (loss) from
operations $ 465 $ (23) $ 294 $ 4,470 $ 15,741
Other expenses $ 114 $ 181 $ 55 $ 74 $ 706
------- --------- --------- ---------- ----------
Income (loss) from
continuing operations $ 351 $ (204) $ 239 $ 4,666 $ 15,035
------- --------- --------- ---------- ----------
PRO FORMA INCOME FROM CONTINUING OPERATIONS DATA (1,2):
Income (loss) before
income taxes,
minority interest and
acquired operations
as reported $ 351 $ (204) $ 239 $ 4,666 $ 15,035
Pro Forma provision
(benefit) for income
taxes $ -- $ (8) $ 171 $ 1,061 $ 6,063
----------
Minority interest in
loss of subsidiary $ $ $ $ $ 21
- - - - ----------
Pro forma net income
(loss) $ 351 $ (196) $ 68 $ 3,065 $ 8,993
------- --------- --------- ---------- ----------
------- --------- --------- ---------- ----------
PER SHARE DATA:
Pro forma (loss income
from continuing operations
per share $ 0.04 (.008) .002 0.12 0.14
------- --------- --------- ---------- ----------
------- --------- --------- ---------- ----------
Weighted average shares
outstanding 24,857,705 25,593,688 25,593,688 26,574,666 63,362,984
</TABLE>
22
<PAGE>
<TABLE>
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Total assets $ 2,787 $ 206 $ 2,283 $ 16,938 $ 41,404
Total debt, including $ 688 $ 134 $ 1,458 $ 12,618 $ 24,649
current portion
------- --------- ---------- ---------- -----------
Stockholders' equity $ 2,099 $ 72 $ 825 $ 4,320 $ 16,755
</TABLE>
(1) In the fourth quarter of 1997, the Board of Directors changed the fiscal
year of WCSI from a fiscal year ending January 31 to a calendar fiscal
year. The effect of the change was to exclude January 1998 from the
consolidated financial statements of the Company and shorten the 1997
results of WCSI to an eleven month period.
(2)
(3) Assumes as outstanding, 3,224,997 shares of Common Stock for 1997 issued
by WCFC in the August 1997 Acquisition of Ideal, See Consolidated Statements
of Changes in Shareholders' Equity.
ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion is intended to provide information to
facilitate the understanding and assessment of significant changes and trends
related to the financial condition of the Company and the results of its
operations. This discussion and analysis should be read in conjunction with the
Company's audited consolidated financial statements and the notes thereto
included elsewhere in this Form 10-K.
Overview and Outlook
WCFC is a holding company that, through its operating subsidiary WCSI,
conducts educational investment seminars and produces and sells audio tapes,
videotapes, books and other written materials focused on investment strategies,
financial planning and personal wealth management. The Company also invests in
marketable securities, real estate, gold, oil and gas venture capital limited
partnerships and private companies. WCSI hosts 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, Origin, Gold Leaf and Ideal Travel.
The following tables set forth the net sales, total cost of sales and
gross profit of each of the operating subsidiaries of WCFC for the years ended
December 31, 1995, 1996 and 1997.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
WADE COOK FINANCIAL CORPORATION SUBSIDIARIES
YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995
- ------------------------------------------------------------------------------------------------------------------------------------
Gold Ideal
WCSI Lighthouse Origin Leaf Worldwide Travel Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET SALES $ 6,504 $ -- $ -- $-- $-- $ -- $ 6,504
- ------------------------------------------------------------------------------------------------------------------------------------
COST OF GOODS SOLD 2,122 2,122
- ------------------------------------------------------------------------------------------------------------------------------------
LICENSE AND ROYALTY EXPENSE 755 0 755
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COST OF SALES 2,877 0 0 0 0 0 2,877
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 3,627 -- -- -- -- -- 3,627
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
1996
- ------------------------------------------------------------------------------------------------------------------------------------
Gold Ideal
WCSI Lighthouse Origin Leaf Worldwide Travel Total
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
NET SALES $39,256 $1,469 $ 1,496 $26 $ 48 $3,620 $104,907
- ------------------------------------------------------------------------------------------------------------------------------------
COST OF GOODS SOLD 3,972 349 1,016 -- 17 2,964 28,892
- ------------------------------------------------------------------------------------------------------------------------------------
LICENSE AND ROYALTY EXPENSE 10,950 367 -- 13 39 -- 10,176
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COST OF SALES 14,922 761 1,016 13 56 2,964 39,068
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 24,334 708 480 13 (8) 656 65,839
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
1997
- ------------------------------------------------------------------------------------------------------------------------------------
Gold Ideal
WCSI Lighthouse Origin* Leaf* Worldwide* Travel** Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
NET SALES $94,984 $4,733 $ , $-- $-- $ -- $ 40,725
- ------------------------------------------------------------------------------------------------------------------------------------
COST OF GOODS SOLD 23,319 1,576 4,366
- ------------------------------------------------------------------------------------------------------------------------------------
LICENSE AND ROYALTY EXPENSE 8,994 1,130 11,317
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL COST OF SALES 32,313 2,706 0 0 0 0 15,683
- ------------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 62,671 2,027 -- -- -- -- 25,042
------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- -------
</TABLE>
* - Acquired effective August 27, 1997
** - Acquired effective August 1, 1997
24
<PAGE>
Intercompany transactions have been eliminated.
Results of Operations
Revenues for the year ended December 31, 1997 were $104.9 million
as compared to revenues of $40.7 million for the year ended December 31,
1996. These results include the results of WCSI for only eleven months due to
a change in WCSI's fiscal year end from January 31 to December 31. Revenues
grew significantly due to several factors including a substantial increase in
advertising, the fact that several books authored by Wade Cook appeared on
the New York Times' Business Best Seller List, resulting in greater
recognition for Wade Cook in the investment educational market. Seminar sales
grew from $25 million in 1996 to more than $56 million in 1997, an increase
of over 120%. Book sales went from $9 million in 1996 to more than $33
million in 1997, a increase of over 267%. WIN subscribers have increased. The
increase in overall revenues may also be attributed to the acquisition of
related businesses in 1997.
Costs of revenues increased from $15.7 million to $39 million, an
increase of over 149%. However, the costs of revenues as a percentage of net
revenues have decreased from 38.4% in 1996 compared to 37.2% in 1997. The
Company believes it is taking advantage of the economies of scale in the
distribution, travel, and publishing areas. The increase in costs was
primarily attributed to revenue growth.
Selling, general and administrative expenses increased by almost $30
million to $50.1 million in 1997 as compared to $20 million in 1996. The
increase was attributable to increases in labor and related costs ($7 million
in 1996, comapred to $16 million in 1997), advertising ($6 million in 1996
compared to almost $14 million in 1997), and postage and freight ($2.2
million in 1996 compared to $4.2 million in 1997).
For the year ended December 31, 1997, the Company's net other
income/expense was $706 thousand as compared to $74 thousand in 1996. The
increase in expense was due to the costs associated with the purchase of the
Company's headquarters building coupled with a net investment loss of over
$800 thousand. The net investment loss can be attributed to the losses
incurred in the brokerage accounts used by seminar instructors to make
demonstration trades as well as a downturn in the stock and securities
markets at the end of 1997.
The provision for income taxes of $6 million and $1.6 million for
the years ended 1997 and 1996, respectively, reflect taxes payable in respect
of profitable operations.
The Company anticipates that existing cash, together with internally
generated funds aided by continuing increase in revenues, will provide the
Company with the resources that are needed to satisfy the Company's working
capital requirements in 1998.
25
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company's cash and cash equivalents and
marketable securities totaled $6.7 million dollars. The Company's negative
working capital was approximately $11,000,000 in 1997. The Company's negative
working capital grew from $763,000 in 1995 to $3.9 million in 1996.
The Company expects, therefor, that the negative working capital of
the Company will increase in 1998. The primary reason for the increase in
negative working capital is the Company's practice of funding long term
investments with working capital as opposed to using other forms of financing
including the issuance of equity and debt.
26
<PAGE>
EFFECTS OF INFLATION
The Company's management believes that inflation will not have a significant
effect on the Company's results of operations.
SEASONALITY
The Company's business is not seasonal.
ITEM 8. - FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
The Financial Statements of the Company and financial statement schedule filed
as part of this report on Form 10-K are listed in Item 14(a).
ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's Board of Directors is divided into three classes of
directors, with the directors in each class elected for three-year staggered
terms. Class I consists of three (3) directors whose term expires at the annual
shareholders meeting in 2000. Class II consists of three (3) directors whose
term expires at the annual shareholders meeting in 1999. Class III consists of
four (4) directors whose term expires at the annual shareholders meeting in
1998. Officers serve on the Board of Directors, subject to restrictions set
forth in their employment agreements, if any. See "EXECUTIVE
COMPENSATION--Employment Agreements."
The following table sets forth information with respect to each
director and executive officer of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION CLASS DIRECTOR SINCE
- ---- ---- -------- ----- --------------
<S> <C> <C> <C> <C>
Wade B. Cook 47 Chairman of the Board* I June, 1995
Laura M. Cook 45 Secretary and Director* I June, 1995
Cheryle Hamilton 46 Director* III June, 1997
Robert T. Hondel 54 Director* III June, 1997
Warren H. Chaney 54 Director (1) August, 1996
John V. Childers 52 Director I Sept., 1995
Nicholas Dettman 49 Director II Sept., 1995
Eric W. Marler 40 Director (3) II December, 1996
Pamela Andersen 46 Director* (2) III August, 1997
Robin Anderson 34 Director* III June, 1997
Christopher M. Carde Director, General Counsel and Interim CEO(4)
Andrew T. Rice Comptroller, Treasurer and Chief Financial Officer(5)
Caesar Regosa Comptroller and Director(6)
</TABLE>
- -----------------
* Indicates members who are presently executive officers or employees of
the Company.
27
<PAGE>
(1) Did not stand for re-election at the 1997 Annual Shareholders' Meeting.
Certain biographical information regarding Mr. Chaney has been omitted
below.
(2) Resigned from the Board, effective March 17, 1998.
(3) Eric W. Marler served as the Chief Financial Officer of the Company from
December, 1996 to June, 1997 when he resigned in order to take advantage of
another business opportunity. He remains on the Board of Directors and
continues to work for a company, Cascade Management Associates, L.P. that
provides speaker services to the Company.
(4) Christopher M. Carde was terminated by the Company pursuant to a
confidential termination agreement dated August 21, 1997. Mr. Carde did
not receive any additional severance compensation and agreed to continue
to uphold his non-compete agreement. Certain biographical information
regarding Mr. Carde has been omitted below.
(5) Andrew T. Rice served as Comptroller from June to December 1997. During
that time Mr. Rice became Treasurer and CFO of the Company. Mr. Rice
resigned as CFO of the Company in December 1997 and left the Company just
prior to the year-end. Certain biographical information regarding Mr. Rice
has been omitted below.
WADE B. COOK is the Chairman of the Board, CEO, President and interim
Treasurer and Chief Financial Officer of the Company and has occupied at
least one of those positions since June of 1995. Mr. Cook also served as
Treasurer and President of WCSI since 1989. Mr. Cook is an author of numerous
books on finance, real estate, asset protection and the stock market, a trainer
and speaker on these topics, and the developer of educational products on
investing and personal wealth management. Mr. Cook is the husband of Laura M.
Cook.
The State of Arizona commenced an administrative proceeding against
Wade B. Cook and his former businesses American Business Alliance and Monarch
Funding Corporation in February, 1989. The State of Arizona issued an
administrative order, on or about May 1989, concluding that Mr. Cook and his
businesses had violated various securities laws, including anti-fraud
provisions, and as a result, ordered them to (1) pay over $390,000 in
restitution (2) jointly and severally pay a $150,000 administrative penalty, and
(3) to cease and desist the allegedly fraudulent conduct. This matter has
been concluded and all fines and penalties have been paid.
LAURA M. COOK is the Secretary and a member of the Board of Directors of the
Company. Mrs. Cook has also served as an officer and operational manager in
several subsidiaries of the Company. Mrs. Cook has managed accounting systems
for various corporations for 15 years.
CHERYLE HAMILTON is the Director of Lighthouse Publishing. From March, 1996 to
February, 1997, Ms. Hamilton served as Human Resources Director for the Company.
Prior to her involvement with the Company, Ms. Hamilton was Executive Assistant
of Sunsportswear, Inc., a clothing manufacturer located in Seattle, Washington.
She also provided intellectual property and marketing consulting on a contract
basis from 1991 to 1994.
ROBERT T. HONDEL is a Director of the Company and is the President and a
director of Quantum Marketing, Inc., a wholly-owned subsidiary, and was the
General Sales Manager of WCSI until December 1997. Mr. Hondel left retirement
to join the Company. Prior to joining the Company, Mr. Hondel spent 18 years
as the Director and President of the Knapp College of Business in Tacoma,
Washington. Mr. Hondel is the uncle of Robin Anderson.
JOHN V. CHILDERS is a Director of the Company. In addition to his duties as
Director, Mr. Childers acts as a speaker trainer of the Company. Mr. Childers is
the former President of Ideal Travel Concepts, Inc., a travel company with
locations in Tennessee and Florida which was recently acquired by the Company.
28
<PAGE>
NICHOLAS DETTMAN is a Director of the Company. He is a captain for Delta
Airlines, and has been with that company for over 30 years. He is the owner and
operator of Kalowai Plantation, an orchid ranch in Kauai, Hawaii.
ERIC W. MARLER is a Director of the Company and has been a speaker for the
Company since September, 1996. Mr. Marler also served as Chief Financial Officer
of the Company from December, 1996 to June, 1997. Mr. Marler is Vice President
of Cascade Management Associates, L.P., a firm that provides tax consulting.
Prior to his involvement with the Company, Mr. Marler practiced as a Certified
Public Accountant giving advice on income tax and profitability planning with
Martin/Grambush, P.C., an accounting firm located in Kirkland, Washington.
PAMELA S. ANDERSEN was a Director of the Company until March 1998. Ms. Andersen
joined WCSI in October, 1994, as a director of Left Coast Advertising, Inc., a
subsidiary of the Company. She currently serves as Manager of Real Estate
Investments for the Company. Prior to her association with the Company, Ms.
Andersen worked with Bromar, Inc., Harris/3M and NEC, and has experience in the
fields of sales and real estate.
ROBIN ANDERSON is a Director of the Company. Ms. Anderson is the Sales Manager
for the Company and has been with the Company since 1994. Ms. Anderson is the
niece of Robert T. Hondel.
COMPENSATION OF DIRECTORS
The Company pays each director a fee of $3,000, payable quarterly, in
advance. In addition, the Company reimburses non-employee directors for
reasonable travel and out-of-pocket expenses incurred in connection with their
activities on behalf of the Company. Directors of the Company are eligible for
participation in the Wade Cook Financial Corporation 1997 Stock Incentive Plan.
See "The 1997 Stock Incentive Plan". The 1997 Stock Incentive Plan is
administered by the Board of Directors.
The 1997 Stock Incentive Plan
The Company's 1997 Stock Incentive Plan ("Plan") provides for the
granting of Stock Options ("Options"), including Incentive Stock Options
("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), and Non-Qualified Stock Options ("NQSOs"). In addition,
Stock Appreciation Rights ("SARs") may be granted under the Plan, either
accompanying an Option grant (a "Tandem SAR") or independent of an Option grant
(a "Stand-Alone SAR"). The Plan also provides for the granting of shares of
Restricted Stock, shares of Phantom Stock, stock bonuses and other stock-based
awards.
The Plan is administered by the Board. The Board has the right to grant
awards to eligible recipients and to determine the terms and conditions of Award
Agreements ("Agreements"), including, but not limited to, the vesting schedule
and exercise price of such awards, and to make all other determinations deemed
necessary or advisable for the administration of the Plan. The persons who will
be eligible to receive awards pursuant to the Plan will be such directors,
officers, consultants and other employees of the Company as the Board selects
("Participants").
29
<PAGE>
The maximum number of shares of Company stock reserved for issuance
under the Plan is 1,000,000 shares (subject to adjustment as provided in this
Form 10-K). Such shares may be authorized but unissued Company stock or
authorized and issued Company stock held in the Company's treasury. The Board
has the authority to make any and all equitable changes or adjustments it
deems necessary or appropriate in the event 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 transaction 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.
The Board will determine the expiration date of each Option,
provided however, that no ISO will be exercisable more than 10 years after
the date of grant. The exercisability of Options may be based on a
predetermined vesting schedule or may be subject to the attainment by the
Company of performance goals pre-established by the Board. The option
exercise price per share will be determined by the Board; provided, however,
that in the case of an ISO, the option exercise price will in no event be
less than the fair market value of a share of Company stock on the date the
ISO is granted. The Plan provides that the Board will have the authority to
specify, at the time of grant, or with respect to NQSOs, at or after the time
of grant, that a Participant shall be granted a new NQSO (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, subject to the
availability of shares of Company stock under the Plan at the time of such
exercise.
The Board may grant Common Stock as a bonus. Other forms of 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 awards under the
Plan. The Board will determine the persons to whom and the time or times at
which such awards will be granted. The number of shares of Company stock to
be granted pursuant to such awards and all other conditions of such awards.
The Board may suspend, terminate or amend the Plan at any time,
provided however, that stockholder approval will 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 as promulgated under the SEC.
BOARD MEETINGS AND COMMITTEES
During 1997, the Board of Directors held 10 meetings, and as of March
13, 1998, has met two times. Each current member attended at least 100% of the
meetings of the Board of Directors for which they were eligible to attend.
Board Committees
The Executive Committee has the authority to approve the acquisition,
financing and disposition of investments for the Company and execute certain
contracts and agreements, including those related to borrowing money by the
Company, and generally will exercise all other powers of the Board of directors
except for those which require action by the Board of Directors under the
Articles of Incorporation, By-laws or applicable law. The members of the
Executive Committee are Wade B. Cook and Laura M. Cook.
The Audit Committee consists of directors who are not employees and who
are, in the opinion of the Board of Directors, free from any relationship that
would interfere with their exercise of independent judgment as Audit Committee
members. The Audit Committee has been established to make recommendations
concerning the engagement of independent public accountants, review with the
independent public accountants the plans and results of the audit engagement,
approve professional services provided by the independent accountants, review
the independence of the independent public accountants, consider the range of
audit and non-audit fees and review the adequacy of the Company's
30
<PAGE>
internal accounting controls. The members of the Audit Committee are Eric W.
Marler and Nicholas Dettman. The Audit Committee held three meetings in 1997
and, as of March 13, 1998, has held one meeting in 1998.
The Compensation Committee consists of directors who may be
employees and non-employees of the Company and has been established to review
the Company's general compensation strategy, establish the salaries of, and
review the benefit programs for, the Chairman and Chief Executive Officer and
set the salaries of, and review the benefit programs for, those persons who
report directly to the Chief Executive Officer, and to approve certain
employment contracts. The members of the Compensation Committee are John V.
Childers, Cheryle Hamilton, and Robert T. Hondel. The Compensation Committee
held no meetings in 1997 and, as of March 13, 1998 has held two meetings.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities to file
reports of ownership and changes in ownership on Forms 3,4 and 5 with the
Securities and Exchange Commission. Based solely on the Company's review of the
copies of such forms it has received and written representations from certain
reporting persons that they were not required to file Form 5 for fiscal year
1997, the Company believes that all its officers, directors and greater than ten
percent (10%) beneficial owners complied with all filing requirements applicable
to them with respect to transactions during 1997.
ITEM 11. - EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth certain compensation information for
each of the last three fiscal years for the Chief Executive Officer and each of
the next four most highly compensated executive officers whose compensation
exceeded $100,000 and two additional persons for whom disclosure would have been
required had such persons been executive officers of the Company.
<TABLE>
<CAPTION>
NAME AND POSITION YEAR SALARY OTHER BENEFITS OTHER COMPENSATION
- ----------------- ----- ------- -------------- ------------------
<S> <C> <C> <C> <C>
Wade B. Cook 1997 $238,240(1) $7,500 $9,996,840(2)
Chairman, President 1996 $ 90,628 -- $4,366,183(3)
and CEO 1995 $755,550 -- $ 82,923
Robert T. Hondel 1997 $112,231 -- $ 81,403
General Sales 1996 $179,532 -- --
Manager 1995 $ 62,500 -- --
Kim Brydson, 1997 $182,185 -- --
Director of Marketing 1996 $ 63,120 -- $ 17,923
1995 -- -- $ 2,550
Cheryle Hamilton 1997 $120,446 -- --
Director of Lighthouse 1996 $ 34,781 -- --
Publishing 1995 -- -- --
Scott Curry 1997 $124,645 -- --
Sales Representative 1996 $ 21,527 -- --
1995 -- -- --
</TABLE>
31
<PAGE>
Certain of the Company's executive officers received personal benefits
in addition to salary and cash bonuses, including car allowances or the use of a
car owned by the Company. The aggregate amount of such personal benefits
however, does not exceed the lesser of $50,000 or 10% of the total of the annual
salary and bonus reported for the named executive officers.
- ------------------------
(1) Represents payment of the annual premium for a Life Insurance Policy on
Wade B. Cook with Laura M. Cook as beneficiary.
(2) Represents amounts paid by WCSI to Mr. Cook or his affiliates pursuant
to a Product Agreement. See "Certain Relationships and Related
Transactions."
(3)
EMPLOYMENT AND TERMINATION AGREEMENTS
Pursuant to an Employment Agreement, dated as of June 25, 1997 and
effective as of July 1, 1997, Mr. Cook is employed as Chief Executive Officer
and President of the Company. The Employment Agreement provides for a
three-year term in which Mr. Cook will receive an annual base salary of
$240,000 in Year 1, $265,000 in Year 2 and $290,000 in Year 3. According to
the Employment Agreement, Mr. Cook may receive additional bonuses for work as
approved by the Board of Directors of the Company. To date, no such bonuses
have been requested or approved. In addition, Mr. Cook is entitled to
reimbursement for reasonable travel and business entertainment expenses
authorized by the Company, as well as certain fringe benefits.
Christopher Carde was terminated by the Company pursuant to a
confidential termination agreement dated August 21, 1997. Mr. Carde did not
receive any additional severance compensation and agreed to continue to uphold
his non-compete agreement.
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information concerning grants of options during fiscal 1997 to
the Named Officers.
Option Grants in the Last Fiscal Year
Individual Grants(l)
<TABLE>
<CAPTION>
Securities % of Securities Potential Realizable Value at Assumed
Underlying Underlying Actual Rates of Stock Price Appreciation
Options Options Granted for Option Term (2)
Granted to Employees in Exercise Price Expiration ---------------------------------------
Name (#) (1) Fiscal Year ($/Share) Date(s) 5% ($) 10% ($)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
(1) Under the terms of the Stock Option and Stock Award Plan all options
to purchase the Company's Common Stock granted have ten-year terms.
The per share exercise price in each case is equal to or greater than
the closing price of the Company's Common Stock on the date of grant
as reported on the OTC BB. The purchase price of Common Stock acquired
by the exercise of options may
32
<PAGE>
be paid by the delivery of shares of Common Stock previously acquired
by the optionee. The Board has broad discretion and authority to amend
outstanding options and reprice such options, whether through an
exchange of options or amendments thereto.
(2) Potential realizable value is based on an assumption that the stock
price of the Common Stock appreciates at the annual rate shown
(compounded annually) from the date of grant until the end of the
option term. These numbers are calculated based on the requirements of
the Securities and Exchange Commission and do not reflect the
Company's estimate of future stock price performance.
The number of shares acquired upon exercise of options and the value realized
from any such exercise, during fiscal year 1997, and the number of shares
subject to exercisable and unexercisable options held and their values at
December 31, 1997 for each of the Named Officers are set forth in the following
table.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
Shown below is information with respect to the unexercised options to purchase
the Company's Common Stock granted in fiscal 1997 under the Company's 1997 Stock
Option Plan to the Named Officers. None of the Named Officers exercised any
stock options during fiscal 1997.
Aggregated Option Exercises in the Last Fiscal Year
and FY-End Option Values
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Shares FY-End (#) FY-End ($)
Acquired on Value Exercisable/ Exercisable/
Name Exercise(#)(1) Realized($)(1) Unexercisable Unexercisable (2)
<S> <C> <C> <C> <C>
Wade B. Cook, Chairman
Laura M. Cook, Secretary
</TABLE>
(1) No options were exercised during 1997.
(2) No options were in-the-money at the time of grant or at fiscal year
end. "In-the-money" means that the market price of the underlying
shares is higher than the price at which shares can be purchased by
exercise of an option.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has formed a Compensation Committee. No executive officer
of the Company has served as a member of the board of directors or compensation
committee of any company in which another Board member is an executive officer.
33
<PAGE>
COMPENSATION REPORT OF THE BOARD OF DIRECTORS
The Board of Directors is responsible for establishing compensation
policy and administering the compensation programs of the Company's executive
officers. See "Directors and Executive Officers of the Registrant--Board
Meetings and Committees." The purpose of this report is to inform
shareholders of the Company's compensation policies for executive officers
and rationale for the compensation paid to executive officers in fiscal year
1997. The amount of compensation paid by the Company to each of its directors
and officers and the terms of employment were determined solely by Wade B.
Cook except as otherwise noted below. The Company believes that the
compensation paid to its directors and officers, including Wade B. Cook, is
competitive with that paid by similar companies. The compensations and
benefits for 1997 of the Chief Executive Officer and the other executive
officers of the Company are determined by oral employment agreements (except
as otherwise noted below). The terms of such agreements were negotiated with
Wade B. Cook. Mr. Cook's employment agreement for 1997 to 2000 was negotiated
through the Company's General Counsel and was based on a general
consideration of the compensation of similarly situated chief executive
officers in the Pacific Northwest region of the United States.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
Wade B. Cook's minimum base salary for 1997 was paid pursuant to his
Employment Agreement.
COMPENSATION OF ALL EXECUTIVE OFFICERS
All executive officers of the Company are compensated based on a
performance based system of generating sales and opportunities to and for the
Company in exchange for salaries and bonuses. Mr. Cook negotiates all
salaries.` The Company believes that the levels of compensation and benefits
set for executive officers is within the range of to those set in similar
companies for persons performing the same or similar functions. In one
instance in 1997 employees, including executive officers, were granted small
direct awards of the Company's Common Stock. The Board of Directors believes
that the use of direct stock awards is appropriate for employees and in the
future intends to use direct stock awards to reward outstanding service to
the Company or to attract and retain individuals with exceptional talent and
credentials. The use of incentives such as stock options or awards is
intended to further align the interests of executive officers and other key
employees with those of the Company's shareholders.
The Omnibus Budget Reconciliation Act of 1993 as codified in the
Internal Revenue Code established certain criteria for the tax deductibility of
compensation in excess of $1 million paid to any one of the Company's executive
officers. The effect of Section 162(m) of the Internal Revenue Code is that
starting with tax years beginning after January 1, 1994, a publicly held
corporation may not deduct compensation paid to its chief executive officer and
its four other most-highly compensated officers in excess of $1 million per
officer during a corporate taxable year except to the extent such amounts in
excess of $1 million qualify for an exception to this limitation. To qualify for
this exception, such amounts must be determined on the basis of preestablished,
objective, nondiscretionary formulae that meet certain shareholder and outside
director approval requirements.
Submitted by the Board of Directors
Wade B. Cook
STOCK PERFORMANCE GRAPH
34
<PAGE>
The following graph compares the Company's cumulative total shareholder
return since the Common Stock became registered under Section 12 of the
Securites Exchange Act of 1934 on June 30, 1997 with the Russell 2000 Index and
an index of certain companies having the same Standard Industrial Classification
Code. The graph assumes that the value of an investment in the Company's Common
Stock at June 30, 1997 at the closing price of $1.68 per share and each index
was $100.00 on June 30, 1997.
ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of shares of the Common Stock as of March 13, 1998 (except as
otherwise noted) by (i) each person known by the Company to beneficially own
more than 5% of the outstanding shares of Common Stock, (ii) each director of
the Company, (iii) each executive officer of the Company, and (iv) all
directors and executive officers of the Company as a group. Except as noted
below each person named in the table has sole voting and dispositive power
with respect to all shares of Common Stock shown as beneficially owned.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENT OF
BENEFICIAL OWNER (1) OWNED (2) CLASS (3)
<S> <C> <C>
Officers and Directors:
Wade B. Cook 39,789,860(4) 62%
Laura M. Cook 39,789,860(4) 62%
Cheryle Hamilton 1,310 *
Robert T. Hondel 166,310 *
John V. Childers 1,148,810 1.8%
Nicholas Dettman 0 *
Eric W. Marler 23,480 *
Pamela Andersen 1,310 *
</TABLE>
35
<PAGE>
<TABLE>
<S> <C> <C>
Robin Anderson 18,050 *
All executive officers
and directors of the Company
as a group (9 persons) 41,149,130 64%
Non-management 5% Shareholders -- --
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
the Common Stock
(1) Unless otherwise indicated, the address of the beneficial owner is c/o Wade
Cook Financial Corporation, 14675 Interurban Avenue South, Seattle, Washington
98168-4664.
(2) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of Common Stock subject to stock
options and warrants currently exercisable or exercisable within 60 days are
deemed to be outstanding for calculating the percentage ownership of the person
holding such options and the percentage ownership of any group of which the
holder is a member, but are not deemed outstanding for calculating the
percentage of any other person. Except as indicated by footnote, and except for
voting or investment power held jointly with a person's spouse, the persons
named in the table have sole voting and investment power with respect to all
shares of capital stock shown beneficially owned by them.
(3) Percentage is calculated based upon 64,223,685 shares of Common Stock
outstanding on March 13, 1998 and takes into account a 3-1 stock split
approved by the Board of Directors effective September 15, 1997 and a 3-1
stock split approved by the Board of Directors effective December 23, 1997.
(4) Includes (a) 7,508,345 shares of Common Stock owned of record by Mr. Cook,
(b) 3,600,140 shares owned by the Wade Cook Family Trust, a trust established
for the benefit of Mr. and Mrs. Cook's family, (c) 7,500 shares of Common Stock
held by Money Chef, Inc., and (d) shared voting and investment power over
24,200,000 shares of Common Stock owned by the Wade B. Cook and Laura M. Cook
Family Trust, a trust established for the benefit of Mr. & Mrs. Cook's family.
Wade B. Cook and Laura M. Cook are husband and wife. All shares held by Mr. Cook
are held as community property. Mr. Cook is the trustee of the named trusts.
ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 20, 1998, Mr. Cook and the Company entered into a new Product
Agreement adding additional licensed materials. As with the previous Open Ended
Product Agreement the license is nonexclusive, provides Mr. Cook with a 10%
royalty rate of all gross sales for the products license, and will remain in
effect until June 30, 2002. The Company paid royalties to Mr. Cook or entities
controlled by Mr. Cook of $9,996,840 in 1997, $2,199,130 in 1996, and
$755,550 in 1995.
The Company has licensed the rights to various books authored by Mr.
Cook. See Licensing from Wade B. Cook. Under the terms of each Publishing
Agreement, Mr. Cook is paid a royalty of ten percent (10%) of the retail price
of each book sold. The amount of royalties paid to Mr. Cook and his affiliates
under the Publishing Agreements in 1997, 1996, and 1995 is included in the
amounts stated above as paid royalties.
WCSI has two loans to Paul Cook, Mr. Cook's brother, in the amount of
seventy-five thousand dollars ($75,000) and thirteen thousand dollars ($13,000).
The first loan in the amount of seventy-five thousand dollars ($75,000) was
executed on June 18, 1997 for a two-year term at an interest rate of 11
36
<PAGE>
percent (11%) per annum. The second loan for thirteen thousand dollars ($13,000)
was executed on January 1, 1998 for a one year term at an interest rate of
eleven percent (11%) per annum. Both loans are secured by a deed of trust on
Paul Cook's home in Salt Lake City, Utah. The Company contracts with Grand
Teton, a company owned or controlled by Paul Cook, to provide speaker
services. The Company paid to Paul Cook and Grand Teton $178,700, $46,648 and
$3,500 in 1997, 1996 and 1995, respectively.
Scott Scheuerman, Mr. Cook's brother-in-law, is president of USA
Corporate Services, Inc. (USA), BOSS Services, Inc., (BOSS), and Acorn
Services, Inc. and is also secretary and treasurer of Black Inc., all of
which are Nevada corporations. Boss and Acorn provide business office support
services and registered agent services respectively, and both have corporate
offices in Nevada. USA and Black Ink provide incorporation services and
corporate documentation. USA and Black Inks's corporate offices are located
in WCFC's headquarters in Seattle Washington. USA and Black Inc. leases the
office space for their corporate headquarters from Wade Cook Seminars, Inc..
The Company markets the services of USA, BOSS, Acorn, and Black Ink to its
seminar attendees. In 1997, the Company paid approximately $1,990 to Acorn,
approximately $1,027,501 to USA, and approximately $91,725 to Black Inc. The
Company paid $117,866 and $123,242 to these entities in 1996 and 1995,
respectively.
Eric W. Marler, the former Chief Financial Officer of the Company
and a current Director and speaker for the Company, is the owner of 50% of
the issued units of Cascade Management Associates, L.P. ("Cascade"). Cascade
provides WCSI with the speaking services of Mr. Marler. The Company paid
$103,009 to Cascade in 1997 and $35,555 in 1996. There is no record of
payment to Cascade in prior years.
John V. Childers, a Director of the Company, contracts with WCSI
through Speaker Services, Inc. ("Speaker Services"), corporation owned or
controlled by Mr. Childers, to develop & direct speaker trainer programs for
WCSI. Mr. Childers receives a commission based on the gross sales of
Financial Clinic and Wall Street Workshops. The Company paid Speaker Services
$254,422 and Seminar Services $166,860 in 1997, $22,710 in 1996, and $3,080 in
1995. The Company paid Mr. Childers $421,282 in 1997 and has no record of
direct payment to him in prior years. Additionally, Mr. Childers is the
former president and director of Ideal Travel Concepts Inc. ("Ideal"). WCFC
executed a stock purchase agreement with Ideal effective August 1, 1997 to
purchase Ideal for 358,333 shares of restricted Common Stock of the Company
for a total purchase price of $2,150.000.00. Ideal provides travel services
to the Company and others and has offices in Tennessee and Florida. Ideal
also provides travel agent training kits which are marketed by WCSI.
Effective January 1, 1998, the Company acquired Quantum Marketing, Inc.
("Quantum") from Robert Hondel, a Director of the Company in exchange for 45,000
resticted shares of Common Stock in the Company. Quantum provides retail and
local marketing of the products of the Company through individual Wade Cook
Financial Education Centers. Most centers contain a business bookstore, a sales
office, and an alumni center. Mr. Hondel will remain as the President of
Quantum. Hondel also assigned all rights and interests in Wade Cook Financial
Education Centers, Inc., a Nevada corporation to the Company for $1.
On January 9, 1998, WCSI executed a loan to Robert Hondel, a Director
and the President of Quantum Marketing, Inc., which is now a wholly-owned
subsidiary of the Company. The loan was in the amount of forty-thousand dollars
($40,000) for a term of 4 years at an interest rate of 10% per annum. On July
31, 1997 Robert Hondel executed a promissory note in the principal amount of
$300,000 in favor of WCSI. The note is secured by a lien on Mr. Hondel's real
property located in Graham, Washington and bears interest at a rate of 10%
per year payable in monthly installments of $2,500 plus 50% of all monthly
income received by Quantum Marketing and its affiliates in excess of $8,000
per month beginning September 5, 1997 until paid in full
Money Chef, Inc., an affiliate of Wade B. Cook has a 50% ownership
interest in Newstart Centre, Inc., a Utah corporation ("Newstart") that
specializes in automobile sales and leasing to consumers unable to obtain
financing from traditional sources. Money Chef, Inc. also purchased the
property which is currently leased to Newstart. The Company originally
planned to purchase the interest of Newstart, and the land leased by Newstart
37
<PAGE>
at the time of the acquisition by Money Chef, Inc., but was not in a position
to do so at the time of closing. With the approval of the Board, Mr. Cook,
made the acquisition personally through his interest in Money Chef, Inc.
which enabled the Company further time to consider the investment. The Board
has subsequently agreed to purchase both the land and the 50% interest in
Newstart for a $1 above that which Mr. Cook and/or Money Chef has invested to
date for said property and 50% interest in Newstart. The Company intends to
complete this acquisition in the next quarter. WCSI, Left Coast Advertising,
Inc., and Information Quest, Inc. have a total of eight outstanding loans to
Newstart. On May 23, June 20, and July 25 of 1997 and January 20, 1998, WCSI
executed four loans with Newstart. Each loan was in the amount of one-hundred
and twenty-five thousand dollars ($125,000) for a term of 4 years. All of the
loans executed in 1997 were at an interest rate of seventeen percent (17%)
per year. The loan executed on January 20, 1998 was at an interest rate of
fifteen percent (15%) per year. On August 22, and October 9, of 1997,
Information Quest executed two loans with Newstart for one-hundred and
twenty-five thousand dollars ($125,000.00) each for a term of four (4) years
at an interest rate of seventeen percent (17%) per year. Left Coast
Advertising executed two separate loans with Newstart, on August 19, and
October 9, of 1997. These loans were in the amount of one-hundred and
twenty-five thousand dollars ($125,000.00) for a term of four years at an
interest rate of 17% per year. All of these loans are secured by titles to
automobiles purchased with these funds.
Effective January 1, 1998, WCFC acquired all of the stock in
Information Quest, Inc., a Nevada corporation ("IQI"), from Thomas and Linnet
Cloward in exchange for 45,000 restricted shares of common stock in the Company.
Mr. Cloward was the former Chief Information Officer of the Company and will
continue as President of IQI. Ms. Cloward is an employee of the Company.
Information Quest, Inc. is a provider of subscription paging service related to
stock market developments. The Company has also licensed the rights to the IQ
Pager, the primary product of IQI, from Mr. Cloward, the inventor, in exchange
for a two and one-half percent royalty of gross revenues related to the product.
Prior to the acquisition of IQI and the license from Cloward, the Company had a
marketing arrangement with IQI wherein the Company split equally the gross
income of all IQ Pagers sold by the Company.
Effective January 1, 1998, WCFC acquired all of the stock in Get
Ahead Bookstores, Inc., a Nevada corporation ("Get Ahead") from Glendon H.
Sypher for an Assignment of all of his right, title and interest in and to
the for $1. Mr. Sypher was hired to begin Get Ahead operations from funds
advanced by the Company.
38
<PAGE>
PART IV
ITEM 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
PAGE REFERENCE
(a)(1) FINANCIAL STATEMENTS. FORM 10-K
<TABLE>
<S> <C>
Independent Auditors' Report ...................................... F-1
Consolidated Balance Sheets as of December 31,
1996 and 1997 ................................................... F-2
Consolidated Statements of Operations for each of the
three years in the period ended
December 31, 1997 .............................................. F-
Consolidated Statements of Stockholders' (Deficiency)
Equity for each of the three years in the period
ended December 31, 1997 ......................................... F-
Consolidated Statements of Cash Flows for each of the
three years in the period ended December 31, 1997 .............. F-
Notes to Consolidated Financial Statements ....................... F-
</TABLE>
(a)(2) FINANCIAL STATEMENT SCHEDULE.
(a)(3) EXHIBITS.
2.1 Final Amended and Restated Agreement and Plan of Merger Articles of
Incorporation of Wade Cook Financial Corporation
3.1(a)* Articles of Incorporation of Profiteer Corporation
3.1(b)* Amendment to Articles of Incorporation of Profiteer Corporation
dated September 2, 1984
3.1(c)* Amendment to the Articles of Incorporation of Profiteer Corporation
dated August 10, 1988
3.1(d)** Amendment to the Articles of Incorporation of Profiteer Corporation
dated September 10, 1991
3.1(e) Amendment to the Articles of Incorporation of Profit Financial
Corporation dated September 14, 1997
3.2 Bylaws of Wade Cook Financial Corporation
3.2(a)* Bylaws of Profiteer Corporation
4.1*** Form of Profit Financial Corporation's Class A Common Stock
Certificate
4.1(a) Specimen Certificate evidencing shares of Wade Cook Financial
Corporation Common Stock
4.1(b) 1997 Stock Incentive Plan of Wade Cook Financial Corporation
4.2(c) Notice of Grant of Stock Option of Wade Cook Financial Corporation
Certificate of Appointment of American Stock Transfer & Trust
Company Form of Indemnification Agreement-Wade Cook Financial
Corporation
10.1(a)** Product Agreement, Dated January 3, 1993, between United Support
Association, Inc. as the purchaser, and Money Chef, Inc.,
previously known as USA/Wade Cook Seminars, Inc. as the seller
39
<PAGE>
10.1(b)*** Product Agreement, dated June 25, 1997, and effective as of July 1,
1997, among Wade Cook Seminars, Inc., Money Chef and Wade B. Cook
10.2* Agreement dated May 18, 1995, by and among Profit Financial
Corporation, Yeaman Enterprises, Inc., Four Star Ranch, Inc.,
United Support Association, Inc. and Wade B. Cook
10.3(a)* Agreement dated February 1, 1996, between Wade B. Cook and
Lighthouse Publishing Group, Inc. (for Wall Street money Machine)
10.3(b)** Amended Agreement, dated June 26, 1997, between Wade B. Cook and
Lighthouse Publishing Group, Inc. (for Wall Street Money Machine)
10.4(a)* Agreement Dated January 1, 1997, between Wade B. Cook and
Lighthouse Publishing Group, Inc. (for Stock Market Miracles)
10.4(b)** Amended Agreement dated June 26, 1997, between Wade B. Cook and
Lighthouse Publishing Group, Inc. (for Stock Market Miracles)
10.5** Agreement dated March 1, 1997, between Wade B. Cook and Lighthouse
Publishing Group, Inc. (for Bear Market Baloney)
10.6** Agreement dated May 1, 1997, between Wade B. Cook and Lighthouse
Publishing Group, Inc. (for Business Buy The Bible)
10.7** Purchase and Sale Agreement, dated July 4, 1996, between United
Support Association and Seller
10.8** Employment Agreement dated June 26, 1997, by and between Wade Cook
Seminars, Inc., and Wade B. Cook
10.9** Commercial Lease dated June 25, 1997, by and between Wade Cook
Seminars, Inc. and U.S.A. Corporate Services, Inc.
10.10** Agreement dated November 1, 1996, between Wade B. Cook and
Lighthouse Publishing Group, Inc. (for Real Estate Money Machine)
10.11*** All Inclusive Trust Deed dated March 8, 1997, for the purchase and
assumption of certain real-estate by Rising Tide, LTD from East Bay
Lodging Association, LTD
10.12*** Secured Loan Agreement and Promissory Note (Secured) between
U.S.A., Wade Cook Seminars, Inc. and Newstart Centre, Inc.
10.13 Amended Open-Ended Product Agreement, dated March 20, 1998, between
Wade Cook Financial Corporation and Wade B. Cook
10.14 Product Agreement, dated March 23, 1998, between Planet Cash, Inc.,
Steven Allyn Wirrick and Wade Cook Financial Corporation
10.15 Stock Assignment Agreement, dated January 1, 1998, between Get
Ahead Bookstores, Inc., Glendon H. Sypher and Wade Cook Financial
Corporation
10.16 Employment Agreement, dated March 23, 1998, between Wade Cook
Financial Corporation and Thomas Cloward
10.17 Product Agreement, dated March 23, 1998, between Wade Cook
Financial Corporation, Information Quest, Inc. and Thomas Cloward
10.18 Share Exchange Agreement, dated January 1, 1998, between Wade Cook
Financial Corporation and Information Quest, Inc.
- --- Stock Purchase Agreement, dated August 8, 1997, between Profit
Financial Corporation and Curtis A. Taylor and Stanley J. Zenk
- --- Stock Purchase Agreement, dated _________________, between Wade
Cook Financial Corporation and John V. Childers, Sr., Brenda
Childers, Tracy Allan Childers and John V. Childers, Jr.
- --- Statement re: Computation of Per Share Earnings
16.1*** Letter re: Change in Certifying Accountant
21.1* List of Profit Financial Corporation Subsidiaries
23.1 Consent of Miller and Company
27 Financial Data Schedule
- --------------------------
* Previously filed as an exhibit to the Company's Form 10-12G filed with the SEC
on April 30, 1997 and incorporated in this Form 10-K by reference.
40
<PAGE>
** Previously filed as an exhibit to the Company's Form 10/A-1 filed with the
SEC on June 29, 1997 and incorporated in this Form 10-K by reference.
*** Previously filed as an exhibit to the Company's Form 10-12G/POS AM filed
with the SEC on September 24, 1997 and incorporated in this Form 10-K by
reference.
(b) REPORTS ON FORM 8-K. In the Company's last fiscal quarter ended December 31,
1997, the Company did not file with the Securities and Exchange Commission a
Current Report on Form 8-K.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Seattle,
Washington, on March 30, 1998.
WADE COOK FINANCIAL CORPORATION
By: /s/ Wade B. Cook
------------------------------------
Wade B. Cook,
Chief Executive Officer
By: /s/ Wade B. Cook
------------------------------------
Wade B. Cook,
Interim Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by Wade B. Cook, pursuant to the Powers of Attorney
being filed with this Form 10-K, on behalf of the following persons in the
capacities and on the dates indicated.
Signature Title Date
- ---------- ----- ----
/s/ NICK DETTMAN Director 30 March 98
- ------------------------
Nick Dettman, Principal Board Member
/s/ LAURA COOK Director 30 March 98
- ------------------------
Laura Cook, Principal Board Member
/s/ JOHN CHILDERS Director 30 March 98
- ------------------------
John Childers, Principal Board Member
/s/ ROBERT HONDEL Director 30 March 98
- ------------------------
Robert Hondel, Principal Board Member
/s/ CHERYLE HAMILTON Director 30 March 98
- ------------------------
Cheryle Hamilton, Principal Board Member
/s/ ROBIN ANDERSON Director 30 March 98
- ------------------------
Robin Anderson, Principal Board Member
/s/ ERIC MARLER Director 30 March 98
- ------------------------
Eric Marler, Principal Board Member
42
<PAGE>
[INDEPENDENT AUDITORS' REPORT]
F-1
[CONSOLIDATED BALANCE SHEETS]
[CONSOLIDATED STATEMENTS OF OPERATIONS]
43
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Wade Cook Financial Corporation and Subsidiaries
Seattle, Washington
We have audited the accompanying consolidated balance sheets of Wade Cook
Financial Corporation and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of income, changes in shareholders'
equity,and cash flows for the years ended December 31, 1997 and 1996, and the
nine months ended December 31, 1995. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of WadeCook Financial Corporation and subsidiaries as of December 31, 1997
and 1996,and the results of their consolidated operations and their
consolidated cashflows for the years ended December 31, 1997 and 1996, and
the nine months ended December 31, 1995 in conformity with generally accepted
accounting principles.
As described in Note-I to the financial statements, the Company changed in
1995, its method of accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of in accordance with the Statement of
Financial Accounting Standards No. 121.
Certified Public Accountants
Santa Monica, California
February 26, 1998, except Notes V & W,
for which the date is March 26, 1998
F-1
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS NOTES 1997 1996
- ----------------------------------------------------------------------- ---------- ------------- -------------
<S> <C> <C> <C>
Cash and cash equivalents.............................................. A,L,V $ 540,763 $ 635,141
Marketable securities................................................ A,C,G,L 6,162,733 3,801,039
Trade and credit card receivables.................................... 3,283,183 859,660
Inventory............................................................ A 1,312,366 395,743
Due from related parties............................................. E 749,726 --
Notes receivable -- employees, current portion....................... 242,537 329,060
Notes receivable from officers, current portion...................... -- 13,191
Prepaid expenses..................................................... 235,840 93,196
Deferred royalties to related party.................................. -- 48,781
Deferred tax asset................................................... A,N 251,015 783,064
---------- ------------- -------------
TOTAL CURRENT ASSETS................................................. 12,778,163 6,958,875
---------- ------------- -------------
PROPERTY AND EQUIPMENT................................................. A,H 10,425,159 7,135,205
---------- ------------- -------------
GOODWILL............................................................... A,Q 2,637,669 --
---------- ------------- -------------
OTHER ASSETS
Non-marketable investments........................................... I,L 7,330,460 522,600
Other investments.................................................... 246,848 --
Deposits............................................................. U 4,093,334 35,423
Notes receivable -- employees........................................ E 3,293,182 1,385,742
Notes receivable from officers....................................... -- 236,413
Due from related parties............................................. E 599,323 663,401
---------- ------------- -------------
TOTAL OTHER ASSETS................................................... 15,563,147 2,843,579
---------- ------------- -------------
TOTAL ASSETS....................................................... $ 41,404,138 $ 16,937,659
---------- ------------- -------------
---------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES NOTES 1997 1996
- ------------------------------------------------------------------------ --------- ------------- -------------
Current portion of long-term debt..................................... J $ 1,445,000 $ 660,708
Book overdrafts....................................................... U 2,156,305 --
Accounts payable and accrued expenses................................. 6,450,485 976,644
Margin loans in investment accounts................................... L 2,766,824 1,103,936
Payroll and other taxes withheld and accrued.......................... 163,363 807,414
Income taxes payable.................................................. A,N 5,253,700 2,075,872
Deferred revenue...................................................... A 4,764,441 5,160,999
Due to related parties................................................ E 782,752 19,000
Notes payable to officer.............................................. J 45,000 45,000
------------- -------------
TOTAL CURRENT LIABILITIES............................................. 23,827,870 10,849,573
LONG -TERM DEBT......................................................... J,L 821,182 1,768,762
------------- -------------
TOTAL LIABILITIES..................................................... 24,649,052 12,618,335
------------- -------------
COMMITMENTS & CONTINGENCIES............................................. D,M,W
MINORITY INTEREST....................................................... 687,945 617,300
------------- -------------
SHAREHOLDERS' EQUITY
Preferred stock, 5,000,000 shares authorized at $10 par value, none
issued and outstanding................................................ -- --
Common stock, 140,000,000 shares authorized at $0.01 par value,
64,245,923 shares and 6,680,864 shares outstanding as of December 31,
1997 and 1996, respectively........................................... 642,459 66,807
Paid-in capital......................................................... 3,691,386 894,408
Prepaid advertising..................................................... K,T (500,000) (500,000)
Retained earnings....................................................... 12,233,296 3,240,809
------------- -------------
TOTAL SHAREHOLDERS' EQUITY........................................ 16,067,141 3,702,024
------------- -------------
TOTAL LIABILITIES, MINORITY INTEREST,
AND SHAREHOLDERS' EQUITY.......................................... $ 41,404,138 $ 16,937,659
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
----------------------------- (NOTEV)
NOTES 1997 1996 1995
------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
REVENUES, NET OF RETURNS AND DISCOUNTS.................... $ 104,907,650 $ 40,724,515 $ 6,504,011
COSTS OF REVENUES......................................... O
Royalties to related party.............................. 9,996,840 4,366,183 649,172
Speaker fees to related party........................... 166,661 131,337 --
Other costs of revenues................................. 28,904,364 11,185,416 2,227,737
-------------- ------------- ------------
TOTAL COSTS OF REVENUES................................... 39,067,865 15,682,936 2,876,909
-------------- ------------- ------------
GROSS PROFIT............................................ 65,839,785 25,041,579 3,627,102
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.............. 50,099,355 20,301,703 3,233,884
IMPAIRMENT OF LONG-LIVED ASSETS........................... I -- -- 99,000
-------------- ------------- ------------
INCOME FROM OPERATIONS.................................. 15,740,430 4,739,876 294,218
-------------- ------------- ------------
OTHER INCOME (EXPENSE)
Dividends and interest.................................. 385,338 60,028 5,548
Gain (loss) on trading securities....................... G (804,493) 92,711 69,297
Other income............................................ 128,171 58,513 742
Loss on investment on non-marketable securities......... (106,099) -- (107,400)
Loss on disposition of fixed assets..................... -- (21,960) --
Interest expense........................................ (308,796) (263,285) (23,047)
-------------- ------------- ------------
TOTAL OTHER EXPENSES.................................... (705,879) (73,993) (54,860)
-------------- ------------- ------------
INCOME BEFORE INCOME TAXES................................ 15,034,551 4,665,883 239,358
PROVISION FOR INCOME TAXES................................ N 6,063,387 1,601,244 171,740
-------------- ------------- ------------
INCOME BEFORE MINORITY INTEREST......................... 8,971,164 3,064,639 67,618
MINORITY INTEREST IN LOSS OF SUBSIDIARY................... 21,323 -- --
-------------- ------------- ------------
NET INCOME.............................................. $ 8,992,487 $ 3,064,639 $ 67,618
-------------- ------------- ------------
-------------- ------------- ------------
EARNINGS PER SHARE........................................ $ 0.14 $ 0.12 --
-------------- ------------- ------------
-------------- ------------- ------------
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING...... 63,362,984 26,574,666 25,593,688
-------------- ------------- ------------
-------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
ADDITIONAL TOTAL
PAID-IN RETAINED PREPAID SHAREHOLDERS
NOTES SHARES AMOUNT CAPITAL EARNINGS ADVERTISING EQUITY
----- ---------- --------- ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances--December 31, 1995 as
restated, Note...................... V 3,199,211 $ 31,991 $ 320,738 $ 176,170 $ 528,899
Issuance of restricted stock.......... 26,000 260 77,740 78,000
Issuance of restricted stock in
exchange prepaid advertising........ 100,000 1,000 499,000 500,000
Prepaid Advertising................... (500,000) (500,000)
Effect of 2 for 1 stock split......... 3,325,231 33,252 (33,252)
Issuance of restricted stock for
additional compensation............. 30,422 304 75,746 76,050
Subscriptions receivable.............. (45,564) (45,564)
Net income for year ended December 31,
1996................................ 3,064,639 3,064,639
---------- --------- ---------- ------------ ----------- ------------
Balances -- December 31, 1996 as
restated............................ V 6,680,864 $ 66,807 $ 894,408 $ 3,240,809 $ (500,000) $3,702,024
---------- --------- ---------- ------------ ----------- ------------
Issuance of restricted stock in
exchange for finders' fees relating
to purchase of interest in Fairfield
Inn, Provo, Utah.................... 10,000 100 33,650 33,750
Issuance of restricted stock.......... 10,660 107 31,874 31,981
Issuance of restricted stock in
exchange for finders' fees relating
to purchase of interest in Hampton
Inn & Suites, Park City,Utah........ 4,167 42 52,046 52,088
Issuance of restricted stock for12%
interest in 45th South Hotel
Partners, LC........................ 10,000 100 59,900 60,000
Authorized but unissued restricted
stock in exchange for stock of Ideal
Travel Concepts, Inc., at August
1,1997.............................. 358,333 3,583 2,146,417 2,150,000
Issuance of restricted stock in
exchange for the common stock of
Origin Book Sales, Inc. at August
27, 1997............................ 30,269 303 196,446 196,749
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------
ADDITIONAL TOTAL
PAID-IN RETAINED PREPAID SHAREHOLDERS
NOTES SHARES AMOUNT CAPITAL EARNINGS ADVERTISING EQUITY
----- ------------ --------- ------------ ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of restricted stock in
exchange for the common stock
of Gold Leaf Press,Inc. at
August 27, 1997................ 7,692 77 49,921 49,999
Issuance of restricted stock..... 20,500 205 32,295 32,500
Effect of 3 for 1 stock split.... 14,264,970 142,650 (142,649)
Issuance of restricted shares in
exchange for 8%interest in Wood
Cross Hotel Partners, LC....... 11,636 116 119,153 119,269
Issuance of restricted stock..... 2,000 20 7,980 8,000
Effect of 3 for 1 stock split.... 42,821,182 428,212 (428,212)
Authorized but unissued restricted
stock for employee bonus....... 13,650 137 (137)
Return of Stock Sale Profits by
Officer........................ B 632,710 632,710
Collection of subscription
receivable..................... 5,584 5,584
Net Income for year ended
December 31, 1997.............. 8,992,487 8,992,487
------------ --------- ------------ ------------- ----------- -------------
Balances--December 31, 1997...... 64,245,923 642,459 $ 3,691,386 $ 12,233,296 $ (500,000) $ 16,067,141
------------ --------- ------------ ------------- ----------- -------------
------------ --------- ------------ ------------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, NINE MONTHS
-------------------------------- ENDED
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995
- ----------------------------------------------------------------- ----------------- ------------- ------------
<S> <C> <C> <C>
Net income....................................................... $ 8,992,487 $ 3,064,639 $ 67,618
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 1,287,153 344,991 38,816
(Gain) loss on trading securities.............................. 804,493 (92,711) (69,297)
Loss on disposition of fixed assets............................ -- 21,960 --
Impairment of long-lived assets................................ -- -- 99,000
Loss on investment in non-marketable securities................ 106,099 -- 107,400
Purchases of trading securities................................ (20,805,975) (11,290,111) (1,059,197)
Proceeds from sale of trading securities....................... 19,318,577 9,034,925 920,395
Changes in assets and liabilities, net of effects from purchase
of companies:
Receivables.................................................... (2,423,523) (3,249,764) (133,219)
Inventory...................................................... (582,092) (349,604) (4,688)
Prepaid expenses............................................... (142,644) (141,381) (6,297)
Deferred taxes................................................. 532,149 (775,724) 540
Deposits....................................................... (4,057,911) (303) (29,752)
Accounts payable and accrued expenses.......................... 8,535,921 475,084 340,741
Payroll and other taxes withheld and accrued................... (687,968) 693,324 60,191
Income taxes payable........................................... 3,177,728 1,980,672 105,200
Deferred revenue............................................... (396,558) 4,808,674 352,325
Due to related party........................................... (118,273) -- --
Royalties payable.............................................. 171,603 (136,238) 87,139
----------------- ------------- ------------
TOTAL ADJUSTMENTS................................................ 4,955,325 1,323,794 809,297
----------------- ------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................ 13,947,812 4,388,433 876,915
----------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable from employees and officers..................... (1,571,313) -- --
Capital expenditures............................................. (4,157,082) (4,729,382) (186,098)
Purchase of non-marketable investments........................... (6,285,709) -- --
Subsidiary's investment........................................... (769,000) (87,500) (1,113,100)
Return of subsidiary's investment................................ -- 800,000 --
Payment for purchase of companies, net of cash acquired.......... (1,748,230) -- --
----------------- ------------- ------------
NET CASH USED FOR INVESTING ACTIVITIES........................... (14,531,334) (4,016,882) (1,299,198)
----------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subsidiary's minority interest......... 70,645 321,496 340,904
Short-term borrowings............................................ -- -- 141,175
Repayment on short-term borrowings............................... (292,276) (193,232) (32,956)
Issuance of common stock......................................... 72,481 108,486 --
Collection on subscription receivables and return of stock
profits by officer............................................. 638,294 -- --
----------------- ------------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES........................ 489,144 236,750 449,123
----------------- ------------- ------------
NET INCREASE (DECREASE) IN CASH.................................. (94,378) 608,301 26,840
CASH, beginning of year.......................................... 635,141 26,840 --
----------------- ------------- ------------
CASH, end of year................................................ $ 540,763 $ 635,141 $ 26,840
----------------- ------------- ------------
----------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Wade Cook Financial Corporation (WCFC), or Company, is the legal
successor to Profit Financial Corporation (PFC), is a holding company, whose
principal operating subsidiaries are Wade Cook Seminars, Inc. (WCS), formerly
known as United Support Association, Inc., Lighthouse Publishing Group, Inc.,
and Left Coast Advertising, Inc. In 1997, WCFC acquired Origin Book Sales,
Inc., Worldwide Publishers, Inc., Gold Leaf Press, Inc., and Ideal Travel
Concepts, Inc. WCS conducts educational investment and business seminars and
produces video tapes, audio tapes, and written materials designed to teach
various investment and cash flow strategies for investing in the stock
market, asset protection and asset accumulation techniques or strategies, and
business structuring for minimizing federal or state income taxes, deferral
of income and estate taxes, development of liability protection, and
elimination of the impact of probate on the transition of family owned
businesses to the public. WCS also hosts a subscriber internet service,
Wealth Information Network (WIN), which allows subscribers to log on for
information related to the stock market. In 1997, WCFC began investing
heavily in hotel/motel properties and other real estate investments.
Lighthouse Publishing Inc. publishes books on investment, financial and
motivational topics. Left Coast Advertising, Inc. is an advertising agency.
Worldwide Publishers, Inc. and Gold Leaf Press, Inc. are book publishers.
Origin Book Sales, Inc. is a book distributor of primarily religious topics.
Ideal Travel Concepts, Inc. is a travel agency, also in the business of
selling travel agent training kits. The copyrights to most seminars, video
and audio tapes, and written materials which were colicensed by Money Chef,
Inc., formerly known as USA/Wade Cook Seminars, Inc., a related party, are
now fully owned by Wade B. Cook. As used hereafter, "Company" refers to
Wade Cook Financial Corporation and its consolidated subsidiaries.
REORGANIZATION AND BUSINESS COMBINATION
Prior to the acquisition of WCS, PFC had been operating in two different
businesses for over five years, namely its farming and ranching operations in
Uintah County, Utah, and its investment consulting business. On January 1, 1995,
PFC transferred its ranch operations and all related assets and liabilities to
Four Star, Inc. (Four Star) in exchange for all of Four Star's outstanding
common stock pursuant to a plan of reorganization under the Internal Revenue
Code section 368 (a)(1)(d). All of Four Star's stock was then distributed to
Yeaman Enterprises, Inc. (Yeaman)in exchange for 1,880,000 shares of the
Company's stock as part of there organization. The consolidated financial
statements for the periods presented have been restated to exclude the accounts
related to the ranch operations.
F-8
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following assets and liabilities were transferred to Four Star from PFC
in there organization:
<TABLE>
<S> <C>
Cash............................................................................. $ 5,266
Receivables...................................................................... 277,944
Inventories...................................................................... 113,445
Securities....................................................................... 335,333
Property and equipment........................................................... 1,433,642
Accounts payable................................................................. 1,588
Accrued expenses................................................................. 61,257
Long-term debt................................................................... 380,986
</TABLE>
The condensed financial positions of WCFC before and after the transfer are
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 TRANSFER JANUARY 1,1995
----------------- ------------ --------------
<S> <C> <C> <C>
Cash............................................................. $ 5,266 $ 5,266 $ --
Receivables...................................................... 277,944 277,944 --
Inventory........................................................ 113,445 113,445 --
Property and Equipment........................................... 1,433,642 1,433,642 --
Investment in land............................................... 247,500 -- 247,500
Investment in securities......................................... 461,333 335,333 126,000
----------------- ------------ --------------
TOTAL ASSETS..................................................... $ 2,539,130 $ 2,165,630 $ 373,500
----------------- ------------ --------------
----------------- ------------ --------------
Long-term debt................................................... $ 380,986 $ 380,986 $ --
Accounts payable................................................. 13,321 1,588 11,733
Accrued expenses................................................. 72,295 61,257 11,038
----------------- ------------ --------------
TOTAL LIABILITIES................................................ 446,602 443,831 22,771
----------------- ------------ --------------
Common Stock..................................................... 31,991 18,800 13,191
Additional paid-in capital....................................... 4,093,794 3,578,056 515,738
Retained earnings................................................ (2,053,257) (1,875,057) (178,200)
----------------- ------------ --------------
TOTAL SHAREHOLDERS' EQUITY....................................... 2,072,528 1,721,799 350,729
----------------- ------------ --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................... $ 2,539,130 $ 2,165,630 $ 373,500
----------------- ------------ --------------
----------------- ------------ --------------
</TABLE>
On April 1, 1995, PFC acquired all of the outstanding shares of common stock
of WCS for 1,880,000 shares of the commonstock of PFC. The transaction was
previously accounted for as a pooling of interest but is restated to be
accounted for on the purchase accounting method based on a recharacterization of
the transaction as a reverse-acquisition (NoteV).
F-9
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING PRINCIPLES AND CONSOLIDATION POLICY
The accompanying consolidated financial statements include the accounts of
Wade Cook Financial Corporation and its majority-owned subsidiaries. WCS had a
fiscal year end of January 31, and the balances as of January 31, 1997 and 1996
have been used to prepare the consolidated financial statements as of December
31, 1996 and 1995. In 1997, WCS changed its fiscal year end to December 31, and
the balances as of December 31, 1997 do not include activity for the month of
January 31, 1997 and January 31, 1998. All significant inter-company
transactions and balances have been eliminated in the consolidation.
During 1997, WCFC acquired Ideal, Origin, Worldwide, and Gold Leaf and used
the purchase method of accounting to account for such acquisitions (Note Q). The
consolidated financial statements include the activity of each identified
acquisition from the effective date of acquisition through December 31, 1997.
All significant inter-company transactions and balances have been eliminated in
the consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and related notes to financial statements. Changes in such estimates
may affect amounts reported in future periods.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with the original maturity
of three months or less to be cash and cash equivalents. Included in these
amounts are money market funds of $50,022,and $581,558 as of December 31, 1997
and 1996, respectively.
MARKETABLE SECURITIES
Brokerage accounts were used by seminar instructors during the seminars to
demonstrate how to buy and sell securities using a broker. Marketable securities
consist mainly of stocks and options. They have been categorized as trading
securities and, as a result, are stated at market value. All changes in trading
securities' fair values are reported inearnings as they occur. Realized gains
and losses on the sale of securities are determined using the
specific-identification method.
INVENTORY
Inventory, which consists primarily of finished goods, is valued at the
lower of cost or market. Cost is determined using the first-in, first-out
method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using an
accelerated method over the estimated useful lives of the related assets for
both financial reporting and tax reporting purposes. Leasehold improvements are
amortized using
F-10
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the straight-line method over the shorter of the estimated life
of the asset or the remaining term of the lease. Maintenance and repairs are
charged to operations when incurred. Betterments and renewals are capitalized.
When property and equipment are sold or otherwise disposed of, the asset account
and related accumulated depreciation account are relieved, and any gain or loss
is included in operations.
The Company evaluates impairment of long-lived assets in accordance with the
Financial Accounting Standards Board's (FASB) Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets tobe Disposed of SFAS No. 121 requires the Company to
assess whether an asset (or group of assets) that will continue to be used is
impaired and needs to be adjusted. Other long-lived assets to be disposed of
(either by sale or abandonment unrelated to the disposal of a business segment)
should be written down to fair value less the cost to sell such assets.
INTANGIBLE
The 1997 acquisitions (Note Q) resulted in the Company recording
$2,851,886 for goodwill, which represents the excess of the cost of the
assets purchased over their fair value. Amortization is computed using the
straight-line method over the estimated useful life of the intangible asset
or 40 years, whichever is shorter.
NON-MARKETABLE INVESTMENTS
The Company accounts for non-marketable investments, at cost, if the Company
owns less than 20% of the investee; and ate quity, if the Company owns 20% to
50% of the investee.
REVENUE RECOGNITION
Tuition revenues for seminars are recognized when services are rendered.
Subscription revenues for WIN (Wealth Information Network) membership
generally are received for up to one year in advance and are recorded and
presented in the financial statements as deferred revenue until earned. Although
a typical subscription binds the subscriber to prepay, the subscription term
begins when the customer receives his logon code. The deferred revenues are
recognized on a monthly basis over the term of the contract.
If a subscriber cancels within the first twelve months of the service
period, any remaining unearned subscription revenue will be recognized into
income at the time of the cancellation because the subscription is a binding
nonrefundable contract.
Other revenues are recognized when finished products are shipped to
customers or services have been rendered.
F-11
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
Advertising costs are expensed when incurred. Advertising costs amounted to
$13,685,893, $6,094,922 and $751,533 for the years ended December 31, 1997, 1996
and 1995, respectively.
INCOME TAXES
Income taxes are provided for tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes.
BARTER TRANSACTIONS
The Company is accounting for barter credits in accordance with APB Opinion
No. 29, Accounting for Non-monetary Transactions, and EITF issue No. 93-11,
Accounting for Barter Transactions, involving barter credits which presumes that
the fair value of the non-monetary asset exchanged is more clearly evident than
the fair value of the barter credit received, and that the barter credit should
be reported at the fair value of the non-monetary asset exchanged.
The Company purchased radio air time advertising in exchange for common
stock. The transaction is discussed in Note K.
EARNINGS PER SHARE
The Company is accounting for earnings per share in accordance with FASB No.
128. Earnings per share are based on the weighted average number of shares of
common stock and common stock equivalents outstanding during each year.
RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform with the 1997 financial statement presentation. Such
reclassifications had no effect on net income as previously reported.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued in February 1997,
SFAS No. 128, Earnings per Share, which establishes standards for computing and
presenting earnings per share (EPS) and applies to entities with publicly held
common stock or potential common stock. The Company does not have a complex
capital structure. The Company has not issued potential common stock, i.e.,
securities such as options, warrants, convertible securities, or contingent
stock agreements. The Company believes that SFAS No. 128 did not have a
material effect on its computation of EPS.
The FASB issued in February 1997, SFAS No. 129, Disclosure of Information
About Capital Structure. SFAS No. 129 requires disclosure of descriptive
information about
F-12
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
securities, e.g., rights and privileges of the various securities
outstanding, the number of shares issued upon conversion, exercise, or
satisfaction of required conditions, and the liquidation preference of
preferred stock. The Company is authorized to issue preferred stock but none
was issued or outstanding. The Company does not have any plans to issue
preferred stock. The Company adopted on October 14, 1997 a stock incentive
plan and reserved for issuance 1,000,000 of the Company's common stock. The
stock incentive plan provides that the Board of Directors may grant
restricted stock, stock options, stock appreciation rights or other stock
based awards to eligible employees, directors, or consultants. The Board of
Directors did not issue any incentive awards from the plan as of December 31,
1997. The Company believes that SFAS No. 129 did not have material effect on
its disclosure of information about capital structure.
The FASB issued in June 1997, SFAS No.130, Reporting Comprehensive Income.
SFAS No. 130 establishes standards for reporting comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of general
purpose financial statements. SFAS No. 130 requires that the Company a) classify
items of other comprehensive income by their nature in a financial statement and
b) display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section of a
statement of financial position. The Company did not have any other
comprehensive income in 1997, 1996, or 1995.
The FASB issued in June 1997, SFAS No.131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 requires that the Company
disclose a) factors used to identify the Company's reportable segments,
including the basis of organization, and types of products and services from
which each reportable segment derives its revenues, b) information about
reportable segment profit or loss, including certain revenues and expenses
included in reported segment profit or loss, segment assets, and the basis of
measurement, c) reconciliations of the totals of segment revenues, reported
profit of loss, assets, and other significant items to corresponding Company
amounts, and d) if complete sets of financial statements are provided for
more than one period, the information required by SFAS No. 131 shall be
reported for each period presented. The Company will implement SFAS No. 131
for the year ending December 31, 1998.
NOTE B--SHAREHOLDERS' EQUITY
The Company did not declare or pay and dividends for the years shown in
these financial statements.
On August 13, 1997, and December 10, 1997, the Board of Directors declared
three-for-one stock splits on the Company's common stock, effected in the form
of a stock dividend to the shareholders of record on September 1, 1997 and
December 19, 1997, respectively. The number of shares issued at September 1,
1997 and December 19, 1997, after giving effect to the stock split were
21,397,455 and 64,232,273 common shares, respectively,
F-13
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE B--SHAREHOLDERS' EQUITY (CONTINUED)
(7,132,485 and 21,411,091 common shares before the split, respectively). On
August 6, 1996, the Board of Directors declared a two-for-one stock split on
the Company's common stock, effected in the form of a stock dividend to
shareholders of record on July 15, 1996. The number of shares issued at
September 10, 1996 after giving effect to the split was 6,650,442 common
shares (3,325,211 common shares before the split). The effects of the stock
splits are accounted for in all share and per share data included in these
consolidated financial statements.
RETURN OF STOCK SALE PROFITS BY OFFICER
In connection with the purchase and sale of stock in 1997, it was determined
that certain transactions required the return to the Company of profits made on
such transactions. In that regard, $632,710 has been returned to the Company by
Wade B. Cook.
NOTE C--CONCENTRATION OF RISKS
Cash in banks, based on bank balances, exceeded federally insured limits by
$186,708 and $574,388 as of December 31, 1997 and 1996, respectively.
Receivables from four credit card companies aggregated approximately $487,693
and $376,256 at December 31, 1997 and 1996 respectively. The Company invests the
majority of its excess cash in marketable securities. Marketable securities are
carried at fair market value, which amounted to $6,162,733 and $3,801,039 as of
December 31, 1997, and 1996, and accounted for 15% and 22% of the Company's
consolidated assets as of December31, 1997 and 1996 respectively.
The following table shows the percentage of revenues:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Seminars................................................................... 70% 52% 46%
WIN subcription............................................................ 4% 12% 7%
Entity formation services.................................................. 6% 14% 24%
Product sales.............................................................. 20% 22% 23%
</TABLE>
The following table shows the states from which the Company derived over 10%
of its seminar revenues:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
California................................................................. 15% 15% 27%
Colorado................................................................... 3% 7% 11%
Washington................................................................. 9% 13% 13%
Florida.................................................................... 10% 8% 7%
</TABLE>
NOTE D--ECONOMIC DEPENDENCY AND SIGNIFICANT RISKS AND UNCERTAINTIES
The Company derived a majority of its revenues solely through the sponsoring
and promoting of products, seminars and services authored by Wade B. Cook. This
individual was the named defendant of afraud charge in the State of Arizona.
Prior to February, 1997, defense counsel successfully reduced the case from
eighteen charges to one remaining charge. In February 1997, the remaining charge
was dismissed with prejudice.
F-14
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE D--ECONOMIC DEPENDENCY AND SIGNIFICANT RISKS AND UNCERTAINTIES (CONTINUED)
In March 1996, the Securities and Exchange Commission (the "Commission")
entered an order directing a private investigation of the Company. The Company's
legal counsel has responded to the Commission's requests for documents and
information on behalf of the corporation. No enforcement action has been taken,
and the Commission has advised that the inquiry should not be construed as an
adverse reflection on the securities involved or on any person or entity.
The Company has also received subpoenas from the State of Washington's
Department of Financial Institutions, Securities Division requesting information
related to WCFC, WCS and the Company's president.
NOTE E--RELATED PARTY TRANSACTIONS
The Company entered into a product agreement with Money Chef, Inc. to obtain
the rights to promote and sponsor seminars, entity formation services and
products owned and controlled by Wade B. Cook and Money Chef, Inc. for royalty
payments. Royalty expenses totaled $9,996,840, $4,366,183, and $649,172 for the
years-ended December 31, 1997, 1996, and 1995 respectively. No royalties were
prepaid or unpaid as of December 31, 1997 and $48,781 of royalties was prepaid
as of December 31, 1996.
The Company obtained services from seminar speakers provided by companies
owned by directors of the Company. Total speaker fees paid to such companies
totaled $166,661 and $131,337 for the years ended December 31, 1997 and 1996,
and none for year 1995. There were no additional amounts due to such companies
as of December 31, 1997 and 1996.
Due from related parties in the amounts of $749,726 (current) and $599,323
(non-current) represent advances to the following:
<TABLE>
<CAPTION>
NAME OF RELATED
PARTIES RELATIONSHIP CURRENT NON-CURRENT
- --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
NewstartCentre, Inc. 50% owned and controlled by
President/ CEO of WCFC or
his affiliates $43,283 $599,323
Get Ahead Bookstores Majority stockholder is an
employee of WCFC 155,989 --
Quantum Marketing Majority stockholder is a
director of WCFC 524,854 --
FiveStar Consulting, Inc. General partner is
President/CEO of WCFC 25,000 --
Employee's advance Employees of WCFC 600 --
-------- --------
Total $749,726 $599,323
-------- --------
-------- --------
</TABLE>
F-15
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE E--RELATED PARTY TRANSACTIONS (CONTINUED)
At December 31, 1997, due to related parties totaled $782,752, all of
which was current and consists of the following:
<TABLE>
<CAPTION>
NAME OF RELATED
PARTIES RELATIONSHIP CURRENT
- -------------------------------------------------- -------------------------------------------------- ----------
<S> <C> <C>
Information Quest, Inc. Majority stockholder is
employee of WCFC $682,576
Board of Directors advance Directors of WCFC 100,176
--------
Total $782,752
--------
--------
</TABLE>
In 1995, the Company accepted a single family home, subject to a mortgage
balance of $119,825, from an employee in full settlement of a 10.5% note
receivable with an outstanding balance of $17,661. The single family home was
recorded in the Company's books at $137,486, and no gain or loss was charged to
operations. The employee entered into an agreement with the Company to rent the
property for a monthly rent of $1,300 through July 2000. Under the agreement,
the employee had an option to repurchase the property at specified amounts
through July 2000. In 1996, the Company sold the property to another employee
for $137,352, after the option was waived and received a note bearing 8%
interest per annum as consideration.
The Company has various notes receivable from employees and officers.
Original maturity dates are from 12 months to 360 months. Annual interest rates
range from 5.45% to 12%. The manner of settlement is by salary deduction or
payment. The majority of notes receivable are secured by real property or
personal property. The Company evaluates notes receivables in accordance with
Statement of Financial Accounting Standards No 114, Accounting by Creditors for
Impairment of a Loan. Statement No. 114 requires that impaired loans be measured
based on the present value of expected future cash flows discounted at the
loan's effective interest rate. Statement No. 118, Income Recognition and
Disclosures, amends Statement No. 114to allow a creditor to use existing methods
for recognizing interest income onan impaired loan. There were no impaired notes
receivable as of December 31,1996. At December 31, 1997, a reduction in the note
receivable of $287,264 was recorded to reflect impaired notes. Substantially all
of the reduction was from unsecured receivables from employees who are no longer
with the company. Future cash flow was not expected, due to the uncertainty of
repayment.
At December 31, 1997, due from employees amounted to $3,535,719, of which,
$242,537 has been classified as current. Amounts due from employees represent
loans both secured and unsecured:
<TABLE>
<CAPTION>
LOAN AMOUNT
---------- -------------
<S> <C>
Secured............................................ $ 3,097,408
Unsecured.......................................... 438,311
------------
Total.............................................. $ 3,535,719
------------
------------
</TABLE>
F-16
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE E--RELATED PARTY TRANSACTIONS (CONTINUED)
For the year ended December 31, 1997, interest income resulting from the
employee note receivables was $199,663. Interest income was calculated by
multiplying the outstanding balance of unimpaired loans with their respective
interest rate. Interest income was not calculated on impaired loans.
NOTE F--RECEIVABLES
Following is a summary of receivables:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Trade and credit card receivables...................................................... $ 3,242,151 $ 848,282
Notes receivable -- employees.......................................................... 3,535,719 1,714,802
Notes receivable from officer.......................................................... -- 249,604
Due from related parties............................................................... 1,471,049 663,401
Other................................................................................. 41,032 11,378
------------ ------------
Total................................................................................. $ 8,289,951 $ 3,487,467
------------ ------------
------------ ------------
</TABLE>
In 1996, management estimated that substantially all receivables were
collectible. In 1997, an allowance for uncollectible accounts was maintained,
and at December 31, 1997 the allowance amounted to $58,163. Amounts reported on
the balance sheet are shown net of the allowance.
NOTE G--MARKETABLE SECURITIES
The net unrealized gain (loss) intrading securities that has been included
in earnings during the period amounted to $(755,437), $92,711, and $88,719, for
the years ended December 31, 1997, 1996, and 1995 respectively.
NOTE H--PROPERTY AND EQUIPMENT
The following is a summary of property and equipment:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
<S> <C> <C>
1997 1996
------------- ------------
Land................................................................................. $ 532,000 $ 532,000
Building............................................................................. 6,021,788 4,183,361
Equipment............................................................................ 2,446,895 1,270,583
Automobiles.......................................................................... 1,279,972 828,604
Furniture and fixtures............................................................... 1,774,284 681,425
------------- ------------
12,054,939 7,495,973
Less: Accumulated depreciation....................................................... (1,629,780) (360,768)
------------- ------------
Total................................................................................ $ 10,425,159 $ 7,135,205
------------- ------------
------------- ------------
</TABLE>
Depreciation expense charged to operations was $1,073,224, $344,991 and
$38,816 in December 31, 1997, 1996, and1995, respectively.
F-17
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE I--NON-MARKETABLE INVESTMENTS AND ACCOUNTING CHANGES
Non-marketable investments consist of investments in venture capital
partnerships and private companies, primarily comprised of hotel/motel
properties and other real estate investments. The estimated non-marketable
investments approximated the carrying amount at December 31, 1997 and 1996. The
fair values of investments in venture capital partnerships and private companies
were estimated based on financial condition and operating results, or other
pertinent information. No dividends were received from non-marketable
investments during the years shown.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of in 1995. The Company recorded a non-cash pre-tax charge
of $99,000 for the year ending December 31, 1995 to write-down the carrying
value of the land investment in the county of Atrim, Michigan. The Company
considers the sale prices of comparable lots in the recreational development
project as indicators of fair value.
Non-marketable investments consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1997 1996
------------ ----------
Cost method:
Oil and gas............................................................................. $ 650,000 $ --
Hotels/motels........................................................................... 1,177,350 268,000
Real estate............................................................................. 1,385,780 148,500
Private companies....................................................................... 1,250,000 106,100
Equity method:
Hotels/motels........................................................................... 2,562,750 --
Real estate............................................................................. 304,580 --
------------ ----------
Total................................................................................... $ 7,330,460 $ 522,600
------------ ----------
------------ ----------
</TABLE>
Private companies in 1997 are comprised of a privately held computer
software company ($750,000) and a wireless reseller company ($500,000) which
acquired an inactive public company through a reverse acquisition in 1998.
Investees are in the development stage. Accumulation deficit during the
development stage was not material in 1997 and 1996.
F-18
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE J--LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1996
------------ ------------
Note payable due May 2002, has a monthly installment of $418, including interest at
9.75% per annum, secured by an automobile........................................... 16,347 --
Note payable to a credit union assumed by the Company on behalf of an employee, due
December 2003, including interest at 9.25% per annum, secured by an automobile...... -- $ 36,178
Note payable due July 2000, has a monthly installment of $514, including interest at
9% per annum, secured by equipment.................................................. 28,298 --
Note payable due June 2001, has a monthly installment of $1,325, including interest at
8.5% per annum, secured by computers................................................ 44,823 --
Unsecured note payable to a related party, originally due October 15, 1996, including
interest at 10% per annum, due on demand............................................ -- 19,000
Unsecured note payable to a related party, originally due October 15, 1996; including
interest at 10% per annum, due on demand............................................ 45,000 45,000
Note payable to a bank with monthly installments of $300, including interest at 16%
per annum, secured by an automobile................................................. 11,413 --
Mortgage payable, secured by land and building, due in monthly installments of
principal and interest of $50,000 from September 1, 1996 through August 1, 1997,
$100,000 from September 1, 1997 to February 1, 1999 and $555,862 on March 1, 1999,
including interest at 9% per annum.................................................. 1,825,302 2,393,292
Real estate contract payable, secured by land and building,payable in monthly
installments of $2,157, including interest at 7(6)%, maturity date September 1,
1998................................................................................ 339,999 --
Total Long Term Debt.............................................................. $ 2,311,182 $ 2,493,470
------------ ------------
Less: Current maturities
Others.............................................................................. (1,445,000) (660,708)
related parties..................................................................... -- (19,000)
officer............................................................................. (45,000) (45,000)
------------ ------------
Net Long Term Debt.................................................................... $ 821,182 $ 1,768,762
------------ ------------
------------ ------------
</TABLE>
F-19
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE J--LONG-TERM DEBT (CONTINUED)
The following are maturities of long-term debt for each of the next five
years:
<TABLE>
<S> <C>
1998............................................................................ $1,490,000
1999............................................................................ 770,393
2000............................................................................ 25,046
2001............................................................................ 18,051
2002............................................................................ 7,692
Thereafter...................................................................... --
---------
Total........................................................................... 2,311,182
---------
---------
</TABLE>
NOTE K--PREPAID ADVERTISING
In 1995, the Company entered into an agreement with Associated Reciprocal
Traders, Ltd. (ART) to purchase from ART20,000 Investor
Relations-Advertising-Infomercial radio air time spots, priced at $25 per ad
spot, per station, for a sum total of $500,000. In payment of the foregoing, the
Company issued 100,000 shares of common stock to ART on September10, 1996. The
prepaid advertising is shown as a reduction of shareholders' equity rather than
as an asset (Note T).
NOTE L--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board("FASB") has issued Statement of
Financial Accounting Standards (SFAS) No.107, Disclosures About Fair Value of
Financial Instruments, as part of a continuing process by the FASB to improve
information regarding financial instruments. The following methods and
assumptions were used to estimate the fair value of each class of financial
instruments:
Cash and cash equivalents--The carrying amount of cash and cash
equivalents approximates its fair value.
Notes receivables from Employees and Officers--The carrying amount of notes
receivable approximates its fair value.
Marketable securities--The fair value of marketable securities was
estimated based on quotes obtained from brokers for those instruments.
Non-Marketable Investments--The fair value of non-marketable investments
is determined by financial positions of the investee companies and market
conditions.
Margin loans in investment accounts--The carrying amount of margin loans
approximates its fair value.
Long-Term Debt--The fair values of the Company's long-term debt either
approximates fair value or estimates using discounted cash flow analyses
based on the Company's current incremental borrowing rates for similar types
of borrowing arrangements.
F-20
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Note L--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
<S> <C> <C> <C> <C>
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
Cash and cash equivalents..................................... $ 540,763 $ 540,763 $ 635,141 $ 635,141
Marketable securities......................................... 6,040,733 6,040,733 3,801,039 3,801,039
Receivables from employees and officers....................... 3,535,719 3,535,719 1,964,406 1,964,406
Non-marketable investments.................................... 7,330,460 7,330,460 522,600 522,600
Margin loans in investment accounts........................... 2,766,824 2,766,824 1,103,936 1,103,936
Long-term debt................................................ 821,182 821,182 1,768,762 1,768,762
</TABLE>
The carrying amounts in the table are included on the balance sheet under
the indicated captions, except for notes receivable which has several
components on the balance sheet.
NOTE M--LEASE AND OTHER COMMITMENTS
Operating lease commitments are primarily for the Company's shipping
warehouse and equipment rentals. Rental expense amounted to $135,476, $294,918,
and $109,133 for the years ended December 31, 1997, 1996, and 1995 respectively.
Future minimum rental commitments are as follows:
<TABLE>
<S> <C>
1998.............................................................................. $ 61,779
1999.............................................................................. 54,621
2000.............................................................................. 12,760
2001.............................................................................. --
---------
Total............................................................................. $ 129,160
---------
---------
</TABLE>
The Company entered into an employment agreement in June 1997 with Wade
Cook, the president and CEO of the Company. The agreement provided for a minimum
salary of $240,000 for the first year, $265,000 for the second year, and
$290,000 for the final year of the agreement. Cook will be paid in accordance
with the Company's standard method of payment for executives. Cook may receive
additional bonuses for work as approved by the Board of Directors.
The Company is committed to purchase 8,000 additional units from Applied
Voice Recognition, Inc. at $60.00 per unit (voice recognition software), but no
time limit is provided for in the agreement. There is a minimum purchase
requirement of 2,000 units per order and payment is due in advance of shipment
(Note U).
F-21
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE M--LEASE AND OTHER COMMITMENTS (CONTINUED)
The Company is committed to purchase 50,000 units (computer programs) from
KnowWonder, Inc. (the computer software company described in Note I) at $10.00
per unit. The $500,000 is payable in eight (8) monthly installments of $62,500
beginning January 1998 on the first of each month thereafter.
NOTE N--INCOME TAXES
Provisions for income taxes in the consolidated statements of income
consist of the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
<S> <C> <C> <C>
1997 1996 1995
------------ ------------ ----------
Current
- -------
Federal................................................................... $ 4,659,610 $ 2,321,968 $ 171,200
State..................................................................... -- -- --
Other States.............................................................. 458,000 55,000
------------ ------------ ----------
5,117,610 2,376,968 171,200
------------ ------------ ----------
Deferred
- --------
Federal................................................................... 945,777 (775,724) 540
State..................................................................... -- -- --
945,777 (775,724) 540
------------ ------------ ----------
Total income taxes........................................................ $ 6,063,387 $ 1,601,244 $ 171,740
------------ ------------ ----------
------------ ------------ ----------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
<S> <C> <C>
DEFERRED TAX ASSETS: 1997 1996
- ------------------------------------------------------------------------------------------ ---------- ----------
Unrealized loss on trading securities..................................................... $ 254,096 $ 79,192
Deferred revenues......................................................................... -- 806,294
State income tax.......................................................................... 160,300 19,250
---------- ----------
Total deferred tax assets................................................................. 414,396 904,736
---------- ----------
Deferred tax liabilities:
Accelerated depreciation.................................................................. 69,800 61,691
State income tax.......................................................................... 93,581 59,981
---------- ----------
Total deferred liabilities................................................................ 163,381 121,672
---------- ----------
Net deferred tax assets................................................................... $ 251,015 $ 783,064
---------- ----------
---------- ----------
</TABLE>
F-22
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE N--INCOME TAXES (CONTINUED)
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax rate..................................................................... 35.0% 35.0% 35.0%
Unrealized loss on trading securities....................................................... 6.2 1.7 7.2
Deferred revenues........................................................................... -- 17.3 19.5
Accelerated depreciation.................................................................... (1.3) (1.3) --
Capitalized interest........................................................................ -- (1.3) --
State income tax ........................................................................... .4 0.4 10.0
Effective income tax rate................................................................... 40.3% 51.8% 71.7%
</TABLE>
NOTE O--REVENUES AND OTHER COST OF REVENUES
<TABLE>
<CAPTION>
TRAVEL
SEMINAR PRODUCT ENTITY WIN RELATED
REVENUES SALES FORMATIONS SUBSCRIPTIONS SERVICES TOTAL
------------- ------------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Revenues, net of returns &
discounts..................... $ 66,725,225 $ 25,336,102 $ 5,598,409 $4,049,646 $ 3,198,268 $ 104,907,650
Royalties to related party...... 4,709,067 3,438,418 1,849,355 -- -- 9,996,840
Speaker fees to related party... 153,760 12,901 -- -- -- 166,661
Other cost of revenues:
Cost of goods sold.............. -- 9,020,702 -- -- 2,963,579 11,984,281
Credit card fees................ 1,655,339 393,248 120,253 87,312 -- 2,256,152
Cost of meeting rooms........... 3,953,888 -- -- -- -- 3,953,888
Speaker fees.................... 6,502,497 -- 557,357 -- -- 7,059,854
Travel.......................... 3,367,636 -- 282,553 -- -- 3,650,189
------------- ------------- ------------ ------------ ------------ --------------
Total Cost of Revenues.......... $ 20,342,187 $ 12,865,269 $ 2,809,518 -- $ 2,963,579 $ 39,067,865
------------- ------------- ------------ ------------ ------------ --------------
Gross Profit.................... $ 46,383,038 $ 12,470,833 $ 2,788,891 $3,962,334 $ 234,689 65,839,785
------------- ------------- ------------ ------------ ------------ --------------
</TABLE>
<TABLE>
<CAPTION>
TRAVEL
SEMINAR PRODUCT ENTITY WIN RELATED
REVENUES SALES FORMATIONS SUBSCRIPTIONS SERVICES TOTAL
------------- ------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Revenues, net of returns &
discounts........................... $ 23,817,315 $ 10,608,421 $ 3,716,528 $2,582,251 -- $ 40,724,515
Royalties to related party............ 2,933,688 1,060,842 371,653 -- -- 4,366,183
Speaker fees to related party......... 113,609 -- 17,728 -- -- 131,337
Other cost of revenues:
Cost of goods sold.................... -- 5,017,027 -- -- -- 5,017,027
Credit card fees...................... 556,663 247,942 86,864 60,353 -- 951,822
Cost of meeting rooms................. 1,488,212 -- -- -- -- 1,488,212
Speaker fees.......................... 1,373,855 -- 764,312 -- -- 2,138,167
Travel................................ 1,383,464 -- 206,724 -- -- 1,590,188
------------- ------------- ------------ ------------ ------ -------------
Total Cost of Revenues................ $ 7,849,491 $ 6,325,811 $ 1,447,281 $ 60,353 -- $ 15,682,936
------------- ------------- ------------ ------------ ------ -------------
Gross Profit.......................... $ 15,967,824 $ 4,282,610 $ 2,269,247 $2,521,898 -- 25,041,579
------------- ------------- ------------ ------------ ------ -------------
</TABLE>
F-23
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE O--REVENUES AND OTHER COST OF REVENUES (CONTINUED)
<TABLE>
<CAPTION>
TRAVEL
SEMINAR PRODUCT ENTITY WIN RELATED
REVENUES SALES FORMATIONS SUBSCRIPTIONS SERVICES TOTAL
------------ ------------ ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Nine Months ended December 31,1995:
Revenues, net of returns & discounts...... $ 2,986,036 $ 1,477,200 $ 1,538,459 $ 502,316 -- $ 6,504,011
Royalties to related party................ 326,691 157,964 164,517 -- -- 649,172
Speaker fees to related party............. -- -- -- -- -- --
Other cost of revenues:
Cost of goods sold........................ -- 1,121,336 -- -- -- 1,121,336
Credit card fees.......................... 90,359 32,963 34,330 11,209 -- 168,861
Cost of meeting rooms..................... 99,720 -- -- -- -- 99,720
Speaker fees.............................. 158,589 101,937 282,520 -- -- 543,046
Travel.................................... 162,447 -- 132,327 -- -- 294,774
------------ ------------ ------------ ------------ ------ ------------
Total Cost of Revenues.................... $ 837,806 $ 1,414,200 $ 613,694 $ 11,209 -- $ 2,876,909
------------ ------------ ------------ ------------ ------ ------------
Gross Profit.............................. $ 2,148,230 $ 63,000 $ 924,765 $ 491,107 -- $ 3,627,102
------------ ------------ ------------ ------------ ------ ------------
</TABLE>
NOTE P--SUPPLEMENTARY DISCLOSURE OF CASHFLOW INFORMATION
The Company paid $308,796, $263,285 and $23,047 in interest, and $2,485,111,
$100,000 and $78,000 for income taxes, in the years ended December 31, 1997,
1996 and 1995 respectively.
The Company purchased a three-story commercial building in July 1996, and
relocated in January 1997. The $3,300,000 purchase was financed with a
$2,550,000 mortgage with an interest rate of 9% per annum, and a down payment of
$750,000.
NOTE Q- ACQUISITIONS
During 1997, WCFC completed the acquisition of Ideal Travel Concepts, Inc.
(Ideal), Worldwide Publishers, Inc.(Worldwide), Origin Book Sales, Inc.
(Origin), and Gold Leaf Press, Inc. (GoldLeaf).
All of the outstanding stock of Ideal was acquired on August 1, 1997, in
exchange for 358,333 shares of Wade Cook Financial Corporation (WCFC) stock to
be issued at a latter date (Note T). On that date, the market value of the stock
issued was $2,150,000. The acquisition was accounted for as a purchase,
resulting in assets of $215,719, goodwill of $2,008,294 less liabilities assumed
of $74,013.
All of the outstanding stock of Worldwide was acquired on August 27, 1997,
for $1. The acquisition was accounted for as a purchase resulting in assets of
$315,352, goodwill of $311,976 less liabilities assumed of $627,327.
F-24
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE Q- ACQUISITIONS (continued)
All of the outstanding stock of Origin was acquired on August 27, 1997, in
exchange for 30,269 shares of WCFC stock. On that date, the market value of the
stock issued was $196,749. The acquisition was accounted for as a purchase
resulting in assets of $809,730,goodwill of $469,496 less liabilities assumed of
$1,082,477.
All of the outstanding stock of GoldLeaf was acquired on August 27, 1997, in
exchange for 7,692 shares of Wade Cook Financial Corporation (WCFC) stock. On
that date, the market value of the stock issued was $49,998. The acquisition was
accounted for as a purchase resulting in assets of $8,263, goodwill of $62,119
less liabilities assumed of $20,384.
Total goodwill is $2,851,885, accumulated amortization is $214,217, creating
net goodwill of $2,637,669.
NOTE R--PRO-FORMA FINANCIAL STATEMENTS
The following unaudited pro-forma information is presented for the years
ended December 31, 1997, 1996, and 1995,as if the Ideal, Worldwide, Origin, and
Gold Leaf acquisitions had been combined as of the beginning of the period.
Ideal, Worldwide, Origin, and Gold Leaf amounts represent historical values
without acquisition adjustments as describe in Note Q.
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS, EXCEPT EPS
FISCAL YEAR ENDED DECEMBER 31, 1997
BALANCE SHEET WCFC IDEAL WORLDWIDE ORIGIN GOLD LEAF TOTAL
- ----------------------------------------------------------- --------- --------- ------------- --------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Assets..................................................... $ 38,982 $ 656 $ 459 $ 1,386 $ -- 41,483
Liabilities................................................ 22,769 417 735 1,621 -- 25,542
Stockholders equity........................................ 16,213 239 (276) (235) -- 15,941
INCOME STATEMENT
Revenues................................................... 104,456 4,321 555 1,510 26 110,868
Expenses................................................... 95,469 4,100 519 1,472 14 101,573
--------- --------- ----- --------- --- ---------
Net income................................................. $ 8,987 $ 221 $ 36 $ 38 $ 12 $ 9,294
--------- --------- ----- --------- --- ---------
EPS........................................................ $ 0.15
--------- --------- ----- --------- --- ---------
</TABLE>
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
BALANCE SHEET WCFC IDEAL WORLDWIDE ORIGIN GOLD LEAF TOTAL
- ----------------------------------------------------------- --------- --------- ------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets..................................................... $ 16,938 $ 237 $ 529 $ 3,902 $ 8,263 $ 29,869
Liabilities................................................ 12,619 277 453 3,834 20,384 37,567
Stockholders equity........................................ 4,319 (40) 76 68 (12,121) (7,698)
INCOME STATEMENT
Revenues................................................... 40,725 1,023 971 1,801 1,462 45,982
Expenses................................................... 37,660 1,057 935 1,830 1,462 42,944
--------- --------- ----- --------- ----------- ---------
Net income (loss).......................................... $ 3,065 $ (34) $ 36 $ (29) $ -- $ 3,038
--------- --------- ----- --------- ----------- ---------
EPS........................................................ $ 0.11
--------- --------- ----- --------- ----------- ---------
</TABLE>
F-25
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE R--PRO-FORMA FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
FOR THE NINE MONTHS ENDED DECEMBER31, 1995
BALANCE SHEET WCFC IDEAL WORLDWIDE ORIGIN GOLD LEAF TOTAL
- ----------------------------------------------------------- --------- ----- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets..................................................... $ 2,283 $ 65 $ 994 $ 71 $ 294 $ 3,707
Liabilities................................................ 1,458 80 953 38 284 2,813
Stockholders equity........................................ 825 (15) 41 33 10 894
INCOME STATEMENT
Revenues................................................... $ 6,504 182 7,209 1 1,330 $ 15,226
Expenses................................................... 6,436 169 7,196 18 1,333 15,152
--------- --- ----- --- ----- ---------
Net income (loss).......................................... $ 68 $ 13 $ 13 $ (17) $ (3) $ 74
--------- --- ----- --- ----- ---------
EPS........................................................ --
--------- --- ----- --- ----- ---------
</TABLE>
NOTE S--PENDING LITIGATION
On September 16, 1996,Wade Cook Seminars, Inc. v. Mellon, Charles E. and
Robbins Research International, Inc., et al., was filed, for breach of
non-compete contract. The court in a partial summary judgment dismissed this
claim on November 26, 1997. Defendants subsequently made a motion for an award
of attorney's fees of approximately $71,000, which was denied in January 1998.
Both the order of dismissal and the denial of the award of attorney's fees have
been appealed.
NOTE T--SUBSEQUENT EVENTS
On February 5, 1998, a claim was filed by WCFC against Associated
Reciprocal Traders, Ltd. (ART) in the King County Superior Court based on a
dispute over the ownership of 100,000 restricted shares of WADE stock (now
1,800,000 shares) issued pursuant to a Media for Stock Agreement dated
December 29, 1995. On the same day ART filed a complaint against the Company
based on substantially the same claims. A motion has been granted to
consolidate the two claims.
On January 14, 1998, WCFC issued 3,224,997 shares of its common stock in
full settlement of the Ideal Travel Concepts, Inc. acquisition. (Note Q)
WCFC is negotiating for the acquisition of Get Ahead Bookstores, Inc. (Get
Ahead), Information Quest, Inc. (Info Quest),and Quantum Marketing, Inc.
(Quantum), all related parties (Note E). In each transaction, substantially all
of the outstanding stock of each company, will be purchased by issuing common
stock of WCFC. It is anticipated that all of the transactions will be accounted
for under the purchase method. Get Ahead is a retail bookstore, selling
primarily business related books, periodicals, and related materials. Info Quest
sells a pager system that provides the customer with up to the minute stock
quotes. Quantum is a marketing company.
F-26
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE U- DEPOSITS AND BOOK OVERDRAFTS
Deposits as of December 31, 1997 and 1996 amounted to $4,093,334 and $35,423
respectively. Deposits represent the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
<S> <C> <C>
DESCRIPTION 1997 1996
- ----------------------------------------------------------------------------------------- ------------ ---------
Held by credit card processor............................................................ $ 2,050,000 --
Held for purchase of hotel............................................................... 1,913,790 --
Purchase of AVRI equipment............................................................... 120,000 --
Held for security on buildings........................................................... 9,544 35,423
------------ ---------
Totals................................................................................... $ 4,093,334 $ 35,423
------------ ---------
------------ ---------
</TABLE>
None of the deposits accrue interest.
Book overdrafts amounted to $2,156,305 as of December 31, 1997 and none as
of December 31, 1996. Under the Company's cash management system, checks issued
but not presented to banks frequently result in overdraft balances for
accounting purposes and are classified as "book overdrafts" in the balance
sheet.
NOTE V- PRIOR PERIOD ADJUSTMENTS
The Company has restated its previously issued 1995 and 1994 financial
statements to reflect adjustments principally related to the business
combination described in Note A. The business combination was previously
accounted for as a pooling of interest but has been restated to a
reverse-acquisition whereby WCS is deemed to have acquired PFC.
The adjustments relate primarily to the three month timing difference in
income recognition under the pooling of interest (January 1, 1995 to December
31, 1995) and the purchase method, i.e., a reverse acquisition (April 1, 1995
to December 31, 1995).
<TABLE>
<CAPTION>
AS
PREVIOUSLY AS
REPORTED RESTATED
------------ ------------
<S> <C> <C>
Net income for year ended December 31, 1995........................................... $ 123,798 $ 67,618
Earnings per share.................................................................... $ 0.02 $ 0.01
Additional paid in capital at December 31, 1995....................................... $ 498,938 $ 320,738
Additional paid in capital at December 31, 1996....................................... $ 1,072,608 $ 894,408
Retained earnings (deficit) at December 31, 1995...................................... $ (2,030) $ 176,170
Retained earnings at December 31, 1996................................................ $ 3,062,609 $ 3,240,809
</TABLE>
The shareholders' equity has been restated for the 1995 recapitalization
under the reverse acquisition and for the difference in income recognition under
the pooling of interest and reverse acquisition.
F-27
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE V- PRIOR PERIOD ADJUSTMENTS (CONTINUED)
Adjustments to Shareholders' equity were calculated as follows:
<TABLE>
<CAPTION>
TOTAL
NUMBER OF PAID IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Prior to acquisition................ 3,199,211 $ 31,991 $ 4,093,794 $ (2,053,257) $2,072,528
Reorganization under section
368(a)(1)(d) of the IRC........... (1,880,000) (18,800) (3,578,056) 1,875,057 (1,721,799)
Issuance of Company shares to
acquire assets of WCFC............ 1,880,000 18,800 (16,800) 108,552 110,552
Elimination of accumulated deficit
of WCFC, as restated.............. -- -- (178,200) 178,200 --
---------- ----------- ------------ ------------- ----------
Subtotal............................ 3,199,211 $ 31,991 $ 320,738 $ 108,552 $ 461,281
Net income for the period ended
December 31, 1995, as restated.... 67,618 67,618
---------- ----------- ------------ ------------- ----------
Shareholders' equity at
December 31, 1995, as restated.... 3,199,211 $ 31,991 $ 320,738 $ 176,170 $ 528,899
---------- ----------- ------------ ------------- ----------
---------- ----------- ------------ ------------- ----------
</TABLE>
Based upon the term of the business combination, the transaction for
financial reporting and accounting purposes has been accounted for as a
reverse acquisition whereby, WCS (formerly known as USA)is deemed to have
acquired WCFC (formerly known as PFC). However, WCFC is the continuing entity
and registrant for both the Securities and Exchange Commission filing
purposes and income tax reporting purposes. Consistent with reverse
acquisition accounting treatment, WCFC has carried forward the historical
basis of the acquired assets and assumed liabilities of WCS and has revalued
the basis of its net assets which was at fair value even before the business
combination.
The following unaudited proforma combined statements of income for the
twelve months ended December 31, 1995 and January 31, 1995 are presented as
if the combination had occurred as of January1, 1994. The proforma
information is not necessarily indicative of the actual results of operation
which would have occurred had the transactions occurred on such dates.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER31, 1995 JANUARY 31, 1995
------------------- -------------------
<S> <C> <C>
Revenues............................................................... $ 7,567,335 $ 1,973,145
Cost of revenues........................................................ (3,373,888) (861,734)
Other income(loss)..................................................... (4,069,649) (1,307,141)
------------------- -------------------
Net income(loss)....................................................... $ 123,798 $ (195,730)
------------------- -------------------
------------------- -------------------
Net income (loss)per share............................................. $ 0.02 $ (0.03)
------------------- -------------------
------------------- -------------------
</TABLE>
F-28
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE W- COUNTY OF FRESNO INVESTIGATION
On March 5, 1998, the Company received a letter from the County of
Fresno, California, Office of District Attorney Business Affairs Unit
("BAU"), which informed the Company that the BAU believed that the seminar
sales contracts used in California by the Company were not in compliance with
section 1678.20 through 1693 of the California Civil Code which provide for a
three-day right of cancellation on seminar sales solicitation contracts. The
Company has not yet determined any impact on its financial statements. No
provision for losses have been made.
F-29
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Wade Cook Financial Corporation
Seattle, Washington
The audits referred to in our report to the Board of Directors of Wade
Cook Financial Corporation and subsidiaries dated February 26, 1998, except
Notes V and W, for which the date is March 26, 1998, relating to the
consolidated financial statements of Wade Cook Financial Corporation and
subsidiaries included the audit of schedules listed under Item 14 of Form
10-K for the years ended December 31, 1997 and 1996. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement
schedules based upon our audit.
In our opinion such financial statement schedules present fairly, in all
material respects, the information set forth therein.
Certified Public Accountants
Santa Monica, California
February 26, 1998, except Notes V and W,
for which the date is March 26, 1998
30
<PAGE>
WADE COOK FINANCIAL CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
CURRENT ASSETS 1997 1996
- ---------------------------------------------------------------------------------------- ------------ ----------
Cash.................................................................................... $ 32,500 --
Investment in subsidiaries.............................................................. 2,703,379 $ 110,552
Investment in land...................................................................... 1,245,358 148,500
Investment in non-marketable securities................................................. 4,828,101 18,600
Other receivable........................................................................ -- 1,378
Due from subsidiary..................................................................... -- 48,013
------------ ----------
TOTAL ASSETS............................................................................ $ 8,809,338 $ 327,043
------------ ----------
------------ ----------
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
CURRENT LIABILITIES 1997 1996
- ---------------------------------------------------------------------------------------- ------------ ----------
Accounts payable and accrued expenses................................................... $ -- $ 22,080
Due to subsidiaries..................................................................... 5,055,870 --
------------ ----------
TOTAL LIABILITIES....................................................................... 5,055,870 22,080
------------ ----------
SHAREHOLDERS' EQUITY
Preferred stock......................................................................... -- --
Common stock............................................................................ 636,459 66,807
Paid-in capital......................................................................... 3,875,586 894,408
Prepaid advertising..................................................................... (500,000) (500,000)
Retained earnings (deficit)............................................................. (258,577) (156,252)
------------ ----------
TOTAL SHAREHOLDERS' EQUITY.............................................................. 3,753,468 304,963
------------ ----------
TOTAL LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY.......................... $ 8,809,338 $ 327,043
------------ ----------
------------ ----------
</TABLE>
31
<PAGE>
WADE COOK FINANCIAL CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER31,
-------------------------------------
<S> <C> <C> <C>
1997 1996 1995
----------- ----------- -----------
INTEREST INCOME............................................................ $ -- $ 2,013 $ --
GENERAL AND ADMINISTRATIVE EXPENSES........................................ (83,725) (41,792) (18,625)
LOSS ON NON-MARKETABLE SECURITIES.......................................... (18,600) -- (107,400)
IMPAIRMENT OF LONG-LIVED ASSETS............................................ -- -- (99,000)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.......................................... (102,325) (39,779) (225,025)
PROVISION FOR INCOME TAXES................................................. -- -- --
----------- ----------- -----------
NET LOSS................................................................... $ (102,325) $ (39,779) $ (225,025)
ACCUMULATED DEFICIT, BEGINNING............................................. (156,252) (116,473) (178,200)
ISSUANCE OF COMMON STOCK IN EXCHANGE FOR INVESTMENT IN SUBSIDIARY.......... -- -- 286,752
----------- ----------- -----------
ACCUMULATED DEFICIT, ENDING................................................ $ (258,577) $ (156,252) $ (116,473)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
32
<PAGE>
WADE COOK FINANCIAL CORPORATION
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASHFLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995
- --------------------------------------------------------------------------- ----------- ---------- -----------
Net income (loss).......................................................... $ (102,325) $ (39,779) $ (225,025)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Impairment of long-lived assets............................................ -- -- 99,000
Loss on investment in non-marketable securities............................ 18,600 -- 107,400
Changes in assets and liabilities, net of effects from purchase of
companies:
Receivables................................................................ 1,378 (1,378) --
Due from subsidiaries...................................................... 7,099,341 (48,013) --
Accounts payable and accrued expenses...................................... (22,080) (19,316) 18,625
----------- ---------- -----------
TOTAL ADJUSTMENTS.......................................................... 7,097,239 (68,707) 225,025
----------- ---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.................................. 6,994,914 (108,486) 225,025
----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of non-marketable securities...................................... (4,828,101) -- --
Capital expenditures....................................................... (1,096,858) -- --
Payment for purchase of companies, net of cash acquired.................... (1,748,230) -- --
----------- ---------- -----------
NET CASH USED FOR INVESTING ACTIVITIES..................................... (7,673,189) -- --
----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock................................................... 72,481 108,486 --
Collection on subscription receivables and return of stock profits by
officer.................................................................. 638,294 -- --
----------- ---------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................................. 710,775 -- --
----------- ---------- -----------
NET INCREASE IN CASH....................................................... 32,500 -- --
CASH, beginning of year.................................................... -- -- --
----------- ---------- -----------
CASH, end of year.......................................................... $ 32,500 $ -- $ --
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
33
<PAGE>
MILLER AND CO.
Letterhead
March 26, 1998
Wade Cook Financial Corporation
14675 Interurban Avenue South
Seattle, Washington 98168
Dear Wade Cook Financial Corporation:
We hereby consent to the inclusion in the Form 10-K for the period ended
December 31, 1997, as filed by Wade Cook Financial Corporation, of the
financial statements and financial statement schedules audited by Miller and
Co. for the fiscal years ending 1997, 1996, and 1995, the notes thereto and
our reports and opinions thereon.
Very truly yours,
MILLER AND CO.
/s/ Marlon G. Buno
- -------------------------
Marlon G. Buno,
Partner
<PAGE>
LIMITED POWER OF ATTORNEY
1. APPOINTMENT OF ATTORNEY-IN-FACT. Now let it be known that I, Nick
Dettman, residing in Los Angeles, California, make, constitute, and
appoint Wade B. Cook, with original place of business at 14675
Interurban Avenue South, Seattle, WA 98168 to be my lawful
Attorney-in-Fact with the authority to exercise the powers as granted
and specified herein.
2. ENUMERATION OF ATTORNEY-IN-FACT'S POWERS. The powers granted to my
Attorney-in-Fact are:
ENDORSEMENT. To endorse the March 1998 SEC 10K Filing for Wade
Cook Financial Corporation on my behalf.
3. DURATION. This Power of Attorney will remain in force until revoked.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the 30th of March,
1998.
/s/ Nick Dettman
------------------------------
Nick Dettman, Principal
Board Member WCFC
/s/ Wade B. Cook
------------------------------
Wade B. Cook, Attorney-in-Fact
STATE OF _________________________)
) ss.
COUNTY OF ________________________)
On the _____ day of March, 1998 personally appeared before me
________________________________ signer of the above instrument, who duly
acknowledged to me that he or she executed the same.
My Commission Expires
<PAGE>
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
State of CALIFORNIA
County of LOS ANGELES
On MARCH 30, 1998, before me, S.D. YUNISKIS, NOTARY PUBLIC personally
appeared NICK DETTMAN
/ / personally known to me - OR - /X/ proved to me on the basis of
satisfactory evidence to be the person(s) whose name(s) is/are subscribed
to the within instrument and acknowledged to me that he/she/they executed
the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s) or the entity
upon behalf of which the person(s) acted, executed the instrument.
Witness my hand & official seal
[SEAL] /s/ S.D. Yuniskis
-------------------------------
Signature of Notary
OPTIONAL
Though the data below is not required by law, it may prove valuable to
persons relying on the document and could prevent fraudulent reattachment of
this form.
Capacity Claimed by Signer Description of Attached
Document
____ Individual(s)
____ Corporate Officer
______________________________ LIMITED POWER OF ATTORNEY
Title(s) ----------------------------
Title or Type of Document
Partner(s) ____ Limited
<PAGE>
LIMITED POWER OF ATTORNEY
1. APPOINTMENT OF ATTORNEY-IN-FACT. Now let it be known that I, Luara
Cook, residing in Issaquah, Washington, make, constitute, and appoint
Wade B. Cook, with original place of business at 14675 Interurban
Avenue South, Seattle, WA 98168 to be my lawful Attorney-in-Fact with
the authority to exercise the powers as granted and specified herein.
2. ENUMERATION OF ATTORNEY-IN-FACT'S POWERS. The powers granted to my
Attorney-in-Fact are:
ENDORSEMENT. To endorse the March 1998 SEC 10K Filing for Wade Cook
Financial Corporation on my behalf.
3. DURATION. This Power of Attorney will remain in force until revoked.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the 28 of March,
1998.
/s/ Laura Cook
------------------------------
Laura Cook, Principal
Board Member WCFC
/s/ Wade B. Cook
------------------------------
Wade B. Cook, Attorney-in-Fact
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
On the 28 day of March, 1998 personally appeared before me Laura M. Cook
signer of the above instrument, who duly acknowledged to me that he or she
executed the same.
My Commission Expires /s/ Jodi L. Coval
--------------------------
[SEAL] Notary Public
May 19, 2000 Name: Jodi L. Coval
<PAGE>
LIMITED POWER OF ATTORNEY
1. APPOINTMENT OF ATTORNEY-IN-FACT. Now let it be known that I, John
Childers, residing in Fulton, MS, make, constitute, and appoint
Wade B. Cook, with original place of business at 14675 Interurban
Avenue South, Seattle, WA 98168 to be my lawful Attorney-in-Fact with
the authority to exercise the powers as granted and specified herein.
2. ENUMERATION OF ATTORNEY-IN-FACT'S POWERS. The powers granted to my
Attorney-in-Fact are:
ENDORSEMENT. To endorse the March 1998 SEC 10K Filing for Wade Cook
Financial Corporation on my behalf.
3. DURATION. This Power of Attorney will remain in force until revoked.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the 26th of March,
1998.
/s/ John Childers
------------------------------
John Childers, Principal
Board Member WCFC
/s/ Wade B. Cook
------------------------------
Wade B. Cook, Attorney-in-Fact
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
On the 26th day of March, 1998 personally appeared before me John Childers
signer of the above instrument, who duly acknowledged to me that he or she
executed the same.
My Commission Expires /s/ Jodi L. Coval
--------------------------
[SEAL] Notary Public
05/19/2000 Name: Jodi L. Coval
<PAGE>
LIMITED POWER OF ATTORNEY
1. APPOINTMENT OF ATTORNEY-IN-FACT. Now let it be known that I, Robert
Hondel, residing in Graham, Washington, make, constitute, and appoint
Wade B. Cook, with original place of business at 14675 Interurban
Avenue South, Seattle, WA 98168 to be my lawful Attorney-in-Fact with
the authority to exercise the powers as granted and specified herein.
2. ENUMERATION OF ATTORNEY-IN-FACT'S POWERS. The powers granted to my
Attorney-in-Fact are:
ENDORSEMENT. To endorse the March 1998 SEC 10K Filing for Wade Cook
Financial Corporation on my behalf.
3. DURATION. This Power of Attorney will remain in force until revoked.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the 26th of March,
1998.
/s/ Robert Hondel
------------------------------
Robert Hondel, Principal
Board Member WCFC
/s/ Wade B. Cook
------------------------------
Wade B. Cook, Attorney-in-Fact
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
On the 26th day of March, 1998 personally appeared before me Robert Hondel
signer of the above instrument, who duly acknowledged to me that he or she
executed the same.
My Commission Expires /s/ Jodi L. Coval
--------------------------
[SEAL] Notary Public
May 19, 2000 Name: Jodi L. Coval
<PAGE>
LIMITED POWER OF ATTORNEY
1. APPOINTMENT OF ATTORNEY-IN-FACT. Now let it be known that I, Cheryle
Hamilton, residing in Renton, Washington, make, constitute, and appoint
Wade B. Cook, with original place of business at 14675 Interurban
Avenue South, Seattle, WA 98168 to be my lawful Attorney-in-Fact with
the authority to exercise the powers as granted and specified herein.
2. ENUMERATION OF ATTORNEY-IN-FACT'S POWERS. The powers granted to my
Attorney-in-Fact are:
ENDORSEMENT. To endorse the March 1998 SEC 10K Filing for Wade Cook
Financial Corporation on my behalf.
3. DURATION. This Power of Attorney will remain in force until revoked.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the 26th of March,
1998.
/s/ Cheryle Hamilton
------------------------------
Cheryle Hamilton, Principal
Board Member WCFC
/s/ Wade B. Cook
------------------------------
Wade B. Cook, Attorney-in-Fact
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
On the 26th day of March, 1998 personally appeared before me Cheryle
Hamilton signer of the above instrument, who duly acknowledged to me that he
or she executed the same.
My Commission Expires /s/ Jodi L. Coval
--------------------------
[SEAL] Notary Public
May 19, 2000 Name: Jodi L. Coval
<PAGE>
LIMITED POWER OF ATTORNEY
1. APPOINTMENT OF ATTORNEY-IN-FACT. Now let it be known that I, Robin
Anderson, residing in Bonnie Lake, Washington, make, constitute, and
appoint Wade B. Cook, with original place of business at 14675 Interurban
Avenue South, Seattle, WA 98168 to be my lawful Attorney-in-Fact with
the authority to exercise the powers as granted and specified herein.
2. ENUMERATION OF ATTORNEY-IN-FACT'S POWERS. The powers granted to my
Attorney-in-Fact are:
ENDORSEMENT. To endorse the March 1998 SEC 10K Filing for Wade Cook
Financial Corporation on my behalf.
3. DURATION. This Power of Attorney will remain in force until revoked.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the 27th of March,
1998.
/s/ Robin Anderson
------------------------------
Robin Anderson, Principal
Board Member WCFC
/s/ Wade B. Cook
------------------------------
Wade B. Cook, Attorney-in-Fact
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
On the 27th day of March, 1998 personally appeared before me Robin
Anderson signer of the above instrument, who duly acknowledged to me that he
or she executed the same.
My Commission Expires /s/ Jodi L. Coval
--------------------------
[SEAL] Notary Public
May 19, 2000 Name: Jodi L. Coval
<PAGE>
LIMITED POWER OF ATTORNEY
1. APPOINTMENT OF ATTORNEY-IN-FACT. Now let it be known that I, Eric
Marler, residing in Laie, Hawaii, make, constitute, and appoint Wade B.
Cook, with original place of business at 14675 Interurban Avenue South,
Seattle, WA 98168 to be my lawful Attorney-in-Fact with the authority
to exercise the powers as granted and specified herein.
2. ENUMERATION OF ATTORNEY-IN-FACT'S POWERS. The powers granted to my
Attorney-in-Fact are:
ENDORSEMENT. To endorse the March 1998 SEC 10K Filing for Wade Cook
Financial Corporation on my behalf.
3. DURATION. This Power of Attorney will remain in force until revoked.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the 26th of March,
1998.
/s/ Eric Marler
------------------------------
Eric Marler, Principal
Board Member WCFC
/s/ Wade B. Cook
------------------------------
Wade B. Cook, Attorney-in-Fact
STATE OF WASHINGTON )
)ss.
COUNTY OF KING )
On the 26th day of March, 1998 personally appeared before me Eric
Marler signer of the above instrument, who duly acknowledged to me that he
or she executed the same.
My Commission Expires /s/ Jodi L. Coval
--------------------------
[SEAL] Notary Public
May 19, 2000 Name: Jodi L. Coval
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEETS, STATEMENTS OF INCOME CHANGES IN SHAREHOLDERS EQUITY AND CASH
FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1997 JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1997 DEC-31-1996 DEC-31-1995
<CASH> 571 635 0
<SECURITIES> 6,163 3,801 0
<RECEIVABLES> 8,348 3,487 0
<ALLOWANCES> 58 0 0
<INVENTORY> 1,312 396 0
<CURRENT-ASSETS> 12,778 6,959 0
<PP&E> 12,055 7,496 0
<DEPRECIATION> 1,630 361 0
<TOTAL-ASSETS> 41,404 16,938 0
<CURRENT-LIABILITIES> 23,828 10,850 0
<BONDS> 821 1,769 0
0 0 0
0 0 0
<COMMON> 642 67 0
<OTHER-SE> 15,425 3,635 0
<TOTAL-LIABILITY-AND-EQUITY> 41,404 16,938 0
<SALES> 33,253 9,548 6,504
<TOTAL-REVENUES> 104,905 40,724 6,504
<CGS> 12,459 3,716 2,122
<TOTAL-COSTS> 39,068 15,683 2,877
<OTHER-EXPENSES> 50,099 20,302 3,234
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 309 263 33
<INCOME-PRETAX> 15,035 4,666 239
<INCOME-TAX> 6,063 1,601 171
<INCOME-CONTINUING> 8,992 3,064 68
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 8,992 3,064 68
<EPS-PRIMARY> 0.14 0.12 .002
<EPS-DILUTED> 0.14 0.12 .002
</TABLE>
<PAGE>
Exhibit 99.1
SHARE EXCHANGE AGREEMENT
THIS AGREEMENT (the "Agreement" and/or the "Share Exchange") is entered
into as of September 12, 1997, between Profit Financial Corporation, soon to
be Wade Cook Financial Corporation ("WADE"), a Utah corporation and Applied
Voice Recognition, Inc. ("AVRI"), a Utah corporation.
REPRESENTATION
1. WADE is a publicly traded corporation (ticker symbol "WADE")
organized and existing under the laws of the State of Utah.
2. AVRI is a publicly traded corporation (ticker symbol "AVRI")
organized and existing under the laws of the State of Utah.
AGREEMENT
In consideration of the foregoing recitals, the covenants and conditions
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. WADE will acquire 100,000 shares of the authorized but unissued
common stock of AVRI in exchange for 14,433 shares of the authorized
but unissued common stock of WADE in a dollar-for-dollar exchange
based on the closing price of each stock as of the date of this
agreement.
2. Each party shall sign an investment letter pursuant to Rule 144 upon
receiving the shares.
3. Each of WADE and AVRI shall take, or cause to be taken, all action
or do, or cause to be done, all things necessary, proper or advisable
under the laws of the State of Utah to consummate and make effective
the Share Exchange.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this AGREEMENT as of the date first set forth above.
APPLIED VOICE RECOGNITION, INC. PROFIT FINANCIAL CORPORATION
__________________________ ___________________________
By: Timothy J. Connolly By: Wade B. Cook
Its: Chairman & CEO Its: President
<PAGE>
Share Exchange Agreement
THIS AGREEMENT (the "Agreement" and/or the "Share Exchange") is entered
into as of September 2, 1997, between Wade Cook Financial Corporation
("WCFC"), a Nevada corporation, and Thomas Cloward, a resident of Washington
("Cloward").
REPRESENTATION
A. WCFC is a corporation organized and existing under the laws of the
State of Nevada.
B. The authorized capital stock of WCFC consists of One Hundred Forty
Million (140,000,000) of which One Hundred Forty Million shares of common
stock, par value $0.01, of which approximately Sixty Million Four Hundred
Thirty Five Thousand shares are duly issued and outstanding on the date
hereof and Five Million shares of preferred stock, par value $10.00, none of
which are issued and outstanding.
C. PDC is a corporation organized and existing under the laws of the
State of Utah whose audited financial statements are attached hereto as
Exhibit B and are complete and accurate.
D. The authorized capital stock of PDC consists of One Million
(1,000,000) shares divided into One Million shares of common stock, par value
$1.00, of which approximately Ninety One Thousand Five Hundred shares are
duly issued and outstanding on the date hereof and no shares of preferred
stock.
E. WCFC and PDC enter into this Agreement whereby WCFC will acquire
all of the issued and outstanding stock of PDC by issuing 10,000 restricted
shares of common stock of WCFC to the shareholders of PDC in exchange for
shares of common stock of PDC held by them at an exchange rate of one share
of WCFC for each one share of PDC held. WCFC and PDC intend the exchange to
qualify as a tax-free reorganization under Section 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended.
AGREEMENT
In consideration of the foregoing recitals, the covenants and conditions
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
<PAGE>
1. Share Exchange; Effectiveness
The shareholders of shares of Common Stock of PDC shall exchange their
shares for his or her proportionate share of 10,000 newly issued shares of
Common Stock of WCFC in accordance with the terms and conditions of this
Agreement. Upon the execution of this Agreement by PDC and WCFC the date for
the effectiveness of this Agreement (the "Effective time of the Share
Exchange") shall be the date at which PDC shareholders owning 100% of the PDC
shares tender their shares to WCFC.
2. Exchange of Shares
At the Effective Time of the Share Exchange:
(a) Each shareholder of PDC shall be issued his or her proportionate
share(s) of fully paid and nonassessable common stock of WCFC as stated in
section 1. Each shareholder of PDC shall sign an investment letter pursuant
to Rule 144 upon receiving WCFC shares.
(b) All shares of capital stock of PDC that are tendered to WCFC shall
be retained by WCFC and PDC shall become a wholly owned subsidiary of WCFC.
. Implementation
Each of WCFC and PDC shall take, or cause to be taken, all action or do,
or cause to be done, all things necessary, proper or advisable under the laws
of the State of Utah and the State of Nevada to consummate and make effective
the Share Exchange.
4. Amendment
This Agreement may, to the extent permitted by law, be amended,
supplemented or interpreted at any time by action taken by the Board of
Directors of both of PDC and WCFC; provided, however, that this Agreement
may not be amended or supplemented after having been approved by the
shareholders of PDC except by a vote or consent of shareholders in accordance
with applicable law.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first set forth above.
<PAGE>
PUBLISHERS DISTRIBUTION CENTER, INC.
_____________________________
By: William Beutler
_____________________________
By: Cora Beutler
_____________________________
By: Scott Beutler
_____________________________
By: Delvin Jenks
WADE COOK FINANCIAL CORPORATION
_____________________________
By: Wade B. Cook,
Chairman and Chief Executive Officer
<PAGE>
Exhibit 99.3
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") for the purchase of
the common stock of Worldwide Publishers, Inc., a Utah corporation (the
"Corporation") is made as of August 8, 1997, between Profit Financial
Corporation, a Utah corporation ("Buyer") and Curtis A. Taylor and Stanley J.
Zenk ("Sellers").
RECITALS
WHEREAS, Sellers own all of the issued and outstanding shares of
capital stock of the Corporation, a Utah corporation, which consists of forty
thousand (40,000) shares of common stock with no par value, (the "Common
Stock").
WHEREAS, Buyer desires to purchase from Sellers, and Sellers desire to
sell to Buyer, all of the Common Stock (the "Stock Purchase");
WHEREAS, the Stock Purchase will completely terminate Seller's
interest in the Corporation;
WHEREAS, the parties hereto desire to complete the Stock Purchase upon
the terms and conditions hereinafter stated;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, it is agreed as follows:
AGREEMENT
1. Sale of Stock. Sellers hereby agree to sell and deliver to Buyer, and
Buyer hereby agrees to purchase from Sellers, all of the issued and outstanding
shares of capital stock of the Corporation, comprised of forty thousand (40,000)
shares of common stock (the "Common Stock").
2. Purchase Price and Payment. The purchase price for the Common
Stock shall be One Dollar ($1.00).
3. Closing. Unless otherwise agreed by the parties, the closing
shall occur on or before September 25, 1997, at 11:00 a.m. (the "Closing"), at
the offices of Monahan & Biagi, P.L.L.C., or at such other time and place as the
parties may agree upon. At the Closing, Sellers shall deliver, or cause to be
delivered, to Buyer the certificates representing the Common Stock, duly
endorsed in blank and in good order for transfer, the corporate minute book,
seal, and the stock records of the Corporation. At Closing Buyer shall pay the
Purchase Price to Sellers. At or upon Closing, the parties shall execute all
other documents and take such other actions as are reasonably necessary to carry
out the terms of this Agreement and consummate the transactions contemplated
hereby.
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<PAGE>
4. Representations and Warranties of Sellers. Sellers jointly and
severally represent and warrant to Buyer as follows:
a. Authority. Sellers have the authority to enter into this
Agreement and to carry out their obligations hereunder. Sellers represent that
this Agreement is a valid and binding obligation of Sellers. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby nor compliance by Sellers with any of the
provisions hereof will result in a default (or give rise to any right of
termination, cancellation, or acceleration) under any of the terms conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or other
instrument or obligation to which either Seller is a party, or by which they or
any of their properties or assets may be bound.
b. Clear Title. Sellers are the owners, free and clear of any
encumbrances, of all the outstanding shares in the Corporation.
c. Financial Statements. Sellers have furnished Buyer a
Corporation balance sheet as of August 26, 1997 (the "Balance Sheet"), and the
related statements of income and changes in financial position for the periods
then ended. Such financial statements are in accordance with generally accepted
accounting principles and fairly present the financial position and the results
of operations, and changes in financial position of the Corporation for the
periods indicated.
d. Absence of Undisclosed Liabilities. There is no material
liability or other obligation of a type which would be included in a balance
sheet prepared in accordance with generally accepted accounting principles
except as and to the extent disclosed or reflected in the Balance Sheet. For
purposes of this Agreement, liabilities or other obligations in excess of Five
Thousand Dollars ($5,000.00) shall be deemed material. If any undisclosed
material liability arises, Sellers shall reimburse Buyer and/or the Corporation
up to an aggregate maximum of $275,000.
e. No Material Change. Since the date of the Balance Sheet, there
has been no material adverse change in the working capital, financial condition,
property assets, or results of operations of Corporation.
f. Tax Matters. Sellers have caused the Corporation to file all
federal, state and local tax returns required to be filed or have received
extension to file such returns. All taxes shown by such returns to be due and
payable have been paid or are being contested in good faith. Any taxes due in
excess of those listed on the financial statements shall be treated as an
undisclosed liability pursuant to Section 4.d of this Agreement.
g. Legal Proceedings and Compliance with Law. Except as set
forth in Corporation's financial statements, there is no legal or administrative
proceeding or governmental investigation pending or threatened which might
result in the aggregate in
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<PAGE>
money damages payable by Corporation in excess of insurance coverage, or which
might result in a permanent injunction against Sellers. Corporation has
substantially complied with any laws, ordinances, requirements, regulations, or
orders applicable to its business, the violation of which might adversely affect
its business.
h. Accuracy of Statements. Neither this Agreement nor any
statement or other information furnished or to be furnished by Sellers to Buyers
in connection with this Agreement or any of the transactions contemplated hereby
contains or will contain an untrue statement of material fact, or omits or will
omit to state a material fact necessary to make the statements contained herein
or therein not misleading.
5. Representations and Warranties of Buyer. Buyer represents and
warrants to Sellers as Follows:
a. Authority. Buyer has the authority to enter into this
Agreement and to carry out its obligations hereunder. Buyer represents that
this Agreement is a valid and binding obligation of Buyer.
b. Accuracy of Statements. Neither this Agreement nor any
statement or other information furnished by Buyer to Sellers in connection with
this Agreement or any of the transactions contemplated hereby contains or will
contain an untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained herein or therein, not
misleading.
6. Covenants of Sellers. Sellers agree that, unless Buyer otherwise
agrees in writing, from the date of this Agreement until Closing;
a. Preservation of Business. Sellers shall use their best
efforts to preserve intact the Corporation's present business organization;
preserve and protect the goodwill and advantageous relationships of the
Corporation with its customers and other persons having business dealings with
the Corporation; preserve and maintain in force all licenses, permits,
registrations, trade names, service marks, copyrights, bonds and other similar
rights of the Corporation; and cause the Corporation to comply with all laws
applicable to the conduct of its business.
b. Ordinary Course. Sellers shall cause the Corporation to conduct
its business only in the usual, regular and ordinary course, in substantially
the same manner as previously, and shall not make any substantial change to
their methods of management or operation in respect of the Corporation.
c. Books and Records. Sellers shall cause the Corporation to
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<PAGE>
maintain its books, accounts and records in the usual and regular manner, in
accordance with generally accepted accounting principles consistently applied
and in compliance with all applicable laws.
d. Investigation. Sellers shall at all reasonable times permit Buyer
access to the Corporation's property, books and records for the purpose of
permitting a complete and detailed examination by Buyer, and Sellers shall
furnish Buyer, upon request, any information reasonably requested with respect
to the Corporation's property, assets, business and affairs.
7. Covenants of Buyer. Buyer agrees, unless Sellers otherwise agree
in
writing, that Buyer shall obtain prior to Closing all necessary consents and
approvals of all necessary persons to the performance by Buyer of the Stock
Purchase contemplated by this Agreement. Buyer shall make all filings
applications, statements and reports to all federal and state government
agencies or entities which are required to be made prior to Closing by or on
behalf of Buyer pursuant to any statute, rule or regulation in connection with
the transactions contemplated by this Agreement.
8. Seller's Negative Covenants. Sellers hereby covenant and warrant
that, from the date of this Agreement until Closing, they will not, without the
prior written consent of the Buyer, cause the Corporation to declare or pay and
dividend; redeem or otherwise acquire any shares of its capital stock now or
hereafter outstanding; issue any new or additional shares, or cancel, sell,
transfer or otherwise dispose of the Stock purchased hereunder. Sellers further
covenant that they will not cause the Corporation to create any additional
obligations to employees that will survive Closing, including, but not limited
to, employee benefit plans, bonuses, and other compensation.
9. Conditions Precedent to Obligations of Sellers. The obligations
of Sellers under this Agreement are subject to the satisfaction of the following
conditions on or before Closing unless waived in writing by Sellers;
a. Accuracy of Representations and Warranties. The
representations and warranties of buyer set forth in Section 5 hereof shall be
true and correct in all material respects as of the date of this Agreement and
as of closing as though made on and as of Closing, except as otherwise specified
by this Agreement.
b. Performance of Obligations of Buyer. Buyer shall have in all
material respects performed all obligations and agreements and complied with all
covenants and conditions contained in this Agreement to be performed and
complied with by them.
c. Corporate Action. The Corporation and its shareholders and
Board of Directors shall have passed all necessary resolutions and performed all
other actions necessary authorizing the transactions contemplated by this
Agreement.
10. Conditions Precedent to Obligations of Buyer. The obligations of
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<PAGE>
Buyer to perform under this Agreement are subject to the satisfaction of the
following conditions on or before Closing unless waived in writing by Buyer:
a. Accuracy of Representation and Warranties. The
representations and warranties of Sellers set forth in Section 5 hereof shall be
true and correct in all material respects as of the date of this Agreement and
as of the closing date as though made on and as of Closing, except as otherwise
specified by this Agreement.
b. Performance of Obligations of Sellers. Sellers shall have
in all material respects performed all obligations and agreements and complied
with all covenants and conditions contained in this Agreement required to be
performed and complied with by them.
c. No Adverse Change. Between the date of this Agreement and
Closing, there shall have been no material adverse change in the Corporation's
business, assets or results or operation.
d. Corporate Action. The Corporation and its shareholders and
Board of Directors shall have passed all necessary resolutions and performed all
other actions necessary authorizing the transactions contemplated by this
Agreement.
11. Cancellation of Notes and Pledge. Sellers currently hold unpaid
promissory notes from the Corporation totaling approximately $44,236.85 (the
"Notes"). By executing this Agreement, the Sellers hereby waive and
relinquish all powers and rights with respect to the Notes or collection
thereof. On August 8, 1997, Curtis A. Taylor signed a Pledge of Shares of
Stock as security for two Notes held by Buyer. By executing this Agreement,
Buyer hereby cancels and terminates the Pledge of Shares of Stock signed by
Curtis A. Taylor.
12. Survival of Representations and Warranties. Each party hereto
covenants and agrees that its representations and warranties contained in this
Agreement, and in any document delivered or to be delivered pursuant to this
Agreement in connection with Closing hereunder, shall survive Closing.
13. Successors. This Agreement shall inure to the benefit of and be binding
upon the parties hereto, their successors, heirs, personal representatives, and
assigns.
14. Notices. All notices, requests, demands, and other communications
which are required or may be given under this Agreement shall be in writing,
unless otherwise specified in this Agreement, and shall be deemed to have been
duly given if delivered personally or sent by certified mail, return receipt
requested, postage prepaid, addressed as follows:
If to Sellers: Stanley J. Zenk
5
<PAGE>
5421 Buck Mountain Road
Placerville, CA 95667
With a copy to: David J. Crapo
Wood Crapo LLC
60 East South Temple, #500
Salt lake City, UT 84111
If to the Buyer: Kiman Lucas, Esq.
General Counsel
Profit Financial Corporation
14675 Interurban Avenue South
Seattle, WA 98168-4664
With a copy to: Tracy M. Shier
Monahan & Biagi, P.L.L.C.
57th Floor, Suite 5701
701 Fifth Avenue
Seattle, WA 98104-7010
or to such other addresses any party shall have specified by notice in writing
to the other.
15. Applicable Law. This Agreement and the legal relations between the
parties hereto shall be governed by and in accordance with the law of the State
of Utah.
16. Attorney's Fees. In any action or proceeding brought by any party
against the other, the substantially prevailing party shall, in addition to
other allowable costs, by entitled to an award of reasonable attorney's fees.
17. Headings. The section and other headings contained in this Agreement
are for reference purposes only and shall not affect the meaning and
interpretation of this Agreement.
18. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
6
<PAGE>
Sellers:
__________________________________________
Curtis Taylor
__________________________________________
Stanley J. Zenk
Buyer:
PROFIT FINANCIAL CORPORATION
__________________________________________
Wade B. Cook
Its Chairman and Chief Executive Officer
7
<PAGE>
8
<PAGE>
EXHIBIT 99.4
STOCK PURCHASE AGREEMENT
Effective as of the 1st day of August, 1997, Wade Cook Financial
Corporation, or its assignee (the "Buyer"), agrees to acquire from John V.
Childers, Sr., Brenda Childers, Tracy Allan Childers and John V. Childers,
Jr. (collectively the "Sellers") all of the outstanding capital stock of
Ideal Travel Concepts, Inc., a Florida corporation (the "Company") for a
purchase price of US $2,150,000, to be paid as set forth as herein. The
Buyer and the Sellers are referred to collectively herein as the "Parties".
The $2,150,000 purchase price will be payable on the Closing Date
(hereinafter defined) subject to the shares of the Company being free and
clear of all liens and encumbrances of any kind or nature whatsoever on the
Closing Date.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Adverse Consequences" means all charges, complaints, actions, suits,
proceedings, hearings, investigations, claims, demands, judgments, orders,
decrees, stipulation, injunctions, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses,
expenses, and fees, including all reasonable attorneys' fees and court costs.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
"Affiliated Group" has the meaning set forth in Code Sec. 1504(a).
"Applicable Rate" means the announced prime rate in effect from
time to time at Chase Manhattan Bank, N.A.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could reasonably be expected to
form the basis for any specified consequence.
"Buyer" has the meaning set forth in the preface above.
"Closing" has the meaning set forth in Paragraph 2.3. below.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
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"Company" has the meaning set forth in the preface above.
"Company Share" means any share of capital stock of the Company, including
the Common Stock and the Preferred Stock.
"Closing Date" is the date of Closing agreed to by the parties provided
it is no later than 30 days after the date of execution of this Stock
Purchase Agreement.
"Confidential Information" means trade secrets and other information not
generally known concerning the Company.
"Disclosure Schedule" has the meaning set forth in Paragraph 4 below.
"Employee Benefit Plan" means a qualified defined contribution
retirement plan or arrangement, which is a Code Section 401(k) Plan, or a
Company or Seller provided retirement plan.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(1).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Extremely Hazardous Substance" has the meaning set forth in Sec. 302 of
the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA Sec. 3(21).
"Financial Statements" has the meaning set forth in Paragraph 4.5 below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Indemnified Party" has the meaning set forth in Paragraph 8.3 below.
"Indemnifying Party" has the meaning set forth in Paragraph 8.3 below.
"Intellectual Property" means all (a) trademarks, service marks, trade
dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, -C- mask works and registrations and
applications for registration thereof, (d) computer software, data, and
documentation, (e) trade secrets and confidential business information
(including ideas, formulas, compositions, inventions (whether patentable or
unpatentable and whether or not reduced to practice), know-how, manufacturing
and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, copyrightable works, financial,
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<PAGE>
marketing, and business data, pricing and cost information, business and
marketing plans, and customer and supplier lists and information), (f) other
proprietary rights, and 9g) copies and tangible embodiments thereof (in
whatever form or medium).
"Knowledge or Known" means knowledge a reasonable person would or should
have after reasonable investigation.
"Liability" means any liability, Known or unknown at the time of Closing
(whether absolute or contingent, whether liquidated or unliquidated, and
whether due or to become due), including any liability for Taxes.
"Most Recent Balance Sheet Date" has the meaning set forth on Paragraph 4.5
below.
"Most Recent Fiscal Year End" has the meaning set forth in Paragraph 4.5
below.
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"Party" or "Parties" means the Buyer and/or the Sellers in this Agreement.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Prohibited Transaction" has the meaning set forth in ERISA Sec. 406 and
Code Sec. 4975.
"Purchase price" has the meaning set forth in Paragraph 2.2 below.
"Reportable Event" has the meaning set forth in ERISA Sec. 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien, other than (a) mechanic's, materialmen's
and similar liens arising by operation of law in the ordinary course of
business with respect to obligations not yet delinquent, (b) liens for Taxes
not yet due and payable, -C- liens arising under worker's compensation,
unemployment insurance, social security, retirement, and similar legislation,
(d) liens arising in connection with sales of foreign receivables, (e) liens
on goods in transit incurred pursuant to documentary letters of credit, (f)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (g) other liens arising in the Ordinary Course of Business
and not incurred in connection with the borrowing of money.
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<PAGE>
"Sellers" has the meaning set forth in the preface above.
"Subsidiary" means any corporation with respect to which another
specified corporation has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, occupation,
premium, environmental (including taxes under Code Sec. 59A), customs duties,
capital stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest,
penalty, or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
2. Purchase and Sale of Company
2.1. Basic Transaction. On and subject to the terms and conditions of
this Agreement, the Buyer agrees to purchase from the Sellers, and the
Sellers agree to sell to the Buyer, all of the issued and outstanding Shares
of the Company for the consideration specified below in this Paragraph 2.
2.2 Purchase Price. The Buyer agrees to issue to the Sellers on the
Closing Date a total of 358,333 shares of restricted Class A Common Stock of
Buyer (the "Purchase Shares") of which John V. Childers, Sr., Brenda Childers
and Tracy Alan Childers each shall be issued 107,500 shares, and John V.
Childers, Jr. Shall be issued 35,833 shares, as adjusted for any
recapitalizations of Company Shares since the effective date of this
Agreement. The price per share of the Purchase Shares is agreed to be $6.00
per share, for a total consideration of $2,150,000.
2.3 The Closing. The closing of the transactions (the "Closing")
contemplated by this Agreement which shall be the same day as the Closing
Date, shall take place at the offices of Monahan & Biagi, P.L.L.C. in
Seattle, Washington commencing at 11:00 a.m. local time on December 30, 1997
or such other date or place as the Buyer and the Seller may mutually
determine.
2.4 Deliveries at the Closing. At the Closing, (i) the Sellers will
deliver to the Buyer the various certificates, instruments, and documents
referred to in Paragraph 7.1 below, (ii) the Buyer will deliver to the
Sellers the various certificates, instruments, and documents referred to in
Paragraph 7.2 below,
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<PAGE>
(iii) Sellers will deliver to the Buyer stock certificates representing all
Company Shares, endorsed in blank or accompanied by duly executed assignment
documents, and (iv) the Buyer will instruct its transfer agent to deliver to
the Sellers the Purchase Shares.
3. Representations and Warranties Concerning the Transaction.
3.1 Representations and Warranties of the Sellers. The Sellers,
jointly and severally, represent and warrant to the Buyer that the statements
contained in this Paragraph 3 are correct and complete upon execution of this
Agreement except as set forth in the Schedules attached hereto.
3.1.1 Authorization of Transaction. The Sellers have full
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Sellers, enforceable in accordance with its terms
and conditions. The Sellers need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions contemplated by
this Agreement.
3.1.2 Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any statute, regulation, rule, judgment, order,
decree, stipulation, injunction, charge, or other restriction of any
government, governmental agency, or court to which the Sellers or the Company
are subject or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
material contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which the Sellers or
the Company are a party or by which any of themare bound or to which any of
their assets are subject. In addition, all governmental and other consents
and approvals, if any, necessary to permit the confirmation of the
transaction contemplated by this Agreement shall have been received.
3.1.3 Broker's Fees. The Sellers have no Liability or
obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement for which the
Buyer or the Company could become liable or obligated.
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3.1.4 Company Shares. The Sellers hold of record and own
beneficially all of the issued and outstanding Company Shares, free and clear
of any restrictions on transfer (other than any restrictions under the
Securities Act and state securities laws), claims, Taxes, mortgage, pledge,
security interest, encumbrance, charge, other lien, options, warrants,
rights, contracts, calls, commitments, equities, and demands. None of the
Sellers is a party to any option, warrant, right, contract, call, put, or
other agreement or commitment providing for the disposition or acquisition of
any capital stock of the Company 9other than this Agreement). None of the
Sellers is a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of the Company.
3.1.5 Due Diligence. The Sellers agree to make available to
the Buyer and its agents, officers, and representatives, all information as
the Buyer may reasonably require to permit the Buyer to complete its Due
Diligence review of the Company and this transaction up to and through the
Closing Date.
3.1.6 Consent of third parties. The Sellers shall obtain the
consent of any third parties which may be necessary as the result of this
transaction, including, but not limited to, the transfer of the rights and
obligations of the Company under its Agreements with Airlines Reporting
Corporation (ARC") and the International Airlines Travel Agent Network
("IATAN"); the consent of such of the Company's lessors as are required to
the transaction and the consent of any regulatory authorities or parties to
existing contracts between the third party and the Company or the Sellers,
provided, however, that with respect to the consent of ARC and IATAN, Sellers
shall have up to six months after the Closing Date to obtain such consents.
3.1.7 Seller's Sophistication. The Sellers are persons of
adequate financial sophistication and have such knowledge and experience in
financial and business matters that Sellers have evaluated the merits and
risks of this transaction for Seller's own accounts.
3.1.8 Investment Objective. Sellers are acquiring the Purchase
Shares pursuant to this Agreement for investment for their own account and
not with a view to the sale or distribution of any part thereof. Sellers
have no present intention of selling, granting participation in or otherwise
distributing the same. Sellers acknowledge that the Purchased Shares have
been offered and transferred pursuant to exemptions from registration under
the Securities Act and relevant state securities laws and that the reliance
of the Buyer upon such exemptions is predicated on
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the accuracy of Sellers' representations and warranties herein. Sellers have
no current intention with respect to any such future sale.
3.1.9 Restrictions on Purchased Shares. Sellers acknowledge
and agree that the Purchased Shares are being issued without registration
under the Securities Act or any similar state statute, and will ear the
following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act") or any state
securities laws in reliance on applicable exemptions therefrom.
Accordingly, the transfer or resale of these shares is restricted and
may only be accomplished when accompanied by an opinion of counsel that
such transfer or resale is exempt from the registration requirements of
the act or state laws."
3.2 Representations and Warranties, of the Buyer. The Buyer represents
and warrants to the Sellers that the statements contained in this Paragraph
3.2 are correct upon execution of this Agreement.
3.2.1 Organization of the Buyer. The Buyer is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Utah as of the effective date of this Agreement, and duly
incorporated under the laws of the State of Nevada as of the Closing Date.
3.2.2 Authorization of Transaction. The Buyer has full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the Buyer,
enforceable in accordance with its terms and conditions. The Buyer need not
give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
3.2.3 Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any statute, regulation, rule, judgment, order,
decree, stipulation, injunction, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is subject or
any provision of its charter or bylaws or (B) to the best of Buyer's
knowledge, conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any contract,
lease, sublease, license, sublicense, franchise, permit,
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indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest, or other arrangement to which the Buyer is a
party or by which it is bound or to which any of its assets is subject.
3.2.4 Broker's Fees. The Buyer has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect
to the transactions contemplated by this Agreement for which Sellers could
become liable or obligated.
3.2.5 Investment. The Buyer is not acquiring the Company
Shares with a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act. Buyer represents and warrants it
understands the Company Shares have not been registered under the Securities
Act and, therefore, cannot be resold unless subsequently registered under the
Securities Act or an exemption from regulation is available.
3.2.6 Purchase Shares. The Purchase Shares, when issued, shall
be newly issued shares of Buyer, and shall be delivered free and clear of any
restrictions on transfer (other than restrictions under this Agreement, the
Pledge Agreement, the Securities Act and state securities laws), claims,
taxes, mortgage, pledge, security interest, encumbrance, charge, other lien,
options, warrants, rights, contracts, calls, commitments, equities and
demands.
4. Representations and Warranties of the Sellers Concerning the Company.
The Sellers, jointly and severally, represent and warrant to the Buyer that
the statements contained in this Paragraph 4 are correct and complete upon
execution of this Agreement, except as set forth in the disclosure schedule
delivered by the Sellers to the Buyer on the date hereof and initialed by the
Parties (the "Disclosure Schedule" and as contained in Annex I hereto).
Nothing in the Disclosure Schedule shall be deemed adequate to disclose an
exception to a representation or warranty made herein, however, unless the
Disclosure Schedule identifies the material facts of the exception. Without
limiting the generality of the foregoing, the mere listing (or inclusion of a
copy) in the Disclosure Schedule of a document, or reference to a document,
as an exhibit, schedule or otherwise part of this Agreement, may not be
deemed adequate to disclose an exception to a representation or warranty made
herein (unless the representation or warranty has to do with the existence of
the document itself). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this
Paragraph 4.
4.1 Organization, Qualification and Corporate Power. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the state of Florida. The Company is duly authorized to conduct
business and is in good standing under the laws of each jurisdiction in which
the
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nature of its businesses or the ownership or leasing of its properties
requires such qualification except where the failure to qualify will not
individually or in the aggregate have a material adverse effect on the
Company ("no material adverse effect"). The Company has full corporate power
and authority to carry on the businesses in which it is engaged and to own
and use the properties owned and used by it. Paragraph 4.1 of the Disclosure
Schedule lists the directors and officers of the Company. The Sellers have
delivered to the Buyer correct and complete copies of the charter and bylaws
of the Company (as amended to date). The minute books containing the records
of meetings of the stockholders, the board of directors, and any committees
of the board of directors, the stock certificate books, and the stock record
books of the Company are correct and complete. The Company is not in default
under or in violation of any provision of its charter or bylaws.
4.2 Capitalization. The entire authorized capital stock of the Company
consists of 1,000 shares of Common Stock, $1.00 par value, of which 1,000
Company Shares are issued. All of the issued Company Shares have been duly
authorized, are validly issued, fully paid, and nonassessable, and are held
beneficially and of record by the Sellers. There are no outstanding or
authorized options, warrants, rights, contracts, calls, puts, rights to
subscribe, conversion rights, or other agreements or commitments to which the
Company is a party or which are binding upon the Company providing for the
issuance, disposition, or acquisition of any of its capital stock. There are
no outstanding or authorized stock appreciation, phantom stock, or similar
rights with respect to the Company. There are no voting trusts, proxies, or
any other agreements or understandings with respect to the voting of the
capital stock of the Company.
4.3 Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any statute, regulation, rule, judgment, order, decree,
stipulation, injunction, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject or any
provision of the charter or bylaws of the Company or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or
cancel, or require any notice under any material contract, lease, sublease,
license, sublicense, franchise, permit, indenture, agreement or mortgage for
borrowed money, instrument of indebtedness, Security Interest, or other
arrangement to which the Company is a party or by which either is bound or to
which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets). The Company does not need to give
any notice to, make any filing with, or obtain any authorization, consent, or
approval of any government or governmental
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agency in order for the Parties to consummate the transactions contemplated
by this Agreement.
4.4 Subsidiaries. The company has no Subsidiaries, and owns no interest
in any corporation, partnership, joint venture or other entity.
4.5 Financial Statements. Attached hereto as Exhibit B are the following
financial statements (collectively the "Financial Statements"):
(i) unaudited balance sheets and statements of income, changes in
stockholders' equity, and cash flow as of and for the fiscal year ended
December 31, 1996 (the "Most Recent Fiscal Year End") as well as for the
Fiscal Years ended 1994 and 1995 for the Company; and
(ii) unaudited balance sheets and statements of income, changes in
stockholders' equity, and cash flow as of and for the nine month period
ending September 30, 1997 (the "Most Recent Balance Sheet" or the "Most
Recent Balance Sheet Date") for the Company.
The Financial Statements have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby, are
correct and complete, and are consistent with the books and records of the
Company (which books and records are correct and complete).
4.6 Events Subsequent to Most Recent Balance Sheet Date. Since the
Most Recent Balance Sheet Date, there has not been any material adverse
change in the assets, liabilities, business, financial condition, operations,
results of operations, or to the best of Sellers' knowledge, future prospects
of the Company taken as a whole. Without limiting the generality of the
foregoing, since that date:
4.6.1 the Company has been managed and operated in its usual and
customary manner.
4.6.2 the Company has not sold, leased, transferred, or
assigned any material assets, tangible or intangible, in an amount of more
than $15,000 other than for a fair consideration or in the Ordinary Course of
Business;
4.6.3 the Company has not entered into any contract, lease,
sublease, license, or sublicense (or series of related contracts, leases,
subleases, licenses, and sublicenses) either involving more than $15,000 or
outside the Ordinary Course of Business or involving a contract for a term of
more than one year;
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4.6.4 to the best of Sellers' knowledge, no party (including
the Company) has accelerated, terminated, modified, or canceled any contract,
lease, sublease, license, or sublicense (or series of related contracts,
leases, subleases, licenses, and sublicenses) outside the Ordinary Course of
Business involving more than $15,000 to which the Company is a party or by
which the Company is bound;
4.6.5 the Company has not granted any Security any Security
Interest in any of its assets, tangible or intangible;
4.6.6 the Company has not made any capital expenditure (or
series of related capital expenditures) involving more than $15,000 or which
is outside the Ordinary Course of Business;
4.6.7 the Company has not made any capital investment in, any
loan to, or any acquisition of the securities or assets of any other person
(or series of related capital investments, loans, and acquisitions) either
involving more than $15,000 or outside the Ordinary Course of Business;
4.6.8 the Company has not created, incurred, assumed, or
guaranteed any indebtedness (including capitalized lease obligations) either
involving more than $15,000 singly or $15,000 in the aggregate or outside the
Ordinary Course of Business;
4.6.9 the Company has not delayed or postponed (beyond its normal
practice) the payment of accounts payable and other Liabilities;
4.6.10 the Company has not canceled, compromised, waived, or
released any right or claim (or series of related rights and claims) either
involving more than $15,000 or outside the Ordinary Course of Business;
4.6.11 the Company has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
4.6.12 there has been no change made or authorized in the charter
or bylaws of the Company;
4.6.13 the Company has not issued, sold, or otherwise disposed
of any of its capital stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion or exercise) any of
its capital stock;
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4.6.14 the Company has not declared, set aside, or paid, or
otherwise distributed to shareholders, any cash or dividends or any other
distribution with respect to its capital stock or redeemed, purchased, or
otherwise acquired any of its capital stock. Nor shall the Company directly
or indirectly redeem, purchase or otherwise acquire any capital, stock, or
other equity interest in any corporation, partnership or other business
entity without prior written consent of the Buyer (which consent will not be
unreasonably withheld);
4.6.15 the Company has not experienced any material damage,
destruction, or loss (whether or not covered by insurance) to its property
involving an amount in excess of $15,000;
4.6.16 the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees either
involving more than $15,000 or outside the Ordinary Course of Business giving
rise to any claim or right on its part against the person or on the part of
the person against it;
4.6.17 the Company has not entered into any employment contract
or collective bargaining agreement, written or, to the best of Sellers'
Knowledge, oral, or, modified the terms of any existing such contract or
agreement;
4.6.18 the Company has not granted any increase outside the
Ordinary Course of Business in the base compensation of any of its directors,
officers, and employees;
4.6.19 the Company has not adopted any (A) bonus, (B)
profit-sharing, -C- incentive compensation, (D) pension, (E) retirement, (F)
medical, hospitalization, life, or other insurance, (G) severance, or (H)
contract, or commitment for any of its directors, officers, or employees, or
modified or terminated any existing such plan, contract, or commitment;
4.6.20 the Company has not made any other material change in the
management, capital structure, personnel or employment terms for any of its
directors, officers, and employees outside the Ordinary Course of Business;
4.6.21 the Company has not made or pledged to make any
charitable or other capital contribution outside the Ordinary Course of
Business;
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4.6.22 there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary Course
of Business involving the Company; and
4.6.23 the Company has not committed to any of the foregoing in
this Paragraph 4.6 except as qualified above.
4.7 Undisclosed Liabilities. The company has no material Liability
(and there is no Basis for any present or future charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand against the
Company giving rise to any material Liability, except for (i) Liabilities set
forth on the face of the Most Recent Balance Sheet Date (rather than in any
notes thereto) and (ii) Liabilities which have arisen after the Most Recent
Balance Sheet Date in the Ordinary Course of Business (none of which relates
to any breach of contract, breach of warranty, tort, infringement, or
violation of law or arose out of any charge, complaint, action, suit,
proceeding, hearing, investigation, claim, or demand).
4.8 Tax Matters.
4.8.1 The Company has filed all Tax Returns that it was
required to file. All such Tax Returns were correct and complete in all
material respects. All Taxes owed by the Company (whether or not shown on
any Tax Return) have been paid. The Company is currently not the beneficiary
of any extension of time within which to file any Tax Return. No claim has
been made by any authority in a jurisdiction where the Company does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction.
There are no Security Interests on any of the assets of the Company that
arose in connection with any failure (or alleged failure) to pay any Tax.
4.8.2 The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, creditor, independent contractor, or other third party.
4.8.3 Neither the Sellers nor any director or officer (or
employee responsible for Tax matters) of the Company expects any authority to
assess any additional Taxes for any period for which Tax Returns have been
filed. There is no dispute or claim concerning any Tax Liability of the
Company either (A) claimed or raised by any authority in writing or (B) as to
which any of the Sellers and the directors and officers (and employees
responsible for Tax matters) of the Company has Knowledge based upon personal
contact with any agent of such authority. Since the Company's incorporation,
those Tax Returns have not been audited, nor are those Tax Returns currently
subject to audit.
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4.8.4 The Sellers have made available to the Buyer correct and
complete copies of all federal income Tax Returns since 1994.
4.8.5 The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
4.8.6 The Company has not filed a consent under Code Sec.
341(f) concerning collapsible corporations. The Company has not made any
payments, is obligated to make any payments, nor is a party to any agreement
that under certain circumstances could obligate it to make any payments that
will not be deductible under Code Sec. 280G or 162(m). The Company has been
a United States real property holding corporation within the meaning of Code
Sec. 897-C-(1)(A)(ii). The Company has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code Sec. 6661.
The Company is not a party to any Tax allocation or sharing agreement. The
Company has never been (or has any Liability for unpaid Taxes because it once
was) a member of an Affiliated Group. The Company has never filed a
consolidated return with any other affiliated company.
4.8.7 The unpaid Taxes of the Company do not exceed the
respected reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income)
set forth on the face of the Most Recent Balance Sheet (rather than in any
notes thereto).
4.9 Tangible Assets. The Company owns or leases all tangible assets
necessary for the conduct of its businesses as presently conducted and as
presently proposed to be conducted. Each such tangible asset is free from
Security Interests and defects (patent and latent), has been maintained in
accordance with normal industry practice is in good operating condition and
repair (subject to normal wear and tear), and, is suitable for the purposes
for which it presently is used.
4.10 Owned Real Property. The Company owns no real property.
4.11 Intellectual Property
4.11.1 The Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary for the operation of the businesses of the Company as presently
conducted and as presently proposed to be conducted, a list and description
of which is included in Paragraph 4.11 of the Disclosure
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Schedule. The Company owns no patents and has not applied for any patent
application, patent disclosure or patent improvement. Each item of
Intellectual Property owned or used by the Company immediately prior to the
Closing hereunder will be owned or available for use by the Company on
identical terms and conditions immediately subsequent to the Closing
hereunder. The Company has taken all reasonably necessary action to protect
each item of Intellectual Property that it owns or uses.
4.11.2 The Company has not interfered with, infringed upon,
misappropriated, or, otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Sellers and the directors
and officers 9and employees with responsibility for Intellectual Property
matters) of the Company has never received any charge, complaint, claim, or
notice alleging any such interference, infringement, misappropriation, or
violation. To the best of Sellers' knowledge, no third party has interfered
with, infringed upon, misappropriated, or otherwise come into conflict with
any Intellectual Property rights of the Company.
4.11.3 The Sellers have delivered to the Buyer correct and
complete copies of all registrations, applications, licenses, agreements, and
permissions (as amended to date) and has made available to the Buyer correct
and complete copies of all other written documentation evidencing ownership
and prosecution (if applicable) of each such item. With respect to each item
of Intellectual Property that the Company owns or uses:
4.11.3.1 the identified owner possess all right, title, and
interest in and to the item;
4.11.3.2 the item is not subject to any outstanding judgment,
order, decree, stipulation, injunction, or charge;
4.11.3.3 no charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand is pending or, is threatened which
challenges the legality, validity, enforceability, use, or ownership of the
item; and
4.11.3.4 The Company has never agreed to indemnify any person
or entity for or against any interference, infringement, misappropriation, or
other conflict with respect to the item.
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4.11.4 Paragraph 4.11 of the Disclosure Schedule also identifies
each item of Intellectual Property that any third party owns and that the
Company uses pursuant to license, sublicense, agreement, or permission. The
Sellers have supplied the Buyer with correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date).
With respect to each such item of used Intellectual Property:
4.11.4.1 the license, sublicense, agreement, or
permission covering the item is legal, valid, binding, enforceable, and in
full force and effect;
4.11.4.2 the license, sublicense, agreement, or
permission will continue to be legal, valid, binding, enforceable, and is and
will be in full force and effect on identical terms following the Closing;
4.12 Real Property Leases. Paragraph 4.13 of the Disclosure Schedule
lists and describes briefly all real property leased or subleased to the
Company. The Sellers have delivered to the Buyer correct and complete copies
of the leases and subleases listed in Paragraph 4.13 of the Disclosure
Schedule (as amended to date). With respect to each lease and sublease
listed in Paragraph 4.13 of the Disclosure Schedule:
4.12.1 the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
4.12.2 the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the Closing;
4.12.3 no party to lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
4.12.4 no party to the lease or sublease has repudiated any
provision thereof;
4.12.5 there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
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4.12.6 the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold or
subleasehold;
4.12.7 all premises leased or subleased thereunder have received
all approvals of governmental authorities (including licenses and permits)
required in connection with the operation thereof and have been operated and
maintained in accordance with applicable laws, rules, and regulations;
4.12.8 all premises leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of said
premises; and
4.12.9 the owner of the premises leased or subleased has good
and marketable title to the parcel of real property, free and clear of any
Security Interest, easement, covenant, or other restriction, except for (A)
installments of special easements not yet delinquent and (B) recorded
easements, covenants, and other restrictions which do not impair the current
use, occupancy, or value, or the marketability of title, of the property
subject thereto.
4.13 Contracts. Paragraph 4.14 of the Disclosure Schedule lists the
following contracts, agreements, and other arrangements, written or oral, to
which the Company is a party;
4.13.1 any arrangement (or group of related arrangements) for
the lease of personal property from or to third parties providing for lease
payments in excess of $15,000 per annum;
4.13.2 any arrangement (or group of related arrangements) for
the lease of personal property from or to third parties providing for lease
payments in excess of $15,000 per annum;
4.13.3 any arrangement concerning a partnership or joint
venture;
4.13.4 any arrangement (or group of related arrangements) under
which it has created, incurred, assumed, or guaranteed (or may create, incur,
assume, or guarantee0 indebtedness (including capitalized lease obligations)
involving more than $15,000 or under which it has imposed (or may impost) a
Security Interest on any of its assets, tangible or intangible;
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4.13.5 any arrangement concerning confidentiality or
noncompetition;
4.13.6 any arrangement involving the Sellers;
4.13.7 any arrangement with any of its directors, officers, and
employees in the nature of a collective bargaining agreement, employment
agreement, or severance agreement;
4.13.8 any material arrangement under which the consequences of
a default or termination is likely to have a material adverse effect on the
assets, Liabilities, business, financial condition, operations, results of
operations, or future prospects of the Company; or
4.13.9 any other arrangement (or group of related arrangements)
either involving more than $15,000 or not entered into in the ordinary Course
of Business.
The Sellers have delivered to the Buyer a correct and complete copy of each
arrangement listed in Paragraph 4.14 of the Disclosure Schedule. With
respect to each arrangement so listed: (A) the arrangement is legal, valid,
binding, enforceable, and in full force and effect; (B) the arrangement will
continue to be legal, valid, binding, and enforceable and in full force and
effect on identical terms following the Closing; (-C-no party is in breach or
default, and no event has occurred which with notice or lapse of time would
constitute a breach or default or permit termination, modification, or
acceleration, under the arrangement; and (D) no party has repudiated any
provision of the arrangement. No unfilled customer order or commitment
obligating the Company to process, manufacture, or deliver products or
perform services will result in a loss to the Company upon completion of
performance. No purchase order or commitment of the Company is in excess of
normal requirements, nor are prices provided therein in excess of current
market prices for the products or services to be provided thereunder. No
supplier of the Company has indicated within the past year that it will stop,
or decrease the rate of, supplying materials, products, or services to it and
no customer of the Company has indicated within the past year that it will
stop, or decrease the rate of, buying materials, products, or services from
it.
4.14 Notes and Accounts Receivable. All notes and accounts receivable
as of the Most Recent Balance Sheet Date are reflected properly on the
Company's books and records, are valid receivables subject to no setoffs or
counterclaims and are presently current and collectible, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet.
4.15 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company.
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4.16 Insurance. Paragraph 4.17 of the Disclosure Schedule sets the
forth the following information with respect to each insurance policy
(including policies providing property, casualty, liability, and workers'
compensation coverage and bond and surety arrangements) to which the Company
has been a party, a named insured, or otherwise the beneficiary of coverage
at any time within the past 2 years:
4.16.1 the name, address, and telephone number of the agent;
4.16.2 the name of the insurer, the name of the policyholder,
and the name of each covered insured;
4.16.3 the policy number and the period of coverage;
4.16.4 the scope (including an indication of whether the
coverage was on a claims made, occurrence, or other basis) and amount
(including a description of how deductibles and ceilings are calculated and
operate) of coverage; and
4.16.5 a description of any retroactive premium adjustments or
other loss-sharing arrangements.
4.17 Litigation. The Company is not subject to any unsatisfied
judgment, order, decree, stipulation, injunction, or charge and is not a
party or, has not been threatened to be made a party to any charge,
complaint, action, suit, proceeding, hearing, or investigation of or in any
court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator.
4.18 Employees. None of the directors and officers (and employees with
responsibility for employment matters) of the Company, no key employee or
group of employees has any plans to terminate employment with the Company,
except as otherwise required by Buyer at Closing. The company is not a party
to or bound by any collective bargaining agreement, nor has either
experienced any strikes, grievances, claims of unfair labor practices, or
other collective bargaining disputes. The Company has not committed any
unfair labor practice. The Sellers and the directors and officers (and
employees with responsibility for employment matters) of the Company have no
Knowledge of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to employees of the Company.
There are no outstanding severance obligations of the Company on or before
the date of execution of this Agreement.
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4.19 Employee Benefits. Paragraph 4.20 of the Disclosure Schedule lists
each Employee Pension Benefit Plan and Employee Welfare Benefit Plan that the
Company maintains or to which the Company contributes for the benefit of any
current or former employee of the Company.
4.19.1 Each Employee Pension Benefit Plan and Employee Welfare
Benefit Plan (and each related trust or insurance contract) complies in form
and in operation in all respects with the applicable requirements of ERISA
and the Code.
4.19.2 All required reports and descriptions (including Form
5500 Annual Reports, Summary Annual Reports, PBGC-1's, and summary Plan
Descriptions) have been filed or distributed appropriately with respect to
each Employee Pension Benefit Plan and Employee Welfare Benefit Plan. The
requirements of Part 6 of Subtitle Be of Title I of ERISA and of Code Sec.
4980B have been met with respect to each Employee Welfare Benefit Plan.
4.19.3 All contributions (including all employer contributions
and employee salary reduction contributions) which are due have been paid to
each Employee Pension Benefit Plan and all contributions for any period
ending on or before the Closing Date which are not yet due have been paid to
each Employee Pension Benefit Plan or accrued in accordance with the past
custom and practice of the Company. All premiums or other payments owed by
the employer for all periods ending on or before the Closing Date have been
paid with respect to each Employee Welfare Benefit Plan.
4.19.4 Each Employee Pension Benefit Plan meets the requirements
of qualified plan" under Code Sec. 401 (a) and a determination letter is
being applied for with the IRS.
4.19.5 There have been no Prohibited Transactions with respect
to any Employee Pension Benefit Plan and Employee Welfare Benefit Plan. No
Fiduciary has any Liability for breach of fiduciary duty or any other failure
to act or comply in connection with the administration or investment of the
assets of any Employee Pension Benefit Plan and Employee Welfare Benefit
Plans. No charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand with respect to the administration or the
investment of the assets of any Employee Pension Benefit Plan and Employee
Welfare Benefit Plan (other than routine claims for benefits) is pending
or, to the knowledge of the Sellers and the directors and officers (and
employees with responsibility for
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employee benefits matters) of the Company, threatened. The Sellers and the
directors and officers (and employees with responsibility for employee
benefits matters) of the Company have no knowledge of any Basis for any such
charge, complaint, action, suit, proceeding, hearing, investigation, claim,
or demand.
4.19.6 The Sellers have delivered to the Buyer correct and
complete copies of the plan documents and summary plan descriptions, Form
5500 Annual Reports, and all related trust agreements, insurance contracts,
and other funding agreements which implement each Employee Benefit Plan.
The Company does not contribute to, have never contributed to, nor has
ever been required to contribute to any Multiemployer Plan or has any
Liability (including withdrawal Liability) under any Multiemployer Plan. The
Company has not incurred, and the Sellers and the directors and officers (and
employees with responsibility for employee benefits matters) of the Company
have no reason to expect that the Company will incur, any Liability to the
PBGC (other than PBGC prenium payments) or otherwise under Title IV of ERISA
(including any withdrawal Liability) or under the Code with respect to any
Employee Pension Benefit Plan that the Company (as described in Code Section
414(b)(c) or (m), contributes, has ever contributed, and has never been
required to contribute to any Employee Welfare Benefit Plan providing health,
accident, or life insurance benefits to former employees, their spouses, or
their dependents (other than in accordance with Code Sec. 4980B).
4.20 Guarantees. The Company is not a guarantor and is not otherwise
liable for any Liability or obligation (including indebtedness) of any other
person.
4.21 Environment, Health, and Safety.
4.21.1 No charge, complaint, action, suit, proceeding, hearing,
investigation, claim, demand, or notice has been filed or commenced against
the Company alleging any failure to comply with any such law or regulation.
The Company has complied with all laws (including rules and regulations
thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning the environment, public health and safety, and
employee health and safety.
4.21.2 The Company has no Liability (and there is no Basis related
to the past or present operations, properties, or facilities of the Company
for any present or future charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand against the Company giving rise to
any Liability) under the Comprehensive Environment Response, Compensation and
Liability Act of 1980, the Resource Conservation and Recovery Act of 1976,
the Federal Water Pollution Control Act of 1972, the Clean Air Act of 1970,
the Safe drinking Water Act of 1974, the Toxic Substances Control Act of
1976, the Refuse Act of 1986 (each as amended), or any other law (or rule or
regulation thereunder) of any federal, state, local, or foreign government
(or agency thereof),
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concerning release or theatened release of hazardous substances, public
health and safety, or pollution or protection of the environment.
4.21.3 The Company has no Liability (and the Company has not
handled or disposed of any substance, arranged for the disposal of any
substance, or owned or operated any property or facility in any manner that
could form the Basis for any present or future charge, complaint, action,
suit, proceeding, hearing, investigation, claim, or demand (under the common
law or pursuant to any statute) against the Company giving rise to any
Liability) for damage to any site, location, or body of water (surface or
subsurface) or for illness or personal injury.
4.21.4 The Company has no Liability (and there is no Basis for
any present or future charge, complaint, action, suit, proceeding, hearing,
investigation, claim, or demand against the Company giving rise to any
Liability) under the Occupational Safety and Health Act, as amended, or any
other law (or rule or regulation thereunder) of any federal, state, local, or
foreign government (or agency thereof) concerning employee health and safety.
4.21.5 The Company has no Liability (and the Company has not
exposed any employee to any substance or condition that could form the Basis
for any present or future charge, complaint, action, suit, proceeding,
hearing, investigation, claim, or demand (under the common law or pursuant to
statute) against the Company giving rise to any Liability) for any illness of
or personal injury to any employee.
4.21.6 The Company has obtained and been in compliance with all
of the terms and conditions of all permits, licenses, and other
authorizations which are required under, and has complied with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in, all federal,
state, local, and foreign laws (including rules, regulations, codes, plans,
judgments, orders, decrees, stipulations, injunctions, and charges
thereunder) relating to public health and safety, worker health and safety,
and pollution or protection of the environment, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or
wastes into ambient air, surface water, ground water, or lands or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes.
4.21.7 All properties and equipment used in the business the
Company have been free of asbestos, PCB's, methylene chloride,
trichloroethylene, 1, 2-transdichloroethylene dioxins, dibenzofurans, and
Extremely Hazardous Substances.
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4.21.8 All products labeling of the Company has been in
conformity with applicable laws (including rules and regulations thereunder).
4.21.9 No pollutant, contaminant, or chemical, industrial,
hazardous, or toxic material or waste ever has been buried, stored, spilled,
leaked, discharged, emitted, or released on any real property that the
company ever has owned or that the Company leases or ever has leased.
4.22 Legal Compliance.
4.22.1 The Company has complied with all laws (including rules
and regulations thereunder) of federal, state, local, and foreign governments
(and all agencies thereof), and no charge, compliant, action, suit,
proceeding, hearing, investigation, claim, demand, or notice has been filed
or commenced against the Company alleging any failure to comply with any such
law or regulation.
4.22.2 The Company has complied with all applicable laws
(including rules and regulations thereunder) relating to the employment of
labor, employee civil rights, and equal employment opportunities.
4.22.3 The Company has not violated in any respect or received a
notice or charge asserting any violation of the Sherman Act, the Clayton Act,
the Robinson-Patman Act, or the Federal Trade Commission Act, each as amended.
4.22.4 The Company has not;
4.22.4.1 made or agreed to make any contribution, payment, or
gift of funds or property to any governmental official, employee, or agent
where either the contribution, payment, or gift or the purpose thereof was
illegal under the laws of any federal, state, local, or foreign jurisdiction;
4.22.4.2 established or maintained any unrecorded fund or
asset for any purpose, or made any false entries on any books or records for
any reason; or
4.22.4.3 made or agreed to make any contribution, or
reimbursed any political gift or contribution made by any other person, to
any candidate for federal, state, local, or foreign public office.
4.22.5 The Company has filed in a timely manner all reasonably
required reports, documents, and other materials it was required to file (and
the information contained therein was correct and complete in all respects)
under all applicable laws (including rules and regulations thereunder) except
for reports, documents
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and other materials, the failure of which to file would not have material
Adverse Consequences.
4.22.6 The Company has possession of all material records and
documents it was reasonably required to retain under all applicable laws
(including rules and regulations thereunder).
4.23 Certain Business Relationships with the Company. The Sellers and
their Affiliates do not own any property or right, tangible or intangible,
which is used in the business of the Company.
4.24 Broker's Fees. The Company has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by the Agreement.
4.25 Disclosure. Without limiting the foregoing, subject to the
exceptions above, the representations and warranties contained in this
Paragraph 4 do not contain any untrue statement of a fact or omit to state
any fact necessary in order to make the statements and information contained
in this Paragraph 4 not misleading.
5. Pre-closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing.
5.1 General. Each of the Parties will use its best efforts to take all
action and to do all things necessary, proper, or advisable to consummate and
make effective the transactions contemplated by this Agreement (including
satisfying the closing conditions set forth in Paragraph 7 below).
5.2 Notices and Consents. The Sellers will cause the Company to give
any notices to third parties, and will cause the Company to use its best
efforts to obtain any third party consents, that the Buyer may request in
connection with the matters pertaining to the Company disclosed or required
to be disclosed in the Disclosure Schedule. Each of the Parties will take
any additional action (and the Seller will cause the Company to take any
additional action) that may be necessary, proper, or advisable in connection
with any other notices to, filings, with, and authorizations, consents, and
approvals of governments, governmental agencies, and third parties that they
may be required to give, make, or obtain.
5.3 Operation of Business. The Sellers will not cause or permit the
Company to engage in any practice, take any action, embark on any course of
inaction, or enter into any transaction outside the Ordinary Course of
Business. Without limiting the generality of the foregoing, the Sellers will
not cause or permit the Company to engage in any practice, take any action,
embark on any course of inaction, or enter into any transaction of the sort
described in Paragraph 4.6 above.
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5.4 Preservation of Business. Sellers will use their best endeavors to
ensure that the Company has kept its business and properties substantially
intact, including its present operations, physical facilities, working
conditions, and relationships with lessors, licensors, licensees, suppliers,
customers, and employees.
5.5 Full Access. The Sellers will permit, and the Sellers will cause
the Company to permit, representatives of the Buyer to have full access at
all reasonable times, and in a manner so as not to interfere with the normal
business operations of the Company, to all premises, properties, books,
records, contracts, Tax records, and documents of or pertaining to the
Company.
5.6 Notice of Developments. The Sellers will give prompt written
notice to the Buyer of any material development affecting the assets,
Liabilities, business, financial condition, operations, results of
operations, or future prospects of the Company taken as a whole. Each Party
will give prompt written notice to the others of any material development
affecting the ability of the Parties to consummate the transactions
contemplated by this Agreement. No disclosure by any Party pursuant to this
Paragraph 5.6, however, shall prevent or cure any misrepresentation, breach
of warranty, or breach of covenant. However, any such disclosure prior to the
Closing Date, will, if so identified by the Sellers, constitute additions to
the Disclosure Schedule or the Exception Schedule, for the purpose of
updating the representations and warranties made by the Sellers on the
Closing Date and shall be deemed part of such Schedule.
5.7 Exclusivity. The Sellers will not (and the Sellers will cause the
Company not to) (i) solicit, initiate, or encourage the submission of any
proposal or offer from any person relating to any (A) liquidation,
dissolution, or recapitalization, (B) acquisition or purchase of securities
or assets, or (C) similar transaction or business combination involving the
Company or (ii) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any person to do or
seek any of the foregoing. The Sellers will not be entitled to enter into
negotiations with any other third party.
5.8 Earnings Since August 1, 1997. All revenues of the Company since
August 1, 1997 have been retained by the Company except for expenditures of
the Company in the ordinary course of business. The Company has made no
payment nor transferred any property, right or benefit of any kind or nature
whatsoever, directly or indirectly, to any of the Sellers or their
Affiliates, except for salary to Tracy Childers as a President of the Company.
6. Post-Closing Covenants. The Parties agree as follows with respect to the
period following the Closing.
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6.1 General. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each
of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
(unless the requesting Party is entitled to indemnification therefor under
Paragraph 8 below). The Sellers acknowledge and agree that from and after
the /closing the Buyer will be entitled to possession, upon reasonable
request as to time and place, of all documents, books, records, agreements,
and financial data relating to the Company.
6.2 Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any charge, compliant, action,
suit, proceeding, hearing, investigation, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or
prior to the Closing Date involving the Company, each of the other Parties
will cooperate with it and its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their
books and records as shall be necessary in connection with the contest or
defense, all at the sole cost and expense of the contesting or defending
Party (unless the contesting or defending party is entitled to
indemnification therefor under Paragraph 8 below).
6.3 Transition. The Sellers will not take any action that is designed
or intended to have the effect of discouraging any lessor, licensor,
licensee, customer, supplier, or other business associate of the Company from
maintaining the same business relationships with the Company after closing as
they maintained with the Company prior to the Closing. The Sellers will
refer all customer inquiries relating to the business of the Company to
either the Buyer or the Company from and after the Closing.
6.4 Employees. After the Closing Date, Buyer shall bear all costs and
shall be responsible for any claims by Employees, including severance costs
in the event of termination or material change in the terms and conditions of
employment of any employee.
6.5 Services to Company. Tracy Alan Childers and John V. Childers, Sr.
shall continue to make their services available to the Company in order to
increase the business of the Company in a manner consistent with their
projections; as and to whatever extent requested by Buyer.
6.6 Bonds and Security. The Buyer acknowledges that the Sellers have
indemnification obligations under the Company's arrangements with ARC and
IATAN (the "Airline Appointments"). Sellers and Buyer shall cooperate to
transfer to Buyer the obligations and liabilities under the Company's Airline
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Appointments as quickly as reasonably possible after the Closing without
interruption of the Company's business or operations.
7. Conditions to Obligation to Close
7.1 Conditions to Obligation of the Buyer: The obligation of the Buyer
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
7.1.1 the representations and warranties set forth in Paragraph 3.1
and Paragraph 4 above shall be true and correct in all material respects at
and as of the Closing Date; and there shall have been, between the Most
Recent Balance Sheet Date and the Closing Date, no material adverse change in
the condition, financial or otherwise of the Company; the assets, liabilities
and income statements being in substantially the same condition as is
reflected in the Most Recent Balance Sheet Date and in the event there is an
adverse change, at the sole and exclusive option of Buyer, this Agreement
shall be null and void.
7.1.2 the Sellers shall have performed and complied with all of
their covenants hereunder in all material respects through the Closing Date;
7.1.3 the Company shall have obtained all the necessary third party
consents before the closing Date;
7.1.4 no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction wherein an unfavorable judgment, order,
decree, stipulation, injunction, or charge would (A) prevent consummation of
any of the transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, or (C) affect either the Company or the right of the Buyer to
own, operate, or control the Company shares or the Company (and no such
judgment, order, decree, stipulation, injunction, or charge shall be in
effect);
7.1.5 the Sellers shall have delivered to the Buyer a certificate to
the effect that each of the conditions specified above in Paragraph 7.1,
7.1.1 to 7.1.4 is satisfied in all respects;
7.1.6 the Buyer shall have received from counsel to the Sellers an
opinion with respect to the matters set forth in Exhibit D attached hereto,
addressed to the Buyer and dated as of the Closing Date;
7.1.7 the Buyer shall have received the resignations, effective as
of the closing, of each director and officer of the Company, other than Tracy
Alan Childers as President;
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7.1.8 the Buyer shall have received releases (in form and substance
satisfactory to Buyer) executed by the Sellers and each director and officer
of the Company releasing any and all claims by such persons against the
Company;
7.1.9 the Sellers shall have delivered to the Company assignments
(in form and substance reasonably satisfactory to the Buyer) executed by the
Sellers assigning any and all rights of the Sellers in Intellectual Property
owned or used by the Company; and
7.1.10 the Sellers shall deliver a Disclosure Schedule which Sellers
shall represent and warrant sets forth the following information with respect
to the Company: (A) the basis of the Company in its assets; and (B) the
amount of any net operating loss, net capital loss, unused investment or
other credit, unused foreign tax, or excess charitable contribution allocable
to the Company.
The Buyer may waive any condition specified in this Paragraph 7.1 if it executes
a writing so stating at or prior to the Closing.
7.2 Conditions to Obligation of the Sellers. The obligation of the
Sellers to consummate the transactions to be performed by it is connection
with the Closing is subject to satisfaction of the following conditions:
7.2.1 the representations and warranties set forth in Paragraph 3.2
above shall be true and correct in all material respects at and as of the
Closing Date;
7.2.2 the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the closing;
7.2.3 no action, su8it, or proceeding shall be pending before any
court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction wherein an unfavorable judgment, order,
decree, stipulation, injunction, or charge would (A) prevent consummation of
any of the transactions contemplated by this Agreement or (B) cause any of
the transactions contemplated by this Agreement to be rescinded following
consummation (and no such judgment, order, decree, stipulation, injunction,
or charge shall be in effect);
7.2.4 all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all conditions to be
satisfied at or prior to the Closing (including the conditions described in
Paragraph 6.7), and all certificates, opinions, instruments, and other
documents required to effect the transactions contemplated hereby will be
satisfactory in form and substance to the Sellers;
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7.2.5 the buyer shall have delivered to the Sellers a certificate to
the effect that each of the conditions specified above in this Paragraph 7.2
is satisfied in all respects;
The Sellers may waive any condition specified in this Paragraph 7.2 if it
executes a writing so stating at or prior to the Closing.
8. Remedies for Breaches of This Agreement.
8.1 Survival. All of the representations and warranties of the Sellers
contained in this Agreement shall survive the Closing hereunder.
8.2 Indemnification Provisions for Benefit of the buyer. The Sellers,
jointly and severally, agree to indemnify the Buyer from and against the
entirety of any Adverse Consequences the Buyer or the company may suffer
through and after the Closing Date for all claims for indemnification arising
from (I) any breach of a representation, warranty or covenant of Sellers
hereunder; (ii) any Liability of the Company arising on or before the closing
Date (including Liabilities disclosed herein), or (iii) any Liability of the
Buyer arising as a result of having entered into the transactions
contemplated hereby.
8.3 Matters Involving Third Parties. If any third party shall notify
any Party (the "Indemnified Party") with respect to any matter which may give
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Paragraph 8, then the Indemnified party
shall notify the Indemnifying Party thereof promptly in writing; provided,
however, that no delay on the part of the Indemnified party in notifying the
Indemnifying party shall relieve the Indemnifying party from any liability or
obligation hereunder unless (and then solely to the extent) the Indemnified
Party has given notice of the matter that the Indemnifying Party is assuming
the defense thereof, (A) the Indemnifying Party will defend the Indemnified
Party against the matter with counsel of its choice reasonably satisfactory
to the Indemnified Party, (B) the Indemnified Party may retain separate
co-counsel to the extent the Indemnified party reasonably concluded that the
counsel the Indemnifying Party has selected has a conflict of interest or the
Indemnified Party and the Indemnifying Party have a conflict of interest) (C)
the Indemnified party will not consent to the entry of any judgment or enter
into any settlement with respect to the matter without the written consent of
the Indemnifying Party (not to be withheld - unreasonaly), and (D) the
Indemnifying Party will not consent to the entry of any judgment with respect
to the matter, or enter into any settlement which does not include a
provision whereby the plaintiff or claimant in the matter releases the
Indemnified Party from all Liability with respect thereto, without the
written consent of the Indemnified Party (not to be withheld unreasonably).
In the event no Indemnified Party has given notice of the matter that the
Indemnifying Party is assuming the defense thereof, however, the Indemnified
Party may
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defend against, or enter into any settlement with respect to, the matter in
any manner it reasonably may deem appropriate.
8.4 Determination of Loss. The Parties shall make appropriate
adjustments for the time cost of money (using the Applicable Rate as the
discount rate) in determining the amount of loss for purposes of this
Paragraph 8. All indemnification payments under this Paragraph 8 shall be
deemed adjustments to the Purchase Price, determined based on the value of
the Company Shares as of September 1, 1997.
8.5 Other Remedies provisions. Any statutory or common law remedy any
Party may have based on fraud or intentional misrepresentation shall survive
and be in addition to the Indemnification Provisions noted above.
8.6 Effect of Director and Officer Indemnification on Sellers'
Indemnification Obligation. For the purposes of this Paragraph 8, any claim
for indemnification asserted by any of Sellers' partners, affiliates, or
employees relating to service as a current or former director or officer or
employee of the Company against the Company (either based on a contractual
right, on the Company 's Articles of Incorporation or Bylaws or on applicable
state law) arising out of claims related to acts or omissions occurring on or
before Closing shall be indemnified by Sellers.
8.7 Buyer's Rights.
8.7.1 The rights and remedies of the Buyer in respect to a breach of
any of the representations and warranties set forth in this Agreement will
not be affected by the closing of this transaction; by any investigation made
by or on behalf of Buyer into the affairs of the Company; by the giving of
any extension of time by Buyer to any person; or by any other cause
whatsoever except a specific waiver or release by Buyer in writing and any
such waiver or release will not prejudice or affect any remaining rights or
remedies of Buyer.
8.7.2 Without restricting the rights of Buyer or the ability of
Buyer to claim damages on any basis available to it, in the event that any of
the terms, conditions, representations and warranties of this Agreement are
breached or found to have been breached, Sellers shall be liable to pay
Buyer, on demand, for any loss or damage resulting from any breach of any
such representations and warranties, together with all costs and expenses
reasonably incurred by Buyer and the Company as a result of such breach,
including reasonably incurred by Buyer and the Company as a result of such
breach, including reasonable attorney's fees. Any loss shall be reduced by
any amounts recoverable by Buyer from any
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third party. If as a result of any of the aforesaid breaches, Buyer becomes
entitled under the terms set forth to demand written payment from Sellers,
such payment shall be made within ten (10) days after such written demand.
8.7.3 The rights conferred on Buyer by this Agreement are in
addition and without prejudice to any other rights and remedies available to
Buyer; and no exercise or failure to exercise a right under this Agreement or
otherwise or to invoke a remedy will constitute a waiver of that right or
remedy by Buyer.
9. Miscellaneous.
9.1 Press Releases and Announcements. No Party shall issue any press
release or announcement relating to the subject matter of this Agreement
prior to the Closing without the prior written approval of the Buyer and the
Sellers; provided, however, that any party may make any public disclosure it
believes in good faith is required by law or regulation (in which case the
disclosing Party will advise the other Party prior to making the disclosure).
9.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns.
9.3 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and superedes
any prior understandings, agreements, or representations by or among the
Parties, written or oral, that may have related in any way to the subject
matter hereof.
9.4 Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement
or any of his or its rights, interests, or obligations hereunder without the
prior written approval of the other Party; provided, however, that the Buyer
may (i) assign any or all of its rights and interests hereunder to one or
more of its Affiliates and (ii) designate one or more of its Affiliates to
perform its obligations hereunder 9in any or all of which cases the Buyer
nonetheless shall remain liable and responsible for the performance of all of
its obligations hereunder).
9.5 Counterparts and Facsimile. This Agreement may be executed in one
or more counterparts, including facsimile, each of which shall be deemed an
original but all of which together will constitute one and the same
instrument.
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9.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. A notice required or permitted
to be given by one party to another under this Agreement must be in writing
and is treated as being duly given if it is;
(a) left at that other party's address;
(b) sent by pre-paid mail to that other party's address;
(c) transmitted by telex to that other party's address; or
(d) transmitted by facsimile to that other party's address.
A notice given to a party in accordance with the preceding sub-clause
is treated as having been duly given and received:
(a) IN THE CASE OF Paragraph (a) when delivered;
(b) In the case of Paragraph (b), on the fifth business day after
posting;
(c) In the case of Paragraph -C-, on the day of transmission (if a
business day) or if not a business day, on the next business day provided
that party's answer back is received;
(d) In the case of Paragraph 9d), on the day of transmission (if a
business day), or, if not a business day, on the next business day provided
the sender of the facsimile receives a transmission report confirming that
the fax has been received by the recipient.
Any party may change the address to which notices are to be delivered or
sent by giving the other party notice in the manner herein set forth.
If to the Buyer: Copy to:
Wade Cook Financial Corporation Susan E. Lehr, Esq.
14675 Interurban Avenue South Monahan & Biagi, PLLC
Seattle, WA 98168-4664 701 fifth Avenue, suite 5701
Attn: Ms. Kiman Lucas Seattle, Washington 98104-7003
Fax No.: (206) 901-3133 Fax No.: (206) 587-5710
Telephone No.: (206) 901-3000 Telephone No.: (206) 587-5700
32
<PAGE>
If to the Sellers: Copy to:
Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the individual
for whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
9.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Washington, without
giving effect to any choice of law or conflict of law provision or rule
(whether of the State of Washington or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Washington.
9.9 Resolution of Disputes. The parties agree that, in the event of a
dispute between them, arising from, concerning or in any way related to this
Agreement, the Parties shall undertake good faith efforts to negotiate the
resolution of the matter amicably between them for a period of no longer than
thirty (30) days following written notice of the dispute provided by either
Party. If these negotiations prove to be unsuccessful for any reason, either
the Buyer or the Sellers may initiate legal proceedings.
9.10 Amendments and Waivers. No amendment of any provision of the
Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Sellers. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
9.11 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction. If the final judgment of
a court of competent jurisdiction declares that any term or provision hereof
is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to
reduce the scope, duration, or area of the term or provision, to delete
specific words or phrases, or to replace any invalid or unenforceable term or
provision with a term or provision that is valid
33
<PAGE>
and enforceable and that comes closest to expressing the intention
of the invalid or unenforceable term or provision, and this
Agreement shall be enforceable as so modified after the expiration
of the time within which the judgment may be appealed.
9.12 Expenses. Each of the Parties and the Company will bear
its own costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions
contemplated hereby. The Sellers agree that the Company has not
borne and will not bear any of the Sellers' third party costs and
expenses (including any of its legal fees and expenses) in
connection with this Agreement or any of the transactions
contemplated hereby. However, any stamp duty due as a result of
this transaction shall be borne by the Buyer.
9.13 Construction. The language used in this Agreement will
be deemed to be the language chosen by the Parties to express their
mutual intent, and no rule of strict construction shall be applied
against any Party. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules
and regulations promulgated thereunder, unless the context requires
otherwise. The Parties intend that such representation, warranty,
and covenant contained herein shall have independent significance.
If any Party has breached any representation, warranty, or covenant
contained herein in any respect the fact that there exists another
representation, warranty, or covenant reisting to the same subject
matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact
that the Party is in breach of the first representation, warranty,
or covenant.
9.14 Incorporation of Exhibits, Annexes, and Schedules. The
Exhibits, Annexes, and Schedules identified in this Agreement are
Incorporated herein by reference and made a part hereof.
9.15 Specific Performance. Each of Sellers and Buyer
acknowledges and agrees that the other Party would be damaged
irreparably in the event any of the provisions of this Agreement
are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the Sellers and Buyer
agrees that the other Party shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement
and to enforce especially this Agreement and the terms and
provisions hereof in any action institute in addition to any other
remedy to which they may be entitled at law or in equity, subject
to the agreements regarding venue in Paragraph 9.8 above.
9.16 Currency. All dollar amounts used in this Agreement are
in United States dollars.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
SELLERS: BUYER:
WADE COOK FINANCIAL CORPORATION
/s/ John V. Childers, Sr.
- ------------------------------
John V. Childers, Sr. By /s/ Wade B. Cook
--------------------------------
Wade B. Cook
/s/ Brenda Childers
- ------------------------------ : President
Brenda Childers --------------------------------
/s/ Tracy Alan Childers
- ------------------------------
Tracy Alan Childers
/s/ John V. Childers, Jr.
- ------------------------------
John V. Childers, Jr.
<PAGE>
Exhibit 99.6
Share Exchange Agreement
THIS AGREEMENT (the "Agreement" and/or the "Share Exchange") is entered
into on the date signed below ( "Agreement Date") and shall take effect as of
January 1, 1998 ("Effective Date"), between Wade Cook Financial Corporation
("WCFC"), a Nevada corporation, and Information Quest, Inc., a Nevada
corporation ("IQI").
REPRESENTATION
A. WCFC is a corporation organized and existing under the laws of the
State of Nevada.
B. The authorized capital stock of WCFC consists of One Hundred Forty
Million (140,000,000) shares of Common stock, par value $0.01, of which
approximately Sixty One Million Two Thousand Five Hundred Eighty Three
(61,002,583) shares are duly issued and outstanding as of the Agreement Date,
and Five Million shares of preferred stock, par value $10.00, none of which
are issued and outstanding.
C. IQI is a corporation organized and existing under the laws of the
State of Nevada whose Balance Sheets as of December 31, 1997 is attached
hereto as Exhibit B and are complete and accurate.
D. The authorized capital stock of IQI consists of Twenty Four Million
(24,000,000) shares of Common stock, par value $0.001, of which all are
issued and outstanding as of the Agreement Date, and One Million (1,000,000)
shares Preferred stock, par value $0.001, none of which are issued and
outstanding.
E. WCFC and IQI enter into this Agreement whereby WCFC will acquire all
of the issued and outstanding stock of IQI by issuing 45,000 restricted
shares of Common stock of WCFC to the shareholders of IQI in exchange for
50,000 shares of Common stock of IQI. WCFC and IQI intend the exchange to
qualify as a tax-free reorganization under Section 368(a)(1)(B) of the
Internal Revenue Code of 1986, as amended.
AGREEMENT
In consideration of the foregoing recitals, the covenants and conditions
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Share Exchange; Effectiveness
The shareholders of shares of Common Stock of IQI shall exchange all of
their shares for his or her proportionate share of 45,000 newly issued shares
of Common Stock
<PAGE>
of WCFC in accordance with the terms and conditions of this Agreement. Upon
the execution of this Agreement by IQI and WCFC and the receipt by WCFC of
all shares issued in IQI the date for the effectiveness of this Agreement
(the "Effective time of the Share Exchange") shall revert back to January 1,
1998.
2. Exchange of Shares
At the Effective Time of the Share Exchange:
(a) Each shareholder of IQI shall be issued his or her proportionate
share(s) of fully paid and nonassessable common stock of WCFC as stated in
section 1. Each shareholder of IQI shall sign an Investment Letter attached
hereto as Exhibit A pursuant to Rule 144 upon receiving WCFC shares.
(b) All shares of capital stock of IQI that are tendered to WCFC shall
be retained by WCFC and IQI shall become a wholly owned subsidiary of WCFC.
3. Implementation
Each of WCFC and IQI shall take, or cause to be taken, all action or do,
or cause to be done, all things necessary, proper or advisable under the laws
of the State of Nevada to consummate and make effective the Share Exchange.
4. Amendment
This Agreement may, to the extent permitted by law, be amended,
supplemented or interpreted at any time by action taken by the Board of
Directors of both of IQI and WCFC; Provided, however, that this Agreement
may not be amended or supplemented after having been approved by the
shareholders of IQI except by a vote or consent of shareholders in accordance
with applicable law.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the date first set forth above.
INFORMATION QUEST, INC.
By: /s/ Tom Cloward
----------------------------------
Name: Thomas E. Cloward
Its: Secretary and Treasurer
<PAGE>
Page 1 of 2
Page 2
Robert & Meda Hondel
Secured Promissory Note
4th Legal Description: & 7-006 DBLR 85-04-17-0276 THAT POR L 4 S P
83-1-20-0374 IN THE SW OF 17-18-05E NOT TO
BE SOLD OR FURTHER SUBD W/O BALANCE OF
L 4 LOCATED IN SE 18-18-05E OUT OF 7-002
SEG Y-1 264
Parcel No.: 051817-7-005
5th Legal Description: PLAT NAME COUNTRY DIVISION #1 VOLUME 51
PAGES 21-26 L 16 EASE OF RECORD
Parcel No.: 904400-016-0
Address: 8218 266th St. E.
Graham, WA 98338
In the event that the monthly payments provided for in this Note have
not been paid and actually received by Promisee on or within five (5) days of
their due date, a late charge of twenty-five dollars ($25.00) for each
delinquency shall be assessed by Promisee to cover the extra expense involved
in handling delinquent payments. Promisee shall not be obligated to accept
any monthly payment made after its due date, unless that monthly payment
shall be accompanied by the full amount of the late charges assessed by
Promisee as provided in this Note; however, in the event that a late monthly
payment is accepted, that payment shall first be applied to late charges.
Any legal holder of this Note may, without notice and without releasing
the liability of any maker or guarantor of this Note, grant extensions or
renewals of this Note from time to time and for any term or terms. Any legal
holder of this Note shall not be liable for or prejudice by failure to
collect or for lack of diligence in bringing suit on this Note or any renewal
or extension of this Note. Promissor waives presentment for payment, notice
of nonpayment, protest and notice of protest.
Should this Note be placed in the hands of an attorney for collection,
or if action be instituted on it, all parties now or in the future liable for
indebtedness evidenced by this Note, jointly and severally agree to pay all
costs and expenses of the collection or enforcement action with reasonable
attorney fees in addition to the amount found due.
/s/ Robert Hondel /s/ Meda Hondel
- ------------------------------ --------------------------------
Robert Hondel Meda Hondel
8-8-97 8-8-97
- ------------------------------ --------------------------------
Date Date
<PAGE>
Employment Agreement
1. Parties:
This Agreement is between Wade Cook Financial Corporation, 14675 Interurban
Avenue South, Seattle, Washington 98168 ("the Company")and Thomas Cloward, a
resident of the State of Washington ("Cloward").
2. Position:
Cloward shall be employed by the Company as President of Information Quest,
Inc.. Cloward shall report directly to the Chief Executive Officer of the
Company.
3. Employment Term:
Cloward shall be employed from April 1, 1998 through December 31, 1998 unless
otherwise mutually agreed.
4. Salary:
For the remainder of 1998, Cloward shall be paid an annual salary of sixty
thousand dollars ($60,000) on a pro rata basis. In the event Company
licenses intellectual property from Cloward, said licenses shall fall outside
the scope of this Agreement. Cloward's salary shall be reviewed and
renegotiated on an annual basis beginning January 1, 1999.
5. Other Compensation:
As a full-time employee, Cloward shall also receive the following benefits:
A: One percent (1%) of Information Quest, Inc.'s net revenues paid
quarterly based on the Company Accounting Department's standard payment
schedule. Net revenues shall be gross revenues less costs for
inventory, shipping, payroll, returned products, and costs to providers
for paging services, pagers, and other services.
B: The option to purchase 45,000 restricted shares of Class A Common Stock
of WADE at $2.00 per share on September 1, 1998 and the option to
purchase 45,000 restricted shares of Class A Common Stock of WADE at
$2.33 per share on
<PAGE>
September 1, 1999. Both options must be exercised within 30 days
following the anniversary date.
C: Two weeks annual vacation leave;
D: Reimbursement of reasonable travel and other business expenses incurred
by Cloward in the performance of his executive duties;
E: Health insurance for Cloward and his family through the Company's customary
provider;
F: Any other benefits provided employees of the Company as outlined in the
current Personnel Handbook or as directed by the CEO;
6. Termination:
This Agreement may be terminated as follows:
A. By Death: the Company shall pay to Cloward's beneficiaries or estate, as
appropriate, the compensation to which he is entitled pursuant to this
Agreement through the end of the month in which the death occurs.
Thereafter, the Company's obligation shall terminate. Nothing in this
Section shall affect any entitlement of Cloward's heirs to the benefits of
any life insurance plan purchased by the Company.
B. By Disability: If, in the opinion of the Board of Directors, Cloward shall
be prevented from properly performing his duties hereunder by reason of any
physical or mental incapacity for a period of more than one hundred and
twenty (120) days in the aggregate or sixty (60) consecutive days in any
twelve-month period (the "Disability Period"), then, to the extent
permitted by law, the Employment Term of this Agreement shall be paid up
through the last day of the month of the Disability Period and thereafter
the obligations hereunder of the Company shall terminate.
C. By the Company for Cause: the Company may terminate, without liability and
without prejudice to any other remedy to which the Company may be entitled
either by law, in equity or under this Agreement, the Employment Term at
any time and without advance notice if:
(1) In the reasonable and good faith opinion of the Board, Cloward acts,
or fails to act, in bad faith and to the material detriment of the
Company or its subsidiaries, parent company or affiliates;
(2) Cloward refuses or fails to act in accordance with any lawful
direction or order of the Board if such failures or refusals,
individually or in the aggregate, are, in the reasonable and in good
faith opinion of the Board, material to Cloward's performance;
(3) Cloward commits any material act of dishonesty or a felony affecting
the Company, its subsidiaries, parent company or affiliates;
(4) Cloward has a chemical dependency which interferes with the
performance of her executive duties and responsibilities;
<PAGE>
(5) Cloward commits gross misconduct or neglect, or, in the reasonable
and good faith opinion of the Board, demonstrates incompetence in the
management of the legal affairs of the Company or its subsidiaries,
parent company or affiliates;
(6) Cloward is convicted of a felony or any crime involving moral
turpitude, fraud or misrepresentation; or
(7) Cloward materially breaches any term of this Agreement upon 30 days
written notice by the Company.
E. By the Company Without Cause: The Employment Period may be terminated
without Cause by the Company but only upon written notice.
F. By Cloward for Good Reason: Cloward may terminate this Agreement for
"Good Reason" upon 30 days written notice if the Company requires Cloward
to relocate outside the Seattle area or substantially changes Cloward
duties or working conditions.
7. Duties:
Cloward shall be responsible for managing all aspects of Information Quest,
Inc. and providing service to customers of IQ Pager and any other duties as
assigned by the CEO of WCFC.
8. Secrecy:
Cloward shall not divulge any proprietary information relating to the Company
or its subsidiaries, parent company or affiliates, which Cloward may have
acquired during his employment except as necessary in the performance of his
duties with the Company.
9. 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 in accordance with the
International Chamber of Commerce. Said arbitration to occur 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.
<PAGE>
10. 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.
11. Jurisdiction:
This Agreement shall be governed by the laws of Washington.
12. 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 23rd day of March, 1998.
WADE COOK FINANCIAL CORPORATION
By: /s/ WADE B. COOK
---------------------------------
Name: Wade B. Cook
Title: chairman and Chief Executive Officer
Date:
/s/ THOMAS E. CLOWARD
---------------------------------
Name: Thomas E. Cloward
Date: March 20, 1998
<PAGE>
Product Agreement
1. Parties:
This Agreement is between Thomas Cloward, a Washington resident (Cloward),
Information Quest, Inc., a Nevada corporation ("IQI") and Wade Cook Financial
Corporation, a Nevada corporation ("WCFC").
Whereas, Cloward has previously licensed exclusive, fully paid-up rights
to make, use and sell the IQ Pager which was developed by Cloward for a five
(5%) percent gross royalty.
Whereas, the parties wish to void the previous license arrangement
between IQI and Cloward and replace it with this agreement subject to the
terms and conditions contained herein.
2. Term:
This Agreement shall take effect on April 1, 1998 and remain in effect
through the life of WCFC and/or its successors, or as mutually agreed between
the parties.
3. License:
Cloward hereby licenses rights in the Cloward IP, which Cloward or IQI either
owns or controls, to WCFC for the purpose of marketing and selling the IQ
Pager developed by Cloward. This license shall extend to any and all
marketing materials. This license shall be an exclusive world-wide 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 Cloward or IQI shall be licensed to WCFC under the terms of
this Agreement by a signed and dated addendum by the licensor of the
intellectual property (Cloward) and by the licensee WCFC or its subsidiaries,
parent company, or affiliates in order to be effective. The term of each
additional license shall be for the remainder of the term of this Agreement
unless otherwise specified in writing.
4. Royalties:
WCFC shall pay to Cloward a royalty of two and one half percent (2-1/2%)
of all WCFC's gross revenue for Products licensed hereunder. Royalties shall
be paid quarterly based on WCFC Accounting Departments standard payment
schedule.
<PAGE>
5. Marketing and Promotion:
WCFC shall have the right to promote and advertise Products as it deems
appropriate.
6. Author's Warranty
Cloward represents and warrants to WCFC that the work is original and that he
is the sole proprietor thereof, and has full power to enter into this
Agreement. Cloward and IQI warrants that they own all rights in the Products
listed in Exhibit A. Cloward and IQI agrees to indemnify and hold harmless
WCFC and its subsidiaries, representatives, or agents against any damage or
judgment, including court costs and attorney's fees, which may be sustained
or recovered against WCFC, its subsidiaries, representatives, or agents by
reason of the sale of the Products or arising from anything contained
therein. Cloward and IQI also agree to reimburse WCFC and its subsidiaries,
representatives, or agents for all expenses, including court costs,
attorneys' fees, and amounts paid in settlement, sustained by, or in
resisting any claim, demand, suit, action or proceeding asserted or
instituted against WCFC, its subsidiaries, representatives, or agents based
upon the sale of the Product or by reason of anything contained therein.
7. Right to Use Likeness:
IQI hereby consents to the use of its name, 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.
8. Examination of Books:
WCFC shall make available to Cloward, within 30 days written notice, at its
headquarters, the financial books related to payment of royalties hereunder.
9. 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 Washington. 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.
<PAGE>
10. 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.
11. Jurisdiction:
This Agreement shall be governed by the laws of Washington.
12. 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 23rd day of March, 1998.
WADE COOK FINANCIAL CORPORATION
By: /s/ WADE B. COOK
---------------------------------
Name: Wade B. Cook
Title: chairman and Chief Executive Officer
Date:
/s/ Tom Cloward
---------------------------------
Name: Thomas E. Cloward
Date: March 20, 1998
<PAGE>
WADE COOK FINANCIAL CORPORATION
By: /s/ Wade B. Cook
-------------------------------------
Name: Wade B. Cook
Its: Chairman and Chief Executive Officer
<PAGE>
EXHIBIT 99.7
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
CUSIP NO. 930128 10 3
11176 WADE COOK
FINANCIAL CORPORATION
AUTHORIZED COMMON STOCK: 60,000,000 SHARES
PAR VALUE: $.01
THIS CERTIFIES THAT SPECIMEN
IS THE RECORD HOLDER OF
Shares of WADE COOK FINANCIAL CORPORATION Common Stock
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
[SEAL]
/s/ Laura M. Cook /s/ Wade B. Cook
- ----------------------------- ------------------------------
Secretary President
[STAMP]
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving
bank), or a trust company. The following abbreviations, when used in
the inscription on the face of this certificate, shall be construed as
though they were written out in full according to applicable laws or
regulations.
TEN COM--as tenants in common UNIF GIFT MIN ACT-- Custodian
TEN ENT--as tenants by the entireties ------ -------
JT TEN--as joint tenants with right (Cust) (Minor)
of survivorship and not as under Uniform Gifts to Minors
tenants in common Act
--------------------------
(State)
Additional abbreviations may also be used though not in the above list
For Value Received, hereby sell, assign and transfer unto
----------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
- ------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated
-------------------
--------------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
The shares represented by this certificate have not been registered under
the Securities Act of 1933. The shares have been acquired for investment and
may not be sold, transferred or assigned in the absence of an effective
registration statement for these shares under the Securities Act of 1933 or
an opinion of the Company's counsel that registration is not required under
said Act.
<PAGE>
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
<PAGE>
month prior to the payment. 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 its 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.
<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:
101-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 Entitics 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
<PAGE>
Exhibit 99.11
LIGHTHOUSE PUBLISHING GROUP, INC.
PUBLISHING AGREEMENT
This AGREEMENT is effective the 1st day of October, 1997, between Wade B.
Cook of Seattle, Washington (hereinafter called the Author) and Lighthouse
Publishing Group, Inc., whose principal place of business is at 14675
Interurban Avenue South, Seattle, Washington, 98168, (hereinafter called the
Publisher).
I. GRANT OF The Author hereby grants, assigns, and transfers to
RIGHTS the Publisher the following exclusive rights and
privileges to and in connection with a Work, presently
entitled "Don't Set Goals (the Old Way)" which Work is a
book.
A. The sole and exclusive book publication rights in
the United States, its territories, dependencies, and
possessions, the Republic of the Philippines, and Canada,
and the right to sell copies of the Work in the open
market throughout the world.
B. The sole and exclusive subsidiary publication and
performance rights set forth in Article VIIA below. These
subsidiary publication and performance rights are granted
to the Publisher for the United States, its territories,
dependencies, and possessions, the Republic of the
Philippines, and Canada, and include the right to
authorize others to exercise in any foreign country any of
the rights granted to the Publisher.
II. COPYRIGHT It is understood and greed that the copyright shall
be secured by the Publisher in the name of the Work and
the Publisher is hereby authorized to take all steps
required to secure such copyright in the United States of
America. The Publisher agrees to print an appropriate
copyright notice in each and every copy of the published
work and to require all parties to whom it grants licenses
in connection with the work to do the same. The party in
whose name copyright is registered shall hold for the
benefit of the other such rights as the equities hereby
created may prescribe. Unless it specifically agrees to do
so in writing, the Publisher shall not be responsible for
securing any copyright outside the United States of
America.
III. MANUSCRIPT The Author agrees to deliver to the Publisher not
later than November 1, 1997 three finally revised copies
of the manuscript satisfactory in form, style, and content
and acceptable to the Publisher in its sole judgment and
discretion.
FORM OF A. Unless otherwise agreed in writing, the Author
MANUSCRIPT shall furnish promptly and free of charge to the
Publisher, complete and ready for reproduction, all
drawings, maps, photographs, charts and designs which are
a part of or necessary to the text. If the Author fails to
supply any necessary drawings, maps, photographs, charts
and designs in satisfactory form and within the specified
time, the Publishers shall have the right to have them
made and the charges and expenses of making them shall be
paid for by the Author.
B. The Publisher may, at his discretion, cause an
index to be made of the work and charge the cost thereof
against any sums due the Author hereunder.
AUTHOR C. The provisions as to satisfaction and
COMPLIANCE acceptability to the Publisher and time of delivery of
such copy are material terms of this agreement and upon
the Author's failure to comply with any of such
provisions, the Publisher may at its option by written
notice to the Author terminate this agreement, whereupon
the Author shall return to the Publisher all amounts which
it may have advance to him. In such event, if the
manuscript should be completed subsequently, the Author
shall nevertheless be obligated to offer the same to the
Publisher, which at its option, shall have the right to
publish the same upon the terms of the agreement.
CORRECTIONS D. If the Publisher is directed by the Author to make
alterations in any proofs from final copy as delivered,
which shall cost more than ten percent of the cost of
composition of the Work, the Author agrees to pay said
excess. The Author shall pay in full for any corrections
in the plates which he requires or which are necessary for
the correction of actual errors after the plates have been
made in conformity with the last proof as corrected by the
Author. The Publisher shall upon request keep
Page 1
<PAGE>
the Author informed of such excess charges.
SUBSEQUENT E. When the Publisher considers it necessary, it
REVISIONS shall have the right in it sole discretion to call upon
the Author to revise the Work, and the Author shall make
such revisions. The provisions of this Agreement shall
apply to revision of the Work by the Author as though any
such revision were the original Work being published for
the first time, except that the manuscript of the revised
Work shall be delivered in final form by the Author to the
Publisher within a reasonable amount of time; further, no
initial payment shall be made in connection with such
revision. Should the Author not provide the revision
within a reasonable time, or should the Author be
deceased, the Publisher may have the revision done and
charge the cost of such revision against royalties due or
that may become due the Author, and may display in the
revised Work, and in advertising, the name of the person
or persons who revised the Work.
RETYPING F. If in the opinion of the publisher it is considered
expedient to have the manuscript retyped in as many copies
as shall be necessary, the cost of such retyping shall be
borne by the Author.
PUBLISHER'S G. The Publisher shall be free to prepare the manuscript
DETERMINATION of the Work for the printer in such manner as shall be
consistent with their publishing house style. All details as
to the manner of publication, distribution and
advertising, including the format and price of the Work in
its manufactured form and the number and distribution of
free copies, shall be left to the sole discretion of the
Publisher.
H. The Publisher will use the same care in protecting
the manuscript and other material supplied to it hereunder
as is its customary practice in protecting similar material
in its possession, but it shall not be liable for damages,
if any, resulting from the loss or destruction of such
materials or any part thereof.
IV. ADVANCE The Publisher will pay to the Author as an advance
payment against all monies accruing to the Author under this
agreement the sum of: None
V. ROYALTIES A. The Publisher shall pay to the Author the following
royalties on regular net sales, other than sales falling
within (B) through (F) below on the Retail selling price of
each copy sold: 10% on all copies sold.
LIMITED B. The Publisher shall pay the Author one half of the
REPRINT stipulated royalty, as stated above, on all copies sold from
EDITION a reprinting of 3,500 copies or less, made after one year
from the date of the first publication, this reduced
royalty being provided by reason of the increased cost of
manufacturing of small reprintings, to enable the
Publisher to keep the Work in print and circulation as
long as possible.
SALE OF C. Where sheets are sold, except as a reminder, the
SHEETS percentage of royalty shall be the same as for bound books
and shall be calculated on the net amount received by the
Publisher.
FREE D. No royalties shall be paid on copies furnished gratis
COPIES to the Author, or for review, advertising, samples or like
purposes.
EXCERPTS E. The Author grants sole and exclusive rights to the
PERMISSIONS Publisher in the exercise of its discretion, to grant
permission to publish extracts from the Work, whether or
not a fee shall be collected on the Work for such use, the
Publisher warranting to make no gratuitous grants of
permissions, except as shall, in its estimate, advance the
sale of the Work or enhance the public esteem of the
Author, the Publisher shall pay to the Author one half of
all sums of money received as compensation for such grants
of permission to reprint extracts.
The Publisher is authorized to permit publication of
the Work in Braille, or photographing, recording and/or
microfilming the Work for the physically handicapped
without payment of fees and without compensation to the
Author, providing no compensation is received by the
Publisher. In case a compensation is received, the
Publisher shall pay the Author fifty percent (50%) of the
proceeds.
Page 2
<PAGE>
VI. REMAINDERS A. If, in the opinion of the Publisher, the Work
OVERSTOCK shall become unsalable in the ordinary channels of the
trade the Publisher may at its option sell part or all of
the remaining copies as "remainders" after first informing
the Author of its intention to do so.
B. The Author shall receive a royalty of ten percent
of the amount of the Publisher's sale price secured over
the cost of production for all copies of overstock which
the Publisher deems it expedient to sell at "remainder"
prices, i.e., at less than half of the catalog retail
price, except when these are sold at or below cost, in
which case no royalty shall be paid.
VII. SUBSIDIARY A. The further and additional rights referred to in
RIGHTS this agreement are hereby defined to include the rights
enumerated below, and are to be shared by the Author and
the Publisher in the percentage indicated, less only such
direct expenses, including agent's commissions, as shall be
incurred by the Publisher in disposing of such rights:
<TABLE>
<CAPTION>
To Author To Publisher
--------- ------------
<S> <C> <C>
1. Abridgment, condensation, or digest........50% 50%
2. Anthology or quotation.....................50% 50%
3. Book clubs or similar organizations........50% 50%
4. Reprint....................................50% 50%
5. Special editions...........................50% 50%
6. Second serial and syndication (including
reproduction in compilations, magazines,
newspapers, or books)....................50% 50%
</TABLE>
B. All revenue derived from the sale of rights not
specifically enumerated, whether now in existence or
hereinafter coming into existence, shall be shared equally
by the Author and the Publisher.
C. All such rights shall be disposed of by the sale,
lease, license, or otherwise by the Publisher who for that
purpose is constituted the attorney-in-fact of the Author.
The Author agrees to sign, make, execute, deliver and
acknowledge all such papers, documents and agreements as
may be necessary to effectuate the grants hereinabove
contemplated. In the event that the Author shall fail to do
so, they may be signed, executed, delivered and
acknowledged by the Publisher as the attorney-in-fact of
the Author with the same full force and effect as if signed
by the Author. All sums due under this Agreement shall be
paid to the Author's agent Money Chef, Inc. or other
designated agent whose receipt shall be a full and valid
discharge of the Publisher's obligations and who shall act
with the authority of the Author in all matters arising out
of this agreement.
IX. PUBLICATION The Publisher, in consideration of the rights granted,
DATE agrees to publish the work at its own expense, in such
style or styles as the Publisher deems most advisable, not
later than 12 months after the Publisher's acceptance of
the final revised manuscript (except on account of late
delivery of manuscript by the Author, strikes, fires, other
contingencies beyond the control of the Publisher or its
suppliers, or advisability of postponement because of
prospective advantageous trade conditions, in which event
publication shall be postponed.)
XI. AUTHOR'S A. The Author represents and warrants to the
WARRANTY Publisher: (a) that the work is original; (b) that he is the
sole author and proprietor thereof, and has full power to
enter into this agreement; (c) that the work has not
heretofore been published in whole or part in volume form
and that he has not entered into or become subject to any
contract, agreement or understanding with respect thereto
other than this agreement; (d) that if published it will
not infringe upon any proprietary right at common law, or
any statutory copyright, or any other right whatsoever;
and (e) that it is innocent and contains no matter
whatsoever that is obscene, libelous, in violation of any
right of privacy or otherwise in contravention of law. The
Author shall indemnify and hold harmless the Publisher
against any damage or judgment, including court costs and
attorneys' fees, which may be substained or recovered
against the Publisher by reason of the publication or sale
of the Work, arising from anything contained herein.
Author shall also reimburse the Publisher for all expenses
including court costs, attorney's fees and amounts paid in
settlement, sustained by the Publisher in resisting any
claim, demand, suit, action or proceeding asserted or
instituted against the Publisher based upon the
publication sale of the Work by reason of anything
contained therein.
Page 3
<PAGE>
PLAINTIFF B. The Author hereby grants to the Publisher the right,
ACTION if copyright is in the Author's name, to bring in the name
COPYRIGHT of the Author as plaintiff or complainant, any action or
ASSIGNMENT proceeding for the enjoining of an infringement of the
copyright in the said Work and for any damages resulting
therefrom, and the net amount recovered after deducting
all expenses of suit shall be divided equally between the
Author and Publisher. The copyright shall be assigned by
either party to the other on demand, when necessary for
bringing, defending or maintaining a copyright action
under this agreement, after the termination of which
action the copyright shall on demand be reassigned.
COMPETING C. The Author will not, without the written consent
WORKS of the Publisher, write, print, publish or produce, or cause
to be written, printed, published or produced, during the
continuance of this contract, any other edition of said
Work or any work in any form of a similar character or
title tending to interfere with or injure the sale of the
Work in any manner.
AUTHOR'S D. The Author agrees, in the event that the Author
PERMISSION plans to incorporate in the Work any writings or composition
previously published elsewhere, to obtain and deliver to
the Publisher proper and complete written permission and
authorization to reprint same from the owner of the
copyright covering same.
XII. In case the Publisher fails to keep said Work in print
WITHDRAWAL and for sale and after written demand from the Author,
OF WORK declines or neglects to reprint the work within six months
and to offer it for sale, or in the event that, after one
year from the date of the first publication, the Work in
the opinion of the Publisher is no longer merchantable or
profitable, and it gives one month's notice to the Author
of its desire and intention to discontinue publication,
this contract shall terminate and all rights preserved,
with any plates of illustrations furnished by the Author
and any remaining copies and sheets shall be transferred
to the Author, provided that Author shall pay the
manufacturing costs (including composition) of such plates
and the manufacturing cost of such remaining copies or
sheets, in default of which payments the Publisher shall
have the rights to destroy any plates and to sell
remaining copies or sheets at cost of less, without
payment of royalty to the Author upon such copies or
sheets. In case of the termination of the contract, if the
copyright is in the name of the Publisher it shall assign
said copyright to the Author.
The Work shall not be considered to be out of print
if it is on public sale in any printed edition, in the
United States, or if there shall be in existence a
contract for cheap edition publication which provides for
publication within six (6) months after the work is out of
print in the regular edition.
XIII. A. If a petition in bankruptcy (as distinguished from
BANKRUPTCY reorganization or arrangement) shall be filed by the
Publisher, or shall be filed against the Publisher and
finally sustained, the Author shall have the right to buy
back, at his option, to be exercised in thirty days, the
rights of publication at their fair market value, to be
determined by agreement, together with any plates or
remaining copies of sheets, at their fair market value,
this also to be determined by agreement, and thereupon
this contract shall terminate. However, no reversion of
rights under this clause shall take place until after the
Author has repaid to the Publisher any indebtedness
incurred by him and still outstanding under this
agreement. If this agreement contains a clause of option
on future books by the Author, such clause shall become
null and void in event of the Publisher's bankruptcy or
receivership.
AUTHOR'S B. The Author, upon his written request, shall have
EXAMINATION the right to examine or cause to be examined through
certified public accountants the books of account of the
Publisher insofar as such books of account shall relate to
the Work. If such examination shall reveal errors of
accounting (other than those arising from an
interpretation of this agreement) amounting to a sum in
excess of ten percent of the total royalties earned in the
period under examination to the Author's disadvantage, the
costs of such examination shall be borne by the Publisher,
otherwise such costs shall be borne by the Author.
XIV. SEMI- The Publisher agrees to render semi-annual statements
ANNUAL of account to March 31st and September 30th of each year,
STATEMENTS on the succeeding July 1st and January 1st and to make
PAYMENTS settlements in cash or about said last mentioned dates. In
making accountings, the Publisher shall have the right to
allow for a reasonable reserve against returns and
nonpayment of invoices for copies billed out by the
Publisher.
Page 4
<PAGE>
XV. AUTHOR'S The Publisher agrees to present to the Author 100 (one
COPIES hundred) free copies of said Work upon publication, and to
permit the Author to purchase from it further copies for
its own personal use, at a discount of forty percent off
list price. Author shall be billed directly for these
copies, and shall make payment therefor within 30 days of
invoice date. No consignment sales shall be made to
Author. Author shall not receive royalties on sales made
to him.
XVI. RECOVERABLE All payments made by Publisher to the Author, whether
PAYMENTS under this agreement or not, shall be chargeable against
and recoverable from any or all monies accruing to the
Author under this contract and for all other contracts
been the parties of their assigns.
XVII. TAX It is mutually agreed that State, Federal, and Foreign
WITHHOLDING taxes on the Author's earnings, when paid by the
Publisher, are proper charges against the Author's
earnings due under this agreement, and may be withheld by
the Publisher.
XVIII. This agreement shall be binding upon and shall ensure
ASSIGNMENT to the benefit of the parties hereto, their successors,
assigns, executors, administrators and/or personal
representatives and may be assigned by either party
hereto, except that no assignment by the Author shall be
valid against the Publisher unless the Publisher has
received written notice therefrom from the Author and has
consented to the same in writing.
XIX. Any controversy or claim arising out of this agreement
ARBITRATION or the breach thereof shall be settled by arbitration in
accordance with rules then obtaining of the American
Arbitration Association, and judgment upon the award may
be entered in the highest court of the form, State or
Federal, having jurisdiction. Such arbitration shall be
held in the City of Seattle, Washington, unless otherwise
agreed by the parties. The Author may at his option, in
case of failure to pay royalties, refuse to arbitrate, and
pursue his legal remedies.
XX. NOTICES Any written notice required under any of the
provisions of this agreement shall be deemed to have been
properly served by delivery in person or by mailing the
same to the parties hereto at the addresses set forth
above, except as the addresses may be changed by notice in
writing; provided, however, that notices of termination
shall be sent by registered mail.
XXI. WAIVER A waiver of any breach of this agreement or of any of
the terms or ocnditions by either party thereto shall not
be deemed a waiver of any repetition of such breach or in
any wise affect any other terms or conditions hereof; no
waiver shall be valid or binding unless it shall be in
writing, and signed by the parties.
XXII. DELIVERY This agreement shall no be binding on either the
OF CONTRACT Publisher or the Author unless it is signed by both
parties and delivered to the Publisher within a period of
two months from the date of the agreement.
The changes, alterations and interlineations made in Articles VII,X,XVI of
this contract and the additional Articles numbered NONE made and added before
execution hereof.
IN WITNESS WHEREOF, the parties hereto have hereunto affixed their
respective hands and seals the day and year first above written.
LIGHTHOUSE PUBLISHING GROUP, INC.
/s/ Cheryle Hamilton /s/ Wade B. Cook
- ------------------------ -------------------------
By: Cheryle Hamilton Wade B. Cook, Author
1/12/98 1-9-98
- ------------------------ -------------------------
Date: Date:
Page 5
<PAGE>
Distribution Agreement
This agreement, made Sept. 21, 1997 by and between Origin Trade Books,
Inc. (Origin) of 6200 South 380 West, Murray, Utah, 84107, and
Publisher Lighthouse Publishing Group, Inc., a subsidiary of Wade Cook
Financial Corporation.
Address: 14675 Interurban Avenue South
Seattle, Washington 98168-4664
Telephone: 206-901-3000 Fax: 206-901-3100
E-Mail Address
Contact: Cheryle Hamilton
ISBN Prefix: 0-910019-
TRADE DISTRIBUTION SERVICE
1. Origin will sell and distribute Publisher's Don't Set Goals (The
Old Way) exclusively to the retail and wholesale book trade, libraries,
warehouse clubs, and mass merchandisers as mutually agreed to.
PERFORMANCE BY ORIGIN
2. Origin agrees to use its best efforts to sell and distribute
Publisher's title(s) so as to obtain the greatest revenues consistent with
the character of the title(s) and sound business practices in the publishing
industry. Furthermore, Origin shall, to the best of its ability, perform the
other services customarily rendered by book distributors which shall
include: warehousing, shipping, billing, customer service, the collection of
accounts receivable (but not litigation) and the processing of returns.
3. Origin may hold a sales conference for the Publisher to present
forthcoming titles to the sales and marketing team before each selling season
commences. Origin will notify Publisher of the date, time and place of each
sales conference.
4. Origin shall prepare its own order forms, invoices and other forms to
be used in the selling and billing of titles at its own expense.
5. Origin will provide basic trade marketing support at its own expense.
Trade marketing shall be defined as preparing seasonal catalogs, wholesale
microfiche charges and part of the space cost of participating in the ABA
convention.
6. Origin will offer special advertising and promotional opportunities,
including premium placement/display, catalog ads, special events, author
signings, secondary displays and consumer point-of-purchase signage for an
additional fee at the option of the publisher.
7. Origin shall maintain an 800# order line for the use of selling and
customer service. VISA and MasterCard facility will be made available to
customers.
<PAGE>
8. Origin or its agents will sell Publisher's title(s) to the trade under
Origin's trade retail and wholesale discount policies, which are subject to
change from time to time.
9. Origin shall hold Publisher's inventory on consignment in Origin's
warehouse for the sale of Publisher's title(s), with legal title being
retained by Publisher until Origin's sale and shipment of the product. Origin
and Publisher shall mutually determine the quantities of each title being
held on consignment.
10. Origin will store Publisher's books in a neat and orderly manner.
However, Publisher agrees to remove inventory within 60 days after advance
notification by Origin when Origin determines current levels of inventory are
in excess of current sales requirements.
11. Origin shall charge Publisher for services rendered on the basis of a
percentage of Net Sales (defined as gross sales less returns). Origin's
percentage shall cover all services except those as otherwise specified in
this agreement. The percentage shall be in effect for one year from the first
month of billing and will be subject to review and revision each year (12
months of billing activity) and every subsequent year as long as this
agreement is in force.
Sales and Distribution Charge as a percentage of Net Sales:
Commencing with the October 1997 sales period:
20% of all sales.
12. On or about the fifteenth day after the close of each monthly
accounting period, Origin will render to Publisher a detailed accounting of
all sales, current month's returns, and other charges, if any, occurring in
that period. Returns will be deducted from Origin's monthly payment to
publisher in the same month in which the deduction is taken against Origin.
13. Payments of the amounts due Publisher shall accompany the statement
and shall be made on the following schedule:
100% of the monies due 120 days after the close of each accounting month,
with a 15 day grace period.
14. Origin shall provide to Publisher monthly statements of all sales and
distribution activities. These reports shall record the number of books of
each title received from Publisher, the number shipped to or returned from
booksellers and such other reports that Origin prepares to inform Publisher
of sales of its titles.
15. In the event that Publisher's monthly returns deduction exceeds the
amounts owed by Origin in any monthly payment period, Origin can, at its
option:
A. bill Publisher for the amount payable upon presentation, or,
B. carry the credit balance over to the next period and any thereafter
until the obligation to Origin has been completely satisfied.
<PAGE>
16. Origin shall make every effort, short of bad debt collection
procedures or collection lawsuits, to collect from its accounts the monies
due on Origin sales of Publisher's titles. If it is determined by Origin that
it cannot collect receivables from delinquent accounts, then Origin agrees to
turn the delinquent account(s) over to Publisher for collection purposes.
Origin retains the right to provide collection efforts and, if successful,
shall remit to Publisher the pro rata share after costs and expenses of said
collection efforts.
PERFORMANCE BY PUBLISHER
17. Publisher shall publish titles that include the following information:
copyright information, Library of Congress cataloguing in publication data,
full ISBN number, EAN bar coding and the price printed on the back cover of
each copy and such other data as is standard to the bookselling industry.
18. Publisher shall provide Origin upon request with seasonal catalog
copy, tip sheet copy, jacket cover art and selling materials as may be
required by the Origin sales force.
19. Publisher shall inform Origin of its intent to declare titles out of
print in a timely and appropriate manner by written notice. Publisher shall
also advertise all out of print declarations at its own expense. Origin
agrees to handle the placing of such ads.
20. Publisher shall bear the cost for all advertising,promotion and
publicity to the consumer and trade, except for those basic activities
identified in paragraph 5. Origin must first obtain written consent from
Publisher for any advertising, promotion and publicity expenditures that it
makes on behalf of Publisher.
21. Publisher holds the right to remainder any of its mint titles as long
as Origin shall be given ninety (90) days written notification prior to the
remainder sale. Publisher shall make all arrangements, and incur all costs,
including packing and shipping with respect to the remainder sale.
22. Publisher shall be responsible for insuring its inventory being held
in Origin's warehouse, or advising Origin in writing of its decision to
self-insure. Origin's responsibility is limited to careful and prudent
handling of all goods in its possession, but it assumes no responsibility for
fire, theft or other hazards that could be covered by all risk insurance.
MISCELLANEOUS
23. Titles that are determined to be in unsaleable condition due to damage
or shelf worn conditions resulting from being in retail stores or at
wholesaler premises will be stored separately. Such titles will be returned to
Publisher from time to time or at Publisher's written request, Origin will
destroy such titles, or donate them to an approved charitable organization.
24. It is understood and agreed that this contract is a sales and
distribution agreement only, and that Publisher retains all of Publisher's
liabilities in their entirety.
<PAGE>
TERMS OF AGREEMENT
25. This agreement shall be in force for a period of 12 months. Subsequent
cancellation by either Origin or Publisher requires one hundred and twenty
days (120) advance notification before the anniversary date. If notification
is not given then this agreement will renew on a year to year basis with 120
days advance notification still required.
ARBITRATION
26. Any disputes arising under this Agreement shall be submitted to,
determined and settled by formal arbitration at the joint equal cost of the
parties in Murray, UT, pursuant to the laws of the State of Utah and the
rules of the American Arbitration Association. The parties agree to be bound
to and abide by the arbitration decision.
27. Any notice to be given under this agreement shall be in writing and
may be effected, either by personal delivery, or by U.S. mail, return receipt
requested. Mailed notices shall be sent to the parties at their following
addresses:
Origin Book Sales, Inc. Lighthouse Publishing Group
Mike Hurst Attn: Cheryle Hamilton
6200 South 14675 Interurban Ave South
Murray, UT 84107 Seattle, WA 981684664
In witness whereof, each of the parties hereto have caused its duly
authorized representative on its behalf to execute this agreement.
Origin Book Sales, Inc. Lighthouse Publishing Group, Inc.
/s/ Mike Hurst /s/ Cheryle Hamilton
- ----------------------- ----------------------
Mike Hurst, General Manager Cheryle Hamilton, Executive Administrator
10-1-97 9-21-97
- ------------------ ---------------
Date Date
<PAGE>
Distribution Agreement
This agreement, made Sept. 21, 1997 by and between Origin Trade Books,
Inc. (Origin) of 6200 South 380 West, Murray, Utah, 84107, and
Publisher Lighthouse Publishing Group, Inc., a subsidiary of Wade Cook
Financial Corporation.
Address: 14675 Interurban Avenue South
Seattle, Washington 98168-4664
Telephone: 206-901-3000 Fax: 206-901-3100
E-Mail Address
Contact: Cheryle Hamilton
ISBN Prefix: 0-910019-
TRADE DISTRIBUTION SERVICE
1. Origin will sell and distribute Publisher's titles listed in Attachment
"A" exclusively to the retail and wholesale book trade, libraries,
warehouse clubs, and mass merchandisers NOT listed in Attachment "B".
PERFORMANCE BY ORIGIN
2. Origin agrees to use its best efforts to sell and distribute
Publisher's title(s) so as to obtain the greatest revenues consistent with
the character of the title(s) and sound business practices in the publishing
industry. Furthermore, Origin shall, to the best of its ability, perform the
other services customarily rendered by book distributors which shall
include: warehousing, shipping, billing, customer service, the collection of
accounts receivable (but not litigation) and the processing of returns.
3. Origin may hold a sales conference for the Publisher to present
forthcoming titles to the sales and marketing team before each selling season
commences. Origin will notify Publisher of the date, time and place of each
sales conference.
4. Origin shall prepare its own order forms, invoices and other forms to
be used in the selling and billing of titles at its own expense.
5. Origin will provide basic trade marketing support at its own expense.
Trade marketing shall be defined as preparing seasonal catalogs, wholesale
microfiche charges and part of the space cost of participating in the ABA
convention.
6. Origin will offer special advertising and promotional opportunities,
including premium placement/display, catalog ads, special events, author
signings, secondary displays and consumer point-of-purchase signage for an
additional fee at the option of the publisher.
7. Origin shall maintain an 800# order line for the use of selling and
customer service. VISA and MasterCard facility will be made available to
customers.
<PAGE>
8. Origin or its agents will sell Publisher's title(s) to the trade under
Origin's trade retail and wholesale discount policies, which are subject to
change from time to time.
9. Origin shall hold Publisher's inventory on consignment in Origin's
warehouse for the sale of Publisher's title(s), with legal title being
retained by Publisher until Origin's sale and shipment of the product. Origin
and Publisher shall mutually determine the quantities of each title being
held on consignment.
10. Origin will store Publisher's books in a near and orderly manner.
However, Publisher agrees to remove inventory within 60 days after advance
notification by Origin when Origin determines current levels of inventory are
in excess of current sales requirements.
11. Origin shall charge Publisher for services rendered on the basis of a
percentage of Net Sales (defined as gross sales less returns). Origin's
percentage shall cover all services except those as otherwise specified in
this agreement. The percentage shall be in effect for one year from the first
month of billing and will be subject to review and revision each year (12
months of billing activity) and every subsequent year as long as this
agreement is in force.
Sales and Distribution Charge as a percentage of Net Sales:
Commencing with the October 1997 sales period:
20% of all sales.
12. On or about the fifteenth day after the close of each monthly
accounting period, Origin will render to Publisher a detailed accounting of
all sales, current month's returns, and other charges, if any, occurring in
that period. Returns will be deducted from Origin's monthly payment to
publisher in the same month in which the deduction is taken against Origin.
13. Payments of the amounts due Publisher shall accompany the statement
and shall be made on the following schedule:
100% of the monies due 120 days after the close of each accounting month,
with a 15 day grace period.
14. Origin shall provide to Publisher monthly statements of all sales and
distribution activities. These reports shall record the number of books of
each title received from Publisher, the number shipped to or returned from
booksellers and such other reports that Origin prepares to inform Publisher
of sales of its titles.
15. In the event that Publisher's monthly returns deduction exceeds the
amounts owed by Origin in any monthly payment period, Origin can, at its
option:
A. bill Publisher for the amount payable upon presentation, or,
B. carry the credit balance over to the next period and any thereafter
until the obligation to Origin has been completely satisfied.
<PAGE>
16. Origin shall make every effort, short of bad debt collection
procedures or collection lawsuits, to collect from its accounts the monies
due on Origin sales of Publisher's titles. If it is determined by Origin that
it cannot collect receivables from delinquent accounts, then Origin agrees to
turn the delinquent account(s) over to Publisher for collection purposes.
Origin retains the right to provide collection efforts and, if successful,
shall remit to Publisher the pro rata share after costs and expenses of said
collection efforts.
PERFORMANCE BY PUBLISHER
17. Publisher shall publish titles that include the following information:
copyright information, Library of Congress cataloguing in publication data,
full ISBN number, EAN bar coding and the price printed on the back cover of
each copy and such other data as is standard to the bookselling industry.
18. Publisher shall provide Origin upon request with seasonal catalog
copy, tip sheet copy, jacket cover art and selling materials as may be
required by the Origin sales force.
19. Publisher shall inform Origin of its intent to declare titles out of
print in a timely and appropriate manner by written notice. Publisher shall
also advertise all out of print declarations at its own expense. Origin
agrees to handle the placing of such ads.
20. Publisher shall bear the cost for all advertising, promotion and
publicity to the consumer and trade, except for those basic activities
identified in paragraph 5. Origin must first obtain written consent from
Publisher for any advertising, promotion and publicity expenditures that it
makes on behalf of Publisher.
21. Publisher holds the right to remainder any of its mint titles as long
as Origin shall be given ninety (90) days written notification prior to the
remainder sale. Publisher shall make all arrangements, and incur all costs,
including packing and shipping with respect to the remainder sale.
22. Publisher shall be responsible for insuring its inventory being held
in Origin's warehouse, or advising Origin in writing of its decision to
self-insure. Origin's responsibility is limited to careful and prudent
handling of all goods in its possession, but it assumes no responsibility for
fire, theft or other hazards that could be covered by all risk insurance.
MISCELLANEOUS
23. Titles that are determined to be in unsaleable condition due to damage
or shelf worn conditions resulting from being in retail stores or at
wholesaler premises will be stored separately. Such titles will be returned to
Publisher from time to time or at Publisher's written request, Origin will
destroy such titles, or donate them to an approved charitable organization.
24. It is understood and agreed that this contract is a sales and
distribution agreement only, and that Publisher retains all of Publisher's
liabilities in their entirety.
<PAGE>
TERMS OF AGREEMENT
25. This agreement shall be in force for a period of 12 months. Subsequent
cancellation by either Origin or Publisher requires one hundred and twenty
days (120) advance notification before the anniversary date. If notification
is not given then this agreement will renew on a year to year basis with 120
days advance notification still required.
ARBITRATION
26. Any disputes arising under this Agreement shall be submitted to,
determined and settled by formal arbitration at the joint equal cost of the
parties in Murray, UT, pursuant to the laws of the State of Utah and the
rules of the American Arbitration Association. The parties agree to be bound
to and abide by the arbitration decision.
27. Any notice to be given under this agreement shall be in writing and
may be effected, either by personal delivery, or by U.S. mail, return receipt
requested. Mailed notices shall be sent to the parties at their following
addresses:
Origin Book Sales, Inc. Lighthouse Publishing Group
Mike Hurst Attn: Cheryle Hamilton
6200 South 14675 Interurban Ave South
Murray, UT 84107 Seattle, WA 981684664
In witness whereof, each of the parties hereto have caused its duly
authorized representative on its behalf to execute this agreement.
Origin Book Sales, Inc. Lighthouse Publishing Group, Inc.
/s/ Mike Hurst /s/ Cheryle Hamilton
- ----------------------- ----------------------
Mike Hurst, General Manager Cheryle Hamilton, Executive Administrator
10-1-97 9-27-97
- ------------------ ---------------
Date Date
<PAGE>
CONTRACT ATTACHMENT "A"
Titles to be sold by Origin Trade Books, Inc. for Lighthouse Publishing
Group, Inc.
Wallstreet Money Machine
Real Estate Money Machine
Stock Market Miracles
How to Pick up Foreclosures
Brilliant Deductions
Bear Market Baloney
Business Buy The Bible
<PAGE>
ATTACHMENT "B"
<TABLE>
<CAPTION>
Account Street City State Zip
<S> <C> <C> <C> <C>
1 American Wholesale Book Co./Books A Million 4350 Dryson Blvd Florence AL 35630
2 B. Dalton Booksellers 111 Fifth Ave, 2nd Fl New York NY 10011
3 Baker & Taylor 44 Kirby Avenue Somerville NJ 08876
4 Barnes & Noble 111 Fifth Ave, 2nd Fl New York NY 10011
5 Barnes & Noble #200 6 E. 18th St. New York NY 10003
6 Othelot 1829 Reisterstown Rd. #130 Baltimore MD 21208
7 Bookazine 75 Book Road Bayonne NJ 07002
8 Bookland of Maine 78 Atlantic Place South Portland ME 04106
9 Borders, Inc. 515 East Liberty Ann Arbor MI 48108
10 Brodard 500 Arch St. Williamsport PA 17705
11 Clean Well Lighted Place for Books 601 Van Ness Ave San Francisco CA 94102
12 Collseum Books 1775 Broadway, Ste 507 New York NY 10019
13 Crown Books Inc. 3300 7th Ave. Landover MD 20785
14 Follett College Stores 400 W Grand Elmhurst IL 60126
15 Hastings 3601 Plains Blvd. Suite 1 Amarillo TX 19102
16 Ingram 1 Ingram Rd. La Vergne TN 37088
17 Lauriat's Inc/Encore/Royal 10 Pequot Way Canton MA 02021
18 Marboro Books One Pond Road Rockleigh NJ 07647
19 Musicland Group 2001 Musicland Dr. Franklin IN 46131
20 NACS Corp 528 E. Lorain St. Oberlin OH 44074
21 New England Mobile Book Fair 82 Needham St. Newton Highlands MA 02161
22 Powell's Books 1005 Av Burnside Portland OR 97209
23 Rizzoli Bookstore 300 Park Ave South New York NY 10010
24 Tattered Cover 1628 16th Street Denver CO 80202
25 Tower Books 2601 Del Monte Street W. Sacramento CA 92691
26 Virgin Megastore 4751 Wilshire Blvd. Los Angeles CA 90010
27 Waldenbooks 3451 S. State St. Ann Arbor MI 48108
28 Waterstone's 2191 Hornig Road Philadephia PA 19116
</TABLE>
<PAGE>
[STAMP]
ARTICLES OF MERGER
Pursuant to the provisions of the General Corporation Law of the State of
Nevada, NNS 92A 200, the undersigned corporation hereby submits the following
Articles of Merger for filing for the purpose of merging Profit Financial
Corporation, a Utah corporation ("PROFIT") into Wade Cook Financial
Corporation, a Nevada corporation ("WADE"), and together with PROFIT,
"Constituent Entity".
ARTICLE I
Profit Financial Corporation is a corporation organized and existing
under the laws of Utah with its agent address at 3098 South Highland Drive,
Suite 460, Salt Lake City, Utah 84106.
Wade Cook Financial Corporation is a corporation duly organized and
existing under the laws of the State of Nevada whose agent address is 3885 S.
Decatur Blvd., Suite 2010, Las Vegas, NV, 89103.
ARTICLE II
A plan of merger (the "Plan") attached to these Articles of Merger as
Exhibit A, has been approved by the shareholders of each Constituent Entity.
ARTICLE III
Neither Constituent Entity is a subsidiary and therefore, the approval
of the shareholders of any parent company was not necessary.
ARTICLE IV
A copy of the Articles of Incorporation of Wade Cook Financial
Corporation is attached hereto for filing with the Secretary of State.
ARTICLE V
The Plan of Merger is attached hereto as Exhibit A.
DATED this 10th day of September, 1997.
WADE COOK FINANCIAL CORPORATION
By: /s/ Wade B. Cook
---------------------------
Name: Wade B. Cook
Title: President
ACKNOWLEDGED: State of Utah
Department of Commerce
Division of Corporations and Commercial Code
WADE COOK FINANCIAL CORPORATION I hereby certify that the foregoing has
been pled and approved on the 22 day
of 97. In the office of this
By: /s/ Laura M. Cook Division and hereby issue this Certificate
---------------------------- thereof.
Name: Laura M. Cook
Title: Secretary Examiner -------------------- Date 12/26/97
/s/ Korla S. Woods
----------------------
Korla S. Woods
Division Director
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Plan of Merger is made and entered into this 22nd day of December,
1997, by and between Profit Financial Corporation, a Utah corporation
("PROFIT"), and Wade Cook Financial Corporation, a Nevada corporation ("WADE"
or the "Surviving Company").
RECITALS
A. PROFIT is a public reporting corporation organized and existing under
the laws of the State of Utah whose registered address is 3098 South Highland
Drive, Suite 460, Salt Lake City, Utah, 84106 and has total authorized
capital stock consisting of 20,000,000 shares of common stock, par value of
$0.01, and 5,000,000 shares of preferred stock, par value $10.00.
B. WADE is a Nevada corporation formed and existing under the laws of
the State of Nevada whose registered address is 3885 S. Decatur Blvd., Suite
2010, Las Vegas, Nevada, 89103 and who has total authorized capital stock
consisting of 60,000,000 shares of common stock with a par value of $0.01
per share and 5,000,000 shares of preferred stock with a par value of $10.00
per share.
C. The Board of Directors of WADE and of PROFIT, respectively, deem it
advisable for PROFIT to merge with and into WADE.
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, WADE and PROFIT hereby agree to the following Plan of
Merger:
1. Names of Each Party to the Merger. PROFIT will merge with and into
WADE.
2. Terms and Conditions of Merger. The effective date of merger shall be
upon the filing of the Articles of Merger with the appropriate office or
division of the State of Utah or December 20, 1997 or whichever first occurs
Upon the effective date of the merger. The separate corporate existence of
PROFIT shall cease; title to all real estate and other property owned by
PROFIT shall be vested in WADE without reversion or impairment; and the
Surviving Company shall have all liabilities of PROFIT. Any proceeding
pending by or against PROFIT may be continued as if such merger did not
occur, or the Surviving Company may be substituted in the proceeding for WADE.
3. Governing Law. The laws of the State of Nevada shall govern the
Surviving Company.
4. Name of Surviving Company. The name of the Surviving Company shall be
Wade Cook Financial Corporation.
<PAGE>
5. Registered Agent and Registered Office. The address of the registered
office of the Surviving Company shall be 3885 S. Decatur Blvd., Suite 2010,
Las Vegas, Nevada, 89103, and the name of the Registered Agent shall be Acorn
Corporation Services, Inc.
6. Accounting. The assets and liabilities of WADE and PROFIT
(collectively the "Constituent Parties") as of the effective date of the
merger shall be taken up on the books of the Surviving Company at the amounts
at which they are carried at that time on the respective books of the
Constituent Parties.
7. Certificate of Formation. The Articles of Incorporation of WADE are
hereby executed and attached hereto as Exhibit "A", and incorporation herein
by this preference. The Articles of Incorporation shall constitute the
Articles of Incorporation of the Surviving Company.
8. Bylaws. The Bylaws of WADE as of the effective date of the merger
shall be consistent and not contradict any provisions provided herein.
9. Directors. The Directors of PROFIT as of the effective date of the
merger may or may not serve as directors of the Surviving Company. An initial
board of directors (or director) shall be designated in the Articles of
Incorporation of the Surviving Company and may be changed from time to time as
provided for in the Surviving Company's Bylaws.
10. Manner and Basics of converting Shares. As of the effective date of
the merger:
a) Each share of WADE issued and outstanding shall continue to be
one share of the Surviving Company.
b) The shareholders in PROFIT shall convert their shares of common
stock on the basis of one share of PROFIT common stock for three shares of
common stock in the Surviving Company. As a result of this conversion, the
shareholders of the Surviving Company will own a total equity interest in the
Surviving Company measured by each member's pro rata interest in PROFIT.
c) Any authorized but unissued shares of PROFIT, if any, on the
effective date of merger shall be surrendered to the Surviving Company for
cancellation, and no shares of the Surviving Company shall be issued in
respect thereof.
d) On the effective date of the merger, holders of shares
certificated in PROFIT shall be deemed to be holders of share certificates in
Surviving Company and such holders may, but need not surrender them to the
Surviving Company, or its appointed agent, in such manner as the Surviving
Company legally shall require. Upon receipt of such certificate,
the Surviving Company shall issue in exchange therefor a
Agreement and Plan of Merger
Page 2 of 4
<PAGE>
certificate of shares in the Surviving Company representing the number of
shares to which such holder shall be entitled as set forth above.
e) In addition, such holders shall be entitled to receive any
distributions on such shares of the Surviving Company which may have been
declared and paid between the effective date of the merger and the issuance
to such shareholder of the certificate of such shares.
f) Any options granted by PROFIT to purchase unissued shares or
shares equivalents of PROFIT shall continue to be options to purchase equal
numbers of shares of common stock of the Surviving Corporation without any
change in the terms and conditions as set forth in such options.
11. Shareholder and Member Approval. This Plan of Merger shall be
submitted to the shareholders of WADE and PROFIT for their approval in the
manner provided under the laws of the states of Nevada and Utah respectively.
After approval by a vote of the holders of a simple majority of the shares
entitled to vote thereon of WADE and the holders of more than fifty percent
(50%) of the issued shares by the shareholders of PROFIT the Articles of
Merger shall be filed as required under the laws of the State of Nevada.
12. Rights of Dissenting Shareholders. Any shareholder of WADE or PROFIT
who has the right to dissent from this merger as provided under the laws of
the states of Nevada and Utah, and who so dissents in accordance with
requirements thereof, shall be entitled, upon surrender of the certificate or
certificates representing certificated shares or upon imposition of
restrictions of transfer of uncertificated shares, to receive payment of the
fair value of such shareholder's shares as provided pursuant to the law of
the states of Nevada and Utah.
13. Termination of Merger. This merger may be abandoned at any time
prior to the filing of Articles of Merger with the Secretary of State upon a
vote of a majority of the Board of Directors of WADE and of PROFIT. If the
merger is terminated, there shall be no liability on the part of either
Constituent Party, their respective Boards of Directors or shareholders.
14. Counterparts. This Plan of Merger may be executed in any number of
counterparts or by facsimile, and all such counterparts and copies shall be
and constitute an original instrument.
Agreement and Plan of Merger
Page 3 of 4
<PAGE>
IN WITNESS WHEREOF, this Plan of Merger has been adopted by the
undersigned companies as of 15th day of August 1997.
PROFIT FINANCIAL CORPORATION WADE COOK FINANCIAL
CORPORATION
By: Wade B. Cook By: Wade B. Cook
---------------------------- --------------------------
Name: Wade B. Cook Name: Wade B. Cook
---------------------------- --------------------------
Its: President Its: President
---------------------------- --------------------------
Agreement and Plan of Merger
Page 4 of 4
<PAGE>
[STAMP]
Certificate of Correction
This Certificate of Correction is in regards to the Articles of Merger and
the Agreement and Plan of Merger of, by and between, Profit Financial
Corporation, a Utah Corporation, and Wade Cook Financial Corporation, a
Nevada Corporation, filed on Friday, December 19th, 1997. Upon further
inspection, several clerical errors have been identified. The following
corrections should be made as follows:
As to the Articles of Merger:
1) The reference to "Profit Financial Corporation, a Utah corporation"
in the first paragraph should be corrected to read "Wade Cook
Financial Corporation (formerly Profit Financial Corporation), a
Utah corporation."
2) The reference to "PROFIT" in the first paragraph should be
corrected to read "UTAHWADE".
3) The phrase "and together with PROFIT, "Constituent Entity" in the
first paragraph should be deleted.
4) The reference to "Profit Financial Corporation" in Article I should
be corrected to read "Profit Financial Corporation (now
known as Wade Cook Financial Corporation)".
5) Article II should be corrected in full to read "An agreement and
plan of merger (the "Plan"), attached to these Articles of Merger
as Exhibit A, has been approved by the shareholders of UTAHWADE. At
the time of voting, 4,120,313 votes were cast in favor of the Plan
by shareholders holding common stock of UTAHWADE, the only class of
stock entitled to vote on the matter. Such vote was sufficient to
approve the Plan."
6) The reference to "Constituent Entity" in Article III should be
corrected to read "UTAHWADE or WADE".
7) Article IV should be corrected in full to read "The effective date
of these Articles of Merger shall be upon filing of these Articles
of Merger with the appropriate office or division of the State of
Nevada or December 24, 1997, whichever first occurs."
8) Article V should be deleted in full.
As to the Agreement and Plan of Merger:
1) The phrase "22nd day of December, 1997" in the first paragraph
should be corrected to read "15th day of August, 1997."
2) The reference to "Profit Financial Corporation, a Utah corporation
("PROFIT") in the first paragraph should be corrected to read "Wade
Cook Financial Corporation (formerly Profit Financial Corporation),
a Utah corporation ("UTAHWADE").
3) All references to "PROFIT" should be corrected to read "UTAHWADE."
4) The first sentence in subsection C10(b) should be corrected in full
to read "The shareholders in UTAHWADE shall convert their shares of
common
<PAGE>
stock on the basis of one share of UTAHWADE common stock for one share of
common stock in the Surviving Company."
5) The reference to "Profit Financial Corporation" in the signature line
should be corrected to read "Wade Cook Financial Corporation, formerly
Profit Financial Corporation [Utah]."
DATED this 24th day of December, 1997.
ACKNOWLEDGED:
WADE COOK FINANCIAL CORPORATION
By: Wade B. Cook
--------------------------
Wade B. Cook, President & Chairman
<PAGE>
PROFIT FINANCIAL CORPORATION
ARTICLES OF MERGER
Pursuant to the provisions of the Revised Business Corporation Act of the
State of Utah, Title 16, Chapter 10a, the undersigned corporation hereby
submits the following Articles of Merger for filing for the purpose of
merging Wade Cook Financial Corporation (formerly Profit Financial
Corporation), a Utah corporation ("Profit"), into Wade Cook Financial
Corporation, a Nevada corporation ("WADE").
ARTICLE I
Profit Financial Corporation (now known as Wade Cook Financial Corporation)
is a corporation organized and existing under the laws of the State of Utah
with its address at 3098 South Highland Drive, Suite 460, Salt Lake City,
Utah 84106.
Wade Cook Financial Corporation is a corporation duly organized and existing
under the laws of the State of Nevada whose address is 3885 S. Decatur Blvd.,
Suite 2010, Las Vegas, Nevada 89103.
ARTICLE II
An agreement and plan of merger (the "Plan"), attached to these Articles of
Merger as Exhibit A, has been approved by the shareholders of Profit. At the
time of voting, 4,120,313 votes were cast in favor of the Plan by
shareholders holding common stock of Profit, the only class of stock entitled
to vote on the matter. Such vote was sufficient to approve the Plan.
ARTICLE III
Neither Profit or WADE is a subsidiary and therefore, the approval of the
shareholders of any parent company was not necessary.
ARTICLE IV
The effective date of these Articles of Merger shall be upon the filing of
these Articles of Merger with the appropriate office or division of the State
of Utah or December 20, 1997, whichever first occurs.
DATED this 20TH day of December, 1997.
Profit Financial Corporation (A Utah Corporation)
(now known as WADE COOK FINANCIAL CORPORATION)
By: /s/Wade B. Cook
Name: Wade B. Cook
Its: President
ACKNOWLEDGED:
WADE COOK FINANCIAL CORPORATION
By: /s/Laura M. Cook
Name: Laura M. Cook
Its: Secretary
<PAGE>
STATE OF WASHINGTON)
)
COUNTY OF KING )
Before me, a Notary Public in and for said county and state, personally
appeared Ken Zeringer, President of Columbia Corporate Services, Inc. who is
known to me to be the same person who executed the foregoing Articles of
Incorporation and duly acknowledged execution of the same. In witness
whereof, I have hereunto subscribed my name and affixed my official seal this
18 day of December 1997.
[ILLEGIBLE]
-------------------------------------
[SEAL] Notary Public in and for the
State of Washington residing
at Seattle, WA
For authorization see Exhibit "A", "Corporate Resolution", attached hereto
and made a part hereof by reference.
<PAGE>
CORPORATE RESOLUTION
BE IT HEREBY RESOLVED, by the Board of Directors of Wade Cook Financial
Corporation, formerly Profit Financial Corporation, a Utah corporation, that
the corporation authorize an increase in the total authorized common stock of
the company by 80,000,000 shares to 140,000,000 shares of common stock par
value $.01.
I, Laura Cook, Secretary of Wade Cook Financial Corporation, formerly Profit
Financial Corporation, hereby certify that the foregoing is a true copy of a
resolution adopted by the Board of Directors of said Corporation at a meeting
duly held the 13th day of August, 1997 in Seattle, Washington at which a
quorum was present and voting, and that the same has not been repealed or
amended and remains in full force and effect and does not conflict with the
By-laws of said Corporation.
Dated: 12/18/97 /s/ Laura M. Cook
------------------ -------------------------------
Laura Cook, Secretary
Wade Cook Financial Corporation
STATE OF WASHINGTON)
)
COUNTY OF KING )
On the 18 day of December, 1997 personally appeared before me, Laura M.
Cook, signer of the above instrument, who duly acknowledged to me that she
executed the same.
My Commission Expires /s/ Patricia A. Sanders
1-3-2001 ----------------------------
- --------------------- Notary Public
3215 South 314th Place
[SEAL] ----------------------------
Residing At:
Auburn, WA 98001
----------------------------
<PAGE>
MINUTES OF THE ANNUAL MEETING
OF SHAREHOLDERS
OF
WADE COOK FINANCIAL CORPORATION
December 10, 1997
The 1997 Annual Meeting of Shareholders of Wade Cook Financial Corporation
(the "Company"), was held at the Company's headquarters located at 14675
Interurban Avenue, South, Seattle, Washington at 2:00 p.m., local time, on
December 10, 1997.
The meeting was called to order by the company's Chairman and Chief
Executive Officer, Wade B. Cook. Mr. Cook served as Chairman of the meeting.
The Chairman welcomed the shareholders in attendance. Lisa Michaels, was
introduced as the "Inspector of Elections".
Mr. Cook announced that a complete list of the shareholders of record of
the Company as of September 1, 1997, the record date set by the Board of
Directors to determine these shareholders entitled to vote at this meeting,
was available at the meeting.
The Chairman introduced the first item of business, which was the election
of directors for the forthcoming year. The Chairman mentioned Dr. Warren
Chancy, would no longer be considered for election to the Board of Directors.
There being no additional nominations, shareholders cast their votes for the
election of directors. The Chairman introduced the Company's key officers and
members of its Board of Directors present at the meeting:
Laura M. Cook - Director and Secretary
John Childers, Sr. - Speaker Training Manager and Director
Nicholas Dettman - Director
Eric Marler - Speaker and Director
Robert Hondel - Quantum Marketing and Director
Cheryle Hamilton - President of Lighthouse Publishing and Director
Pamela Andersen - Real Estate Investment manager and Director
Robin Anderson - Sales manager and Director
Kiman Lucas - General Counsel
The second item of business was ratification of the Company's name change
from Profit Financial Corporation, to Wade Cook Financial Corporation.
Shareholders cast their ballots.
The third item of business was authorization of reincorporation in the
state of Nevada. Shareholders cast their ballots.
<PAGE>
WADE COOK FINANCIAL CORPORATION
MINUTES OF THE ANNUAL MEETING
OF SHAREHOLDERS (page 2)
The fourth item of business was adoption of the 1997 Stock Incentive
Plan. Shareholders cast their ballots.
The final item of business was authorization of an increase in the total
number of common stock of the company to 140,000,000 shares. Shareholders
cast their ballots.
The Chairman gave a report on the Company's fiscal year and plans for the
future. Following his report, the Inspector of Elections informed the
Chairman of the election results.
The Chairman announced that all issues received a majority of affirmative
votes and passed successfully.
After the election results were announced, Mr. Cook responded to several
questions from the floor. Mr. Cook then returned to his discussion about the
Company's performance and vision for the upcoming fiscal year.
The meeting was adjourned at approximately 3:30 p.m. local time.
SECRETARY
/s/ Laura M. Cook
-------------------------
Laura M. Cook
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On the 18 day of December, 1997 personally appeared before me, Laura M. Cook,
signer of the above instrument, who duly acknowledged to me that she executed
the same.
My Commission Expires
1-9-2001 [illegible]
- --------------------- -------------------------
Notary Public
Residing at:
[SEAL] [illegible]
-------------------------
[illegible]
<PAGE>
[SEAL]
CORPORATE CHARTER
I, DEAN HELLER, the duly elected and qualified Nevada Secretary of State, do
hereby certify that WADE COOK FINANCIAL CORPORATION did on December 19, 1997
file in this office the original Articles of Incorporation; that said
Articles are now on file and of record in the office of the Secretary of
State of the State of Nevada, and further, that said Articles contain all the
provisions required by the law of said State of Nevada.
IN WITNESS WHEREOF, I have hereunto
set my hand and affixed the Great Seal
of the State, at my office, in Carson
City, Nevada, on December 22, 1997.
[SEAL] /s/ Dean Heller
Secretary of State
/s/ [illegible]
Certification Clerk
<PAGE>
ARTICLES OF INCORPORATION
OF
[STAMP] WADE COOK FINANCIAL CORPORATION
The undersigned incorporator, for the purpose of forming a corporation
(hereinafter referred to as the "Corporation") under the General Corporation
Law of the State of Nevada (Title 7, Chapter 78 of the Nevada Revised
Statutes, and the act amendatory thereof) does hereby adopt the following
Articles of Incorporation.
ARTICLE I: The name of the corporation (hereinafter called the
"Corporation") is WADE COOK FINANCIAL CORPORATION.
ARTICLE II: The name of the Corporation's resident agent in the state
of Nevada is Acorn Corporate Services, Inc. and the street address of the
said resident agent where process may be served is 3885 S. Decatur Blvd.,
Suite 2010, Las Vegas, Nevada 89103.
ARTICLE III: The number of shares the Corporation is authorized to
issue is 60,000,000 shares of Common Stock with a par value of $0.01 per
share and 5,000,000 shares of Preferred Stock, with a par value of $10.00 per
share. Shares of either the common or preferred stock of the Corporation may
be issued from time to time in one or more classes or series, each of which
class or series may have such distinctive designation or title as shall be
fixed by the Board of Directors of the Corporation prior to the issuance of
any shares thereof. Each such class or series of stock shall have such voting
powers, full or limited, or no voting power, and such other relative,
participating, optional or other rights, preferences, privileges and
restrictions, including the voting rights, redemption provisions (including
sinking fund provisions), dividend rights, dividend rates, liquidation
preferences and conversion rights, and such qualifications, limitations or
restrictions thereof, as shall be stated in such resolution or resolutions
providing for the issuance of such class or series of stock as may be adopted
from time to time by the Board of Directors prior to the issuance of any
shares thereof pursuant to the authority hereby expressly vested in it, all
in accordance with the laws of the State of Nevada. Any action by the Board
of Directors under this section shall require the affirmative vote of a
majority of the members of the Board of Directors then in office.
ARTICLE IV: No holder of any of the shares of the Corporation shall,
as such holder, have any right to purchase or subscribe for any shares of any
class which the Corporation may issue or sell, whether or not such shares
are exchangeable for any shares of the Corporation of any other class or
classes, and whether such shares are issued out of the number of shares
authorized by these Articles of Incorporation as originally filed, or by any
amendment thereof, or out of shares of the Corporation acquired by it after
the issue thereof, nor shall any holder of any of the shares of the
Corporation, as such holder have any right to purchase or subscribe for any
obligations which the Corporation may
<PAGE>
Issue or sell that shall be convertible into, or exchangeable for, any
shares of the Corporation of any class or classes, or to which shall be
attached or shall be appertain any warrant or warrants or other instrument or
instruments that shall confer upon the holder thereof the right to subscribe
for, or purchase from the Corporation any shares of any class or classes.
ARTICLE V: The governing board of the Corporation shall be styled as
"Directors". The initial Board of Directors shall consist of ten members and
may be increased or decreased from time to time in the manner specified in
the Bylaws of this corporation; provided however, that the number shall not
be less than 3 or more than 12, and shall not be increased by more than two
directors in any calendar year. In case of an increase in the number of
directors, the additional director or directors shall be elected by the
shareholders at an annual meeting or at a special meeting called for that
purpose. In case of a vacancy in the Board of Directors, the remaining
directors, by majority vote, may elect a successor to hold office for the
unexpired term of the director whose position is vacant, and until the
election and qualification of a successor.
the directors of this Corporation will be divided into three classes:
Class I, Class II, and Class III. Such classes must be as nearly equal in
number as possible. The term of the initial Class I directors will expire at
the first annual meeting of the shareholders following the designation, the
term of the initial Class II directors will expire at the second annual
meeting the shareholders following designation; and the term of the initial
Class III directors will expire at the third annual meeting of the
shareholders following designation. Thereafter, the term of office of a
director shall be three years. If the number of directors is increased or
decreased in the manner specified in the Bylaws, such change will be
apportioned among the classes so that after the change, the classes will
remain as nearly equal in number as possible.
Notwithstanding any other provision of these Articles of Incorporation or
the Bylaws of this corporation, the provisions of this Article V may not be
amended or repealed, and no provisions inconsistent herewith may be adopted
by the Corporation without the affirmative vote of the holders of at least
two-thirds (2/3rds) of the Corporation's outstanding Common Stock.
The names and street addresses and class designations of the initial
directors of the Corporation are as follows:
NAME ADDRESS CLASS
Wade B. Cook 14675 Interurban Avenue South III
Seattle, Washington 98168
<PAGE>
ARTICLE VI: The purposes for which the Corporation organized is to engage in
any lawful act or activity for which a corporation may be organized pursuant
to the General Corporation Law of the State of Nevada.
ARTICLE VII: The name and street address of the incorporator executing these
Articles of Incorporation are as follows:
NAME ADDRESS
Columbia Corporate Services, Inc. 701 Fifth Avenue, Suite 5701
Seattle, WA 98104
ARTICLE VIII: The Corporation shall, to the fullest extent legally
permissible under the provisions of the General Corporation Law of the State
of Nevada, as the same may be amended and supplemented, indemnify and hold
harmless any and all persons whom it shall have power to indemnify under said
provisions from and against any and all liabilities (including expenses) in
which he may be involved or with which he may be threatened, or other matters
referred to in or covered by said provisions both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director or
officer of the Corporation. Such indemnification provided shall not be deemed
exclusive of any other rights to which those indemnified may be entitled
under any other Bylaw, Contract or Agreement, or Resolution adopted by the
shareholders entitled to vote thereon after notice.
ARTICLE IX: The period of duration of the Corporation shall be perpetual.
ARTICLE X: The personal liability of each and all of the Directors of the
Corporation is hereby eliminated to the fullest extent allowed as provided by
the Nevada General Corporation Law,as the same may be supplemented and
amended.
The undersigned incorporator has executed these Articles of
Incorporation this 18th day of December, 1997.
COLUMBIA CORPORATE SERVICES, INC.
/s/ Ken Zeringer
By: Ken Zeringer
Its: President
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
Before me, a Notary Public in and for said county and state, personally
appeared Ken Zeringer, President of Columbia Corporate Services, Inc. who is
known to me to be the same person who executed the foregoing Articles of
Incorporation and duly acknowledged execution of the same. In witness
whereof, I have hereunto subscribed my name and affixed my official seal this
18 day of December, 1997.
/s/ [ILLEGIBLE]
--------------------------------
Notary Public in and for the
[NOTARY SEAL] State of Washington residing
at Seattle, WA.
Articles of Incorporation - Wade Cook Financial Corporation
Page -4-
<PAGE>
[STAMP]
Certificate of Correction
This certificate of Correction is in regards to the Articles of Merger
and the Agreement and Plan of Merger of, by and between Profit Financial
Corporation, a Utah Corporation, and Wade Cook Financial Corporation, a
Nevada Corporation, filed on Friday, December 19th, 1997. Upon further
inspection, several clerical errors have been identified. The following
corrections should be made as follows:
As to the Articles of Merger:
1) The reference to "Profit Financial Corporation, a Utah corporation"
in the first paragraph should be corrected to read "Wade Cook
Financial Corporation (formerly Profit Financial Corporation), a Utah
corporation."
2) The reference to "PROFIT" in the first paragraph should be corrected
to read "UTAHWADE."
3) The phrase "and together with PROFIT, "Constituent Entity" in the first
paragraph should be deleted.
4) The reference to "Profit Financial Corporation" in Article I should
be corrected to read "Profit Financial Corporation (now known as Wade
Cook Financial Corporation)".
5) Article II should be corrected in full to read "An agreement and plan
of merger (the "Plan"), attached to these Articles of Merger as
Exhibit A, has been approved by the shareholders of UTAHWADE. At the
time of voting, 4,120,313 votes were cast in favor of the Plan by
shareholders holding common stock of UTAHWADE, the only class of
stock entitled to vote on the matter. Such vote was sufficient to
approve the Plan."
6) The reference to "Constituent Entity" in Article III should be
corrected to read "UTAHWADE or WADE".
7) Article IV should be corrected in full to read "The effective date of
these Articles of Merger shall be upon filing of these Articles of
Merger with the appropriate office or division of the State of nevada
or December 24, 1997, whichever first occurs."
8) Article V should be deleted in full.
As to the Agreement and Plan of Merger:
1) The phrase "22nd day of December, 1997" in the first paragraph should
be corrected to read "15th day of August, 1997."
2) The reference to "Profit Financial Corporation, a Utah corporation
("PROFIT") in the first paragraph should be corrected to read "Wade
Cook Financial Corporation (formerly Profit Financial Corporation), a
Utah corporation ("UTAHWADE")."
3) All references to "PROFIT" should be corrected to read "UTAHWADE."
4) The first sentence in subsection C10(b) should be corrected in full
to read "The shareholders in UTAHWADE shall convert their shares of
common
<PAGE>
stock on the basis of one share of UTAHWADE common stock
for one share of common stock in the Surviving Company."
5) The reference to "Profit Financial Corporation" in the
signature line should be corrected to read "Wade Cook
Financial Corporation, formerly Profit Financial
Corporation [Utah]."
DATED this 24th day of December, 1997.
ACKNOWLEDGED:
WADE COOK FINANCIAL CORPORATION
By:
----------------------------------
Wade B. Cook, President & Chairman
<PAGE>
BY
Wade Cook Financial Corporation,
-------------------------------
(name of corporation)
a Nevada corporation
----------------------
(state of corporation)
I, the undersigned, Secretary of the above named Corporation, DO HEREBY
CERTIFY that:
1. The following resolution was duly adopted by the Board of
Directors of the Corporation at a meeting thereof duly called and held on
December 10, 1997, at which a quorum was present, the resolution has not
- ----------- --
been rescinded, and it is still in full force and effect:
WHEREAS, the Corporation is authorized to issue, and it has issued the
following capital stock:
<TABLE>
<CAPTION>
Number of Number of
Shares Shares
Class Par Value Authorized Issued
- ----- --------- ---------- ---------
<S> <C> <C> <C>
"A" - Common Stock 140,000,000 60,435,000
- ------------------ --------- ----------- ----------
Preferred Stock 5,000,000 0
- ------------------ --------- ----------- ----------
- ------------------ --------- ----------- ----------
</TABLE>
The address of the Corporation to which Notices may be sent is:
14675 Interurban Avenue South
-----------------------------
Seattle, WA 98168-4664
-----------------------------
NOW, THEREFORE, IT IS RESOLVED that American Stock Transfer & Trust Company
("AST") is hereby appointed transfer agent and registrar* for all said
authorized shares [the following shares --
- -------------------------------------------------------------------]**
of the Corporation, in accordance with the general practices of AST and its
regulations set forth in the pamphlet submitted to this meeting entitled
"Regulations of the American Stock Transfer & Trust Company."
- -----------------------------------------------------------------------------
*Delete either "transfer agent" or "regulars," if the appointment is not to
cover such.
**If the appointment is to cover less than the entire amount of the
authorized capital stock, the words "all said authorized shares" should be
stricken out and the class and (if the appointment is for less than all
authorized shares of a class) number of shares to be covered by the
appointment inserted in the blank space.
2. The following are the duly elected and qualified officers of the
Corporation holding the respective offices set opposite their names, and the
signatures set opposite their names are their genuine signatures:
<TABLE>
<CAPTION>
NAME SIGNATURE
<S> <C> <C>
Wade B. Cook Chairman /s/ Wade B. Cook
- ------------- -------------
Wade B. Cook President /s/ Wade B. Cook
- ------------- -------------
Vice-President
- ------------- -------------
Vice-President
- ------------- -------------
Treasurer
- ------------- -------------
Assistant
Treasurer
- ------------- -------------
Laura M. Cook Secretary /s/ Laura M. Cook
- ------------- -------------
Assistant
Secretary
- ------------- -------------
</TABLE>
3. The name and address of legal counsel of the Corporation is:
Kiman Lucas, 14675 Interurban Avenue South
------------------------------------------
Seattle, WA 98168-4664
------------------------------------------
4. Attached is a specimen stock certificate for each denomination of
capital stock (the "Stock") for which AST has been authorized to act as
transfer agent or registrar
5. Attached is a true copy of the certificate of incorporation, as
amended, of the Corporation.
6. Attached is a true copy of the by-laws, as amended, of the
Corporation.
7. If any provision of the certificate of incorporation or by-laws of
the Corporation any court or administrative order, or any other document,
affects any transfer agent or registrar function or responsibility relating
to the shares, attached is a statement of each such provision.
<PAGE>
8. All certificates representing Shares which were not issued pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, bear a legend in substantially the following form:
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act"). The shares may
not be sold, transferred or assigned in the absence of an effective
registration for these shares under the Act or an opinion of the
Corporation's counsel that registration is not required under the Act.
All Shares not so registered were issued or transferred in a transaction or
series of transactions exempt from the registration provisions of the Act,
and in each such issuance or transfer, the Corporation was so advised by its
legal counsel.
9. If any class of the Corporation's securities are registered under the
Securities Exchange Act of 1934, as amended, the most recent Form 10-K, proxy
statement and annual report to stockholders of the Corporation are attached.
10. The initial term of AST's appointment hereunder shall be three years
from the date hereof and the appointment shall automatically be renewed for
further three year successive periods unless terminated by either party by
written notice to the other given not less than ninety (90) days before the
end of the initial or any subsequent three year period. AST's fees will not
be increased during the initial three year term and, thereafter, may only be
increased by agreement. Notwithstanding the aforegoing, AST shall be entitled
to terminate the appointment forthwith on not less than thirty (30) days
notice in the event that the Corporation commits any breach of its material
obligations to AST including payment of any amount owing to AST. On
termination of the appointment for any reason, AST shall be entitled to
retain all transfer records and related documents until all amounts owing to
AST have been paid in full.
11. The Corporation will advise AST promptly of any change in any
Information contained in, or attached to, this Certificate by a supplemental
Certificate or otherwise In writing.
WITNESS my hand and seal of the Corporation this 20th day of January, 1998.
---- ------- --
/s/ Laura M. Cook
-----------------
Secretary
(corporate seal)
/---------------------------------------------------------------/
/ /
/ CERTIFICATE OF APPOINTMENT OF /
/ AMERICAN STOCK TRANSFER /
/ & TRUST COMPANY as /
/ /
/ /X/ TRANSFER AGENT /X/ REGISTRAR /
/ /
/---------------------------------------------------------------/
<PAGE>
WADE COOK FINANCIAL CORPORATION
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT dated ___________________ by and between WADE
COOK FINANCIAL CORPORATION, a Nevada corporation (the "Company"), and
______________________, a director or officer of the Company ("Indemnitee").
RECITALS
A. Indemnitee is currently serving as a director or officer of the Company and
in such capacity is performing valuable services for the Company.
B. The shareholders of the Company have adopted Bylaws (the "Bylaws") providing
for the indemnification of the directors or officers of the Company to the
fullest extent permitted under Nevada law.
C. The Bylaws and the General Corporation Law of the State of Nevada (the
"Statute") specifically provide that they are not exclusive, and thereby
contemplate that contracts may be entered into between the Company and the
members of its Board of Directors with respect to indemnification of such
persons.
D. The Company and Indemnitee recognize the increasing difficulty in obtaining
directors' and officers' liability insurance, the significant increases in the
cost of such insurance and the general reduction in the coverage of such
insurance.
E. The Company and Indemnitee further recognize the substantial increase in
litigation subjecting officers and directors to expensive litigation risks at
the same time that such liability insurance has been severely limited.
F. Indemnitee does not regard the current protection available as adequate
given the present circumstances, and Indemnitee may not be willing to serve as a
director or an officer without adequate protection.
G. The Company desires to attract and retain the services of highly qualified
individuals, such as Indemnitee, to serve as a director or an officer of the
Company and to indemnify its directors and officers so as to provide them with
the maximum protection permitted by law.
H. In order to induce Indemnitee to continue to serve as a director or an
officer of the Company and in consideration for his continued service, the
Company has determined and agreed to enter into this agreement with Indemnitee.
AGREEMENT
In consideration of the recitals above and the mutual covenants and
agreements herein contained, the parties hereto agree as follows:
1. Right to Indemnification. The Company shall indemnify Indemnitee if
Indemnitee was or is made a party or is threatened to be made a party to or is
otherwise involved (including, without limitation, as a witness) in any actual
or threatened action, suit or proceeding, whether civil, criminal,
administrative or investigative and whether formal or informal (hereinafter a
"proceeding"), by reason of the fact that Indemnitee is or
Indemnity Agreement
Page 1
<PAGE>
was a director of the Company or that, while serving as a director or an
officer of the Company, Indemnitee is or was serving at the request of an
executive officer of the Company as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation or of a foreign
or domestic partnership, joint venture, trust, employee benefit plan or other
enterprise, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee, partner, trustee, or
agent or in any other capacity while serving as a director, officer,
employee, partner, trustee, or agent, shall be indemnified and held harmless
by the Company against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) actually and reasonably incurred or suffered by Indemnitee
(hereinafter "expenses") in connection therewith; provided, however, that (a)
the Company shall not indemnify Indemnitee from or on account of any act or
omission of Indemnitee to the extent indemnification for such act or omission
is specifically prohibited by the General Corporation Law of the State of
Nevada or any successor provision of the Statute; and (b) except as provided
in Section 2.1 hereof with respect to proceedings seeking to enforce rights
to indemnification, the Company shall indemnify Indemnitee in connection with
a proceeding (or part thereof) initiated by Indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Company. Such indemnification shall continue as to Indemnitee after
Indemnitee has ceased to be a director, officer, employee or agent and shall
inure to the benefit of Indemnitee's heirs, executors and administrators. The
right to indemnification conferred in this Section 1 shall include the right
to be paid by the Company the expenses incurred in defending any such
proceeding in advance of its final disposition (hereinafter an "advancement
of expenses"); provided, however, that an advancement of expenses incurred by
Indemnitee in his capacity as a director or officer (and not in any other
capacity in which service was or is rendered by Indemnitee, including,
without limitation, service to an employee benefit plan) shall be made only
upon delivery to the Company of an undertaking (hereinafter an
"undertaking"), by or on behalf of Indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal that Indemnitee is not entitled to
be indemnified for such expenses under this Section 1 or otherwise and upon
the taking of such other action, if any, as may be required by the Statute.
2. Expenses, Indemnification Procedure.
2.1 Right of Claimant to Bring Suit. If a claim under Section 1
hereof is not paid in full by the Company within sixty (60) days after a written
claim has been received by the Company, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be twenty
(20) days, Indemnitee may, but need not, at any time thereafter bring suit
against the Company to recover the unpaid amount of the claim. If successful in
any such suit, or in a suit brought by the Company to recover an advancement of
expenses pursuant to the terms of an undertaking, Indemnitee shall be entitled
to be paid also the expense of prosecuting or defending such suit; provided,
however, that if it shall be determined in any such suit that Indemnitee is
entitled to receive part but not all of the indemnification or advancement of
expenses sought, the expenses incurred by Indemnitee in connection with such
suit shall be appropriately prorated. Indemnitee shall be presumed to be
entitled to indemnification under this agreement upon submission of a written
claim (and, in an action brought to enforce a claim for an advancement of
expenses, where the required undertaking has been tendered to the Company and
any other action required by the Statute has been taken), and thereafter the
Company shall have the burden of proof to overcome the presumption that
Indemnitee is not so entitled. Neither the failure of the Company (including its
Board of Directors, independent legal counsel or its stockholders) to have made
a determination prior to the commencement of such suit that indemnification of
Indemnitee is proper in
Indemnity Agreement
Page 2
<PAGE>
the circumstances, nor an actual determination by the Company (including its
Board of Directors, independent legal counsel or its stockholders) that
Indemnitee is not entitled to indemnification, shall be a defense to the suit
or create a presumption that Indemnitee is not entitled to indemnification
hereunder.
2.2 Notice/Cooperation by Indemnitee. As a condition precedent to
Indemnitee's right to be indemnified under this agreement, Indemnitee shall give
the Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
agreement. In addition, Indemnitee shall give the Company such information and
cooperation as it may reasonably require and as shall be within Indemnitee's
power.
2.3 Notice to Insurers. If, at the time of the receipt of a notice of
a claim pursuant to Section 2.2 hereof, the Company has directors' and officers'
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of Indemnitee, all amounts payable as a result of such proceeding, in accordance
with the terms of such policies.
2.4 Selection of Counsel. In the event the Company shall be obligated
under Section 2.1 hereof to pay the expenses of any proceeding against
Indemnitee, the Company shall be entitled to assume the defense of such
proceeding, with counsel approved by Indemnitee, which approval shall not be
unreasonably withheld, upon the delivery to Indemnitee of written notice. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this agreement for any fees of counsel subsequently incurred by
Indemnitee with respect to the same proceeding, provided that (i) Indemnitee
shall have the right to employ his counsel in any such proceeding at
Indemnitee's expense and (ii) if (A) the employment of counsel by Indemnitee has
been previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not, in
fact, have employed counsel to assume the defense of such proceeding, then the
fees and expenses of Indemnitee's counsel shall be at the expense of the
Company.
3. Additional Indemnification Rights: Nonexclusivity.
3.1 Scope. Notwithstanding any other provision of this agreement, the
Company hereby agrees to indemnify Indemnitee to the full extent permitted by
law, notwithstanding that such indemnification is not specifically authorized by
this agreement, the Company's Articles of Incorporation (as amended from time to
time), the Company's Bylaws, any statute, or otherwise. In the event of any
changes, after the date of this agreement, in any applicable law, statute or
rule which expands the right of a Nevada corporation to indemnify a member of
its board of directors or an officer, such changes shall be within the purview
of Indemnitee's rights and the Company's obligations under this agreement. In
the event of any change in any applicable law, statute or rule which narrows the
right of a Nevada corporation to indemnify a member of its board of directors or
an officer, such changes, to the extent not otherwise required by such law,
statute or rule to be applied to this agreement shall have no effect on this
agreement or the parties' rights and obligations hereunder.
3.2 Nonexclusivity. The indemnification provided by this agreement
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the
Indemnity Agreement
Page 3
<PAGE>
Company's Articles of Incorporation (as amended from time to time), its
Bylaws, any agreement, any vote of shareholders or disinterested directors,
the Statute, or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office.
4. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that,
in certain instances, federal law or public policy may override applicable state
law and prohibit the Company from indemnifying its directors and officers under
this agreement or otherwise. For example, the Company and Indemnitee acknowledge
that the Securities and Exchange Commission (the "SEC") has taken the position
that indemnification is not permissible for liabilities arising under certain
federal securities laws, and federal legislation prohibits indemnification for
certain ERISA violations. Indemnitee understands and acknowledges that the
Company has undertaken or may be required in the future to undertake with the
SEC to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's right under public policy to
indemnify Indemnitee.
5. Directors' and Officers' Liability Insurance. The Company shall, from
time to time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the directors and officers with coverage
for losses from wrongful acts, or to insure the Company's performance of its
indemnification obligations under this agreement. Among other considerations,
the Company will weigh the costs of obtaining such insurance coverage against
the protection afforded by such coverage. In all policies of directors' and
officers' liability insurance so obtained, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director, or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer. Notwithstanding the foregoing, the
Company shall have no obligation to obtain or maintain such insurance if the
Company determines in good faith that such insurance is not reasonably
available. if the premium costs for such insurance are disproportionate to the
amount of coverage provided, if the coverage provided by such insurance is
limited by exclusions so as to provide an insufficient benefit or if Indemnitee
is covered by similar insurance maintained by a parent or subsidiary of the
Company.
6. Severability. Nothing in this agreement is intended to require or shall
be construed as requiring the Company to do or fail to do any act in violation
of applicable law. The Company's inability, pursuant to court order, to perform
its obligations under this agreement shall not constitute a breach of this
agreement. The provisions of this agreement shall be severable. If this
agreement or any portion hereof shall be invalidated on any ground by any court
of competent jurisdiction, then the Company shall nevertheless indemnify
Indemnitee to the full extent permitted by any applicable portion of this
agreement that shall not have been invalidated, and the balance of this
agreement not so invalidated shall be enforceable in accordance with its terms.
7. Exceptions. Any other provision herein to the contrary notwithstanding,
the Company shall not be obligated pursuant to the terms of this agreement:
7.1 Claims Initiated by Indemnitee. To indemnify or advance expenses
to Indemnitee with respect to proceedings of claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification under
this agreement or any other statute or law or as otherwise required under the
Statute; but such indemnification or advancement
Indemnity Agreement
Page 4
<PAGE>
of expenses may be provided by the Company in specific cases if the Board of
Directors finds it to be appropriate.
7.2 Lack of Good Faith. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous.
7.3 Insured Claims. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
officers' and directors' liability insurance maintained by the Company.
7.4 Claims Under Section 16(b). To indemnify Indemnitee for expenses
or the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor Statute.
8. Persons Serving Other Entities. If Indemnitee, while serving as a
director or officer of the Company, is or was serving (i) as a director or
officer of another foreign or domestic corporation of which a majority of the
shares entitled to vote in the election of its directors is held by the Company,
(ii) as a trustee of an employee benefit plan and the duties of the director or
officer to the Company also impose duties on, or otherwise involve services by,
the director or officer to the plan or to participants in or beneficiaries of
the plan, or (iii) in an executive or management capacity in a foreign or
domestic partnership, joint venture, trust or other enterprise of which the
Company or a wholly owned subsidiary of the Company is a general partner or has
a majority ownership, Indemnitee shall be deemed to have served, or to be so
serving, at the request of an executive officer of the Company and entitled to
the indemnification and advancement of expenses provisions of Section 1 of this
agreement.
9. Settlement. The Company shall have no obligation to indemnify Indemnitee
under this agreement for any amounts paid in settlement of any action, suit or
proceeding effected without the Company's prior written consent. The Company
shall not settle any claim in any manner which would impose any fine or any
obligation on Indemnitee without Indemnitee's prior written consent. Neither the
Company nor Indemnitee shall unreasonably withhold their respective consents to
any proposed settlement.
l0. Counterparts. This agreement may be executed in counterparts, each of
which shall constitute an original.
11. Attorneys' Fees. In the event that any action is instituted by
Indemnitee under this agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless, as a part of such action, a court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action was not made in good faith or was frivolous. In the event of an action
instituted by or in the name of the Company under this agreement or to enforce
or interpret any of the terms of this agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and crossclaims made in such action), unless as a part of such
action the court determines that
Indemnity Agreement
Page 5
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each of Indemnitee's material defenses to such action was made in bad faith
or was frivolous.
12. Notice. All notices, requests, demands and other communications under
this agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressed, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this agreement, or
as subsequently modified by written notice.
13. Consent to Jurisdiction. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Nevada for
all purposes in connection with any action or proceeding which arises out of or
relates to this agreement and agree that any action instituted under this
agreement shall be brought only in the state courts of the state of Nevada.
14. Choice of Law. This agreement shall be governed by and its provisions
construed in accordance with the laws of the state of Nevada.
15. Representation by Counsel. Indemnitee hereby understands agrees and
accepts that counsel for the Company, in the name of Tracy M. Shier and Monahan
& Biagi P.L.L.C., shall take no part in the individual representation of
Indemnitee in any of the matters stated above. Tracy M. Shier and the firm of
Monahan & Biagi P.L.L.C. shall represent Indemnitee as a member of the Board of
Directors of the Company solely.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the date first above written.
INDEMNITEE: WADE COOK
FINANCIAL CORPORATION
- --------------------------- ------------------------------------
By:
Its:
Indemnity Agreement
Page 6
<PAGE>
BYLAWS
WADE COOK FINANCIAL CORPORATION
ARTICLE I
Offices
The principal office of the corporation shall be located at its principal
place of business or such other place as the Board of Directors (the "Board")
may designate. The corporation may have such other offices, either within or
without the State of Nevada, as the Board may designate or as the business of
the corporation may require from time to time.
ARTICLE II
Shareholders
2.1 Annual Meeting. The annual meeting of the shareholders shall be held
on such date and at such place and time as the Board may specify for the purpose
of electing directors and officers and transacting such business as may properly
come before the meeting. If the day fixed for the annual meeting is a legal
holiday at the place of the meeting, the meeting shall be held on the next
succeeding business day. If the annual meeting is not held on the date
designated therefor, the Board shall cause the meeting to be held as soon
thereafter as may be convenient.
2.2 Special Meetings. The President, the Board, or the holders of not
less than fifty percent (50%) of the outstanding shares of the corporation
entitled to vote at the meeting may call special meetings of the shareholders
for any purpose.
2.3 Meetings by Telephone. Shareholders may participate in a meeting of
the shareholders by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
2.4. Place of Meeting. All meetings shall be held at the principal office
of the corporation or at such other place within or without the State of Nevada
designated by the Board.
2.5 Notice of Meeting. The President, the Secretary, the Board, or
shareholders calling an annual or special meeting of shareholders as provided
for herein, shall cause to be delivered to each shareholder entitled to notice
of or to vote at the meeting either personally or by mail, postage prepaid, or
facsimile transmission to the extent permitted by applicable state law, not less
than ten (10) nor more than sixty (60) days before the meeting, written notice
stating the place, day and hour of the meeting and, in the case of a special
meeting, the purpose or purposes for which the meeting is called. At any time,
upon written request of the holders of not less than fifty percent (50%) of the
outstanding shares of the corporation entitled to vote at the meeting, it shall
be the duty of the Secretary to give notice of a special meeting of shareholders
to be held on such date and at such place and time as the Secretary may fix, not
less than ten (10) nor more than sixty (60) days after receipt of said request,
and if the Secretary shall neglect or refuse to issue such notice, the person
making the request may
<PAGE>
do so and may fix the date for such meeting. If such notice is mailed, it shall
be deemed delivered when deposited in the official government mail properly
addressed to the shareholder at his or her address as it appears on the stock
transfer books of the corporation with postage prepaid. If the notice is
telegraphed, to the extent permitted by state law, it shall be deemed delivered
when the telegram is delivered to the telegraph company. If the notice is
transmitted by facsimile, to the extent permitted by state law, it shall be
deemed delivered when received.
2.6 Waiver of Notice. Whenever any notice is required to be given to any
shareholder under the provisions of these Bylaws, the Articles of Incorporation
or the General Corporation Law of the State of Nevada, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice.
2.7 Fixing of Record Date for Determining Shareholders. For the purpose
of determining shareholders entitled to notice of, or to vote at, any meeting of
shareholders or any adjournment thereof, or shareholders entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any other purpose, the Board may fix in advance a date as the record date for
any such determination. Such record date shall be not more than sixty (60)
days, and in case of a meeting of shareholders, not less than ten (10) days
prior to the date on which the particular action requiring such determination is
to be taken. If no record date is fixed for the determination of shareholders
entitled to vote at a meeting or to receive payment of a dividend, the date and
hour on which the notice of meeting is mailed or on which the resolution of the
Board declaring such dividend is adopted, as the case may be, shall be the
record date and time for such determination. Such a determination shall apply
to any adjournment of the meeting.
2.8 Voting Record. At least ten (10) days before each meeting of
shareholders, a complete record of the shareholders entitled to vote at such
meeting, or any adjournment thereof, shall be made, arranged in alphabetical
order, with the address of and number of shares held by each shareholder. This
record shall be kept on file at the registered office of the corporation for ten
(10) days prior to such meeting and shall be kept open at such meeting for the
inspection of any shareholder.
2.9 Quorum. A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of the shareholders. If less than one hundred percent of the
outstanding shares entitled to vote are represented at a meeting, a majority of
the shares so represented may adjourn the meeting from time to time without
further notice. If a quorum is present or represented at a reconvened meeting
following such an adjournment, any business may be transacted that might have
been transacted at the meeting as originally called.
2.10 Manner of Acting. If a quorum is present, the affirmative vote of a
majority of the shares represented at the meeting and entitled to vote on the
subject matter shall be the act of the shareholders, unless the vote of a
greater number is required by these Bylaws, the Articles of Incorporation or the
General Corporation Law of the State of Nevada.
2.11 Proxies. A shareholder may vote by proxy executed in writing by the
shareholder or by his or her duly authorized agent. Such proxy shall be filed
with the Secretary of the corporation before or at the time of the meeting. A
proxy shall become invalid six (6) months after the date of its execution,
unless otherwise provided in the proxy. A proxy with respect to a specified
meeting shall entitle the holder thereof to vote
Wade Cook Financial Corporation - Bylaws - Page 2
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at any reconvened meeting following adjournment of such meeting but shall not
be valid after the final adjournment thereof.
2.12 Voting of Shares. Each outstanding share entitled to vote with
respect to the subject matter of an issue submitted to a meeting of shareholders
shall be entitled to one vote upon each such issue.
2.13 Voting for Directors. Each shareholder entitled to vote at an
election of directors may vote, in person or by proxy, the number of shares
owned by such shareholder for as many persons as there are directors to be
elected and for whose election such shareholder has a right to vote, or, unless
otherwise provided in the Articles of Incorporation, each such shareholder may
cumulate his or her votes by distributing among one or more candidates as many
votes as are equal to the number of such directors multiplied by the number of
his or her shares.
2.14 Action by Shareholders Without a Meeting. Any action which could be
taken at a meeting of the shareholders may be taken without a meeting if a
written consent setting forth the action so taken is signed by shareholders
holding a majority of the voting power of all shares entitled to vote with
respect to the subject matter thereof; provided, that if a different proportion
of voting power is required by the Articles of Incorporation, these Bylaws or
the General Corporate Law of the State of Nevada, then that proportion of
written consents is required. Any such consents shall be inserted in the minute
book as if it were the minutes of a meeting of the shareholders.
ARTICLE III
Board of Directors
3.1 General Powers. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the corporation shall be
managed under the direction of, the Board, except as may be otherwise provided
in these Bylaws, the Articles of Incorporation or the General Corporation Law of
the State of Nevada.
3.2 Number and Tenure. The Board may be increased or decreased from time
to time; provided however, that the number shall not be less than three (3) or
more than twelve (12), and shall not be increased by more than two directors in
any calendar year. In case of an increase in the number of directors, the
additional director or directors shall be elected by the shareholders at an
annual meeting or at a special meeting called for that purpose. In case of a
vacancy on the Board, the remaining directors, by majority vote, may elect a
successor to hold office for the unexpired term of the director whose position
is vacant, and until the election and qualification of a successor.
The directors of this Corporation will be divided into three classes:
Class I, Class II, and Class III. Such classes must be as nearly equal in
number as possible. The term of the Class I directors will expire at the first
annual meeting of the shareholders following the designation; the term of the
Class II directors will expire at the second annual meeting of the shareholders
following designation; and the term of the Class III directors will expire at
the third annual meeting of the shareholders following designation. Any changes
to the number of directors will be apportioned among the classes so that after
the change, the classes will remain as nearly equal in number as possible.
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The provisions of this Article 3.2 may not be amended or repealed, and no
provisions inconsistent herewith may be adopted by the Corporation, without the
affirmative vote of the holders of at least sixty-seven percent ( 67%) of the
shares of the Corporation.
3.3 Annual and Regular Meetings. An annual Board meeting shall be held
without notice immediately after and at the same place as the annual meeting of
shareholders. A resolution of the Board, or any committee thereof, may specify
the time and place either within or without the State of Nevada for holding
regular meetings thereof without other notice than such resolution.
3.4 Special Meetings. Special meetings of the Board or any committee
appointed by the Board may be called by or at the request of the Chairman of the
Board, the President, the Secretary or any one director. The person or persons
authorized to call special meetings may fix any place either within or without
the State of Nevada as the place for holding any special Board meeting called by
them.
3.5 Meetings by Telephone. Members of the Board or any committee
designated by the Board may participate in a meeting of such Board or committee
by means of a conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other at the
same time. Participation by such means shall constitute presence in person at a
meeting.
3.6 Notice of Special Meetings. Written notice of a special Board or
committee meeting stating the place, day and hour of the meeting shall be given
to a director at his or her address shown on the records of the corporation.
Neither the business to be transacted at, nor the purpose of, any special
meeting need be specified in the notice of such meeting.
3.6.1 Personal Delivery. If delivery is by personal service, the
notice shall be effective if delivered at such address at least two (2) days
before the meeting.
3.6.2 Delivery by Mail. If notice is delivered by mail, the
notice shall be deemed effective if deposited in the official government mail
properly addressed with postage pre-paid at least five (5) days before the
meeting.
3.6.3 Delivery by Telex or Facsimile. If notice is delivered by
telex or facsimile, the notice shall be deemed effective if sent and evidenced
by transmission receipt or report at least three (3) days before the meeting.
3.7 Waiver of Notice.
3.7.1 In Writing. Whenever any notice is required to be given to
any director under the provisions of these Bylaws, the Articles of Incorporation
or the General Corporation Law of the State of Nevada, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the time stated therein, shall be deemed equivalent to the giving of
such notice. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board need be specified in the waiver of
notice of such meeting.
3.7.2 By Attendance. The attendance of a director at a Board or
committee meeting shall constitute a waiver of notice of such meeting, except
where a director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
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3.8 Quorum. A majority of the directors shall constitute a quorum for the
transaction of business at any Board meeting. A majority of the directors
present may adjourn the meeting from time to time without further notice.
3.9 Manner of Acting. The act of the majority of the directors present at
a Board or committee meeting at which there is a quorum shall be the act of the
Board or of such committee, unless the vote of a greater number is required by
these Bylaws, the Articles of Incorporation, or the General Corporation Law of
the State of Nevada.
3.10 Presumption of Assent. A director of the corporation present at a
Board or committee meeting at which action on any corporate matter is taken
shall be presumed to have assented to the action taken unless his or her dissent
is entered in the minutes of the meeting, or unless such director files a
written dissent to such action with the person acting as the secretary of the
meeting before the adjournment thereof, or forwards such dissent by registered
mail to the Secretary of the corporation immediately after the adjournment of
the meeting. A director who voted in favor of such action may not dissent.
3.11 Action by Board or Committees Without a Meeting. Any action which
could be taken at a meeting of the Board or of any committee appointed by the
Board may be taken without a meeting if a written consent setting forth the
action so taken is signed by each of the directors or by each committee member.
Any such written consent shall be inserted in the minute book as if it were the
minutes of a Board or a committee meeting.
3.12 Resignation. Any director may resign at any time by delivering
written notice to the Chairman of the Board, the President, the Secretary or the
Board, or to the registered office of the corporation, or by giving oral notice
at any meeting of the directors or shareholders. Any such resignation shall
take effect at the time specified therein, or if the time is not specified, upon
delivery thereof and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
3.13 Removal. At a meeting of shareholders called expressly for that
purpose, one or more members of the Board (including the entire Board) may be
removed, with or without cause, by a vote of the holders of two-thirds (66 2/3
%) of the shares then entitled to vote on the election of directors. If the
Articles of Incorporation permit cumulative voting in the election of directors,
and if less than the entire Board is to be removed, no one of the directors may
be removed if the votes cast against his or her removal would be sufficient to
elect such director if then cumulatively voted at an election of the entire
Board.
3.14 Vacancies. Any vacancy occurring on the Board may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board. A director elected to fill a vacancy shall be elected for
the unexpired term of his or her predecessor in office. Any directorship to be
filled by reason of an increase in the number of directors may be filled by the
Board for a term of office continuing only until the next election of directors
by the shareholders.
3.15 Compensation. By Board resolution, directors may be paid their
expenses, if any, of attendance at each Board meeting, or a fixed sum for
attendance at each Board meeting, or a stated salary as a director, or a
combination of the foregoing. No such
Wade Cook Financial Corporation - Bylaws - Page 5
<PAGE>
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
3.16 Establishment of Committees. The Board shall have power, by
resolution or resolutions passed by a majority of the Board, to designate one
or more committees from among its members, each committee to consist of not less
than two directors of the Corporation, which to the extent provided in the
resolutions or in these Bylaws, shall report to the Board and may exercise the
authority of the Board to the extent provided in its enabling resolution and any
pertinent subsequent resolutions adopted in like manner, provided that the
authority of each such committee shall be subject to applicable law. Each
committee of the Board shall keep regular minutes of its proceedings and shall
report to the Board when requested to do so. Such committee or committees shall
have such name or names as may be stated in these Bylaws or as may be determined
from time to time by resolution of the Board.
The initial committees of the Corporation shall be an Audit Committee,
whose composition shall consist solely of outside director members, an
Executive Committee, whose membership may consist solely of inside director
members and a Compensation Committee, whose membership may consist of
directors either from inside or outside of the Corporation, but whose majority
consists of outside directors. The Board shall be responsible for the scope and
power of the individual committees and their assignments.
ARTICLE IV
Officers
4.1 Number. The officers of the corporation shall be a President,
Secretary and Treasurer, each of whom shall be elected by the Board. The Board
may also elect Vice Presidents as well as other officers and assistant officers,
including a Chairman of the Board who may or may not be an executive officer of
the Corporation as may be designated by the Board, such officers and assistant
officers to hold office for such period, have such authority and perform such
duties as are provided in these Bylaws or as may be provided by resolution of
the Board. Any officer may be assigned by the Board any additional title that
the Board deems appropriate including the title of Chief Executive Officer,
Chief Financial Officer, Chief Operations Officer, Chief Accounting Officer and
Controller. The Board may delegate to any officer or agent the power to appoint
any subordinate officers or agents and to prescribe their respective terms of
office, authority and duties. Any two or more offices may be held by the same
person.
4.2 Election and Term of Office. The officers of the corporation shall be
elected annually by the Board at the Board meeting held after the annual meeting
of the shareholders. If the election of officers is not held at such meeting,
such election shall be held as soon thereafter as a Board meeting conveniently
may be held. Unless an officer dies, resigns, or is removed from office, he or
she shall hold office until the next annual meeting of the Board or until his or
her successor is elected.
4.3 Resignation. Any officer may resign at any time by delivering written
notice to the Chairman of the Board, the President,the Secretary or the Board,
or by giving oral notice at any meeting of the Board. Any such resignation
shall take effect at the time specified therein, or if the time is not
specified, upon delivery thereof and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Wade Cook Financial Corporation - Bylaws - Page 6
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4.4 Removal. Any officer or agent elected or appointed by the Board may
be removed by the Board with or without cause whenever in its judgment the best
interests of the corporation would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
4.5 Vacancies. A vacancy in any office created by the death, resignation,
removal, disqualification, creation of a new office or any other cause may be
filled by the Board for the unexpired portion of the term or for a new term
established by the Board.
4.6 President. The President shall preside over meetings of the Board and
shareholders and, subject to the Board's control, shall supervise and control
all of the assets, business and affairs of the corporation. The President may
sign certificates for shares of the corporation, deeds, mortgages, bonds,
contracts, or other instruments, except when the signing and execution thereof
have been expressly delegated by the Board or by these Bylaws to some other
officer or agent of the corporation or are required by law to be otherwise
signed or executed by some other officer or in some other manner. In general,
the President shall perform all duties incident to the office of President, and
such other duties as are prescribed by the Board from time to time.
4.7 Vice President. Except as otherwise provided herein, in the absence
of the President or his inability to act, the senior Vice President shall act in
his place and stead and shall have all the powers and authority of the
President, except as limited by resolution of the Board.
4.8 Secretary. The Secretary shall: (a) keep the minutes of meetings of
the shareholders and the Board in one or more books provided for that purpose;
(b) see that all notices are duly given in accordance with the provisions of
these Bylaws or as required by law; (c) be custodian of the corporate records of
the corporation; (d) keep registers of the post office address of each
shareholder and Director; (e) sign certificates for shares of the corporation;
(f) have general charge of the stock transfer books of the corporation; (g)
sign, with the President, or other officer authorized by the President or the
Board, deeds, mortgages, bonds, contracts, or other instruments; and (h) in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him or her by the President or by
the Board. In the absence of the Secretary, an Assistant Secretary may perform
the duties of the Secretary.
4.9 Treasurer. The Treasurer shall have the custody of the corporate
funds and securities and shall keep full and accurate account of receipts and
disbursements in books belonging to the corporation. He shall deposit all
monies and other valuables in the name and to the credit of the corporation in
such depositories as may be designated by the Board. The Treasurer shall
disburse the funds of the corporation as may be ordered by the Board, the
Chairman of the Board (if there is one), or the President, taking proper
vouchers for such disbursements. He shall render to the Chairman of the Board
(if there is one), the President and the Board at the regular meetings of the
Board, or whenever they may request it, and to the shareholders at the annual
meeting of the shareholders, an account of all his transactions as treasurer and
of the financial condition of the corporation. If required by the Board he
shall give the corporation a bond for the faithful discharge of his duties in
such amount and with such surety as the Board shall prescribe. The Treasurer
shall also perform such other duties as may be assigned to him by the Chairman
of the Board (if there is one), the President or the Board.
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ARTICLE V
Contracts, Loans, Checks and Deposits
5.1 Contracts. The Board may authorize any officer or officers, or agent
or agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the corporation. Such authority may be general or
confined to specific instances.
5.2 Loans. No loans shall be contracted on behalf of the corporation and
no evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the Board. Such authority may be general or confined to specific
instances
5.3 Checks, Drafts, etc. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, or agent or agents,
of the corporation and in such manner as is from time to time determined by
resolution of the Board.
5.4 Deposits. All funds of the corporation not otherwise employed shall
be deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositories as the Board may select.
ARTICLE VI
Certificates for Shares and Their Transfer
6.1 Issuance of Shares. No shares of the corporation shall be issued
unless authorized by the Board, which authorization shall include the maximum
number of shares to be issued and the consideration to be received for each
share.
6.2 Certificates for Shares. Certificates representing shares of the
corporation shall be signed by the President and shall include on their face
written notice of any restrictions which may be imposed on the transferability
of such shares. All certificates shall be consecutively numbered or otherwise
identified.
6.3 Stock Records. The stock transfer books shall be kept at the
registered office or principal place of business of the corporation or at the
office of the corporation's transfer agent or registrar. The name and address
of the person to whom the shares represented thereby are issued, together with
the class, number of shares and date of issue, shall be entered on the stock
transfer books of the corporation. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
6.4 Restrictions on Transfer. All certificates representing the issuance
of shares of the corporation not otherwise registered pursuant to a registration
statement filed with the Securities and Exchange Commission shall bear the
following legend on the face of the certificate or on the reverse of the
certificate if the reference to the legend is contained on the face:
The securities evidenced by this Certificate have not been
registered under the Securities Act of 1933 or any applicable
state law, and no interest therein may be sold, distributed,
assigned, offered, pledged or otherwise
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transferred unless (a) there is an effective registration statement
under such Act and applicable state securities laws covering any
such transaction involving said securities or (b) this corporation
receives an opinion of legal counsel for the holder of these
securities (concurred in by legal counsel for this corporation)
stating that such transaction is exempt from registration or
(c) this corporation otherwise satisfies itself that such transaction
is exempt from registration.
6.5 Transfer of Shares. The transfer of shares of the corporation shall
be made only on the stock transfer books of the corporation pursuant to
authorization or document of transfer made by the holder of record thereof or by
his or her legal representative, who shall furnish proper evidence of authority
to transfer, or by his or her attorney-in-fact authorized by power of attorney
duly executed and filed with the Secretary of the corporation. All certificates
surrendered to the corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificates for a like number of
shares shall have been surrendered and canceled.
6.6 Lost or Destroyed Certificates. In the case of a lost, destroyed or
mutilated certificate, a new certificate may be issued therefor upon such terms
and indemnity to the corporation as the Board may prescribe.
ARTICLE VII
Books and Records
The corporation shall keep correct and complete books and records of
account, stock transfer books, minutes of the proceedings of its shareholders
and Board and such other records as may be necessary or advisable.
ARTICLE VIII
Accounting Year
The accounting year of the corporation shall be the calendar year, provided
that if a different accounting year is at any time selected for purposes of
federal income taxes, the accounting year shall be the year so selected.
ARTICLE IX
Seal
The seal of the corporation shall consist of the name of the corporation,
the state of its incorporation and the year of its incorporation.
ARTICLE X
Indemnification
To the full extent permitted by the General Corporation Law of the State of
Nevada, the corporation shall indemnify any person made or threatened to be made
a party to any proceeding (whether brought by or in the right of the corporation
or otherwise) by reason of the fact that he or she is or was a director or
officer of the
Wade Cook Financial Corporation - Bylaws - Page 9
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corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, against judgments, penalties,
fines, settlements and reasonable expenses (including attorneys' fees),
actually and reasonably incurred by him or her in connection with such
proceeding; and the Board may, at any time, approve indemnification of any
other person which the corporation has the power to indemnify under the
General Corporation Law of the State of Nevada. The indemnification provided
by this Article shall not be deemed exclusive of any other rights to which a
person may be entitled as a matter of law or by contract or by vote of the
Board or its shareholders. The corporation may purchase and maintain
indemnification insurance for any person to the extent provided by applicable
law.
ARTICLE XI
Amendments
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by the Board. The shareholders may alter, amend and repeal these
Bylaws, or adopt new Bylaws and all Bylaws made by the Board may be amended,
repealed, altered or modified by the shareholders; provided however, that any
such actions by the shareholders shall require the affirmative vote of at least
sixty-seven percent (67%) of the shareholders of the Corporation.
The foregoing Bylaws were adopted by the Board on
, 1997.
- -------------------------
-------------------------------
By:
Its:
Wade Cook Financial Corporation - Bylaws - Page 10
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WADE COOK FINANCIAL CORPORATION
NOTICE OF GRANT OF STOCK OPTION
Notice is hereby given of the following stock option grant (the "Option")
to purchase shares of the Common Stock of WADE COOK FINANCIAL CORPORATION (the
"Company"):
Optionee:----------------------------------------------------
Grant Date:--------------------------------------------------
Option Price: $------------------------- per share
Number of Option Shares:-------------------------------- shares
Expiration Date:-----------------------------------------
Type of Option:------------------------------ Incentive Stock Option
------------------------------ Non-Statutory Stock Option
Vesting Schedule:
Other Special Provisions:
Optionee agrees to be bound by the terms and conditions of the Option as
set forth in the Stock Option Agreement attached hereto as Exhibit A.
Optionee also understands that the Option is granted subject to and in
accordance with the express terms and conditions of the 1997 Stock Incentive
Plan (the "Plan"), a copy of which is attached hereto as Exhibit B, and
agrees to be bound by the terms and conditions of the Plan.
Optionee hereby acknowledges receipt of a copy of the official plan
prospectus, if any exists.
NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in the Stock Option
Agreement or the Plan shall confer upon the Optionee the right to continue in
the Service of the Company for any period of specific duration or interfere
with or otherwise restrict in any way the rights of the Company or the
Optionee, which rights are hereby expressly reserved by each, to terminate
Optionee's Service at any time for any reason whatsoever, with or without
cause.
By:-------------------------------
Title:----------------------------
OPTIONEE:
Name:-----------------------------
Address:--------------------------
--------------------------
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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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(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 conditions 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 Dealer's, 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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(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 "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 by 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 Baord. 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
unusal 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 (including 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-Alone 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 as 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 Common 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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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 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 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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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 of Control.
Upon the occurrence of a Change of 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(e) 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 shares
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(e).
(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.
A-11
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(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 shares
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(e).
(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 any 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 shares 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 pre-established 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 share; (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 the 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 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 not be forfeited
upon the Participant's termination of employment for any reason.
(e) Effect Of Change in Control.
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<PAGE>
Upon the occurrence of a Change in Control, all outstanding
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 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
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<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 the 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 its
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
A-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 so 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.
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<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 shares 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]
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<PAGE>
PROMISSORY NOTE
$125,000.00 Date: May 23, 1997
FOR VALUE RECEIVED the undersigned hereby promise to pay to USA/Wade Cook
Seminars, Inc. at 14675 Interurban Ave. South, Seattle, WA 98168 or at such
other place as the holder hereof may designate in writing, the principal sum of
One Hundred Twenty Five Thousand dollars and no/100 ($125,000.00), payable in
forty-eight (48) consecutive equal monthly payments, including interest as
provided below, of ($3,606.88) each, commencing with the first payment on the
7th day of July, 1997, and continuing with a like payment on the 7th day of each
and every consecutive month thereafter until the entire remaining unpaid
principal balance has been paid in full, subject to the following additional
terms and conditions:
1. Interest. Interest shall accrue on the unpaid principal balance at
the simple rate of Seventeen percent (17.00%) per annum.
2. Application of Payments. Payments shall be applied first toward the
payment and satisfaction of accrued and unpaid interest, if any, and the
remainder shall be applied toward the reduction of principal. Principal and
interest shall be payable only in lawful money of the United States of America.
3. Prepayment. The undersigned shall have the right, without penalty,
to pre-pay any part of all of the unpaid principal balance due hereunder, upon
payment in full of all interest, principal and any other amounts due hereunder,
payments shall terminate. In any event, the attorney's fees, as provided herein,
shall be paid in full on or before May. 2001.
4. Default/Late Charges/Acceleration. In the event any installment
payment due hereunder or any portion thereof is not made within thirty (30) days
after its due date and such default is occasioned by the default of any lessee,
then, to that extent, Debtor shall have sixty (60) days from such due date to
repossess the subject motor vehicle(s), re-lease the same and resume making
monthly installment payments pursuant to the Note.
5. No Waiver. The acceptance of any installment or payment after the
occurrence of a default or event giving rise to the right of acceleration
provided for in the previous paragraph shall not constitute a waiver of such
right of acceleration with respect to any event.
6. Costs of Collection/Attorneys' Fees, etc. In the event any payment
due under this Note is not made, or any obligation provided to be satisfied or
performed under any instrument given to secure payment of the obligations
evidenced hereby is not satisfied or performed, at the time and in the manner
required, the undersigned agrees to pay all costs and expenses (regardless of
the particular nature thereof and whether incurred with or without suit and
before
<PAGE>
or after judgment) which may be incurred by the holder hereof in connection with
the enforcement of any of his rights under this Note or under any such other
instrument, or any right arising out of the breach thereof, including but not
limited to, reasonable expenses incurred in foreclosing on the collateral
securing payment hereof, court costs, and reasonable attorney's fees.
7. Notice. Any notice or demand hereunder shall be deemed to have been
given to and received by the undersigned when personally delivered or when
deposited in the U.S. mail, certified or registered mail, return receipt
requested, postage pre-paid, and addressed to the undersigned at the address set
forth below or at such other address as the undersigned may hereafter designate
in writing to the holder hereof.
This note shall be governed by and construed in accordance with the laws of the
State of Utah.
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
------------------------------
Robert J. Atmore, President
<PAGE>
SECURED LOAN AGREEMENT
THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement") is
made and entered into on this 23rd day of May, 1997, by and between NEWSTART
CENTRE, INC., a Utah Corporation with its principal place of business in Salt
Lake County, State of Utah, (hereinafter referred to as "Debtor") and Wade Cook
Seminars, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168 (hereinafter
referred to as "Secured Party").
CAPTIONS AND HEADINGS. The captions and headings throughout this Agreement
are for convenience of reference only, and the words contained therein shall in
no way be held or deemed to define, limit, describe, explain, modify, amplify or
add to the interpretation, construction or meaning of any provisions of or the
scope or intent of this Agreement or in any way affect this Agreement.
RECITALS:
A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and
selling motor vehicles to the general public, and
B. WHEREAS, DEBTOR desires to borrow working capital for the purchase of
automobiles to sale or lease, and
C. WHEREAS, Secured Party desires to loan working capital to Debtor,
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto hereby agree as follows:
1. Loan. Secured Party hereby lends to Debtor, receipt of which is hereby
acknowledged, the sum of $ $125,000.00 payable to Debtor in certified funds
concurrent with the execution of this Agreement and the other
documents/instruments referred to below.
2. Loan Documents.
a) Execution and delivery by Debtor. Debtor hereby agrees to execute,
by and through its authorized representatives, and to deliver to Secured Party,
the following instruments/ documents to effect the loan described in paragraph 1
above.
1) Promissory Note dated the 23rd day of May, 1997, a copy of
which is attached hereto as Exhibit "A".
2) Certificate of Delivery and Receipt of Documents, a copy of
which is attached hereto as Exhibit "B".
b) Execution and delivery by Secured Party. Secured Party hereby agrees to
execute and deliver to Debtor the Certificate of Delivery and Receipt of
Documents dated the 23rd of May, 1997, (Exhibit "B").
<PAGE>
3. Grant of Lien. Debtor hereby grants to Secured Party a continuing lien
against each vehicle (hereinafter the "vehicles") purchased with Secured Party's
funds to secure the payment and performance of each and every obligation,
liability and undertaking of Debtor under the loan documents and Debtor hereby
represents and warrants to secured Party that Debtor is or, after acquisition by
Debtor, will be the owner of the vehicles and possesses all requisite power and
authority to execute and deliver this Agreement and to grant to Secured Party a
lien as to all of the vehicles or any replacements thereof.
4. No Other Security Interests/Liens. No financing statement or lien
covering the vehicles has been given or filed by Debtor with any filing officer,
and the said vehicles are or will be free from any adverse liens, security
interests, claims or encumbrances of any kind.
5. Taxes and Assessments. All taxes, assessments and other governmental
charges including Utah State sales tax, county property tax, and license and
registration fees upon the vehicles will, to the best of Debtor's knowledge,
have been paid and shall continue to be paid as they become due and payable.
6. Substitution of Collateral. Secured Party consents and acknowledges that
Debtor, from time to time, June sell, transfer or assign any or all of the said
vehicles or leases covering the vehicles. Secured Party further agrees to
cooperate with and to execute and deliver to Debtor such additional documents as
June be necessary to sell or otherwise dispose of any of the vehicles provided
Debtor, within a reasonable time, replaces such vehicle(s) with other vehicle(s)
of equal or greater value and lists Secured Party as the sole lien holder on the
titles to any such replacement vehicles.
7. Evidence of Title. Debtor shall, within thirty (30) days after the
receipt thereof, deliver to Secured Party copies of any and all title and/or
registration documents relating to any of the motor vehicles covered by this
Agreement showing Secured Party as the sole lienholder. Debtor shall not further
mortgage, pledge, grant or permit to exist any lien against or security interest
in, or encumbrance on, any of the vehicles without the prior written consent of
Secured Party.
8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at
Debtor's or Lessee's expense, proper insurance coverage on the vehicles covered
by this Agreement upon terms and with limits of coverage reasonably required by
the existing custom and usage in the motor vehicle leasing industry and all
rights, duties and obligations of Debtor and Lessees with respect to insurance
coverage of the vehicles, including, without limitation, payment of premiums,
use of proceeds and disposition of policies shall be as are standard in the auto
leasing industry.
9. Licenses and Permits. Debtor shall keep in effect all licenses, permits
and franchises required by law or contract relating to the vehicles and shall
pay, when due, all fees and other charges pertaining thereto.
<PAGE>
10. Miscellaneous.
(a) Entire Agreement. This Agreement, together with all of the
documents/instruments listed herein constitute the entire agreement between the
parties. There are no terms, obligations, covenants, representations,
statements, or conditions between the parties, other than those contained
herein. No variations or modifications of this Agreement or waiver of any of the
terms or provisions hereof shall be deemed valid unless in writing and signed by
both parties.
(b) Grace Period. In the event of a non-monetary default, Debtor shall have
thirty (30) days after receipt of written notice thereof from Secured Party in
which to cure such default.
(c) Amendments. Neither this Agreement nor any provisions hereof June be
changed, waived, discharged or terminated orally and June only be modified or
amended by an instrument in writing, signed by Secured Party and Debtor.
(d) Binding Effect. This Agreement shall be binding upon Debtor and
Debtor's successors and assigns. This Agreement shall inure to the benefit of
Secured Party, and Secured Party's heirs, personal representatives, successors
and assigns.
(e) Notices. Except as otherwise provided herein, all notices and other
communications under this Agreement shall be in writing and shall be deemed
given when delivered or, if mailed, then when mailed, if mailed by registered or
certified mail, postage prepaid, addressed as follows:
If to Secured Party, to: If to Debtor, to:
Wade Cook Seminars, Inc. Newstart Centre, Inc.
c/o 14675 Interurban Ave. South 5200 South State Street
Seattle, WA. 98168 Murray, Utah 84107
Such addresses June be changed by notice to the other parties given in the same
manner as above provided. Any notice given hereunder shall be deemed given as of
the date delivered or mailed.
(f) Severability. If any term or provision of this Agreement shall, to any
extent, be determined by a court of competent jurisdiction to be void, voidable
or unenforceable, such void, voidable or unenforceable term or provision shall
not affect any other term or provision of this Agreement.
(g) Governing Law. This Agreement and all matters relating hereto shall be
governed by, construed and interpreted in accordance with the laws of the State
of Utah, County of Salt Lake.
<PAGE>
(h) Termination. This Agreement shall terminate upon the full and complete
performance and satisfaction by Debtor of all of its obligations to Secured
Party under this Agreement or any other instrument referred to herein requiring
performance by Debtor.
IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured
Loan Agreement effective as of the date first above written.
DEBTOR:
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
--------------------------------
Robert J. Atmore, President
SECURED PARTY:
Wade Cook Seminars, Inc.
By /s/ Wade B. Cook
--------------------------------
Wade B. Cook
<PAGE>
CERTIFICATE OF DELIVERY
AND RECEIPT OF DOCUMENTS
I, Robert J. Atmore, of/for NEWSTART CENTRE, INC. do hereby certify that on
the 23rd day of May, 1997 I delivered to WADE COOK SEMINARS, INC. of 14675
Interurban Ave. South, Seattle, WA 98168 one (1) original and/or one (1) copy
of each of the following documents:
(i) Secured Loan Agreement dated the 23rd day of May, 1997, between
NEWSTART CENTRE, INC. as Debtor, and WADE COOK SEMINARS, INC. as Secured Party.
(ii) Promissory Note dated the 23rd day of May, 1997.
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
----------------------------
Robert J. Atmore, President
<PAGE>
SECURED LOAN AGREEMENT
THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement") is
made and entered into on this 20th day of June, 1997, by and between NEWSTART
CENTRE, INC., a Utah Corporation with its principal place of business in Salt
Lake County, State of Utah, (hereinafter referred to as "Debtor") and Wade Cook
Seminars, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168 (hereinafter
referred to as "Secured Party").
CAPTIONS AND HEADINGS. The captions and headings throughout this Agreement
are for convenience of reference only, and the words contained therein shall in
no way be held or deemed to define, limit, describe, explain, modify, amplify or
add to the interpretation, construction or meaning of any provisions of or the
scope or intent of this Agreement or in any way affect this Agreement.
RECITALS:
A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and
selling motor vehicles to the general public, and
B. WHEREAS, DEBTOR desires to borrow working capital for the purchase of
automobiles to sale or lease, and
C. WHEREAS, Secured Party desires to loan working capital to Debtor,
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto hereby agree as follows:
1. Loan. Secured Party hereby lends to Debtor, receipt of which is hereby
acknowledged, the sum of $ S125,000.00 payable to Debtor in certified funds
concurrent with the execution of this Agreement and the other
documents/instruments referred to below.
2. Loan Documents.
a) Execution and delivery by Debtor. Debtor hereby agrees to execute,
by and through its authorized representatives, and to deliver to Secured Party,
the following instruments/ documents to effect the loan described in paragraph 1
above.
1) Promissory Note dated the 20th day of June, 1997, a copy of
which is attached hereto as Exhibit "A".
2) Certificate of Delivery and Receipt of Documents, a copy of
which is attached hereto as Exhibit "B".
b) Execution and delivery by Secured Party. Secured Party hereby agrees
to execute and deliver to Debtor the Certificate of Delivery and Receipt of
Documents dated the 20th of June, 1997, (Exhibit "B").
3. Grant of Lien. Debtor hereby grants to Secured Party a continuing lien
against each vehicle (hereinafter the "vehicles") purchased with Secured Party's
funds to secure the payment and performance of each and every obligation,
liability and undertaking of Debtor under the loan documents and Debtor hereby
represents and warrants to secured Party that Debtor is or, after acquisition by
Debtor, will be the owner of the vehicles and possesses all requisite power and
authority to execute and deliver this Agreement and to grant to Secured Party a
lien as to all of the vehicles or any replacements thereof.
<PAGE>
4. No Other Security Interests/Liens. No financing statement or lien
covering the vehicles has been given or filed by Debtor with any filing officer,
and the said vehicles are or will be free from any adverse liens, security
interests, claims or encumbrances of any kind.
5. Taxes and Assessments. All taxes, assessments and other governmental
charges including Utah State sales tax, county property tax, and license and
registration fees upon the vehicles will, to the best of Debtor's knowledge,
have been paid and shall continue to be paid as they become due and payable.
6. Substitution of Collateral. Secured Party consents and acknowledges that
Debtor, from time to time, July sell, transfer or assign any or all of the said
vehicles or leases covering the vehicles. Secured Party further agrees to
cooperate with and to execute and deliver to Debtor such additional documents as
July be necessary to sell or otherwise dispose of any of the vehicles provided
Debtor, within a reasonable time, replaces such vehicle(s) with other vehicle(s)
of equal or greater value and lists Secured Party as the sole lien holder on the
titles to any such replacement vehicles.
7. Evidence of Title. Debtor shall, within thirty (30) days after the
receipt thereof, deliver to Secured Party copies of any and all title and/or
registration documents relating to any of the motor vehicles covered by this
Agreement showing Secured Party as the sole lienholder. Debtor shall not further
mortgage, pledge, grant or permit to exist any lien against or security interest
in, or encumbrance on, any of the vehicles without the prior written consent of
Secured Party.
8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at
Debtor's or Lessee's expense, proper insurance coverage on the vehicles covered
by this Agreement upon terms and with limits of coverage reasonably required by
the existing custom and usage in the motor vehicle leasing industry and all
rights, duties and obligations of Debtor and Lessees with respect to insurance
coverage of the vehicles, including, without limitation, payment of premiums,
use of proceeds and disposition of policies shall be as are standard in the auto
leasing industry.
9. Licenses and Permits. Debtor shall keep in effect all licenses, permits
and franchises required by law or contract relating to the vehicles and shall
pay, when due, all fees and other charges pertaining thereto.
10. Miscellaneous.
(a) Entire Agreement. This Agreement, together with all of the
documents/instruments listed herein constitute the entire agreement between the
parties. There are no terms, obligations, covenants, representations,
statements, or conditions between the parties, other than those contained
herein. No variations or modifications of this Agreement or waiver of any of the
terms or provisions hereof shall be deemed valid unless in writing and signed by
both parties.
(b) Grace Period. In the event of a non-monetary default, Debtor shall
have thirty (30) days after receipt of written notice thereof from Secured Party
in which to cure such default.
(c) Amendments. Neither this Agreement nor any provisions hereof July
be changed, waived, discharged or terminated orally and July only be modified or
amended by an instrument in writing, signed by Secured Party and Debtor.
(d) Binding Effect. This Agreement shall be binding upon Debtor and
Debtor's successors and assigns. This Agreement shall inure to the benefit of
Secured Party, and Secured Party's heirs, personal representatives, successors
and assigns.
<PAGE>
(e) Notices. Except as otherwise provided herein, all notices and other
communications under this Agreement shall be in writing and shall be deemed
given when delivered or, if mailed, then when mailed, if mailed by registered or
certified mail, postage prepaid, addressed as follows:
If to Secured Party, to: If to Debtor, to:
Wade Cook Seminars, Inc. Newstart Centre, Inc.
c/o 14675 South Loafer Canyon Road 5200 South State Street
Elkridge, Ut. 84651 Murray, Utah 84107
Such addresses July be changed by notice to the other parties given in the same
manner as above provided. Any notice given hereunder shall be deemed given as of
the date delivered or mailed.
(f) Severability. If any term or provision of this Agreement shall, to any
extent, be determined by a court of competent jurisdiction to be void, voidable
or unenforceable, such void, voidable or unenforceable term or provision shall
not affect any other term or provision of this Agreement.
(g) Governing Law. This Agreement and all matters relating hereto shall be
governed by, construed and interpreted in accordance with the laws of the State
of Utah, County of Salt Lake.
(h) Termination. This Agreement shall terminate upon the full and complete
performance and satisfaction by Debtor of all of its obligations to Secured
Party under this Agreement or any other instrument referred to herein requiring
performance by Debtor.
IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured
Loan Agreement effective as of the date first above written.
DEBTOR:
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
------------------------------
Robert J. Atmore, President
SECURED PARTY:
Wade Cook Seminars, Inc.
By /s/ Wade B. Cook
------------------------------
Wade B. Cook
<PAGE>
PROMISSORY NOTE
(Secured)
$ $125,000.00 Date: June 20, 1997
FOR VALUE RECEIVED the undersigned hereby promise to pay to Wade Cook
Seminars, Inc. at 14675 Interurban Ave. South, Seattle, WA 98168 or at such
other place as the holder hereof June designate in writing, the principal sum of
One Hundred Twenty Five Thousand dollars and no/100 ($ $125,000.00 ), payable in
forty-eight (48) consecutive equal monthly payments, including interest as
provided below, of ($3.606.88) each, commencing with the first payment on the
4th day of August, 1997, and continuing with a like payment on the 4th day of
each and every consecutive month thereafter until the entire remaining unpaid
principal balance has been paid in full, subject to the following additional
terms and conditions:
1. Interest. Interest shall accrue on the unpaid principal balance at the
simple rate of Seventeen percent (17.00%) per annum.
2. Application of Payments. Payments shall be applied first toward the
payment and satisfaction of accrued and unpaid interest, if any, and the
remainder shall be applied toward the reduction of principal. Principal and
interest shall be payable only in lawful money of the United States of America.
3. Prepayment. The undersigned shall have the right, without penalty, to
pre-pay any part or all of the unpaid principal balance due hereunder, in which
event subsequent monthly payments shall be reduced proportionately, or, upon
payment in full of all interest, principal and any other amounts due hereunder,
payments shall terminate. In any event, the entire principal balance, together
with ail accrued interest and any accrued costs or attorney's fees, as provided
herein, shall be paid in full on or before June, 2001.
4. Default/Late Charges/Acceleration. In the event any installment payment
due hereunder or any portion thereof is not made within thirty (30) days after
its due date and such default is occasioned by the default of any lessee, then,
to that extent, Debtor shall have sixty (60) days from such due date to
repossess the subject motor vehicle(s), re-lease the same and resume making
monthly installment payments pursuant to the Note. Any installment payment or
any portion thereof not paid within the said sixty-day (60) period shall be
added on to the end of the term covered by the Note and the final due date for
such payment or part thereof, together with any accrued interest thereon shall
be extended by one month for each such installment payment missed.
5. No Waiver. The acceptance of any installment or payment after the
occurrence of a default or event giving rise to the right of acceleration
provided for in the previous paragraph shall not constitute a waiver of such
right of acceleration with respect to any subsequent default or event.
6. Costs of Collection/Attorneys' Fees, etc. In the event any payment due
under this Note is not made, or any obligation provided to be satisfied or
performed under any instrument given to secure payment of the obligations
evidenced hereby is not satisfied or performed, at the time and in the manner
required, the undersigned agrees to pay all costs and expenses (regardless of
the particular nature thereof and whether incurred with or without suit and
before or after judgment) which June be incurred by the holder hereof in
connection with the enforcement of any of his rights under this Note or under
any such other instrument, or any right arising out of the breach thereof,
including but not limited to, reasonable expenses incurred in foreclosing on the
collateral securing payment hereof, court costs, and reasonable attorneys" fees.
<PAGE>
7. Notice. Any notice or demand hereunder shall be deemed to have been
given to and received by the undersigned when personally delivered or when
deposited in the U.S. mail, certified or registered mail, return receipt
requested, postage pre-paid, and addressed to the undersigned at the address set
forth below or at such other address as the undersigned June hereafter designate
in writing to the holder hereof.
This note shall be governed by and construed in accordance with the laws of
the State of Utah.
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
----------------------------
Robert J. Atmore, President
<PAGE>
CERTIFICATE OF DELIVERY
AND RECEIPT OF DOCUMENTS
I, Robert J, Atmore, of/for NEWSTART CENTRE, INC. do hereby certify that on the
20th day of June, 1997 I delivered to Wade Cook Seminars, Inc. of 14675
Interurban Ave. South, Seattle, WA 98168 one (1) original and/or one (1) copy of
each of the following documents:
(i) Secured Loan Agreement dated the 20th day of June, 1997, between
NEWSTART CENTRE, INC., as Debtor, and Wade Cook Seminars, Inc. as Secured Party.
(ii) Promissory Note dated the 20th day of June, 1997.
DATED this 20th day of June, 1997.
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
------------------------------
Robert J. Atmore, President
<PAGE>
RECEIPT
The undersigned do hereby acknowledge receipt of each of the documents or
copies thereof listed above and attached to this Certificate.
DATED this 20th day of June, 1997.
Name: Wade Cook Seminars, Inc.
By /s/ Wade B. Cook Fed EIN# 93-1012978
------------------------------- ----------
Wade B. Cook
<PAGE>
SECURED LOAN AGREEMENT
THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement") is
made and entered into on this 25th day of July, 1997, by and between NEWSTART
CENTRE, INC., a Utah Corporation with its principal place of business in Salt
Lake County, State of Utah ("Debtor"),and WADE COOK SEMINARS, INC. of 14675
Interurban Ave. South, Seattle, WA 98168, ("Secured Party").
CAPTIONS AND HEADINGS. The captions and headings throughout this Agreement
are for convenience of reference only, and the words contained therein shall in
no way be held or deemed to define, limit, describe, explain, modify, amplify or
add to the interpretation, construction or meaning of any provisions of or the
scope or intent of this Agreement or in any way affect this Agreement or in any
way affect this Agreement.
RECITALS:
A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and
selling motor vehicles to the general public, and
B. WHEREAS, DEBTOR desires to borrow working capital for the purchase of
automobiles to sale or lease, and
C. WHEREAS, Secured Party desires to loan working capital to Debtor,
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties agree as follows:
1. Loan. Secured Party lends to Debtor, receipt of which is hereby
acknowledged, the sum of $125,000.00 payable to Debtor in certified funds
concurrent with the execution of this Agreement and the other documents or
instruments referred to below.
2. Loan Documents.
a) Execution and delivery by Debtor. Debtor hereby agrees to
execute, by and through its authorized representatives, and to deliver to
Secured Party, the following instruments or documents to effect the loan
described in paragraph 1 above.
1) Promissory Noted dated the 25th day of July,
1997, a copy of which is attached hereto as Exhibit "A".
2) Certificate of Delivery and Receipt of Documents,
a copy of which is attached hereto as Exhibit "B".
b) Execution and delivery by Secured Party. Secured Party
agrees to execute and deliver to Debtor the Certificate of Delivery and Receipt
of Documents dated the 25th of July, 1997, (Exhibit "B").
3. Grant of Lien. Debtor grants to Secured Party a continuing lien
against each vehicle ("vehicles") purchased with Secured Party's funds to secure
the payment and performance of each and every obligation, liability and
undertaking of Debtor under the loan documents and Debtor represents and
warrants to secured Party that Debtor is or, after acquisition by Debtor, will
be the owner of the vehicles and possesses all requisite power and authority to
execute and deliver this Agreement and to grant to Secured Party a lien as to
all of the vehicles or any replacements thereof.
<PAGE>
4. No Other Security Interests/Liens. Debtor warrants and represents to
Secured Party corporate resolution. No financing statement or lien covering the
vehicles has been given or filed by Debtor with any filing officers, and the
said vehicles are or shall be free from any adverse liens, security interests,
claims or encumbrances of any kind.
5. Taxes and Assessments. All taxes, assessments and other governmental
charges including Utah State sales tax, county property tax, and license and
registration fees upon the vehicles will, to the best of Debtor's knowledge,
have been paid and shall continue to be paid as they become due and payable.
6. Substitution of Collateral. Secured Party consents and acknowledges
that Debtor, from time to time, may sell, transfer or assign any or all of the
said vehicles or leases covering the vehicles. Secured Party further agrees to
cooperate with and to execute and deliver to Debtor such additional documents as
may be necessary to sell or otherwise dispose of any of the vehicles provided
Debtor, (not to exceed 7 days), replaces such vehicle (s) with other vehicle (s)
of equal or greater value and lists Secured Party as the sole lien holder on the
titles to any such replacement vehicles.
7. Evidence of Title. Debtor shall, within thirty (30) days after the
receipt, deliver to Secured Party copies of any and all title and/or
registration documents relating to any of the motor vehicles covered by this
Agreement showing Secured Party as the sole lienholder. Debtor shall not further
mortgage, pledge, grant or permit to exist any lien against or security interest
in, or encumbrance on, any of the vehicles without the prior written consent of
Secured Party.
8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at
Debtor's or Lessee's expense, proper insurance coverage on the vehicles covered
by this Agreement upon terms and with limits of coverage reasonably required by
the existing custom and usage in the motor vehicle leasing industry and all
rights, duties and obligations or Debtor and Lessees with respect to insurance
coverage of the vehicles, including, without limitation, payment of premiums,
use of proceeds and disposition of policies shall be as are standard in the auto
leasing industry.
9. Licenses and Permits. Debtor shall keep in effect all licenses,
permits and franchises required by law or contract relating to the vehicles and
shall pay, when due, all fees and other charges pertaining thereto.
10. Miscellaneous.
(a) Entire Agreement. This Agreement, together with all of the
documents/instruments listed herein constitute the entire agreement between the
parties. There are no terms, obligations, covenants, representations,
statements, or conditions between the parties, other than those contained
herein. No variations or modifications of this Agreement or waiver of any of
the terms or provisions hereof shall be deemed valid unless in writing and
signed by both parties.
(b) Grace Period. In the event of a non-monetary default,
Debtor shall have thirty (30) days after receipt of written notice thereof from
Secured Party in which to cure such default.
(c) Amendments. Neither this Agreement nor any provisions
hereof may be changed, waived, discharged or terminated orally and may only be
modified or amended by an instrument in writing, signed by Secured Party and
Debtor.
(d) Binding Effect. This Agreement shall be binding upon
Debtor and Debtor's successors and assigns. This Agreement shall inure to the
benefit of Secured Party, and Secured Party's heirs, personal representatives,
successors and assigns.
<PAGE>
(e) Notices. Except as otherwise provided herein, all notices
and other communications under this Agreement shall be in writing and shall be
deemed given when delivered or, if mailed, then when mailed, if mailed by
registered or certified mail, postage prepaid, addressed as follows:
If to Secured Party, to:
WADE COOK SEMINARS, INC.
c/o 11275 South Loafer Canyon Road
Elkridge, Ut. 84651
If to Debtor, to: NEWSTART CENTRE, INC.
5200 South State Street
Murray, Utah 84107
Such addresses may be changed by notice to the other parties
given in the same manner as provided. Any notice given hereunder shall be deemed
given as of the date delivered or mailed.
(f) Severability. If any term or provision of this Agreement
shall, to any extent, be determined by a court of competent jurisdiction to be
void, voidable or unenforceable, such void, voidable or unenforceable term or
provision shall not affect any other term or provision of this Agreement.
(g) Governing Law. This Agreement and all matters relating
hereto shall be governed by, construed and interpreted in accordance with the
laws of the State of Utah, County of Salt Lake.
(h) Termination. This Agreement shall terminate upon the full
and complete performance and satisfaction by Debtor of all of its obligations to
Secured Party under this Agreement or any other instrument referred to herein
requiring performance by Debtor.
IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured
Loan Agreement effective as of the date first above written.
DEBTOR:
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
--------------------------------
Robert J. Atmore, President
SECURED PARTY:
WADE COOK SEMINARS, INC.
By /s/ Wade Cook
--------------------------------
Wade Cook, President
<PAGE>
PROMISSORY NOTE
(Secured)
$ $125,000.00 Date: July 25,1997
FOR VALUE RECEIVED the undersigned hereby promise to pay to Wade Cook
Seminars, Inc. at 14675 Interurban Ave. South, Seattle, WA 98168 or at such
other place as the holder hereof July designate in writing, the principal sum of
One Hundred Twenty Five Thousand dollars and no/100 ($ $125,000.00 ), payable in
forty-eight (48) consecutive equal monthly payments, including interest as
provided below, of ($3,606.88) each, commencing with the first payment on the
8th day of September, 1997, and continuing with a like payment on the 8th day of
each and every consecutive month thereafter until the entire remaining unpaid
principal balance has been paid in full, subject to the following additional
terms and conditions:
1. Interest. Interest shall accrue on the unpaid principal balance at the
simple rate of Seventeen percent (17.00%) per annum.
2. Application of Payments. Payments shall be applied first toward the
payment and satisfaction of accrued and unpaid interest, if any, and the
remainder shall be applied toward the reduction of principal. Principal and
interest shall be payable only in lawful money of the United States of America.
3. Prepayment. The undersigned shall have the right, without penalty, to
pre-pay any part or all of the unpaid principal balance due hereunder, in which
event subsequent monthly payments shall be reduced proportionately, or, upon
payment in full of all interest, principal and any other amounts due hereunder,
payments shall terminate. In any event, the entire principal balance, together
with all accrued interest and any accrued costs or attorney's fees, as provided
herein, shall be paid in full on or before July, 2001.
4. Default/Late Charges/Acceleration. In the event any installment payment
due hereunder or any portion thereof is not made within thirty (30) days after
its due date and such default is occasioned by the default of any lessee, then,
to that extent, Debtor shall have sixty (60) days from such due date to
repossess the subject motor vehicle(s), re-lease the same and resume making
monthly installment payments pursuant to the Note. Any installment payment or
any portion thereof not paid within the said sixty-day (60) period shall be
added on to the end of the term covered by the Note and the final due date for
such payment or part thereof, together with any accrued interest thereon shall
be extended by one month for each such installment payment missed.
5. No Waiver. The acceptance of any installment or payment after the
occurrence of a default or event giving rise to the right of acceleration
provided for in the previous paragraph shall not constitute a waiver of such
right of acceleration with respect to any subsequent default or event.
6. Costs of Collection/Attorneys' Fees, etc. In the event any payment due
under this Note is not made, or any obligation provided to be satisfied or
performed under any instrument given to secure payment of the obligations
evidenced hereby is not satisfied or performed, at the time and in the manner
required, the undersigned agrees to pay all costs and expenses (regardless of
the particular nature thereof and whether incurred with or without suit and
before or after judgment) which July be incurred by the holder hereof in
connection with the enforcement of any of his rights under this Note or under
any such other instrument, or any right arising out of the breach thereof,
including but not limited to, reasonable expenses incurred in foreclosing on the
collateral securing payment hereof, court costs, and reasonable attorneys' fees.
<PAGE>
7. Notice. Any notice or demand hereunder shall be deemed to have been
given to and received by the undersigned when personally delivered or when
deposited in the U.S. mail, certified or registered mail, return receipt
requested, postage pre-paid, and addressed to the undersigned at the address set
forth below or at such other address as the undersigned July hereafter designate
in writing to the holder hereof.
This note shall be governed by and construed in accordance with the laws of
the State of Utah.
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
--------------------------------
Robert J. Atmore, President
<PAGE>
CERTIFICATE OF DELIVERY
AND RECEIPT OF DOCUMENTS
I, Robert J. Atmore, of/for NEWSTART CENTRE, INC. do hereby certify that on the
25th day of July, 1997 I delivered to Wade Cook Seminars, Inc. of 14675
Interurban Ave. South, Seattle, WA 98168 one (1) original and/or one (1) copy of
each of the following documents:
(i) Secured Loan Agreement dated the 25th day of July, 1997, between
NEWSTART CENTRE, INC., as Debtor, and Wade Cook Seminars, Inc. as Secured Party.
(ii) Promissory Note dated the 25th day of July, 1997.
DATED this 25th day of July, 1997.
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
--------------------------------
Robert J. Atmore, President
<PAGE>
RECEIPT
The undersigned do hereby acknowledge receipt of each of the documents or
copies thereof listed above and attached to this Certificate.
DATED this 25th day of July, 1997.
Name: Wade Cook Seminars, Inc.
By: /s/ Wade B. Cook Fed EIN#
------------------------------ --------------------------
Wade B. Cook, President
<PAGE>
SECURED LOAN AGREEMENT
THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement") is
made and entered into on this 22nd day of August, 1997, by and between NEWSTART
CENTRE, INC., a Utah Corporation with its principal place of business in Salt
Lake County, State of Utah, (hereinafter referred to as "Debtor") and
Information Quest, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168
(hereinafter referred to as "Secured Party").
CAPTIONS AND HEADINGS. The captions and headings throughout this
Agreement are for convenience of reference only, and the words contained
therein shall in no way be held or deemed to define, limit, describe,
explain, modify, amplify or add to the interpretation, construction or
meaning of any provisions of or the scope or intent of this Agreement or in
any way affect this Agreement.
RECITALS:
A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and
selling motor vehicles to the general public, and
B. WHEREAS, DEBTOR desires to borrow working capital for the purchase of
automobiles to sale or lease, and
C. WHEREAS, Secured Party desires to loan working capital to Debtor,
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto hereby agree as follows:
1. Loan. Secured Party hereby lends to Debtor, receipt of which is hereby
acknowledged, the sum of $ $125,000.00 payable to Debtor in certified funds
concurrent with the execution of this Agreement and the other
documents/instruments referred to below.
2. Loan Documents.
a) Execution and delivery by Debtor. Debtor hereby agrees to execute,
by and through its authorized representatives, and to deliver to Secured Party,
the following instruments/ documents to effect the loan described in paragraph 1
above.
1) Promissory Note dated the 22nd day of August, 1997, a copy
of which is attached hereto as Exhibit "A".
2) Certificate of Delivery and Receipt of Documents, a copy of
which is attached hereto as Exhibit "B".
b) Execution and delivery by Secured Party. Secured Party hereby agrees
to execute and deliver to Debtor the Certificate of Delivery and Receipt of
Documents dated the 22nd of August, 1997, (Exhibit "B").
3. Grant of Lien. Debtor hereby grants to Secured Party a continuing lien
against each vehicle (hereinafter the "vehicles") purchased with Secured Party's
funds to secure the payment and performance of each and every obligation,
liability and undertaking of Debtor under the loan documents and Debtor hereby
represents and warrants to secured Party that Debtor is or, after acquisition by
Debtor, will be the owner of the vehicles and possesses all requisite power and
authority to execute and deliver this Agreement and to grant to Secured Party a
lien as to all of the vehicles or any replacements thereof.
<PAGE>
4. No Other Security Interests/Liens. No financing statement or lien
covering the vehicles has been given or filed by Debtor with any filing officer,
and the said vehicles are or will be free from any adverse liens, security
interests, claims or encumbrances of any kind.
5. Taxes and Assessments. All taxes, assessments and other governmental
charges including Utah state sales tax, county property tax, and license and
registration fees upon the vehicles will, to the best of Debtor's knowledge,
have been paid and shall continue to be paid as they become due and payable.
6. Substitution of Collateral. Secured Party consents and acknowledges that
Debtor, from time to time, August sell, transfer or assign any or all of the
said vehicles or leases covering the vehicles. Secured Party further agrees to
cooperate with and to execute and deliver to Debtor such additional documents as
August be necessary to sell or otherwise dispose of any of the vehicles provided
Debtor, within a reasonable time, replaces such vehicle(s) with other vehicle(s)
of equal or greater value and lists Secured Party as the sole lien holder on the
titles to any such replacement vehicles.
7. Evidence of Title. Debtor shall, within thirty (30) days after the
receipt thereof, deliver to Secured Party copies of any and all title and/or
registration documents relating to any of the motor vehicles covered by this
Agreement showing Secured Party as the sole lienholder. Debtor shall not
further mortgage, pledge, grant or permit to exist any lien against or
security interest in, or encumbrance on, any of the vehicles without the
prior written consent of Secured Party.
8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at
Debtor's or Lessee's expense, proper insurance coverage on the vehicles covered
by this Agreement upon terms and with limits of coverage reasonably required by
the existing custom and usage in the motor vehicle leasing industry and all
rights, duties and obligations of Debtor and Lessees with respect to insurance
coverage of the vehicles, including, without limitation, payment of premiums,
use of proceeds and disposition of policies shall be as are standard in the auto
leasing industry.
9. Licenses and Permits. Debtor shall keep in effect all licenses, permits
and franchises required by law or contract relating to the vehicles and shall
pay, when due, all fees and other charges pertaining thereto.
10. Miscellaneous.
(a) Entire Agreement. This Agreement, together with all of the
documents/instruments listed herein constitute the entire agreement between the
parties. There are no terms, obligations, covenants, representations,
statements, or conditions between the parties, other than those contained
herein. No variations or modifications of this Agreement or waiver of any of the
terms or provisions hereof shall be deemed valid unless in writing and signed by
both parties.
(b) Grace Period. In the event of a non-monetary default, Debtor shall
have thirty (30) days after receipt of written notice thereof from Secured Party
in which to cure such default.
(c) Amendments. Neither this Agreement nor any provisions hereof August
be changed, waived, discharged or terminated orally and August only be modified
or amended by an instrument in writing, signed by Secured Party and Debtor.
(d) Binding Effect. This Agreement shall be binding upon Debtor and
Debtor's successors and assigns. This Agreement shall inure to the benefit of
Secured Party, and Secured Party's heirs, personal representatives, successors
and assigns.
(e) Notices. Except as otherwise provided herein, all notices and other
communications under this Agreement shall be in writing and shall be deemed
given when delivered or, if mailed, then when mailed, if mailed by registered or
certified mail, postage prepaid, addressed as follows:
<PAGE>
If to Secured Party, to: If to Debtor, to:
Information Quest, Inc. Newstart Centre, Inc.
c/o 14675 Interurban Ave. South 5200 South State Street
Seattle, WA 98168 Murray, Utah 84107
Such addresses August be changed by notice to the other parties given in the
same manner as above provided. Any notice given hereunder shall be deemed given
as of the date delivered or mailed.
(f) Severability. If any term or provision of this Agreement shall, to any
extent, be determined by a court of competent jurisdiction to be void, voidable
or unenforceable, such void, voidable or unenforceable term or provision shall
not affect any other term or provision of this Agreement.
(g) Governing Law. This Agreement and all matters relating hereto shall be
governed by, construed and interpreted in accordance with the laws of the State
of Utah, County of Salt Lake.
(h) Termination. This Agreement shall terminate upon the full and
complete performance and satisfaction by Debtor of all of its obligations to
Secured Party under this Agreement or any other instrument referred to herein
requiring performance by Debtor.
IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured
Loan Agreement effective as of the date first above written.
DEBTOR:
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
--------------------------------
Robert J. Atmore, President
SECURED PARTY:
Information Quest, Inc.
By /s/ Thomas Cloward
--------------------------------
Thomas Cloward, Secretary Treasurer
<PAGE>
PROMISSORY NOTE
(Secured)
$ $125,000.00 Date: August 22, 1997
FOR VALUE RECEIVED the undersigned hereby promise to pay to Information
Quest, Inc. at 14675 Interurban Ave. South, Seattle, WA 98168 or at such other
place as the holder hereof August designate in writing, the principal sum of One
Hundred Twenty Five Thousand Dollars and no/100 ($ $125,000.00), payable in
forty-eight (48) consecutive equal monthly payments, including interest as
provided below, of ($3,606.88) each, commencing with the first payment on the
6th day of October, 1997, and continuing with a like payment on the 6th day of
each and every consecutive month thereafter until the entire remaining unpaid
principal balance has been paid in full, subject to the following additional
terms and conditions:
1. Interest. Interest shall accrue on the unpaid principal balance at the
simple rate of Seventeen percent (17.00%) pet annum.
2. Application of Payments. Payments shall be applied first toward the
payment and satisfaction of accrued and unpaid interest, if any, and the
remainder shall be applied toward the reduction of principal. Principal and
interest shall be payable only in lawful money of the United States of America.
3. Prepayment. The undersigned shall have the right, without penalty, to
pre-pay any part or all of the unpaid principal balance due hereunder, in which
event subsequent monthly payments shall be reduced proportionately, or, upon
payment in full of all interest, principal and any other amounts due hereunder,
payments shall terminate. In any event, the entire principal balance, together
with all accrued interest and any accrued costs or attorney's fees, as provided
herein, shall be paid in full on or before August, 2001.
4. Default/Late Charges/Acceleration. In the event any installment payment
due hereunder or any portion thereof is not made within thirty (30) days after
its due date and such default is occasioned by the default of any lessee, then,
to that extent, Debtor shall have sixty (60) days from such due date to
repossess the subject motor vehicle(s), re-lease the same and resume making
monthly installment payments pursuant to the Note. Any installment payment or
any portion thereof not paid within the said sixty-day (60) period shall be
added on to the end of the term covered by the Note and the final due date for
such payment or part thereof, together with any accrued interest thereon shall
be extended by one month for each such installment payment missed.
5. No Waiver. The acceptance of any installment or payment after the
occurrence of a default or event giving rise to the right of acceleration
provided for in the previous paragraph shall not constitute a waiver of such
right of acceleration with respect to any subsequent default or event.
6. Costs of Collection/Attorneys' Fees, etc. In the event any payment due
under this Note is not made, or any obligation provided to be satisfied or
performed under any instrument given to secure payment of the obligations
evidenced hereby is not satisfied or performed, at the time and in the manner
required, the undersigned agrees to pay all costs and expenses (regardless of
the particular nature thereof and whether incurred with or without suit and
before or after judgment) which August be incurred by the holder hereof in
connection with the enforcement of any of his rights under this Note or under
any such other instrument, or any right arising out of the breach thereof,
including but not limited to, reasonable expenses incurred in foreclosing on the
collateral securing payment hereof, court costs, and reasonable attorneys' fees.
<PAGE>
7. Notice. Any notice or demand hereunder shall be deemed to have been
given to and received by the undersigned when personally delivered or when
deposited in the U.S. mail, certified or registered mail, return receipt
requested, postage pre-paid, and addressed to the undersigned at the address set
forth below or at such other address as the undersigned August hereafter
designate in writing to the holder hereof.
This note shall be governed by and construed in accordance with the laws of the
State of Utah.
NEWSTART CENTRE, INC.
By Robert J. Atmore
--------------------------
Robert J. Atmore, President
<PAGE>
CERTIFICATE OF DELIVERY
AND RECEIPT OF DOCUMENTS
I, Robert J, Atmore, of/for NEWSTART CENTRE, INC. do hereby certify that on the
22nd day of August, 1997 I delivered to Information Quest, Inc. of 14675
Interurban Ave. South, Seattle, WA 98168 one (1) original and/or one (1) copy of
each of the following documents:
(i) Secured Loan Agreement dated the 22nd day of August, 1997, between
NEWSTART CENTRE, INC., as Debtor, and Information Quest, Inc. as Secured Party.
(ii) Promissory Note dated the 22nd day of August, 1997.
DATED this 22nd day of August, 1997.
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
--------------------------------
Robert J. Atmore, President
<PAGE>
SECURED LOAN AGREEMENT
THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement") is
made and entered into on this 9th day of October, 1997, by and between NEWSTART
CENTRE, INC., a Utah Corporation with its principal place of business in Salt
Lake County, State of Utah, (hereinafter referred to as "Debtor") and
Information Quest, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168
(hereinafter referred to as "Secured Party").
CAPTIONS AND HEADINGS. The captions and headings throughout this Agreement
are for convenience of reference only, and the words contained therein shall in
no way be held or deemed to define, limit, describe, explain, modify, amplify or
add to the interpretation, construction or meaning of any provisions of or the
scope or intent of this Agreement or in any way affect this Agreement.
RECITALS:
A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and
selling motor vehicles to the general public, and
B. WHEREAS, DEBTOR desires to borrow working capital for the purchase of
automobiles to sale or lease, and
C. WHEREAS, Secured Party desires to loan working capital to Debtor,
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto hereby agree as follows:
1. Loan. Secured Party hereby lends to Debtor, receipt of which is hereby
acknowledged, the sum of $ $125,000.00 payable to Debtor in certified funds
concurrent with the execution of this Agreement and the other
documents/instruments referred to below.
2. Loan Documents.
a) Execution and delivery by Debtor. Debtor hereby agrees to execute,
by and through its authorized representatives, and to deliver to Secured Party,
the following instruments/ documents to effect the loan described in paragraph 1
above.
1) Promissory Note dated the 9th day of October, 1997, a copy
of which is attached hereto as Exhibit "A".
2) Certificate of Delivery and Receipt of Documents, a copy of
which is attached hereto as Exhibit "B".
b) Execution and delivery by Secured Party. Secured Party hereby agrees
to execute and deliver to Debtor the Certificate of Delivery and Receipt of
Documents dated the 9th of October, 1997, (Exhibit "B").
3. Grant of Lien. Debtor hereby grants to Secured Party a continuing lien
against each vehicle (hereinafter the "vehicles") purchased with Secured Party's
funds to secure the payment and performance of each and every obligation,
liability and undertaking of Debtor under the loan documents and Debtor hereby
represents and warrants to secured Party that Debtor is or, after acquisition by
Debtor, will be the owner of the vehicles and possesses all requisite power and
authority to execute and deliver this Agreement and to grant to Secured Party a
lien as to all of the vehicles or any replacements thereof.
<PAGE>
4. No Other Security Interests/Liens. No financing statement or lien
covering the vehicles has been given or filed by Debtor with any filing of
officer, and the said vehicles are or will be free from any adverse liens,
security interests, claims or encumbrances of any kind.
5. Taxes and Assessments. All taxes, assessments and other governmental
charges including Utah State sales tax, county property tax, and license and
registration fees upon the vehicles will, to the best of Debtor's knowledge,
have been paid and shall continue to be paid as they become due and payable.
6. Substitution of Collateral. Secured Party consents and acknowledges that
Debtor, from time to time, October sell, transfer or assign any or all of the
said vehicles or leases covering the vehicles. Secured Party further agrees to
cooperate with and to execute and deliver to Debtor such additional documents as
October be necessary to sell or otherwise dispose of any of the vehicles
provided Debtor, within a reasonable time, replaces such vehicle(s) with other
vehicle(s) of equal or greater value and lists Secured Party as the sole lien
holder on the titles to any such replacement vehicles.
7. Evidence of Title. Debtor shall, within thirty (30) days after the
receipt thereof, deliver To Secured Party copies of any and all title and/or
registration documents relating to any of the motor vehicles covered by this
Agreement showing Secured Party as the sole lienholder. Debtor shall not further
mortgage, pledge, grant or permit to exist any lien against or security interest
in, or encumbrance on, any of the vehicles without the prior written consent of
Secured Party.
8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at
Debtor's or Lessee's expense, proper insurance coverage on the vehicles covered
by this Agreement upon terms and with limits of coverage reasonably required by
the existing custom and usage in the motor vehicle leasing industry and all
rights, duties and obligations of Debtor and Lessees with respect to insurance
coverage of the vehicles, including, without limitation, payment of premiums,
use of proceeds and disposition of policies shall be as are standard in the auto
leasing industry.
9. Licenses and Permits. Debtor shall keep in effect all licenses, permits
and franchises required by law or contract relating to the vehicles and shall
pay, when due, all fees and other charges pertaining thereto.
10. Miscellaneous.
(a) Entire Agreement. This Agreement, together with all of the
documents/instruments listed herein constitute the entire agreement between the
parties. There are no terms, obligations, covenants, representations,
statements, or conditions between the parties, other than those contained
herein. No variations or modifications of this Agreement or waiver of any of the
terms or provisions hereof shall be deemed valid unless in writing and signed by
both parties.
(b) Grace Period. In the event of a non-monetary default, Debtor shall
have thirty (30) days after receipt of written notice thereof from Secured Party
in which to cure such default.
(c) Amendments. Neither this Agreement nor any provisions hereof
October be changed, waived, discharged or terminated orally and October only be
mod)fled or amended by an instrument in writing, signed by Secured Party and
Debtor.
(d) Binding Effect. This Agreement shall be binding upon Debtor and
Debtor's successors and assigns. This Agreement shall inure to the benefit of
Secured Party, and Secured Party's heirs, personal representatives, successors
and assigns.
<PAGE>
(e) Notices. Except as otherwise provided herein, all notices and other
communications under this Agreement shall be in writing and shall be deemed
given when delivered or, if mailed, then when mailed, if mailed by registered or
certified mail, postage prepaid, addressed as follows:
If to Secured Party, to: If to Debtor, to:
Information Quest, Inc. Newstart Centre, Inc.
c/o 14675 Interurban Ave. South 5200 South State Street
Seattle, WA. 98168 Murray, Utah 84107
Such addresses October be changed by notice to the other parties given in the
same manner as above provided. Any notice given hereunder shall be deemed given
as of the date delivered or mailed.
(f) Severability. If any term or provision of this Agreement shall, to any
extent, be determined by a court of competent jurisdiction to be void, voidable
or unenforceable, such void, voidable or unenforceable term or provision shall
not affect any other term or provision of this Agreement.
(g) Governing Law. This Agreement and all matters relating hereto shall be
governed by, construed and interpreted in accordance with the laws of the State
of Utah, County of Salt Lake.
(h) Termination. This Agreement shall terminate upon the full and complete
performance and satisfaction by Debtor of all of its obligations to Secured
Party under this Agreement or any other instrument referred to herein requiring
performance by Debtor.
IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured
Loan Agreement effective as of the date first above written.
DEBTOR:
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
-------------------------
Robert J. Atmore, President
SECURED PARTY:
Information Quest, Inc.
By /s/ Tom Cloward
---------------------------
<PAGE>
PROMISSORY NOTE
(Secured)
$ $125,000.00 Date: October 09, 1997
FOR VALUE RECEIVED the undersigned hereby promise to pay to Information
Quest, Inc. at 14675 Interurban Ave. South, Seattle, WA 98168 or at such other
place as the holder hereof October designate in writing, the principal sum of
One Hundred Twenty Five Thousand dollars and no/100 ($ $125,000.00 ), payable in
forty-eight (48) consecutive equal monthly payments, including interest as
provided below, of ($3.606.88) each, commencing with the first payment on
the 23rd day of November, 1997, and continuing with a like payment on the 23rd
day of each and every consecutive month thereafter until the entire remaining
unpaid principal balance has been paid in full, subject to the following
additional terms and conditions:
1. Interest. Interest shall accrue on the unpaid principal balance at the
simple rate of Seventeen percent (17.00%) per annum.
2. Application of Payments. Payments shall be applied first toward the
payment and satisfaction of accrued and unpaid interest, if any, and the
remainder shall be applied toward the reduction of principal. Principal and
interest shall be payable only in lawful money of the United States of America.
3. Prepayment. The undersigned shall have the right, without penalty, to
pre-pay any part or all of the unpaid principal balance due hereunder, in which
event subsequent monthly payments shall be reduced proportionately, or, upon
payment in full of all interest, principal and any other amounts due hereunder,
payments shall terminate. In any event, the entire principal balance, together
with all accrued interest and any accrued costs or attorney's fees, as provided
herein, shall be paid in full on or before October, 2001.
4. Default/Late Charges/Acceleration. In the event any installment payment
due hereunder or any portion thereof is not made within thirty (30) days after
its due date and such default is occasioned by the default of any lessee, then,
to that extent, Debtor shall have sixty (60) days from such due date to
repossess the subject motor vehicle(s), re-lease the same and resume making
monthly installment payments pursuant to the Note. Any installment payment or
any portion thereof not paid within the said sixty-day (60) period shall be
added on to the end of the term covered by the Note and the final due date for
such payment or part thereof, together with any accrued interest thereon shall
be extended by one month for each such installment payment missed.
5. No Waiver. The acceptance of any installment or payment after the
occurrence of a default or event giving rise to the right of acceleration
provided for in the previous paragraph shall not constitute a waiver of such
right of acceleration with respect to any subsequent default or event.
6. Costs of Collection/Attorneys' Fees, etc. In the event any payment due
under this Note is not made, or any obligation provided to be satisfied or
performed under any instrument given to secure payment of the obligations
evidenced hereby is not satisfied or performed, at the time and in the manner
required, the undersigned agrees to pay all costs and expenses (regardless of
the particular nature thereof and whether incurred with or without suit and
before or after judgment) which October be incurred by the holder hereof in
connection with the enforcement of any of his rights under this Note or under
any such other instrument, or any right arising out of the breach thereof,
including but not limited to, reasonable expenses incurred in foreclosing on the
collateral securing payment hereof, court costs, and reasonable attorneys' fees.
<PAGE>
7. Notice. Any notice or demand hereunder shall be deemed to have been
given to and received by the undersigned when personally delivered or when
deposited in the U.S. mail, certified or registered mail, return receipt
requested, postage pre-paid, and addressed to the undersigned at the address set
forth below or at such other address as the undersigned October hereafter
designate in writing to the holder hereof.
This note shall be governed by and construed in accordance with the laws of
the State of Utah.
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
---------------------------------
Robert J. Atmore, President
<PAGE>
CERTIFICATE OF DELIVERY
AND RECEIPT OF DOCUMENTS
I, Robert J. Atmore, of/for NEWSTART CENTRE, INC. do hereby certify that on the
9th day of October, 1997 I delivered to Information Quest, Inc. of 14675
Interurban Ave. South, Seattle, WA 98168 one (1) original and/or one (1) copy of
each of the following documents:
(i) Secured Loan Agreement dated the 9th day of October, 1997, between
NEWSTART CENTRE, INC., as Debtor, and Information Quest, Inc. as Secured Party.
(ii) Promissory Note dated the 9th day of October, 1997.
DATED this 9th day of October, 1997.
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
-----------------------------
Robert J. Atmore, President
<PAGE>
RECEIPT
The undersigned do hereby acknowledge receipt of each of the documents or
copies thereof listed above and attached to this Certificate.
DATED this 9th day of October, 1997.
Name: Information Quest, Inc.
By: /s/ Tom Cloward Fed EIN# 91-1824010
-------------------------------- ----------
<PAGE>
SECURED LOAN AGREEMENT
THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement") is
made and entered into on this 9th day of October, 1997, by and between NEWSTART
CENTRE, INC., a Utah Corporation with its principal place of business in Salt
Lake County, State of Utah, (hereinafter referred to as "Debtor") and Left Coast
Advertising, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168 (hereinafter
referred to as "Secured Party").
CAPTIONS AND HEADINGS. The captions and headings throughout this Agreement
are for convenience of reference only, and the words contained therein shall in
no way be held or deemed to define, limit, describe, explain, modify, amplify or
add to the interpretation, construction or meaning of any provisions of or the
scope or intent of this Agreement or in any way affect this Agreement.
RECITALS:
A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and
selling motor vehicles to the general public, and
B. WHEREAS, DEBTOR desires to borrow working capital for the purchase of
automobiles to sale or lease, and
C. WHEREAS, Secured Party desires to loan working capital to Debtor,
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto hereby agree as follows:
1. Loan. Secured Party hereby lends to Debtor, receipt of which is hereby
acknowledged, the sum of $ $125,000.00 payable to Debtor in certified funds
concurrent with the execution of this Agreement and the other
documents/instruments referred to below.
2. Loan Documents.
a) Execution and delivery by Debtor. Debtor hereby agrees to execute,
by and through its authorized representatives, and to deliver to Secured Party,
the following instruments" documents to effect the loan described in paragraph 1
above.
1) Promissory Note dated the 9th day of October, 1997, a copy
of which is attached hereto as Exhibit "A".
2) Certificate of Delivery and Receipt of Documents, a copy of
which is attached hereto as Exhibit "B".
b) Execution and delivery by Secured Party. Secured Party hereby agrees
to execute and deliver to Debtor the Certificate of Delivery and Receipt of
Documents dated the 9th of October, 1997, (Exhibit "B").
3. Grant of Lien. Debtor hereby grants to Secured Party a continuing lien
against each vehicle (hereinafter the "vehicles") purchased with Secured Party's
funds to secure the payment and performance of each and every obligation,
liability and undertaking of Debtor under the loan documents and Debtor hereby
represents and warrants to secured Party that Debtor is or, after acquisition by
Debtor, will be the owner of the vehicles and possesses all requisite power and
authority to execute and deliver this Agreement and to grant to Secured Party a
lien as to all of the vehicles or any replacements thereof.
<PAGE>
4. No Other Security Interests/Liens. No financing statement or lien
covering the vehicles has been given or filed by Debtor with any filing officer,
and the said vehicles are or will be free from any adverse liens, security
interests, claims or encumbrances of any kind.
5. Taxes and Assessments. All taxes, assessments and other governmental
charges including Utah State sales tax, county property tax, and license and
registration fees upon the vehicles will, to the best of Debtor's knowledge,
have been paid and shall continue to be paid as they become due and payable.
6. Substitution of Collateral. Secured Party consents and acknowledges that
Debtor, from time to time, October sell, transfer or assign any or all of the
said vehicles or leases covering the vehicles. Secured Party further agrees to
cooperate with and to execute and deliver to Debtor such additional documents as
October be necessary to sell or otherwise dispose of any of the vehicles
provided Debtor, within a reasonable time, replaces such vehicle(s) with other
vehicle(s) of equal or greater value and lists Secured Party as the sole lien
holder on the titles to any such replacement vehicles.
7. Evidence of Title. Debtor shall, within thirty (30) days after the
receipt thereof, deliver to Secured Party copies of any and all title and/or
registration documents relating to any of the motor vehicles covered by this
Agreement showing Secured Party as the sole lienholder. Debtor shall not further
mortgage, pledge, grant or permit to exist any lien against or security interest
in, or encumbrance on, any of the vehicles without the prior written consent of
Secured Party.
8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at
Debtor's or Lessee's expense, proper insurance coverage on the vehicles covered
by this Agreement upon terms and with limits of coverage reasonably required by
the existing custom and usage in the motor vehicle leasing industry and all
rights, duties and obligations of Debtor and Lessees with respect to insurance
coverage of the vehicles, including, without limitation, payment of premiums,
use of proceeds and disposition of policies shall be as are standard in the auto
leasing industry.
9. Licenses and Permits. Debtor shall keep in effect all licenses, permits
and franchises required by law or contract relating to the vehicles and shall
pay, when due, all fees and other charges pertaining thereto.
10. Miscellaneous.
(a) Entire Agreement. This Agreement, together with all of the
documents/instruments listed herein constitute the entire agreement between the
parties. There are no terms, obligations, covenants, representations,
statements, or conditions between the parties, other than those contained
herein. No variations or modifications of this Agreement or waiver of any of the
terms or provisions hereof shall be deemed valid unless in writing and signed by
both parties.
Grace Period. In the event of a non-monetary default, Debtor shall have
thirty (30) days after receipt of written notice thereof from Secured Party in
which to cure such default.
(c) Amendments. Neither this Agreement nor any provisions hereof October be
changed, waived, discharged or terminated orally and October only be modified or
amended by an instrument in writing, signed by Secured Party and Debtor.
(d) Binding Effect. This Agreement shall be binding upon Debtor and
Debtor's successors and assigns. This Agreement shall inure to the benefit of
Secured Party, and Secured Party's heirs, personal representatives, successors
and assigns.
<PAGE>
(e) Notices. Except as otherwise provided herein, all notices and other
communications under this Agreement shall be in writing and shall be deemed
given when delivered or, if mailed, then when mailed, if mailed by registered or
certified mail, postage prepaid, addressed as follows:
If to Secured Party, to: If to Debtor, to:
Left Coast Advertising, Inc. Newstart Centre, Inc.
c/o 14675 Interurban 5200 South State Street
Ave. South Seattle, WA. 98168 Murray, Utah 84107
Such addresses October be changed by notice to the other parties given in the
same manner as above provided. Any notice given hereunder shall be deemed given
as of the date delivered or mailed.
(f) Severability. If any term or provision of this Agreement shall, to any
extent, be determined by a court of competent jurisdiction to be void, voidable
or unenforceable, such void, voidable or unenforceable term or provision shall
not affect any other term or provision of this Agreement.
(g) Governing Law. This Agreement and all matters relating hereto shall be
governed by, construed and interpreted in accordance with the laws of the State
of Utah, County of Salt Lake.
(h) Termination. This Agreement shall terminate upon the full and complete
performance and satisfaction by Debtor of all of its obligations to Secured
Party under this Agreement or any other instrument referred to herein requiring
performance by Debtor.
IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured
Loan Agreement effective as of the date first above written.
DEBTOR:
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
------------------------------------
Robert J. Atmore, President
SECURED PARTY:
Left Coast Advertising, Inc.
By /s/ Vaughn Tanner
-----------------------------------
Vaughn Tanner
<PAGE>
PROMISSORY NOTE
(Secured)
$ $125,000.00 Date: October 09, 1997
FOR VALUE RECEIVED the undersigned hereby promise to pay to Left Coast
Advertising, Inc. at 14675 Interurban Ave. South, Seattle, WA 98168 or at such
other place as the holder hereof October designate in writing, the principal sum
of One Hundred TwentY Five Thousand dollars and no/100 ($ $125,000.00 ), payable
in forty-eight (48) consecutive equal monthly payments, including interest as
provided below, of ($3,606.88) each, commencing with the first payment on the
23rd day of November, 1997, and continuing with a like payment on the 23rd day
of each and every consecutive month thereafter until the entire remaining unpaid
principal balance has been paid in full, subject to the following additional
terms and conditions:
1. Interest. Interest shall accrue on the unpaid principal balance at the
simple rate of Seventeen percent (17.00%) per annum.
2. Application of Payments. Payments shall be applied first toward the
payment and satisfaction of accrued and unpaid interest, if any, and the
remainder shall be applied toward the reduction of principal. Principal and
interest shall be payable only in lawful money of the United States of America.
3. Prepayment. The undersigned shall have the right, without penalty, to
pre-pay any part or all of the unpaid principal balance due hereunder, in which
event subsequent monthly payments shall be reduced proportionately, or, upon
payment in full of all interest, principal and any other amounts due hereunder,
payments shall terminate. In any event, the entire principal balance, together
with all accrued interest and any accrued costs or attorney's fees, as provided
herein, shall be paid in full on or before October, 2001.
4. Default/Late Charges/Acceleration. In the event any installment payment
due hereunder or any portion thereof is not made within thirty (30) days after
its due date and such default is occasioned by the default of any lessee, then,
to that extent, Debtor shall have sixty (60) days from such due date to
repossess the subject motor vehicle(s), re-lease the same and resume making
monthly installment payments pursuant to the Note. Any installment payment or
any portion thereof not paid within the said sixty-day (60) period shall be
added on to the end of the term covered by the Note and the final due date for
such payment or part thereof, together with any accrued interest thereon shall
be extended by one month for each such installment payment missed.
5. No Waiver. The acceptance of any installment or payment after the
occurrence of a default or event giving rise to the right of acceleration
provided for in the previous paragraph shall not constitute a waiver of such
right of acceleration with respect to any subsequent default or event.
6. Costs of Collection/Attorneys' Fees, etc. In the event any payment due
under this Note is not made, or any obligation provided to be satisfied or
performed under any instrument given to secure payment of the obligations
evidenced hereby is not satisfied or performed, at the time and in the manner
required, the undersigned agrees to pay all costs and expenses (regardless of
the particular nature thereof and whether incurred with or without suit and
before or after judgment) which October be incurred by the holder hereof in
connection with the enforcement of any of his rights under this Note or under
any such other instrument, or any right arising out of the breach thereof,
including but not limited to, reasonable expenses incurred in foreclosing on the
collateral securing payment hereof, court costs, and reasonable attorneys' fees.
<PAGE>
7. Notice. Any notice or demand hereunder shall be deemed to have been
given to and received by the undersigned when personally delivered or when
deposited in the U.S. mail, certified or registered mail, return receipt
requested, postage pre-paid, and addressed to the undersigned at the address set
forth below or at such other address as the undersigned October hereafter
designate in writing to the holder hereof.
This note shall be governed by and construed in accordance with the laws of
the State of Utah.
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
---------------------------
Robert J. Atmore, President
<PAGE>
CERTIFICATE OF DELIVERY
AND RECEIPT OF DOCUMENTS
I, Robert J, Atmore, of/for NEWSTART CENTRE, INC. do hereby certify that on the
9th day of October, 1997 I delivered to Left Coast Advertising, Inc. of 14675
Interurban Ave. South, Seattle, WA 98168 one (1) original and/or one (1) copy of
each of the following documents:
(i) Secured Loan Agreement dated the 9th day of October, 1997, between
NEWSTART CENTRE, INC., as Debtor, and Left Coast Advertising, Inc. as Secured
Party.
(ii) Promissory Note dated the 9th day of October, 1997.
DATED this 9th day of October, 1997.
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
------------------------------
Robert J. Atmore, President
<PAGE>
RECEIPT
The undersigned do hereby acknowledge receipt of each of the documents or
copies thereof listed above and attached to this Certificate.
DATED this 9th day of October, 1997.
Name: Left Coast Advertising, Inc.
By: /s/ Vaughn Tanner Fed EIN# 91-1752154
------------------------------- ----------
Vaughn Tanner
<PAGE>
SECURED LOAN AGREEMENT
THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement") is
made and entered into on this 19th day of August, 1997, by and between NEWSTART
CENTRE, INC., a Utah Corporation with its principal place of business in Salt
Lake County, State of Utah, (hereinafter referred to as "Debtor") and Left Coast
Advertising, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168 (hereinafter
referred to as "Secured Party').
CAPTIONS AND HEADINGS. The captions and headings throughout this Agreement
are for convenience of reference only, and the words contained therein shall in
no way be held or deemed to define, limit, describe, explain, modify, amplify or
add to the interpretation, construction or meaning of any provisions of or the
scope or intent of this Agreement or in any way affect this Agreement.
RECITALS:
A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and
selling motor vehicles to the general public, and
B. WHEREAS, DEBTOR desires to borrow working capital for the purchase of
automobiles to sale or lease, and
C. WHEREAS, Secured Party desires to loan working capital to Debtor,
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto hereby agree as follows:
1. Loan. Secured Party hereby lends to Debtor, receipt of which is hereby
acknowledged, the sum of $ $125,000.00 payable to Debtor in certified funds
concurrent with the execution of this Agreement and the other
documents/instruments referred to below.
2. Loan Documents.
a) Execution and delivery by Debtor. Debtor hereby agrees to execute,
by and through its authorized representatives, and to deliver to Secured Party,
the following instruments/ documents to effect the loan described in paragraph 1
above.
1) Promissory Note dated the 19th day of August, 1997, a copy
of which is attached hereto as Exhibit "A".
2) Certificate of Delivery and Receipt of Documents, a copy of
which is attached hereto as Exhibit "B".
b) Execution and delivery by Secured Party. Secured Party hereby
agrees to execute and deliver to Debtor the Certificate of Delivery and
Receipt of Documents dated the 19th of August, 1997, (Exhibit "B").
3. Grant of Lien. Debtor hereby grants to Secured Party a continuing lien
against each vehicle (hereinafter the "vehicles") purchased with Secured Party's
funds to secure the payment and performance of each and every obligation,
liability and undertaking of Debtor under the loan documents and Debtor hereby
represents and warrants to secured Party that Debtor is or, after acquisition by
Debtor, will be the owner of the vehicles and possesses all requisite power and
authority to execute and deliver this Agreement and to grant to Secured Party a
lien as to all of the vehicles or any replacements thereof.
<PAGE>
4. No Other Security Interests/Liens. No financing statement or lien
covering the vehicles has been given or filed by Debtor with any filing
officer, and the said vehicles are or will be free from any adverse liens,
security interests, claims or encumbrances of any kind.
5. Taxes and Assessments. All taxes, assessments and other governmental
charges including Utah State sales tax, county property tax, and license and
registration fees upon the vehicles will, to the best of Debtor's knowledge,
have been paid and shall continue to be paid as they become due and payable.
6. Substitution of Collateral. Secured Party consents and acknowledges that
Debtor, from time to time, August sell, transfer or assign any or all of the
said vehicles or leases covering the vehicles. Secured Party further agrees to
cooperate with and to execute and deliver to Debtor such additional documents as
August be necessary to sell or otherwise dispose of any of the vehicles provided
Debtor, within a reasonable time, replaces such vehicle(s) with other vehicle(s)
of equal or greater value and lists Secured Party as the sole lien holder on the
titles to any such replacement vehicles.
7. Evidence of Title. Debtor shall, within thirty (30) days after the
receipt thereof, deliver to Secured Party copies of any and all title and/or
registration documents relating to any of the motor vehicles covered by this
Agreement showing Secured Party as the sole lienholder. Debtor shall not further
mortgage, pledge, grant or permit to exist any lien against or security interest
in, or encumbrance on, any of the vehicles without the prior written consent of
Secured Party.
8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at
Debtor's or Lessee's expense, proper insurance coverage on the vehicles covered
by this Agreement upon terms and with limits of coverage reasonably required by
the existing custom and usage in the motor vehicle leasing industry and all
rights, duties and obligations of Debtor and Lessees with respect to insurance
coverage of the vehicles, including, without limitation, payment of premiums,
use of proceeds and disposition of policies shall be as are standard in the auto
leasing industry.
9. Licenses and Permits. Debtor shall keep in effect all licenses, permits
and franchises required by law or contract relating to the vehicles and shall
pay, when due, all fees and other charges pertaining thereto.
10. Miscellaneous.
(a) Entire Agreement. This Agreement, together with all of the
documents/instruments listed herein constitute the entire agreement between the
parties. There are no terms, obligations, covenants, representations,
statements, or conditions between the parties, other than those contained
herein. No variations or modifications of this Agreement or waiver of any of the
terms or provisions hereof shall be deemed valid unless in writing and signed by
both parties.
(b) Grace Period. In the event of a non-monetary default, Debtor shall
have thirty (30) days after receipt of written notice thereof from Secured Party
in which to cure such default.
(c) Amendments. Neither this Agreement nor any provisions hereof August
be changed, waived, discharged or terminated orally and August only be modified
or amended by an instrument in writing, signed by Secured Party and Debtor.
(d) Binding Effect. This Agreement shall be binding upon Debtor and
Debtor's successors and assigns. This Agreement shall inure to the benefit of
Secured Party, and Secured Party's heirs, personal representatives, successors
and assigns.
(e) Notices. Except as otherwise provided herein, all notices and other
communications under this Agreement shall be in writing and shall be deemed
given when delivered or, if mailed, then when mailed, if mailed by registered or
certified mail, postage prepaid, addressed as follows:
<PAGE>
If to Secured Party, to: If to Debtor, to:
Left Coast Advertising, Inc. Newstart Centre, Inc.
c/o 14675 Interurban Ave. South 5200 South State Street
Seattle, WA 98168 Murray, Utah 84107
Such addresses August be changed by notice to the other parties given in the
same manner as above provided. Any notice given hereunder shall be deemed given
as of the date delivered or mailed.
(f) Severability. If any term or provision of this Agreement shall, to any
extent, be determined by a court of competent jurisdiction to be void, voidable
or unenforceable, such void, voidable or unenforceable term or provision shall
not affect any other term or provision of this Agreement.
(g) Governing Law. This Agreement and all matters relating hereto shall be
governed by, construed and interpreted in accordance with the laws of the State
of Utah, County of Salt Lake.
(h) Termination. This Agreement shall terminate upon the full and complete
performance and satisfaction by Debtor of all of its obligations to Secured
Party under this Agreement or any other instrument referred to herein requiring
performance by Debtor.
IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured
Loan Agreement effective as of the date first above written.
DEBTOR:
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
--------------------------------
Robert J. Atmore, President
SECURED PARTY:
Left Coast Advertising, Inc.
By /s/ Vaughn Tanner
--------------------------------
Vaughn Tanner
<PAGE>
PROMISSORY NOTE
(Secured)
$ $125,000.00 Date: August 19,1997
FOR VALUE RECEIVED the undersigned hereby promise to pay to Left Coast
Advertising, Inc. at 14675 Interurban Ave. South, Seattle, WA 98168 or at such
other place as the holder hereof August designate in writing, the principal sum
of One Hundred Twenty Five Thousand dollars and no/100 ($ $125,000.00 ), payable
in forty-eight (48) consecutive equal monthly payments, including interest as
provided below, of ($3.606.88 ) each, commencing with the first payment on the
3rd day of October, 1997, and continuing with a like payment on the 3rd day of
each and every consecutive month thereafter until the entire remaining unpaid
principal balance has been paid in full, subject to the following additional
terms and conditions:
1. Interest. Interest shall accrue on the unpaid principal balance at the
simple rate of Seventeen percent (17.00%) per annum.
2. Application of Payments. Payments shall be applied first toward the
payment and satisfaction of accrued and unpaid interest, if any, and the
remainder shall be applied toward the reduction of principal. Principal and
interest shall be payable only in lawful money of the United States of America.
3. Prepayment. The undersigned shall have the right, without penalty, to
pre-pay any part or all of the unpaid principal balance due hereunder, in which
event subsequent monthly payments shall be reduced proportionately, or, upon
payment in full of all interest, principal and any other amounts due hereunder,
payments shall terminate. In any event, the entire principal balance, together
with all accrued interest and any accrued costs or attorney's fees, as provided
herein, shall be paid in full on or before August, 2001.
4. Default/Late Charges/Acceleration. In the event any installment payment
due hereunder or any portion thereof is not made within thirty (30) days after
its due date and such default is occasioned by the default of any lessee, then,
to that extent, Debtor shall have sixty (60) days from such due date to
repossess the subject motor vehicle(s), re-lease the same and resume making
monthly installment payments pursuant to the Note. Any installment payment or
any portion thereof not paid within the said sixty-day (60) period shall be
added on to the end of the term covered by the Note and the final due date for
such payment or part thereof, together with any accrued interest thereon shall
be extended by one month for each such installment payment missed.
5. No Waiver. The acceptance of any installment or payment after the
occurrence of a default or event giving rise to the right of acceleration
provided for in the previous paragraph shall not constitute a waiver of such
right of acceleration with respect to any subsequent default or event.
6. Costs of Collection/Attorneys' Fees, etc. In the event any payment due
under this Note is not made, or any obligation provided to be satisfied or
performed under any instrument given to secure payment of the obligations
evidenced hereby is not satisfied or performed, at the time and in the manner
required, the undersigned agrees to pay all costs and expenses (regardless of
the particular nature thereof and whether incurred with or without suit and
before or after judgment) which August be incurred by the holder hereof in
connection with the enforcement of any of his rights under this Note or under
any such other instrument, or any right arising out of the breach thereof,
including but not limited to, reasonable expenses incurred in foreclosing on the
collateral securing payment hereof, court costs, and reasonable attorneys" fees.
<PAGE>
7. Notice. Any notice or demand hereunder shall be deemed to have been
given to and received by the undersigned when personally delivered or when
deposited in the U.S. mail, certified or registered mail, return receipt
requested, postage pre-paid, and addressed to the undersigned at the address set
forth below or at such other address as the undersigned August hereafter
designate in writing to the holder hereof.
This note shall be governed by and construed in accordance with the laws of
the State of Utah.
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
--------------------------------
Robert J. Atmore, President
<PAGE>
CERTIFICATE OF DELIVERY
AND RECEIPT OF DOCUMENTS
I, Robert J, Atmore, of/for NEWSTART CENTRE, INC. do hereby certify that on the
19th day of August, 1997 I delivered to Left Coast Advertising, Inc. of 14675
Interurban Ave. South, Seattle, WA 98168 one (1) original and/or one (1) copy of
each of the following documents:
(i) Secured Loan Agreement dated the 19th day of August, 1997, between
NEWSTART CENTRE, INC., as Debtor, and Left Coast Advertising, Inc. as Secured
Party.
(ii) Promissory Note dated the 19th day of August, 1997.
DATED this 19th day of August, 1997.
NEWSTART CENTRE, INC.
By /s/ Robert J. Atmore
--------------------------------
Robert J. Atmore, President
<PAGE>
RECEIPT
The undersigned do hereby acknowledge receipt of each of the documents or
copies thereof listed above and attached to this Certificate.
DATED this 19th day of August, 1997.
Name: Left Coast Advertising, Inc.
By: /s/ Vaughn Tanner Fed EIN# 91-1752154
---------------------------------- ----------
Vaughn Tanner
<PAGE>
SHARE EXCHANGE AGREEMENT
THIS AGREEMENT (the "Agreement" and/or the "Share Exchange") is entered
into as of August 15, 1997, between Profit Financial Corporation ("Profit"),
a Utah corporation and Gold Leaf Press, Inc., a Nevada corporation ("Gold
Leaf").
REPRESENTATIONS
A. Profit is a corporation organized and existing under the laws of the
State of Nevada.
B. The authorized capital stock of Profit consists of 25,000,000 shares
divided into 20,000,000 shares of common stock, pare value $0.01, of which
approximately 6,715,031 shares are duly issued and outstanding on the date
hereof and 5,000,000 shares of preferred stock, par value $10.00, none of
which are issued and outstanding.
C. Gold Leaf is a corporation organized and existing under the laws of
the State of Nevada.
D. The authorized capital stock of Gold Leaf consists of 25,000 shares
of common voting stock. As of the date hereof, 25,000 shares of common stock
in Gold Leaf have been duly issued and outstanding.
E. Profit and Gold Leaf enter into this Agreement whereby Profit will
acquire all of the issued and outstanding stock of Gold Leaf by issuing 7,692
shares of common stock of Profit to the shareholders of Gold Leaf in exchange
for shares of common stock of Gold Leaf held by them at an exchange rate of
.30768 shares of Profit for each one share of Gold Leaf held. Profit and Gold
Leaf intend the exchange to qualify as a tax-free reorganization under
Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended.
AGREEMENT
In consideration of the foregoing recitals, the covenants and conditions
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Share Exchange, Effectiveness
The shareholders of shares of common stock of Gold Leaf shall exchange
their shares for newly issued shares of common stock of Profit in accordance
with the terms and conditions of this Agreement. Upon the execution of this
Agreement by Gold Leaf and Profit, the date for the effectiveness of this
Agreement (the "Effective Time of the Share Exchange") shall be August 15,
1997.
<PAGE>
2. Exchange of Shares
At the Effective Time of the Share Exchange;
(a) Each shareholder of Gold Leaf shall be issued .30768 share(s) of
fully paid and nonassessable common stock of Profit for each share of Gold
Leaf stock they own. Each shareholder of Gold Leaf shall sign an investment
letter pursuant to Rule 144, substantially in the form attached hereto as
Exhibit A, upon receiving Profit shares.
(b) All shares of common stock of Gold Leaf that are tendered to Profit
shall be retained by Profit and Gold Leaf shall become a wholly owned
subsidiary of Profit.
3. Implementation
Each of Profit and Gold Leaf shall take, or cause to be taken, all action
or do, or cause to be done, all things necessary, proper or advisable under
the laws of the State of Utah to consummate and make effective the Share
Exchange.
4. Amendment
This Agreement may, to the extent permitted by law, be amended,
supplemented or interpreted at any time by action taken by the Board of
Directors of both Gold Leaf and Profit; provided, however, that this
Agreement may not be amended or supplemented after having been approved by
the shareholders of Gold Leaf except by a vote or consent of shareholders in
accordance with applicable law.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this AGREEMENT as of the date first set forth above.
PROFIT FINANCIAL CORPORATION GOLD LEAF PRESS, INC.
/s/ Illegible /s/ Curtis A. Taylor
- ---------------------------------- --------------------------------------
By: By: Curtis A. Taylor
Its: Its: President
2
<PAGE>
EXHIBIT A
Profit Financial Corporation
14675 Interurban Avenue South
Seattle, WA 98168-4664
Gentlemen:
This acknowledges receipt of Three Thousand, Eight Hundred Forty-Six
(3,846) shares of common stock of Profit Financial Corporation, a Utah
corporation (the "Corporation"). In connection with my acquisition of these
securities, I understand as follows:
The undersigned represents that he or she has the business or financial
experience necessary to have the capacity to protect his or her own interests
in connection with the proposed transaction.
These securities are not registered under the Securities Act of 1933 (the
"Act") as the transaction in which they are being acquired is exempt under
Section 4(2) of the Act as not involving any public offering. Reliance of the
Corporation and others upon this exemption is predicted in part upon my
representation (which I hereby confirm) that I am acquiring these securities
for my own account with no present intention of selling or otherwise
distributing the same to the public. I understand that in the view of the
Securities and Exchange Commission (the "SEC") the statutory and
administrative basis for exemption would not be present if, notwithstanding
my representation, I have in mind merely acquiring these securities for a
market rise, or for sale if the market does not rise, or for a fixed or
determinable period in the future.
These securities must be held by me indefinitely unless they are
subsequently registered under the Act or an exemption from registration is
available. Any routine sales of these securities made in reliance upon the
exemption afforded by Rule 144 of the SEC can be made only in limited amounts
in accordance with the terms and conditions of that rule, and, in the event
this rule is for some reason inapplicable, compliance with some other
registration exemption will be required. The Corporation will supply to me
such information in its possession as may be necessary to enable me to make
routine sales of the securities under Rule 144, if that Rule is available.
However, the Corporation is under no obligation to otherwise comply with any
other exemption, or to register the securities received by the undersigned.
In accordance with the policies of the SEC, the Corporation is placing
the following or substantially similar legend upon the certificates
representing the securities and is placing upon the Corporation's stock
transfer records a stop-transfer order preventing transfer of the securities
pending compliance with the conditions set forth in the legend:
<PAGE>
These securities are not registered under state or federal
securities laws and may not be offered or sold, pledged
(except a pledge pursuant to the terms of which any offer or
sale upon foreclosure would be made in a manner that would
not violate the registration provisions of federal or state
securities laws) or otherwise distributed for value, nor may
these securities be transferred on the books of the
Corporation, without opinion of counsel, concurred in by
counsel for the Corporation, that no violation of said
registration provisions would result therefrom.
I HAVE CAREFULLY READ THE FOREGOING AND UNDERSTAND THAT IT RELATES TO
RESTRICTIONS UPON MY ABILITY TO SELL AND/OR TRANSFER MY SECURITIES.
DATED: August 15, 1997 /s/ Curtis A. Taylor
-- --------------------------------------
Curtis A. Taylor
3087 Camino Court
Camino, CA 95709
2
<PAGE>
Profit Financial Corporation
14675 Interurban Avenue South
Seattle, WA 98168-4664
Gentlemen:
This acknowledges receipt of Three Thousand, Eight Hundred Forty-Six
(3,846) shares of common stock of Profit Financial Corporation, a Utah
corporation (the "Corporation"). In connection with my acquisition of these
securities, I understand as follows:
The undersigned represents that he or she has the business or financial
experience necessary to have the capacity to protect his or her own interests
in connection with the proposed transaction.
These securities are not registered under the Securities Act of 1933 (the
"Act") as the transaction in which they are being acquired is exempt under
Section 4(2) of the Act as not involving any public offering. Reliance of the
Corporation and other upon this exemption is predicted in part upon my
representation (which I hereby confirm) that I am acquiring these securities
for my own account with no present intention of selling or otherwise
distributing the same to the public. I understand that in the view of the
Securities and Exchange Commission (the "SEC") the statutory and
administrative basis for exemption would not be present if, notwithstanding
my representation, I have in mind merely acquiring these securities for a
market rise, or for sale if the market does not rise, or for a fixed or
determinable period in the future.
These securities must be held by me indefinitely unless that are
substantially registered under the Act or an exemption from registration is
available. Any routine sales of these securities made in reliance upon the
exemption afforded by Rule 144 of the SEC can be made only in limited amounts
in accordance with the terms and conditions of that rule, and, in the event
this rule is for some reason inapplicable, compliance with some other
registration exemption will be required. The Corporation will supply to me
such information in its possession as may be necessary to enable me to make
routine sales of the securities under Rule 144, if that Rule is available.
However, the Corporation is under no obligation to otherwise comply with any
other exemption, or to register the securities received by the undersigned.
In accordance with the policies of the SEC, the Corporation is placing
the following or substantially similar legend upon the certificates
representing the securities and is placing upon the Corporation's stock
transfer records a stop-transfer order preventing transfer of the securities
pending compliance with the condition set forth in the legend:
<PAGE>
Name
September 19, 1997
Page 2
- ------------------------
These securities are not registered under state or federal
securities laws and may not be offered or sold, pledged
(except a pledge pursuant to the terms of which any offer or
sale upon foreclosure would be made in a manner that would
not violate the registration provisions of federal or state
securities laws) or otherwise distributed for value, nor may
these securities be transferred on the books of the
Corporation, without opinion of counsel, concurred in by
counsel for the Corporation, that no violation of said
registration provisions would result therefrom.
I HAVE CAREFULLY READ THE FOREGOING AND UNDERSTAND THAT IT RELATES TO
RESTRICTIONS UPON MY ABILITY TO SELL AND/OR TRANSFER MY SECURITIES.
DATED: August 15, 1997 /s/ Stanley J. Zenk
-- --------------------------------------
Stanley J. Zenk
Mr. Stanley J. Zenk
5421 Buck Mountain Road
Placerville, CA 95667
2
<PAGE>
SHARE EXCHANGE AGREEMENT
THIS AGREEMENT (the "Agreement" and/or the "Share Exchange") is entered
into as of August 15, 1997, between Profit Financial Corporation ("Profit"),
a Utah corporation and Origin Book Sales, Inc., a Utah corporation ("Origin").
REPRESENTATIONS
A. Profit is a corporation organized and existing under the laws of the
State of Utah.
B. The authorized capital stock of Profit consists of 25,000,000 shares
divided into 20,000,000 shares of common stock, par value $0.01, of which
approximately 6,715,031 shares are duly issued and outstanding on the date
hereof and 5,000,000 shares of preferred stock, par value $10.00, none of
which are issued and outstanding.
C. Origin is a corporation organized and existing under the laws of
the State of Utah.
D. The authorized capital stock of Origin consists of 1,000,000 shares
of common voting stock. As of the date hereof, 97,867 shares of common stock
in Origin have been duly issued and outstanding.
E. Profit and Origin enter into this Agreement whereby Profit will
acquire all of the issued and outstanding stock of Origin by issuing 30,269
shares of common stock of Profit to the shareholders of Origin in exchange
for shares of common stock of Origin held by them at an exchange rate of
.309287 shares of Profit for each one share of Origin held. Profit and Origin
intend the exchange to qualify as a tax-free reorganization under
Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended.
AGREEMENT
In consideration of the foregoing recitals, the covenants and conditions
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Share Exchange, Effectiveness
The shareholders of shares of common stock of Origin shall exchange
their shares for newly issued shares of common stock of Profit in accordance
with the terms and conditions of this Agreement. Upon the execution of this
Agreement by Origin and Profit, the date for the effectiveness of this
Agreement (the "Effective Time of the Share Exchange") shall be the date at
which Origin shareholders owning 100% of the Origin share tender their shares
to Profit.
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2. Exchange of Shares
At the Effective Time of the Share Exchange;
(a) Each shareholder of Origin shall be issued .309287 share(s) of
fully paid and nonassessable common stock of Profit for each share of Origin
stock they own. Each shareholder of Origin shall sign an investment letter
pursuant to Rule 144, substantially in the form attached hereto as
Exhibit A, upon receiving Profit shares.
(b) All shares of common stock of Origin that are tendered to Profit
shall be retained by Profit and Origin shall become a wholly owned
subsidiary of Profit. Origin shall issue a stock certificate to Profit for
97,867 common shares of Origin, which amount constitutes all of the issued
and outstanding shares of the Corporation.
3. Implementation
Each of Profit and Origin shall take, or cause to be taken, all action
or do, or cause to be done, all things necessary, proper or advisable under
the laws of the State of Utah to consummate and make effective the Share
Exchange.
4. Amendment
This Agreement may, to the extent permitted by law, be amended,
supplemented or interpreted at any time by action taken by the Board of
Directors of both Origin and Profit; provided, however, that this
Agreement may not be amended or supplemented after having been approved by
the shareholders of Origin except by a vote or consent of shareholders in
accordance with applicable law.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this AGREEMENT as of the date first set forth above.
PROFIT FINANCIAL CORPORATION ORIGIN BOOK SALES, INCORPORATED
/s/ Michael S. Hurst
- ---------------------------------- --------------------------------------
By: By: Michael S. Hurst
Its: Its: President
2
<PAGE>
EXHIBIT A
Profit Financial Corporation
14675 Interurban Avenue South
Seattle, WA 98168-4664
Gentlemen:
This acknowledges receipt of ________________________________ ( )
shares of common stock of Profit Financial Corporation, a Utah corporation
(the "Corporation"). In connection with my acquisition of these securities, I
understand as follows:
The undersigned represents that he or she has the business or financial
experience necessary to have the capacity to protect his or her own interests
in connection with the proposed transaction.
These securities are not registered under the Securities Act of 1933 (the
"Act") as the transaction in which they are being acquired is exempt under
Section 4(2) of the Act as not involving any public offering. Reliance of the
Corporation and others upon this exemption is predicted in part upon my
representation (which I hereby confirm) that I am acquiring these securities
for my own account with no present intention of selling or otherwise
distributing the same to the public. I understand that in the view of the
Securities and Exchange Commission (the "SEC") the statutory and
administrative basis for exemption would not be present if, notwithstanding
my representation, I have in mind merely acquiring these securities for a
market rise, or for sale if the market does not rise, or for a fixed or
determinable period in the future.
These securities must be held by me indefinitely unless they are
subsequently registered under the Act or an exemption from registration is
available. Any routine sales of these securities made in reliance upon the
exemption afforded by Rule 144 of the SEC can be made only in limited amounts
in accordance with the terms and conditions of that rule, and, in the event
this rule is for some reason inapplicable, compliance with some other
registration exemption will be required. The Corporation will supply to me
such information in its possession as may be necessary to enable me to make
routine sales of the securities under Rule 144, if that Rule is available.
However, the Corporation is under no obligation to otherwise comply with any
other exemption, or to register the securities received by the undersigned.
In accordance with the policies of the SEC, the Corporation is placing
the following or substantially similar legend upon the certificates
representing the securities and is placing upon the Corporation's stock
transfer records a stop-transfer order preventing transfer of the securities
pending compliance with the conditions set forth in the legend:
These securities are not registered under state or federal
securities laws and may not be offered or sold, pledged
(except
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a pledge pursuant to the terms of which any offer or sale
upon foreclosure would be made in a manner that would not
violate the registration provisions of federal or state
securities laws) or otherwise distributed for value, nor may
these securities be transferred on the books of the
Corporation, without opinion of counsel, concurred in by
counsel for the Corporation, that no violation of said
registration provisions would result therefrom.
I HAVE CAREFULLY READ THE FOREGOING AND UNDERSTAND THAT IT RELATES TO
RESTRICTIONS UPON MY ABILITY TO SELL AND/OR TRANSFER MY SECURITIES.
DATED: August , 1997
-- --------------------------------------
[NAME]
[ADDRESS]
2
<PAGE>
RELEASE OF PLEDGE OF SHARES OF STOCK
On August 8, 1997, Origin Book Sales, Inc. issued two promissory notes to
Profit Financial Corporation. These notes were for the principle amounts of
$100,000 and $3,250 respectively.
Also, on August 8, 1997, Curtis Taylor pledged approximately 31% of his
shares of stock in Origin Book Sales, Incorporated as collateral for the
above mentioned notes.
Since August 8, 1997, Profit Financial Corporation has entered into a
Share Exchange Agreement whereby it has obtained all of the outstanding
shares of Origin Book Sales, Incorporated. Accordingly, Profit Financial
Corporation hereby releases the collateral previously pledged by Mr. Taylor
and terminates the Pledge of Shares of Stock Agreement executed by Mr. Curtis
Taylor on August 8, 1997.
FINANCIAL PROFIT CORPORATION
--------------------------------------
Its:
<PAGE>
Purchase Order Form
1. Identification of Parties From: Profit Financial Corporation, soon to be
known as Wade Cook Financial Corporation with principal offices at 14675
Interurban Avenue South, Seattle, Washington, 98168, (Buyer). To: Applied
Voice Recognition, Inc., with principal offices at 4615 Post Oak Place,
Suite 111, Houston, Texas, 77027, (Seller).
2. Purchase. Please enter our purchase order for goods of the following
description and quantity:
10,000 units of a private label automated speech recognition system
with continuous speech recognition integrated with IBM via voice or
equivalent and a self-contained contact manager developed by Seller.
Featuring:
* write a letter
* do a fax
* office memo
* new document
* calculator
3. Purchase Price. The purchase price of the goods, in accordance with your
quotation, is $60.00 per unit for a total of six hundred thousand dollars
($600,000.00) and is not subject to change.
4. Marketing: The cover design, product name, and other marketing designs
for the private label will be approved by WADE and/or its affiliates or
authorized agent.
5. Delivery Instructions. The goods will be shipped to Buyer's warehouse at
Shipping Department, 4479 South 134th Place, Seattle, Washington,
98168-6204, FOB Houston. The first shipment of 2,000 units will be
delivered on or before November 15, 1997, the remaining 8,000 units will
be delivered within 30 days of request by Buyer in a minimum of 2,000
unit increments.
6. Payment. The purchase price of the goods is to be $120,000 paid in
advance with the remainder of the balance to be pre-paid as additional
units are requested by Buyer.
7. Training Expenses. WADE will pay expenses for AVRI to come to Seattle and
provide training to a group of up to 40 WADE employees and/or speakers.
8. Trainer. AVRI will train a designated trainer of the product at their
headquarters.
<PAGE>
9. Arbitration. All disputes, claims, and/or requests for specific
contractual performance, or other equitable relief, or damages or any
other matters in question between the parties arising out of this
Agreement shall be submitted for arbitration, solely. Demand shall be
made to the American Arbitration Association and shall be conducted in
Houston, Texas by a one person arbitrator, unless the parties mutually
agree otherwise. Arbitration shall be in accordance with the commercial
rules of the American Arbitration Association. The award of the
Arbitrator shall be final and judgment may be entered upon it in any court
having jurisdiction thereof, and the prevailing party shall be entitled
to costs and reasonable attorney's fees arising out of such arbitration.
10. Acceptance. A copy of this order must be signed by Seller under the word
"Accepted" and returned immediately to Buyer.
11. Contract Complete. Only the terms and conditions set out in this Purchase
Order shall constitute the agreement between Buyer and Seller. Seller may
make no modification in those terms and conditions.
Dated: September 12, 1997
Profit Financial Corporation
/s/ Wade B. Cook, President
- ---------------------------------
By: Wade B. Cook, President
Accepted:
Applied Voice Recognition, Inc.
/s/ Timothy J. Connolly
- ---------------------------------
By: Timothy J. Connolly, Chairman and CEO
