UNITED STATES
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, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission file number 000-29342
WADE COOK FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 91-1772094
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
14675 Interurban Avenue South
Seattle, Washington 98168
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 901-3000
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed 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 herein, and will not be contained, to the
best of the 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. _______
Aggregate market value of the Registrant's Common Stock held by non-affiliates
as of February 12, 1999 was approximately $13,337,888. The number of shares of
the Registrant's Common Shares outstanding as of December 31, 1998 was
64,383,730.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference to Part
III of this Form 10-K: (1) Proxy Statement to be filed for registrant's 1998
Annual Meeting of Stockholders.
Exhibit Index Appears at Page 27
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Note Regarding Forward Looking Information
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act") and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Any
statements that express or involve discussions with respect to predictions,
expectations, beliefs, plans, objectives, assumptions or future events or
performance (often, but not always, using words and phrases such as "expects,"
"believe," "believes," "plans," "anticipate," "anticipates," "is anticipated,"
or stating that certain actions, events or results "will," "may," "should," or
"can" be taken, occur or be achieved) are not statements of historical fact and
may be "forward-looking statements." Forward-looking statements are based on
expectations, estimates and projections of the Company's management at the time
the statements are made that involve a number of risks and uncertainties which
could cause actual results or events to differ materially from those anticipated
by the Company. Such risks and uncertainties include, but are not limited to,
the Company's working capital deficiency and liquidity constraints, the effect
that volatility in the stock market may have on the interest of customers in the
Company's seminars, products and services and on the Company's own investments,
the Company's ability to manage its growth and to integrate recent acquisitions,
fluctuations in the commercial real estate market, risks of the hotel business
and failure of recently acquired hotel properties to perform as expected, the
control of the management of the Company by Wade B. Cook, the Company's CEO, the
possibility of adverse outcomes in pending or threatened litigation and
regulatory investigations and actions involving the Company, consequences
associated with the Company's policy of committing available cash to additional
investments, lack of liquidity in the Company's investments and other risks and
uncertainties discussed herein and those detailed in the Company's other
Securities and Exchange Commission filings. Investors are cautioned not to place
undue reliance on forward-looking statements, which reflect management's
analysis, estimates and opinions as of the date hereof. The Company undertakes
no obligation to update forward-looking statements if circumstances, or
management's analysis, estimates or opinions should change. For the convenience
of the reader, the Company has attempted to identify forward-looking statements
contained in this report with an asterisk (*). However, the omission of an
asterisk should not be presumed to mean that a statement is not a
forward-looking statement within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act.
Item 1. Business
Overview
Wade Cook Financial Corporation (formerly known as Profit Financial Corp.) is a
Nevada holding company. Unless the context otherwise requires, the terms "WCFC"
and "the Company" refer to Wade Cook Financial Corporation and its consolidated
subsidiaries. Prior to December 1997, the Company was incorporated in the state
of Utah. The Company's most significant subsidiary is Wade Cook Seminars, Inc.
("WCSI") through which the Company conducts educational business seminars,
produces and sells video and audio tapes and distributes books and other written
materials focusing on financial and personal wealth creation strategies. In
addition, the Company has several publishing subsidiaries that publish books and
other written materials relating to personal finance, inspirational themes and
other topics. The Company also provides subscription Internet access and paging
services and maintains an investment information network on the Internet. The
Company owns interests in hotels and holds interests in marketable securities,
real estate, gold, oil and gas, and other venture capital partnerships and
private companies. The Company's principal executive offices are located at
14675 Interurban Avenue South, Seattle, Washington 98168-4664, and its telephone
number at that address is (206) 901-3000.
Acquisition of Wade Cook Seminars, Inc. In 1995, the Company acquired all the
issued and outstanding capital stock of WCSI (formerly known as United Support
Association, Inc.), a corporation controlled by Wade B. Cook, in exchange for a
controlling interest in the Company. The transaction was accounted for as a
reverse acquisition. As a result, the Company became the parent company of WCSI
and the historical financial results of WCSI became the historical financial
results of the Company.
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Other Acquisitions.
In August 1997, the Company acquired Worldwide Publishers, Inc. ("Worldwide"), a
publisher of inspirational and childrens' books, Origin Book Sales, Inc.
("Origin"), a seller of books, audio cassettes, art and software and the
exclusive distributor for Worldwide ("Worldwide"); Gold Leaf Press, Inc. ("Gold
Leaf"), a publisher of fiction and non-fiction books; and Ideal Travel Concepts,
Inc. ("Ideal"), a provider of travel related services and travel agent training.
The aggregate consideration in these acquisitions consisted of a cancellation of
$275,000 in indebtedness to the Company and 423,294 shares of the Company's
common stock.
Also in August 1997, the Company acquired an aggregate of 769,231 shares
(approximately 5.1%) of the common stock of Interjet Net Corporation, a
wireless, high speed Internet access provider, for a total purchase price of
$1,500,000.
In January 1998, the Company acquired Quantum Marketing, Inc. ("Quantum"), a
corporation that provides local marketing of WCSI products and services. The
Company acquired all the issued and outstanding capital stock of Quantum in
exchange for 45,000 shares of the Company's common stock for a deemed purchase
price of $189,000.
In January 1998, the Company was assigned all interests in Information Quest,
Inc. ("IQ"), a corporation that markets a paging service that provides
subscribers with up to date stock market and financial information. The Company
received all the issued and outstanding capital stock of IQ in exchange for
45,000 shares of the Company's common stock for a deemed purchase price of
$188,000.
During 1998, the Company acquired majority interests in several hotel properties
located in the western United States in exchange for cash, and in some cases, in
exchange for relinquishing or reducing certain interests in other properties.
See "Business - Hotels and Commercial Real Estate." Reference is made to Notes
Q, R and S of the Notes to Financial Statements included in Item 14 of this
report for further information concerning the above acquisitions.
In August 1998, the Company acquired a fifty percent (50%) interest in Standard
American Oil Company for a total purchase price of $750,000. Standard is engaged
in the business of developing and marketing asphalt patching products.
In addition, during 1998, the Company made minority investments in two oil
wells.
Sale of Entity Planners, Inc.
In June 1998, the Company, through WCSI entered into a Stock Purchase/Licensing
Agreement pursuant to which it divested its interest in Entity Planners, Inc.
("EPI") in exchange for $250,000. EPI has a licensing agreement with the Company
pursuant to which the Company is entitled to receive up to an aggregate of
$17,470,000 in licensing fees through the year 2003.
Strategy
The Company provides financial education and information to the growing number
of individual investors in the U.S. According to the United States Federal
Reserve, the value of household corporate equities holdings has increased from
$903 billion in 1980 to $4.78 trillion in 1996. The Company believes this is due
both to population increases within the United States and to the recent growth
in the market value of corporate securities. The Company has positioned itself
to benefit from these trends.
The majority of the Company's programs, products and services are based on the
financial and investment strategies of its founder, Wade B. Cook. Mr. Cook has
developed these programs and products based on his belief that people want to
learn how to: (a) increase their wealth by increasing their cash flow; (b)
minimize their federal and state income taxes; (c) use entities, such as Nevada
corporations, family limited partnerships, living trusts, qualified pensions,
and charitable remainder trusts, to protect their assets; (d)
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retire with sufficient income from their assets to maintain a comfortable
standard of living; and (e) pass on their accumulated wealth and assets to their
loved ones without the complexities of probate.
The Company will seek to expand market share for its existing products and
services and to create new products and services that complement and extend
existing lines, while diversifying its business.* The Company also will seek to
improve its bottom line by reducing overhead, using existing distribution
channels and enhancing customer service.* In order to accomplish these
objectives, the Company has initiated a strategic plan consisting of the
following elements:
o Making strategic acquisitions and divestitures to extend product lines
that complement the Company's core business of financial education;
o Developing new products and services;
o Acquiring licenses for additional books, audio tapes, seminars, video
tapes and other intellectual property from Mr. Cook and others in
order to expand the scope of financial education available to
customers of the Company;
o Diversifying the authors and seminar leaders promoted by the Company
in order to offer students a choice of investment strategies, styles
and philosophies; and
o Making more efficient use of administrative resources.*
The Company intends to expand its core business of marketing and presenting
financial education seminars.* The Company has also recently begun providing
subscription Internet access and pager services. The Company believes that these
businesses provide good opportunities for growth and complement the Company's
core business of financial education.*
In 1997 and 1998, with the view to diversifying its asset base, the Company
acquired interests in several hotel properties in the western United States. The
Company believes that these properties lend stability to its business while
offering potential for long-term growth.
Business Segments and Principal Subsidiaries
The Company's core business is financial education, which it conducts through
its seminar and publishing concerns. This core business is complemented by
bookstores and education centers that focus on financial education, a pager
service that provides up-to-date financial information and a subscription-based
web site, the Wealth Information Network ("WIN"), that provides additional
information about the strategies taught in the Company's seminars and
publications.
The following table shows, for the years ended 1998, 1997 and 1996, the
percentage of revenues derived from each business segment in which the Company
operates:
Business Segment 1998 1997 1996
---------------- ---- ---- ----
Seminars 65% 65% 64%
Product Sales (1) 18% 31% 36%
Travel Services 5% 4% -
Hotels (2) 3% - -
Pager Services (2) 8% - -
Other (2) (3) 1% - -
- - ---------------
(1) Includes WIN
(2) Represents revenues of a business segment of the Company acquired in 1998.
(3) Consists principally of sales from retail bookstores
The Company's principal subsidiaries are engaged in the following activities:
o Financial education seminars;
o Publishing;
o Retail;
o Commercial real estate;
o Various non-real estate investments; and
o Support services.
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At December 31, 1998, the Company's wholly-owned subsidiaries were:
<TABLE>
State of
Corporate Name (1) Principal Business Incorporation
- - ------------------ ------------------ -------------
<S> <C> <C>
Wade Cook Seminars, Inc. Financial Education Seminars Nevada
Lighthouse Publishing Group, Inc. Publishing Nevada
Left Coast Advertising, Inc. Support Services Nevada
Bountiful Investment Group, Inc. Commercial Real Estate Nevada
Ideal Travel Concepts, Inc. Support Services Nevada
Origin Book Sales, Inc. Publishing Utah
Worldwide Publishers, Inc. Publishing Utah
Gold Leaf Press, Inc. Publishing Nevada
Get Ahead Bookstores, Inc. Retail (bookstores) Nevada
Quantum Marketing, Inc. (2) Support Services Nevada
Information Quest, Inc. Retail (pagers) Nevada
American Newsletter Co., Inc. (2) Publishing Nevada
Unlimited Potential, Inc. (2) Commercial Real Estate Nevada
Hotel Associates Management #1, Inc. (2) Commercial Real Estate Nevada
American Publisher's Network, Inc. (2) Publishing Nevada
Forward Thinking Group, Inc. (2) Retail Sales Nevada
Money Works, Inc. (2) Support Services Nevada
Entity Planners International, Inc. (2) Commercial Real Estate Nevada
Wade Cook Financial Education Center, Inc. Retail (education centers) Nevada
Winvest Centers, Inc. (2) Retail Sales Nevada
Wade Cook Financial Education Network (2) Publishing Nevada
Semper Financial Corporation (2) Financial Education Seminars Nevada
</TABLE>
(1) Information in the table does not include entities in which the Company
owns a partial interest. These entities are:
(a) Airport Lodging Associates, L.L.C., a limited liability company in
which WCSI is a 25% member;
(b) Evergreen Lodging L.P., a limited partnership in which WCSI owns a 65%
limited partnership interest and in which an affiliate Wade B. Cook is
General Partner;
(c) FSS L.P., a limited partnership in which Unlimited Potential, Inc. has
a 2% interest and is the General Partner;
(d) Interurban Land Project L.P., a limited partnership in which Entity
Planners International, Inc. has 100% interest and is General Partner;
(e) Reno F.I.S., L.P., a limited partnership in which Unlimited Potential
Inc. has a 2% limited partnership interest and is the General Partner,
and in which Hotel Associate Management #1, Inc. is a 50% owner and a
limited partner;
(f) Rising Tide L.P., a limited partnership, in which Entity Planners
International, Inc. has a 1% interest and is the General Partner and
in which Bountiful Investment Group, Inc. has a 99% limited
partnership interest;
(g) Seattle-Tacoma Executive Properties, L.P., a limited partnership in
which Entity Planners International, Inc. owns a 100% interest and is
the General Partner; and
(h) Sherlock Home Builders, L.P., a limited partnership in which Entity
Planners International, Inc. own a 100% interest and is the General
Partner and which owns the building that serves as the Company's
principal office.
(2) No financial activity in 1998, although activities were carried out in the
names of certain of these corporations by WCSI or other WCFC entities.
Financial Education Seminar Businesses
Wade Cook Seminars, Inc.
Wade Cook Seminars, Inc. creates, designs, produces, owns, markets and sponsors
a variety of seminars, clinics, and workshops focused on educating customers on
various financial techniques and strategies. WCSI also produces and sells audio
tapes and video tapes and distributes books and other materials designed to
reinforce and complement the ideas taught in the educational seminars.
In 1998, WCSI conducted 3,737 seminars in over 379 cities across the United
States. The subject matter of these events generally falls into four basic
categories:
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o stock market investment strategies;
o real estate investment strategies;
o options investment strategies; and
o general investment strategies.
The stock market investment strategy seminars include the following:
o The Financial Clinic is a three-hour seminar explaining the financial
education products and services offered by WCSI and providing an
introduction to strategies for investing in the stock market. The
typical attendance fee for the seminar ranges from $22 to $33.
o The Wall Street Workshop ("WSWS") is a two-day seminar which teaches
investors the strategies set forth in Mr. Cook's books, "Wall Street
Money Machine" and "Stock Market Miracles." WSWS students are taught
basic stock market terminology, strategies for choosing brokerage
firms and traditional stock market strategies. The workshop features
instruction, demonstration of strategies and extensive practice
through "paper trades." The typical attendance fee for the seminar
ranges from $695 to $5,695 depending on the seminar options chosen by
the attendee.
o Youth Wall Street is a version of the Wall Street Workshop for
teenagers focusing on teaching teens how the financial markets work,
and how they can experience the market themselves through making
trades on paper. Admission to Youth Wall Street is offered free to
high school business clubs and similar groups as a community service
by the Company. Attendance is also free for children 18 years old and
under who are accompanied by a paying adult. Otherwise, the typical
attendance fee for this seminar is $1,295.
o Fortify Your Income ("FYI") is a half-day seminar which reviews
strategies taught at the Wall Street Workshop and is offered as a free
refresher course to WSWS graduates. If not taken as a refresher
course, the typical attendance fee for this seminar is $2,995.
o The Next Step is a two day seminar for participants who have attended
the WSWS. The Next Step presents advanced stock market strategies in a
forum that allows students to actively participate. The typical
attendance fee for this seminar is $1,495.
The Company maintains several brokerage accounts which it uses during its
seminars to make trades based on its financial strategies. These trades are then
posted on the Company's subscription internet service, the Wealth Information
Network, along with a brief description of the strategy used and the reason for
making the trade. Although the Company uses its best efforts to make profitable
trades in these brokerage accounts, the primary purpose of these trades is
educational.
The real estate investment strategy seminars include the following:
o Building Perpetual Income is a three-hour workshop which summarizes
cash-flow strategies related to the real estate market. The workshop
introduces Real Estate Bootcamp and is typically offered free of
charge to allow prospective customers to become familiar with the
WCSI's real estate strategies.
o Real Estate Bootcamp is a two and one-half day event which provides a
detailed analysis of the strategies outlined in Mr. Cook's book "Real
Estate Money Machine." The class often takes a field trip to various
local sites in an effort to familiarize students with the types of
real estate available on the market. The typical attendance fee for
this seminar ranges from $3,495 to $4,495.
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o The Real Estate One Day Workshop is an event which teaches students
the general strategies outlined in Mr. Cook's book "Real Estate Money
Machine." Students are taught strategies for identifying real estate
investments and methods of turning real estate into cash-flow
investments. The Real Estate One Day Workshop costs between $995 and
$1,495 depending on the availability of discounts at the time of
payment.
The options seminars are focused on option trading and investing. The coursework
includes two workshops:
o High Octane Options Performance Seminar ("HOOPS) is a one day event
discussing options trading created and introduced by speaker Steve
Warrick. The typical attendance fee for this seminar is $995.
o The Options Bootcamp is a two day seminar created by Steve Warrick.
The Options Bootcamp expands upon the information presented in Mr.
Warrick's HOOPS workshop and features a tour of the Option Exchange in
Chicago as a part of the class. The typical attendance fee for this
seminar is $995.
The general investment strategy seminars are a series of individual one-day
seminars on a variety of investment topics that complement the stock market and
real estate seminars. These seminars have a typical attendance fee of $995 and
include:
o The One Minute Commute is a one day event teaching strategies for
investing and choosing brokers.
o Supercharge Otherwise Average Returns is a one day event that teaches
strategies for making covered calls.
o The Day Trader is an event offered to teach day trading strategies.
o High Impact Trading ("HIT") is a one day event that teaches the
psychology the stock market.
The Company sometimes engages in promotions that permit students to attend
seminars and other events without charge or at a reduced rate. The Company also
packages all of the above seminars in multi-day seminar packages under the title
"Cook University." The typical attendance fee for Cook University varies from
$695 - $12,295 depending on nature and content of the seminar package purchased.
Seminar Leaders. As of March 25, 1999, there were approximately 60 independent
contractors providing professional speaking services for WCSI. WCSI has an
extensive speaker training program that provides speakers with training to
enhance the value they provide their students. Typically speaker candidates are
drawn from the ranks of WCSI students. The most promising candidates are then
selected to tour with more experienced speakers to learn by observation and to
gradually take on responsibilities as "second speakers." In addition,
experienced speaker trainers conduct two-day, monthly workshops to allow
speakers to hone their skills on an ongoing basis. In order to protect WCSI's
intellectual property, the contracts between the WCSI and the speakers generally
contain non-compete clauses.
Products marketed by WCSI. WCSI's seminars and programs are supplemented by
audio tapes, video tapes, books and other printed material that are licensed to
WCSI. These materials provide students with reinforcement of the concepts,
strategies and philosophies that are taught in the WCSI seminars.
The books promoted and marketed by WCSI include best-selling books written by
Wade Cook such as "The Wall Street Money Machine," "Stock Market Miracles,"
"Bear Market Baloney," and "Business Buy the Bible." WCSI also distributes a
wide range of books and publications written by Mr. Cook on a variety
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of investment and business topics. The books are primarily distributed through
sales at the seminars, product catalogues, the Company's own bookstores and
other third-party bookstores.
The audio tapes promoted and sold by WCSI and authored by Wade B. Cook include
the multi-media audio-tape 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. Mr. Cook is the primary speaker in each of
these tapes. From time to time, WCSI distributes free "update tapes" as a tool
to support students' continuing education, market new WCSI products and maintain
a strong connection with the WCSI customer base.
The videotapes promoted and sold by WCSI include the multi-tape video versions
of WCSI's seminars Wall Street Workshop and The Next Step, as well as
single-tape videos on a variety of investment topics.
Sales and Marketing. The WCSI creates interest and demand for its programs,
products and services through a mix of radio and television advertising, direct
mail, Internet marketing, flyers, sports promotions and billboard advertising.
The WCSI sales organization includes more than 130 representatives who respond
to customer inquiries via phone, e-mail, Internet web-site, and facsimile.
Furthermore, the sales force is trained to follow up with existing clients and
to promote new products and services.
o Radio advertising is WCSI's primary means of promoting its seminars.
Radio spots are supplemented by radio infomercials which typically
promote a financial seminar being held in the local market and use a
toll-free telephone number.
o Television advertising is used on a limited basis to attract interest
in attending its financial clinics and to create name awareness.
o Direct mail marketing is used by WCSI to market its full complement of
products, programs and services to its customer list of over 922,000
individuals. These marketing campaigns, in addition to the flyers and
brochures distributed WCSI in public venues, are developed by the
WCSI's centralized marketing department.
o Internet marketing became an important aspect of WCSI's marketing
program in 1998, with a focus on its Internet web site at
http://wadecook.com. The site contains information about the WCSI's
programs, products and services, some of which potential customers may
purchase online. In addition, subscribers to the Company's Wealth
Information Network may access WIN through the web site. In the
future, the WCSI intends to expand the list of items available for
purchase on its web site.*
o Sport promotion was an important aspect of WCSI's marketing efforts in
1998 and included sponsorship programs with various NFL teams, the
Seattle SuperSonics, the Seattle Mariners, the Utah Jazz, the
Minnesota Timberwolves and golf tournaments in key markets. WCSI
gained visibility, as well as the opportunity to promote services with
giveaways of books, audiotapes and other promotional materials.
o Flyers and Billboard Advertising is used by WCSI to market its
financial seminars. Typically, flyers are placed in community centers
and other public places a few weeks prior to the date of the seminar.
The Company's billboard advertising is primarily focused in the
Salt Lake City, Utah and the Seattle and Tacoma, Washington markets.
In addition to the foregoing, the Company believes that a significant amount of
its seminar business is attributable to "word of mouth" advertising by its
seminar students.
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Semper Financial Corporation
In 1999, Semper Financial began offering multi-day, regional financial education
conventions to WCSI students and others interested in investing. The multi-day
conventions feature a broad cross-section of WCSI's seminar speakers and topics
to allow prospective students to experience the wide variety of products and
seminars offered by WCSI.
Entity Planners, Inc.
Entity Planners, Inc. ("EPI") was a wholly-owned subsidiary of the Company that
offered a number of seminars explaining the use of entities to protect assets
and minimize tax burdens. EPI also offered entity structuring services. In June
1998, the Company sold its interest in EPI. See "Business - Overview - Sale of
Entity Planners, Inc."
Publishing Businesses
The WCFC publishing subsidiaries focus their offerings in the following areas:
business, finance, self-improvement, religious and spiritual and general
interest non-fiction.
Lighthouse Publishing Group, Inc.
Lighthouse is engaged in the business of producing and publishing books, and to
a limited extent, audio and video tapes. Publications by Lighthouse generally
concern topics such as business, finance, real estate and self improvement. Many
of the current books published by Lighthouse are authored by Mr. Cook and have
appeared on various best seller lists. Lighthouse carries additional authors
including John J. Childers, Jr., Dave Hebert, John Huddleston, Bob Eldridge and
Renee Knapp. Lighthouse intends to retain more authors and to expand into new
categories of interest in 1999.*
Worldwide Publishers, Inc.
Worldwide is engaged in the publishing business under the identifying publishing
insignias Aspen Books and Buckeroo Books. Aspen Books publishes religious books
or books with spiritual emphasis targeted primarily to members of The Church of
Jesus Christ of Latter-day Saints. Buckeroo Books publishes primarily childrens'
books.
Origin Book Sales, Inc.
Origin is a book distribution company that sells books on consignment and sells
books, audio cassettes, art, and software in the retail market. Origin primarily
distributes products for Worldwide and is the exclusive distributor of
Worldwide's products.
Gold Leaf Press, Inc.
Gold Leaf publishes non-fiction books in the inspirational, self-help and
parenting categories, as well as some fiction.
Information Services
Wealth Information Network ("WIN")
The Company operates WIN, a subscription online service which can be accessed
via the internet 24 hours a day. WIN provides detailed information illustrating
trading techniques taught by the Company, its subsidiaries and by Mr. Cook
personally using the investment strategies discussed in "Wall Street Money
Machine" and "Stock Market Miracles." WIN also provides stock information and
updates on the Company's programs and products, including a schedule of events
and seminars provided by WCSI.
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Information Quest, Inc.
IQ operates a subscription paging service that uses standard pagers to
distribute up-to-the minute stock quotes and other financial information to
customers. The paging services are marketed principally to students of WCSI as
an additional tool for their investing activities. In addition, IQ recently
began offering subscriptions to an authorized Internet service provider called
"IQ Connect."
Retail Locations
Wade Cook Financial Education Centers, Inc. ("WCFEC")
The Company, through WCFEC, operates educational centers that house the WINvest
Centers (online resource centers used by WCSI students), Get Ahead Bookstores
(see below) and sales facilities for the sale of WCSI products. The centers also
serve as "community centers" to help keep WCSI students connected with the
Company and with one another. The first Wade Cook Financial Education Center was
established in 1997 in Tacoma. Since that time the Company has expanded the
education centers to Santa Ana, California and Seattle, Washington. The Company
intends to open additional centers during 1999.*
Get Ahead Bookstores, Inc. ("Get Ahead").
Get Ahead Bookstores, Inc. operates three bookstores that are housed within the
Wade Cook Financial Education Centers at the Seattle, Tacoma and Santa Ana
sites. Get Ahead is a retail outlet for books, audio cassettes, and video
recordings primarily related to finance, education, investments, and personal
development.
Hotels and Commercial Real Estate
The following table lists the hotel properties held in WCFC entities:
<TABLE>
Property Rooms Location Manager % owned
- - -------- ----- -------- ------- -------
<S> <C> <C> <C> <C>
Best Western McCarron House 202 Sparks, NV Zion's Management Co. 100%
Four Points by Sheraton, St.
George 200 St. George, UT Zion's Management Co. 100%
Airport Ramada Suites 59 Salt Lake City, UT Zion's Management Co. 75%
Fairfield Inn 72 Provo, UT Zion's Management Co. 49%
Hampton Inn/Fairfield Inn 81 Murray, UT Western States Lodging 16%
Woods Cross Fairfield Inn 88 Woods Cross, UT Western States Lodging 7%
Park City Hampton Inn & Suites 65 Park City, UT Western States Lodging 4%
</TABLE>
In addition to the ownership of the hotel properties, WCSI entities also hold,
for investment purposes, the following parcels of real estate:
o A 65% interest in a limited partnership that owns an undeveloped lot
at 7200 South in Salt Lake City, Utah.
o A 100% interest in an undeveloped lot located in Reno, Nevada.
Currently, the land is under a contract for sale.
o A 67% interest in an undeveloped lot located at 215 West 1300 South in
Orem, Utah.
Support Services
Ideal Travel Concepts, Inc.
Ideal provides travel related services including domestic and international
airline reservations, car rental reservations, tour packages, and cruises. The
Company is Ideal's primary client. In addition, Ideal also offers travel agent
training packages for independent travel agents. During the past five years,
over 15,000 people have ordered Ideal's travel agent training packages.
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Left Coast Advertising, Inc.
Left Coast is engaged in the business of producing and placing advertising using
various media; including, radio, television, newspapers and magazines. Left
Coast was formed to allow WCFC to take the agency commission on media purchases
on behalf of WCFC. Left Coast is a fully licensed advertising agency whose only
client is the Company and the Company's subsidiaries.
Competition
The financial educational seminar industry is highly competitive. The 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 our
competitors in the financial educational seminar market include Robbins Research
International and Online Investor Advantage. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or alliances of such competitors, or that competitive pressures
faced by the Company will not materially adversely affect its business,
operating results and financial condition.
Intellectual Property
The Company regards its seminars, products, trademarks, trade symbols and other
materials as proprietary and relies primarily on a combination of statutory and
common law protections, such as copyrights, trademarks and trade secrets to
protect its interests in such proprietary materials. While many of the product
and trade names are common terms and do not afford the Company maximum copyright
protection, the Company has taken several steps to maximize the copyright
protection available to it. For example, the Company trains its marketing staff
to consistently use all the applicable trademark symbols. Additionally, the
Company adopts an aggressive litigation stance in protecting its intellectual
property rights where warranted. The Company also relies on employee and
third-party non-competition and non-disclosure agreements and other methods of
protecting proprietary rights in order to safeguard the Company's intellectual
property.
The Company has an Open Ended Product Agreement with Wade B. Cook which expires
June 30, 2000. Pursuant to the terms of this agreement, the Company has a
non-exclusive license with Mr. Cook to produce, market and sell licensed
products and intellectual property in exchange for payment of a royalty to Mr.
Cook equal to ten percent (10%) of gross sales of the licensed products. 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 "License Order." Royalties are paid
to Mr. Cook on a quarterly basis under the terms of the agreement; however, as
CEO of the Company, Mr. Cook is authorized to set Company policy which allows
him to take draws against royalties in amounts which he determines reasonable.
In such cases, the royalties owing under the license are then reconciled
quarterly with the draws Mr. Cook has taken. 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.
Employees
As of January 21, 1998, the Company had 434 employees, including 349 full-time
employees, 85 part-time employees, and approximately 60 independent contractors.
None of the Company's employees is represented by a labor union, and the Company
believes its employee relations to be good.
11
<PAGE>
Risk Factors
Corporate Control By Wade B. Cook
Wade B. Cook is the founder, majority shareholder, Chairman of the Board,
President, and Treasurer of the Company. Laura Cook, Mr. Cook's wife, is the
Secretary of the Company and is also a member of the Board of Directors. Several
of Mr. Cook's relatives work at the Company. Mr. Cook maintains control over
many aspects of the Company including, but not limited to, setting corporate
policy, determining strategic direction, determining the acquisition or sale of
assets by the Company, setting the material terms of such acquisitions and
determining the material provisions of many of the Company contracts. Mr. Cook
provides input on every product and seminar sponsored by the Company. Mr. Cook
also directs most marketing efforts of the Company and has significant influence
over the management of the Company. Mr. Cook will continue to influence 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, the approval of mergers and the sale of the Company assets. In 1989,
the state of Arizona issued a civil administrative order concluding that Mr.
Cook had violated various provisions of the Arizona securities laws. Mr. Cook
and his affiliated entities paid a civil penalty of $150,000, reimbursed
shareholders $390,000 and agreed to cease and desist the allegedly fraudulent
conduct. This matter has been concluded and all fines have been paid.
Dependence on Wade B. Cook
The Company's business is highly dependent on the continuing effective
involvement of Mr. Cook. Mr. Cook personally directs most aspects of the
Company's business. The Company has a non-exclusive license which expires June
30, 2000 to use Mr. Cook's products, intellectual property, name, image,
identity, trademarks and trade symbols which are featured prominently in many of
the Company's services and products. Mr. Cook is not prohibited from competing
with the Company or granting licenses to competitors. See "Business Intellectual
Property." The business of the Company would be materially adversely affected if
Mr. Cook's services were not available to the Company, or if Mr. Cook should
compete with the Company or grant licenses or other assistance to competitors.
Working Capital Deficiency, Liquidity Constraints
At December 31, 1998, the Company had current assets of $11,998,000 and current
liabilities of $28,602,000, resulting in a working capital deficit of
$16,604,000. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital Resources." The Company's
principal source of cash has been from its investment seminars and its sale of
books, tapes and other materials focused on business strategies, financial
planning and personal wealth management. Cash provided by operations increased
from $14.0 million in 1997 to $15.2 million in 1998. This increase reflected
increases in accounts and royalties payable, and a reduction in deposits, and
proceeds from the sale of trading securities.
The Company's policy of using available cash to acquire developing businesses
and non-marketable investments and its working capital deficit have resulted in
cash shortages and constraints on the Company's liquidity.
The Company has significant cash commitments in 1999, including a significant
obligation to pay income taxes from prior years. Cash flow from operations has
not been and is not expected to be sufficient to satisfy the Company's cash
requirements. If the Company is required to generate cash from its
non-marketable investments to satisfy its current obligations, it may not be
able to liquidate investments in a timely manner or in a manner that allows it
to receive the full value of the investments. Failure to generate adequate cash
resources could require the Company to cut back operations, delay expansion or
development projects, or cause the Company to be unable to meet its obligations
when due.
12
<PAGE>
Legal Proceedings and Governmental Investigations
The Company is party to various legal proceedings and governmental
investigations. See Part I, Item 3 of this report. Although the Company does not
presently expect material liability in any of these matters, the outcome of such
matters is difficult to predict and subject to uncertainty, and the legal fees
and other costs involved are likely to be material. If the Company were found
liable in certain of these legal proceedings, the amount of liability could be
material.* In addition, if the Company were to be found to have violated certain
consumer protection statutes or other laws, the Company could be required to pay
material penalties or to refund money paid by seminar attendees within the
jurisdictions involved. The Company could also be required to cease doing
business in certain jurisdictions or to significantly change the manner in which
its business is conducted in such jurisdictions. Any such result could have a
material adverse effect on the Company's financial condition and results of
operations. Jurisdictions in which litigation or investigations relating to the
Company's business practices are in progress include California and Washington
which accounted for 16% and 6%, respectively, of the Company's seminar sales in
1998.
Risks of Hotel Business
During 1997 and 1998, the Company began acquiring interests in hotel properties,
and it currently owns interests in seven hotels. See "Business - Hotels and
Commercial Real Estate." The Company has no prior experience in owning or
managing hotels. The Company's hotel business has not performed as well as the
Company anticipated, and it has suffered losses. There can be no assurance that
the hotels will become profitable in the future. In addition, acquisition and
renovation of hotel properties and losses of the hotel business have required
and are likely to continue to require, cash infusions which adversely affect the
Company's working capital.
Effect of Securities Market Conditions on the Company's Business
The Company believes that increased public interest in investing, particularly
in the securities markets, has contributed significantly to the success of its
business. The securities markets have experienced substantial volatility in
recent periods. A sharp drop or sustained or gradual decline in securities
prices or other developments in the securities markets could cause individual
investors to be less inclined to invest in the securities markets, which would
be likely to result in reduced interest in the Company's seminars and related
products and services. Declines in the securities markets could also adversely
affect the value of the Company's investment portfolio.
Management of Growth and Integration of Acquisitions
The Company's business has grown significantly in terms of revenue, number of
employees and scope of activities in which it engages. During 1997, the Company
acquired Worldwide, Origin, Gold Leaf and Ideal, and during 1998, the Company
acquired Get Ahead (retail bookstores), Quantum (local sales and marketing
offices) and IQ (distribution of paging devices that distributed stock market
data). The Company also has acquired interests in seven hotels. The Company has
also invested in private companies in the oil and gas business and other
businesses, some of which require continuing attention from the Company's
management. Some of the acquired businesses and investments have not performed
as well as expected by the Company. Growth has placed significant strains on the
Company's management, accounting, financial and other resources and systems, and
on its cash resources and working capital. Failure to manage successfully the
growth in size and scope of the Company's business and to successfully integrate
and manage the Company's recently acquired businesses could have a material
adverse effect on the Company's results of operations and financial condition.
Tax Deficiencies
Current liabilities at December 31, 1998 include $4,969,000 in taxes payable,
which includes approximately $3.2 million in delinquent payments on 1997 federal
and state taxes, including penalties and interest. The Company has not made
estimated tax payments on 1998 income taxes. The accrued liability does not
include penalties and interest, which may be material. Tax authorities have the
power to
13
<PAGE>
commence legal proceedings, assert tax liens and take other actions to collect
delinquent taxes, together with interest and penalties. The taking of any such
action would have a material adverse effect on the Company's business and
financial condition.
Item 2. - Properties
The Company owns and occupies a 63,000 square foot building in Seattle,
Washington which houses its corporate headquarters. The building is subject to a
first mortgage, secured by the building and surrounding property, in the
aggregate amount of $ $746,000 at December 31, 1998.
In addition, subsidiaries of the Company occupy the following commercial
properties:
o WCSI leases 32,776 square feet in Algona, Washington for its shipping
and warehouse operations. The lease expires December 31, 2003.
o WCSI also leases warehouse property in Tukwila, Washington which it
currently subleases to a third party. The lease expires on April 30,
2000.
o Worldwide and Origin lease a total of 9,600 square feet of office
space located in Salt Lake City, Utah. The lease expires March 31,
1999.
o Origin leases an additional 24,048 square feet of office and warehouse
space located in Salt Lake City, Utah. The lease expires on September
30, 2004.
o WCFEC leases approximately 10,000 square feet of office space in Gig
Harbor, Washington. The lease expires on July 7, 2001.
o WCFEC owns an office building in Santa Ana, California. The building
and surrounding land are subject to a first mortgage in the aggregate
amount of $383,000 at December 31, 1998.
o In 1998, Company owned a building in Memphis, Tennessee that housed
the offices of Ideal. The building and surrounding land were subject
to a first mortgage in the aggregate amount of $1.5 million at
December 31, 1998. On February 22, 1999, the Company sold the building
for an aggregate price of $1,434,000. The Company has no further
obligations under the mortgage.
The Company also owns or has majority interests in certain hotel properties and
other commercial real property as follows:
o 100% interest in the Best Western McCarran House hotel in Sparks,
Nevada. The hotel is subject to a mortgage, secured by the land and
building, in the aggregate amount of $4.8 million dollars in notes
payable as of December 31, 1998.
o 100% interest in the Four Points by Sheraton hotel in St. George,
Utah. The hotel is subject to a mortgage, secured by the land and
building, in the aggregate amount of $3.0 million at December 31,
1998.
o 75% interest in the Airport Ramada Ltd., Suites in Salt Lake City
Utah. The hotel is subject to a mortgage, secured by the land and
building, in the aggregate amount of $1.8 million at December 31,
1998.
In addition to the foregoing, the Company, through various subsidiaries and
other entities, also holds minority interests in certain other hotel properties
and raw land. See "Business - Hotels and Commercial Real Estate."
14
<PAGE>
Item 3. Legal Proceedings
The following is a description of previously unreported material threatened or
pending legal proceedings and updated information regarding previously reported
material threatened or pending legal proceedings to which the Company or any of
its subsidiaries is a party or which any of their properties is subject:
Litigation with ART and ITEX. On February 4, 1998, the Company filed a complaint
against Associated Reciprocal Traders, Ltd. ("ART") and its parent corporation
ITEX, in the Superior Court of King County in the state of Washington. In the
complaint, the Company alleged that ITEX/ART breached the terms of an agreement
dated December 29, 1995 between the Company and ITEX/ART (the "Advertising
Agreement") by not providing the Company $500,000 worth of media credits for
radio advertising. On the same day, ITEX/ART filed a lawsuit against the Company
alleging that the Company had failed to deliver an aggregate of 1,800,000 shares
of the Company to ART as required under the Advertising Agreement and seeking to
lift the stop transfer order placed on the shares by the Company. In July 1998,
the Court issued a preliminary ruling stating that the Company is not required
to deliver stock certificates to ITEX/ART and may refuse to allow the stock to
be sold until the issue of whether or not ITEX/ART has breached the contract is
decided. A trial date has been set for June 21, 1999.
Wade Cook Seminars, Inc. v. Anthony Robbins, Options Management, Inc., Charles
Mellon, and Robbins Research International, Inc. On October 4, 1996, WCSI and
Mr. Cook filed a complaint in the Superior Court of King County in the state of
Washington against Charles Mellon, Anthony Robbins, Robbins Management, Inc.,
and Robbins Research International, Inc. seeking damages and injunctive relief
for unfair competition, misappropriation of trade secrets, breach of a
non-compete agreement and inducement to breach the non-compete agreement. WCSI
and Mr. Cook were granted a voluntary dismissal without prejudice on the claims
relating to the non-compete agreement. On November 26, 1997, the unfair
competition and misappropriation of trade secrets claims were dismissed. The
Company and Mr. Cook have appealed the dismissal with the Washington State Court
of Appeals.
Wade B. Cook v. Anthony Robbins, Robbins Research International, Inc. and
Charles Mellon. On June 18, 1997, the Company filed a copyright infringement
suit on behalf of Mr. Cook in the United States District Court, Western District
of Washington, against Tony Robbins and Robbins' Research International, Inc.
seeking damages and injunctive relief. On October 1, 1998, the defendants were
ordered to pay damages in the amount of $655,900. On December 16, 1998, the
United States District Court for the Western District of Washington filed an
order vacating the damages awarded in favor of Mr. Cook. Mr. Cook has appealed
the order to vacate judgement.
State of Texas v. Wade B. Cook and Wade Cook Seminars, Inc. On May 1, 1998, the
Attorney General of Texas filed a lawsuit in the District Court of Bexar County,
Texas. The state of Texas contends that the Company has engaged in false,
deceptive and misleading acts and practices in the course of trade and commerce
as defined in the Texas Deceptive Trade Practices-Consumer Protection Act.
Specifically, the state of Texas contends that the Company's sales contracts
fail to have the statutorily required notice of the three day right to cancel.
The petition seeks a temporary injunction, restitution and penalties against the
Company. The Company currently provides its customers seven days to cancel all
sales contracts. The Company believes that it has not intentionally engaged in
false, deceptive and misleading business and has retained local counsel to
contest this lawsuit. The Company has not yet made an estimate of its potential
exposure or determined the impact on its financial statements and has not made
provisions for losses, if any.
Texas Unauthorized Practice of Law Committee. In March 1998, the District 4
Subcommittee of the Unauthorized Practice of Law Committee in the state of Texas
sent a request to WCSI (f/k/a United Support Association) and two former
employees of the Company asking that the parties sign an agreement to
voluntarily cease and desist in activities which may constitute the unauthorized
practice of law in Texas. The Committee alleged that WCSI offered to set up
Nevada corporations, Living Trusts, Keogh Plans and Corporate Pension Plans,
Family Limited Partnerships, Massachusetts Business Trusts, and Charitable
Remainder Trusts. The Committee further alleged that WCSI advised clients about
legal structuring, legal advantages and legal strategies associated with such
entities, and provided specific proposals for structuring
15
<PAGE>
an individual's assets and businesses. WCSI declined to enter into a voluntary
agreement to cease and desist on behalf of the former employees named in the
request because they no longer work for WCSI. The Company has subsequently
divested EPI, that portion of its business associated with the activities
specified in the request and, in any event, does not believe that such
activities constitute the unauthorized practice of law in Texas.
Wade Cook Financial Corporation, et al. vs. Publishers Distribution Center,
Inc., et al. On September 17, 1998, the Company filed a lawsuit against
Publishers Distribution Center, Inc. ("PDC"), a Utah Corporation, and William
Beutler, Cora Beutler, and Scott Beutler, as individuals, in the United States
District Court, District of Utah, Central Division. Shortly after filing a
complaint in the United States District Court, the Company dismissed that action
and refiled its complaint in Third Judicial District Court, Salt Lake County in
the state of Utah. The complaint alleges fraud and negligent misrepresentation
relating to the Company's attempted purchase of PDC and requests restitution in
the amount of $420,000 in addition to other relief. PDC has filed counterclaims
against the Company alleging fraud, breach of fiduciary duty and conversion. No
trial date has been set.
Attorney General for the State of Illinois. In July of 1998, the Illinois
Attorney General's Consumer Fraud Division initiated a formal investigation to
determine whether the Company has engaged in unlawful practices in the state of
Illinois. To date, the Illinois Attorney General has only issued a Civil
Investigative Demand, requesting specific information and Company records, to
which the Company has responded. The Company does not believe that it has
engaged in any unlawful activities in the state of Illinois and is cooperating
fully with the Illinois Attorney General's investigation.
State of California vs. Wade Cook Financial Corporation, Wade Cook Seminars,
Inc., Entity Planners, Inc., Information Quest, Inc., Money Chef, Inc., and Wade
B. Cook. On January 11, 1999, a civil suit was filed in the Superior Court of
the state of California by the California State Attorney General's office
alleging violations of Sections 1678.20 through 1693 of the California Civil
Code. The Attorney General alleges that the Company: (1) made or caused to be
made and disseminated untrue or misleading statements in violation of the
California Business and Professions Code; and (2) engaged in unlawful and unfair
or fraudulent practices and unfair, deceptive and untrue or misleading
advertising. The suit seeks: (1) an injunction against the Company from directly
or indirectly engaging in the alleged unlawful behavior, (2) disgorgement of
money or property acquired in violation of state or federal law; (3) a penalty
of $2,500 for each violation, but in any event not less than four million
dollars ($4,000,000) in the aggregate, (4) imposition of a constructive trust on
the money or property acquired in violation of state and federal law; (5)
payment of court costs. The Company intends to defend itself in this matter.*
The Company has not yet made an estimate of its potential exposure or determined
the impact on its financial statements and has not made provisions for losses,
if any.
Investigation by the U.S. Securities and Exchange Commission. In 1997, the
Company was advised by the Securities and Exchange Commission ("SEC") that it
was the subject of an investigation, In the Matter of Wade Cook Seminars, Inc.,
pursuant to which the SEC is investigating possible violations of Sections 5(a),
5(c) and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule
10b-5 thereunder, and Sections 203(a) and 206(1) and (2) of the Investment
Advisers Act. The Company's legal counsel responded to the SEC's requests for
documents and other information in late 1997. Since that time, the Company has
not received any contact with the SEC regarding the investigation or its status.
No enforcement action has been taken, and the SEC has advised the Company that
the inquiry should not be construed as an adverse reflection on the merits of
the securities involved or on any person or entity.
Investigation by the State of Washington, Securities Division. Since September
1996, the Washington State Department of Financial Institutions, Securities
Division has been investigating Mr. Cook, WCSI, and the Company. The Company has
been informed that the investigation is being performed pursuant to RCW
21.20.370 and 21.20.700. Although no civil or criminal charges have been brought
and the Company does not believe that it or its officers or directors have
violated applicable laws, no assurance can be given that enforcement proceedings
will not be brought against the Company, or its officers or directors, or as to
the outcome of any investigations by the State Attorney General.*
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<PAGE>
State Attorneys General Investigations. In March 1999, the Attorneys General of
nine states opened investigations to determine whether the Company has engaged
in business and advertising practices that violate such states' consumer
protection laws and regulations. The Company does not believe that it has
engaged in any unlawful activities in any of the states and is cooperating fully
with each state's investigation. Although no civil or criminal charges have been
brought, and the Company does not believe that it or its officers or directors
have violated applicable laws, no assurance can be given that enforcement
proceedings will not be brought against the Company, or its officers or
directors, or as to the outcome of any proceedings that are brought.*
Himmelman and Love vs. Wade Cook Seminars, Inc., et al. On February 26, 1999,
two former employees of Wade Cook Seminars, Inc. filed a complaint with the
Pierce County Superior Court of the state of Washington alleging sexual
harassment, retaliatory discharge and defamation. Although no specific damages
are alleged, the plaintiffs request lost income, pain and suffering, emotional
distress, court costs, reasonable attorney fees, and punitive damages. The
Company believes that it has not engaged in any unlawful practices and intends
to defend itself in this matter.* The Company has not yet made an estimate of
potential exposure or determined the impact on its financial statements and has
not made provisions for losses, if any.
Item 4. Submission of Matters to a Vote of Security Holders.
Not Applicable
17
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity And Related Stockholder Matters
Price Range of Common Shares
The Company's Common Stock has been traded on the OTC Bulletin Board 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, for the periods indicated, the high and low bid
quotations for the Company's Common Stock on the relevant markets. The
quotations reflect inter-dealer prices which may include retail markups,
markdowns or commissions and may not reflect actual transactions.
<TABLE>
OTC Bulletin Board Over-The-Counter Market
---------------------------- ----------------------------
High Low High Low
-------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
1997
First Quarter......................... - - 0.47 0.22
Second Quarter........................ - - 0.66 0.29
Third Quarter (1)..................... 4.63 0.54 - -
Fourth Quarter........................ 5.15 2.54 - -
1998
First Quarter......................... 4.19 2.53 - -
Second Quarter........................ 2.81 0.97 - -
Third Quarter......................... 1.66 0.72 - -
Fourth Quarter........................ 1.06 0.37 --
</TABLE>
- - -----------------
(1) The Company's Common Shares began trading on the OTC Bulletin Board and
ceased trading in the Over-The-Counter Market on August 11, 1997.
(2) Prices reported reflect a 3 for 1 stock split effective September 15, 1997,
and a 3 for 1 stock split effective December 23, 1997.
As of December 31, 1998 the Company had approximately 11,308 shareholders of
record (including nominees and brokers holding street accounts. As of March 30,
1999, the last sale price for the Company's Common Stock on the OTC Bulletin
Board was $0.41 per share.
The Company has never paid cash dividends on its Common Stock and does not
anticipate that it will pay dividends in the foreseeable future. The Company
intends to continue to retain earnings, if any, to expand and develop its
business.
Recent Sales Of Unregistered Securities
The issuance of shares of unregistered Common Stock disclosed below were made
during 1998 in reliance primarily on the exemption from registration of
securities contained in Section 4(2) of the Securities Act of 1933 and
applicable provisions of state securities laws, and not previously reported.
On April 7, 1998, the Company issued 1,000 shares Common Stock to Gloria
Ducoulombier at $4.00 per share.
On June 22, 1998, the Company issued 660 shares of Common Stock to Sally McCarty
at $3.00 per share.
On July 1998, the Company issued an aggregate of 350 shares of Common Stock to
14 employees of the Company as a mid-year bonus.
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<PAGE>
Item 6. Selected Financial Data.
The following selected consolidated financial data of the Company is qualified
in its entirety by reference to and should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto included
elsewhere in this report. The consolidated statements of operations data for the
years ended December 31, 1998 and 1997 and the consolidated balance sheet data
at December 31, 1998 and 1997 are derived from and are qualified by reference to
the Company's audited consolidated financial statements which were audited by
Miller and Co. The consolidated financial data from prior years is unaudited.
<TABLE>
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales $ 118,207 $ 93,343 $ 37,008 $ 6,504 $ 1,973
Cost of sales $ 56,763 $ 39,492 $ 14,460 $ 2,877 $ 862
------------- ------------- ------------- ------------- -------------
Gross profit $ 61,444 $ 53,851 $ 22,548 $ 3,627 $ 1,111
Operating expenses $ 57,890 $ 39,309 $ 18,178 $ 3,333 $ 1,134
------------- ------------- ------------- ------------- -------------
Income from operations $ 3,554 $ 14,542 $ 4,370 $ 294 $ (23)
Other income (expenses) $ 1,656 $ (706) $ (74) $ (55) $ (181)
------------- ------------- ------------- ------------- -------------
Income from continuing operations $ 5,210 $ 13,836 $ 4,296 $ 239 $ (204)
------------- ------------- ------------- ------------- -------------
Income from Continuing Operations Data
Income (loss) before income taxes,
minority interest, and acquired
operations as reported $ 5,210 $ 13,836 $ 4,296 $ 239 $ (204)
Provision (benefit) for income taxes $ 2,346 $ 5,579 $ 1,452 $ 171 $ (8)
Minority interest in loss of subsidiary $ 127 $ 21 $ - $ - $ -
============= ============= ============= ============= =============
Net income (loss) $ 2,991 $ 8,278 $ 2,844 $ 68 $ (196)
============= ============= ============= ============= =============
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
(in thousands, except per share data)
Per Share Data:
Income (loss) from continuing $ 0.05 $ 0.13 $ 0.05 - -
operations per share
Weighted average shares outstanding 63,888 63,363 59,610 57,585 57,585
Consolidated Balance Sheet Data:
Total assets $ 58,698 $ 41,404 $ 16,938 $ 2,283 $ 206
Total debt, including current portion 38075 24649 12618 1458 134
------------- ------------- ------------- ------------- -------------
Shareholders' equity $ 20,623 $ 16,755 $ 4,320 $ 825 $ 72
============= ============= ============= ============= =============
</TABLE>
19
<PAGE>
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
WCFC is a holding company that, through its wholly owned subsidiary WCSI,
conducts educational business seminars, produces and sells video and audio
tapes, and distributes books and other written materials focusing on investment
strategies and personal wealth creation. The Company's core business is
financial education, through its seminar and publishing concerns. These core
businesses are complemented by bookstores that focus on financial education, a
pager service that provides stock quotes and other financial information, a
subscription-based web site that provides stock market information and that
illustrates the strategies taught in the Company's seminars and publications and
a travel-related service provider.
During 1997, the Company acquired Ideal, which provides travel agent services to
the Company and markets services to travel agents. Also during 1997, the Company
expanded its publishing activities by acquiring three small publishing and book
distribution businesses, Worldwide, Gold Leaf and Origin, that publish and
market in areas outside of the Company's traditional focus of financial
education.
In January 1998, the Company acquired interests of employees of the Company in
businesses created to market materials and services associated with the
Company's financial education business - IQ, Get Ahead and Quantum. During the
quarter ended September 30, 1998, the Company disposed of the business of Entity
Planners, Inc. ("EPI"), its entity formation business. The buyer paid $250,000
to the Company for the stock of EPI, and agreed to pay up to $17.5 million to
the Company in royalty payments based on future sales of the business. The
Company accounts for EPI as a discontinued business operation.
In addition to pursuing its core businesses, the Company has made a variety of
investments in real estate, hotels, oil and gas projects and other venture
capital limited partnerships and private companies and in marketable securities.
In 1997, the Company formed Bountiful Investment Group ("BIG") to manage its
real estate and hotel investments, and embarked on a strategy of acquiring
larger stakes in hotel projects. See Part I, Item 1, "Business - Hotels and
Commercial Real Estate." During 1998, the Company acquired Best Western McCarran
House in Sparks, Nevada and the Four Points by Sheraton Inn in St. George, Utah
and increased its 25% interest in the Airport Ramada Suites in Salt Lake City,
Utah to a 75% interest. The financial results of each of these properties is
consolidated in the Company's financial statements from the date the majority
ownership was acquired. The Company's hotels required greater than anticipated
renovation and upgrading to secure favorable hotel chain affiliations, and have
not performed as well as the Company anticipated prior to their acquisition. The
hotels experienced losses in 1998, and it is uncertain whether they will be
profitable in the future.
Although the Company has been profitable in the past, prior to 1998 principally
as the result of activities of WCSI and, in 1998, principally as a result of the
pager and travel segments, it has experienced dramatic growth, acquired or
established new businesses, increased general and administrative expenses, and
made investments in hotel and other projects outside the traditional business of
WCSI which have reduced profits in recent periods. In addition, revenue from
product sales and revenue per seminar conducted by WCSI have been lower in
recent periods than in comparable periods in the past. The Company cannot
predict the effect that world economic conditions or stock market volatility
will have on the interest of investors in the seminars and other products and
services of WCSI, or on WCSI's revenue or profits. There can be no assurance
that the Company's operation will be profitable in the future.
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<PAGE>
The following tables set forth the net sales, cost of sales and operating income
of the continuing operations of each of the business segments for the years
ended December 31, 1998, 1997, and 1996:
(in thousands) 1998 1997 1996
---- ---- ----
Net Revenue
-----------
Seminars $78,191 $60,759 $23,817
Product Sales 20,696 29,386 13,191
Hotels 3,336 - -
Pager Service 8,427 - -
Travel Service 5,874 3,198 -
Other 1,683 - -
Totals $118,207 $93,343 $37,008
Costs of Revenue
----------------
Seminars $35,842 $19,319 $8,074
Product Sales 12,457 17,210 6,386
Hotels 4,100 - -
Pager Service 525 - -
Travel Service 3,562 2,963 -
Other 277 - -
Totals $56,763 $39,492 $14,460
Operating Income
----------------
Seminars $ 483 $10,907 $ 2,406
Product Sales 813 3,538 1,964
Hotels (267) - -
Pager Service 2,494 - -
Travel Service 508 97 -
Other (477) - -
Totals $ 3,554 $14,542 $ 4,370
Results of Operations
Year ended December 31, 1998 compared with year ended December 31, 1997
Revenue. Revenue increased by 27% from $93.3 million in 1997 to $118.2 million
in 1998. Revenue from seminars increased from $60.8 million in 1997 to $78.2
million in 1998. The increase is due in part to the fact that WCSI changed its
fiscal year in 1997 and 1997 results include only eleven months of WCSI's
operations. The Company held 3,737 seminars in 1998 compared to 2,416 in 1997,
an increase of 55%. However, revenue generated per seminar decreased from
$25,150 per seminar in 1997 to $21,000 per seminar in 1998, due to a reduction
in participants per seminar.
Books and other product sales decreased by $8.7 million, or 30.6%, from $29.4
million in 1997 to $20.7 million in 1998 due to the reduced demand for titles
that were published in 1997 combined with the production of fewer new titles in
1998. In addition, product sales for 1997 included $1.4 million in commissions
from the sale of pagers, whereas the pager business is accounted for as a
separate segment in 1998 with revenue of $8.4 million after the Company acquired
it in January 1998. Product sales also include WIN subscription revenues which
decreased from $4.0 million in 1997 to $2.8 million in 1998, as more subscribers
paid the renewal rate of $1,995 per year rather than the new subscriber rate of
$2,995, and free WIN subscriptions were offered as promotions in connection with
seminar sales. The results of
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<PAGE>
operations of hotels were reported on a consolidated basis in 1998 for the first
time, as the Company acquired majority interests, and resulted in 1998 revenues
of $3.3 million.
Travel related services increased by $2.7 million from $3.2 million in 1997 to
$5.9 million in 1998. Other revenues (consisting of principally sales from
Company bookstores) were $1.7 million in 1998, as the businesses generating
these revenues were established or acquired in 1998.
Costs of Revenue. Costs of revenue increased by $17.3 million, or 44%, from 1997
to 1998. Cost of conducting seminars, which consist largely of royalties,
speaker fees, cost of meeting rooms and travel increased by 85% from $19.3
million in 1997 to $35.8 million in 1998, due to an increase in the number of
seminars held and increased logistics costs of staging seminars. Royalties to
Mr. Cook related to continuing operations were $8.0 million in 1998 and $10.0
million in 1997. Mr. Cook agreed to a $2.0 million reduction in royalties for
the quarter ended September 30, 1998.
Cost of product sales decreased 28% from $17.2 million in 1997 to $12.4 million
in 1998, reflecting lower product sales. Cost of sales in the pager segment,
consisting principally of pager service fees were $525,000. Cost of sales in the
hotel businesses, consisting principally of payroll and supplies, were $4.1
million. Travel service costs increased by $600,000 or 29% in 1998, reflecting
increased sales.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by 47% from $39.3 million in 1997 to $57.9
million in 1998, principally due to increases of approximately $6.0 million in
advertising expense and approximately $6.0 million in employee compensation and
benefits. The great majority of the increase was attributable to the seminar and
product segments.
Operating Income. Increases in selling, general and administrative expenses were
principally in the seminar and product sales segments, resulting in 1998
operating income in these segments of $483,000 and $813,000, respectively,
compared with $11.0 million and $3.5 million in 1997. Operating income from the
pager and travel service segments increased from $97,000 in 1997 to over $3.0
million in 1998.
Other Income and Expense. Other income and expense consist principally of
royalty income, securities trading, interest income and expense and losses on
private company investments. In 1998, other income amounted to $1.7 million
compared to a loss of $706,000 in 1998. The principal reasons for the
improvement were $1.6 million in royalties received from the business of EPI
after its sale and a gain of $837,000 on trading of securities compared with a
loss of $806,000 in 1997, which were offset in part by an increase of $1.1
million in interest expense due to increased borrowings, principally to fund
hotel acquisitions.
Income Taxes. The provision for income taxes of $2.3 million and $5.6 million
for the years ended 1998 and 1997, respectively, reflect taxes payable in
respect of profitable operations. The Company's effective tax rates have
historically differed from the federal statutory rate primarily because of
certain deferred revenues, unrealized gains and losses on trading securities,
accelerated depreciation and state taxes.
As a result of the foregoing, income from continuing operations was $3.0
million, or $.05 per share in 1998, compared with $8.2 million, or $.13 per
share, in 1997. Income from discontinued operations, including EPI's income
prior to its sale and gain on the sale, was $763,000, or $0.01 per share, in
1998 compared with $714,000, or $0.01 per share, in 1997.
Year ended December 31, 1997 compared with year ended December 31, 1996
Revenue. Revenue from continuing operations for the year ended December 31, 1997
were $93.3 million as compared to revenues of $37.0 million for the year ended
December 31, 1996. Results for 1997 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 marketing, and the fact that several books authored by Mr. Cook
appeared on the New York Times Business Best Seller list, resulting in greater
recognition for Mr. Cook in the investment education market. Seminar sales grew
from $23.8 million in 1996 to $60.8 million in 1997, an increase of 137%. Book
and
22
<PAGE>
product sales rose from $13.2 million in 1996 to $29.4 million in 1997, an
increase of 123%. Businesses acquired in 1997 contributed $6.0 million to the
increase in revenue.
Costs of Revenue. Costs of revenue increased from $14.5 million to $39.5
million, an increase of 178%, due primarily to a corresponding overall growth in
revenues. The costs to conduct the seminars increased from $8.0 million in 1996
to $19.3 million in 1997, an increase of 137%. Costs of product sales grew from
$6.4 million in 1996 to $17.2 million in 1997, an increase of 183%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by over $21 million to $39.3 million in 1997
from $18.2 million in 1996 or 115%. The increase was attributable to increases
in compensation and benefits ($7 million in 1996 compared to $16 million in
1997), and advertising ($6 million in 1996 compared to over $16 million in
1997), reflecting the increased size and scope of the Company's business.
Other Income and Expense. For the year ended December 31, 1997, the Company's
net other income/expense was an expense of $706,000 as compared to $74,000 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 $800,000 in trading securities. 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.
Operating Income. Operating income increased from $4.3 million in 1996 to $14.5
million in 1997, an increase of $10.2 million or 237%. The increase was due to
the Company's achieving revenue growth, while maintaining high profit margins on
both seminar and product sales revenues as well as taking advantage of the
economies of scale in the distribution, travel, and publishing areas.
The provision for income taxes of $5.6 million and $1.5 million for years 1997
and 1996, respectively reflect taxes payable in respect of profitable
operations. The Company's effective tax rates differed from the federal
statutory rate primarily because of certain deferred revenues, unrealized loss
on trading securities, accelerated depreciation and state taxes.
As a result of the foregoing, income from continuing operations increased from
$2.8 million, or $.05 per share, in 1996 to $8.3 million, or $.13 per share, in
1997. Income from discontinued operations was $714,000, or $.01 per share in
1997, compared with $221,000 in 1996.
Liquidity and Capital Resources
At December 31, 1998, the Company had current assets of $12.0 million and
current liabilities of $28.6 million, resulting in a working capital deficit of
$16.6 million. The working capital deficit at December 31, 1997 was $11.0
million. Current liabilities at December 31, 1998 include $5.7 million in
deferred revenue, which results principally from payments received from persons
who have signed up and paid in advance for future pager services, subscriptions
to the WIN website or to attend seminars not yet held. Current liabilities at
December 31, 1998 also include $5.0 million in taxes payable, which includes
approximately $2.7 million in delinquent payments owed on 1997 state and federal
taxes. The Company has not made estimated tax payments with respect to income
taxes in 1998.
Mr. Wade B. Cook, the Company's largest shareholder and CEO, agreed to a
reduction of $2.0 million in royalties for the quarter ended September 30, 1998,
to assist with the Company's cash flow requirements. At December 31, 1998, the
Company had payables to related parties of $3.1 million, which represent
principally royalties owed to Mr. Cook and which were net of the reduction
agreed to by Mr. Cook.
The market value of the Company's marketable securities decreased from
$6.1million at December 31, 1997 and $4.4 million at June 30, 1998 to $2.9
million at December 31, 1998, due to sales of securities. Inventory increased
from $1.3million at December 31, 1997 to $3.7 million at December 31, 1998 due
principally to increases in inventory to support expanded product lines,
including products of subsidiaries acquired in the fourth quarter of 1997. At
December 31, 1998 the Company also had receivables from
23
<PAGE>
related parties of $2.9 million consisting principally of term loans to
employees and directors, the majority of which are secured by mortgages on real
property.
The Company's principal source of cash in the past has been from the operation
of its investment seminars and sales of tapes, books and other materials focused
on business strategies and financial and personal wealth management. The Company
does not have an established bank line of credit. Cash provided by operations
increased by $1.3 million in 1998. This increase reflected increases in accounts
and royalties payable, and a reduction in deposits and proceeds from the sale of
trading securities.
Cash generated from financing activities, principally borrowing, was $7.1
million in 1998, compared with $485,000 in 1997, as the Company borrowed funds
in connection with its investment in hotel activities.
In addition to cash received from its own operations, the Company is entitled to
receive payment under its license agreement with Entity Planners Inc.("EPI")
based on a percentage of sales, but not less than $35,539 per week which
represents the minimum weekly payment due ($40,385) less 12% payable to Mr. Cook
personally pursuant to a prior understanding between Mr. Cook and the Company.
See Part I, Item 1 of this report. Receipt of these payments may, as a practical
matter, be dependent on the success of the business in the hands of the buyers.
The Company continues to use cash to acquire interests in hotel properties and
other businesses. See "Overview" and Part I, Item 1 of this report. Use of cash
for these purposes has significantly exceeded cash generated by operations. Net
cash used in investment was $21.0 million in 1998, compared with $14.5 million
in 1997. Property and equipment increased from $10.4 million at December 31,
1997 to $29.2 million at December 31, 1998, reflecting principally hotel
activities, and non-marketable investments increased from $7.3 million at
December 31, 1997 to $9.5 million at December 31, 1998, due principally to
additional minority investments in other developing businesses.
The Company's board of directors has approved the repurchase of up to one
million shares of common stock, and during 1998 the Company repurchased 251,000
shares for an aggregate of approximately $537,000. The Company presently has no
plans to repurchase any additional shares of its common stock.*
The Company has formed and acquired new businesses, has continued to fund these
businesses in anticipation of future revenues, and has continued its policy of
committing available cash to new businesses and other investments. The Company's
policy of using available cash to acquire developing businesses, hotels and
non-marketable investments and its working capital deficit have resulted in
constraints on liquidity, including failure to pay tax obligations when due. The
Company has significant cash commitments and requirements in future periods,
including its unpaid taxes and other current payables, $4.7 million in current
maturities of long-term debt at December 31, 1998, and $581,000 in lease
payments accruing during 1999. In March 1999, the Company was obligated to make
a $895,000 payment on the long-term loan assumed by the Company in connection
with the acquisition by the Company of the Best Western McCarran House in
Sparks, Nevada. The Company renegotiated the debt and paid $600,000 plus accrued
interest and a 4% late fee, and is obligated to pay the lender an additional
$295,000 on April 10, 1999.
Under the terms of a contract with the Hewlett Packard Company ("HP"), the
Company agreed to pay HP for the development of an inter-office communications
network. The Company has since discontinued HP's services under the contract. At
December 31, 1998, the Company had incurred expenses under the contract of
approximately $795,000.
The Company also anticipates spending up to $1.0 million in 1999 for
improvements to its hotel properties, but this amount could be exceeded.*
The Company regularly evaluates other acquisition and investment opportunities,
and additional cash resources may be devoted to pursuing such opportunities.
24
<PAGE>
If the Company is required to generate cash for working capital purposes from
its properties and non-marketable investments, it may not be able to liquidate
these assets in a timely manner, or in a manner that allows the Company to
realize the full value of the assets. Failure to generate adequate cash
resources for working capital could require the Company to cut back operations,
delay or cancel expansion and development projects, dispose of properties,
businesses or investments on unfavorable terms or cause the Company to be unable
to meet obligations.*
The Company is a party to various government investigations and legal
proceedings. See Part I, Item 3, of this report. The legal fees and other costs
involved may be material.* If the Company were found to be liable in certain of
these proceedings, the liability could be material.* In addition, if government
agencies charge the Company with violation of certain consumer protection or
other laws and establish such violations, they could seek to require the Company
to pay material penalties or to refund money paid to the Company by seminar
attendees within their jurisdiction, and to cease doing business in the
jurisdiction or significantly change the manner in which the Company's business
is conducted. Any such result could materially adversely affect the Company's
financial condition or results of operations.
Year 2000
Many computer systems experience problems handling dates in and beyond the year
1999. Therefore, some computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. The Company is currently
assessing both the readiness of its internal computer systems, software and
embedded chips for handling the year 2000. The Company intends to complete this
testing process of all significant applications and systems by June 1999.* The
Company expects to implement successfully any systems and programming changes
necessary to address year 2000 issues, and does not believe that the cost of
such actions will have a material effect on the Company's results of operations
or financial condition.* The Company does not have any contingency plans with
respect to year 2000 issues. There can be no assurance, however, that there will
not be a delay in, or increased costs associated with, the implementation of
such changes, and the Company's inability to implement such changes could have
an adverse effect on future results of operations or financial condition. The
Company is also assessing and addressing the possible effects on the Company's
operations of the year 2000 readiness of key suppliers and other vendors. The
Company's reliance on suppliers and vendors, and therefore, on the proper
functioning of their information systems and software, means that their failure
to address year 2000 issues could have a material impact on the Company's
operations and financial results. However, the potential impact and related
costs are not known at this time. The Company can give no guarantee that the
systems of other companies upon which the Company relies will be converted on
time or that failure to convert by another company would not have a material
adverse affect on the Company.
The Company's Year 2000 remediation plan focuses on: internal systems, including
personal computing, facilities and business systems, and third-party
considerations, such as suppliers and other vendors. The tasks common to each of
these areas are (i) the identification and assessment of Year 2000 issues, (ii)
assessment of remediation required, (iii) prioritization of risk, (iv)
remediation and testing and (v) contingency planning.
Internal Systems
The Company's compliance team has evaluated significant internal personal
computing and business systems that are critical to the ongoing operation of the
Company and in the process of identifying the computer hardware and software
upgrades and replacements necessary to make such systems Year 2000 compliant.
Such upgrades and replacements are expected to be completed by the end of the
second quarter of 1999.
Suppliers and Vendors
The Company's business operations are, to some extent, dependent on the Year
2000 readiness of infrastructure suppliers such as banking, communications,
transportation and other services. In this environment, there will likely be
instances of failure that could cause disruptions in business processes.*
25
<PAGE>
The likelihood and effects of such failures in infrastructure systems and the
supply chain cannot be estimated.
Costs
The total cost of the Company's Year 2000 Plan is not material to the Company's
financial condition. The estimated total cost of the Plan is expected to be
under $10,000 and is being funded through operating cash flow.* As at December
31, 1998, the Company had incurred approximately less than $5,000 in costs
related to its Year 2000 identification, assessment, remediation and testing
efforts. The major portion of the remaining amount of the estimate is expected
to have been incurred by the end of the second quarter of 1999 when the
Company's Year 2000 compliance efforts are expected to be completed, with the
balance expended thereafter to monitor the compliance process. None of the
Company's other projects have been delayed or deferred as a result of the
implementation of the Year 2000 Compliance Plan.
Risks
To date, the Company has not incurred, and does not expect to incur, material
costs to review and remedy Year 2000 compliance problems.* However, there can be
no assurance that the systems or products of other entities, including the
Company's suppliers on which the Company relies and disruptions in the economy
generally resulting from Year 2000, will not have a material adverse effect on
the Company.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
See Note M to the Company's audited financial statements included under Item 14
of this report, which is incorporated herein by this reference.
The Company is exposed to changes in interest rates affecting the return on its
notes receivable and investments. In the normal course of business, the Company
employs established policies and procedures to manage its exposure to
fluctuations in interest rates.
The Company's exposure to market rate risk for changes in interest rates relates
primarily to the Company's investments and notes receivables. The Company has
not used derivative financial instruments in its investment portfolio. The
Company places their investment with enterprises with which it has majority
control and thus limits the amount of credit exposure to any one issuer. The
Company protects and preserves its invested funds by limiting default, market
and reinvestment risk.
Item 8. Financial Statements and Supplementary Data.
Reference is made to the financial statements listed under the heading "(a)(1)
Financial Statements" of Item 14 herein, which financial statements are
incorporated herein by reference in response to this Item 8.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
Not applicable.
Part III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this item is included in the Company's proxy
statement for its 1999 Annual Meeting of Shareholders and is incorporated herein
by reference.
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<PAGE>
Item 11. Executive Compensation Summary Of Cash And Certain Other Compensation
The information required by this item is included in the Company's proxy
statement for its 1999 Annual Meeting of Shareholders and is incorporated herein
by reference.
Item 12. Security Ownership Of Certain Beneficial Owners And Management
The information required by this item is included in the Company's proxy
statement for its 1999 Annual Meeting of Shareholders and is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is included in the Company's proxy
statement for its 1999 Annual Meeting of Shareholders and is incorporated herein
by reference.
Part IV
Item 14. Exhibits, Financial Statement Schedules, And Reports On Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements
(i) Consolidated Balance Sheets at December 31, 1997 and 1998
(ii) Consolidated Statements of Income and Retained Earnings for the years
ending December 31, 1996, 1997 and 1998
(iii) Consolidated Statements of Changes in Shareholders' Equity
(iv) Consolidated Cash Flow Statements
(v) Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Not required.
3. Exhibits
Exhibit No. Description
- - ----------- -----------
2.1(Infinity) Stock Purchase Agreement dated June 30, 1998, by and among
the Company, Entity Planners, Inc., and Berry, Childers &
Associates, L.L.C.
2.2(Infinity) Amendment to Stock Purchase Agreement dated September 30,
1998 by and among the Company, Entity Planners Inc. and
Berry, Childers & Associates, L.L.C.
2.3* Purchase and Sale Agreement, dated July 4, 1996, between
United Support Association and Seller
2.4* 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
2.5** Share Exchange Agreement, dated January 1, 1998, between
Wade Cook Financial Corporation and Information Quest, Inc.
2.6** Stock Purchase Agreement, dated August 8, 1997, between
Profit Financial Corporation and Curtis A. Taylor and
Stanley J. Zenk regarding Worldwide Acquisition.
27
<PAGE>
Exhibit No. Description
- - ----------- -----------
2.7** Stock Purchase Agreement, dated August 1, 1997, between Wade
Cook Financial Corporation and John V. Childers, Sr., Brenda
Childers, Tracy Allan Childers and John V. Childers, Jr.
regarding Ideal Acquisition.
2.8** Share Exchange Agreement, dated August 15, 1997, between
Profit Financial Corporation and Gold Leaf Press, Inc.
2.9** Share Exchange Agreement, dated August 15, 1997, between
Profit Financial Corporation and Origin Book Sales, Inc.
2.10*** Assignment and Assumption of Interest, Consent Agreement,
Memorandum of Terms re: Airport Hotel Partners, L.L.C.
2.11*** Limited Liability Company Interest Purchase Agreement re:
Woods Cross Hotel Partners, L.C. dated November 29, 1997
2.12*** Limited Liability Company Interest Purchase Agreement with
exhibits re: Park City Hotel Partners, L.C. dated February
4, 1997
2.13*** Memorandum of Terms, Assignment and Assumption of Interest,
Warranty Deed re: Airport Lodging Associates, L.L.C.
2.14**** Share Exchange Agreement, dated January 1, 1998, between
WCFC & Quantum Marketing, Inc.
2.15**** Stock Assignment Agreement dated January 1, 1998, between
WCFC & Glendon H. Sypher
3.1** Articles of Incorporation of Wade Cook Financial Corporation
3.2** Bylaws of Wade Cook Financial Corporation
4.1** Form of Wade Cook Financial Corporation's Common Stock
Certificate 10.1**(Function) 1997 Stock Incentive Plan of
Wade Cook Financial Corporation
10.2** Form of Indemnification Agreement of Wade Cook Financial
Corporation
10.3* Product Agreement, dated June 25, 1997, and effective as of
July 1, 1997, among Wade Cook Seminars, Inc., Money Chef,
Inc., and Wade B. Cook
10.4* Agreement dated February 1, 1996, between Wade B. Cook and
Lighthouse Publishing Group, Inc.
10.5* Amended Agreement, dated June 26, 1997, between Wade B. Cook
and Lighthouse Publishing Group, Inc.
10.6* Agreement Dated January 1, 1997, between Wade B. Cook and
Lighthouse Publishing Group, Inc.
10.7* Amended Agreement dated June 26, 1997, between Wade B. Cook
and Lighthouse Publishing Group, Inc.
10.8* Agreement dated March 1, 1997, between Wade B. Cook and
Lighthouse Publishing Group, Inc.
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<PAGE>
Exhibit No. Description
- - ----------- -----------
10.9* Agreement dated May 1, 1997, between Wade B. Cook and
Lighthouse Publishing Group, Inc.
10.10*(Function) Employment Agreement dated June 26, 1997, by and between
Wade Cook Seminars, Inc., and Wade B. Cook
10.11* Commercial Lease dated June 25, 1997, by and between Wade
Cook Seminars, Inc. and U.S.A. Corporate Services, Inc.
10.12* Agreement dated November 1, 1996, between Wade B. Cook and
Lighthouse Publishing Group, Inc.
10.13* Secured Loan Agreement and Promissory Note (Secured) between
U.S.A., Wade Cook Seminars, Inc. and Newstart Centre, Inc.
10.14** Open-Ended Product Agreement, dated March 20, 1998, between
Wade Cook Financial Corporation and Wade B. Cook
10.15*** Product Agreement, dated March 23, 1998, between Planet
Cash, Inc., Steven Allyn Wirrick and Wade Cook Financial
Corporation
10.16*** Stock Assignment Agreement, dated January 1, 1998, between
Get Ahead Bookstores, Inc., Glendon H. Sypher and Wade Cook
Financial Corporation
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 September 12, 1997, between
Profit Financial Corporation and Applied Voice Recognition,
Inc.
10.19** Publishing Agreement, effective October 1, 1997 and signed
January 12, 1998, between Lighthouse Publishing Group, Inc.
and Wade B. Cook
10.20** Secured Loan Agreement, Promissory Note, and Certificate of
Delivery and Receipt of Documents, dated May 23, 1997,
between USA/Wade Cook Seminars, Inc. and Newstart Centre,
Inc.
10.21** Secured Loan Agreement, Promissory Note, and Certificate of
Delivery and Receipt of Documents, dated June 20, 1997,
between Wade Cook Seminars, Inc. and Newstart Centre, Inc.
10.22** Secured Loan Agreement, Promissory Note, and Certificate of
Delivery and Receipt of Documents, dated July 25, 1997,
between Wade Cook Seminars, Inc. and Newstart Centre, Inc.
10.23** Secured Loan Agreement, Promissory Note, and Certificate of
Delivery and Receipt of Documents, dated August 22, 1997,
between Information Quest, Inc. and Newstart Centre, Inc.
10.24** Secured Loan Agreement, Promissory Note and Certificate of
Delivery and Receipt of Documents, dated October 9, 1997,
between Information Quest, Inc. and Newstart Centre, Inc.
10.25** Secured Loan Agreement, Promissory Note and Certificate of
Delivery and Receipt of Documents, dated October 9, 1997,
between Left Coast Advertising, Inc. and Newstart Centre,
Inc.
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<PAGE>
Exhibit No. Description
- - ----------- -----------
10.26** Secured Loan Agreement, Promissory Note and Certificate of
Delivery and Receipt of Documents dated August 19, 1997,
between Left Coast Advertising, Inc. and Newstart Centre,
Inc.
10.27*** Secured Loan Agreement, Promissory Note and Certificate of
Delivery and Receipt of Documents, dated January 20, 1998,
between Wade Cook Seminars, Inc. and Newstart Centre, Inc.
10.28** Secured Promissory Note, dated July 31, 1997, between Wade
Cook Seminars, Inc. and Robert and Meda Hondel
10.29*** Secured Promissory Note, dated June 18, 1997, between Paul
and Laurie Cook and Wade Cook Seminars, Inc.
10.30*** Secured Promissory Note, dated January 1, 1998, between Paul
and Laurie Cook and Wade Cook Seminars, Inc.
10.31*** Warranty Deed, Articles of Organization re: Red Rock Lodging
Associates
10.32**** Contract for Sale of Real Estate dated January 20, 1998 by
and between Ideal Travel Concepts, Inc. and/or assigns and
Kenneth B. Lenoir
10.33(Infinity) Exclusive Product License Agreement dated June 30, 1998 by
and between Wade B. Cook, and Entity Planners, Inc.
10.34(Infinity) Exclusive Product License Agreement dated June 30, 1998 by
and between Wade Cook Financial Corporation, and Entity
Planners, Inc.
10.35(Infinity) Open Ended Product Agreement between the Company and Wade
Cook dated March 20, 1998
10.36(Infinity) Amendment to the Open Ended Product Agreement dated November
13, 1998 by and between the Company and Wade Cook
10.37 Assignment and Assumption of Interest dated August 22, 1996
by and between Zion's Management and Development Co.,
Airport Lodging Associates L.C. and Wade Cook Seminars, Inc.
10.38 Real Estate Purchase Contract dated August 22, 1997 (St.
George Hilton)
10.39 Addendum No. 1/Counteroffer to Real Estate Purchase Contract
dated August 1997 (St. George Hilton
10.40 Real Estate Lease dated July 16, 1998 between Origin Book
Sales, Inc. and California Avenue Associates, LLC.
10.41 Form of Speaker Agreement
10.42 Agreement dated December 11, 1998 between THH Ventures L.C.
and the Company
10.43 Purchase Agreement dated February 28, 1998 between Ki Hong
Kim, Hoo Hyung Kim and Zions Management and Development
11.1 Statement of Computation of Per Share Earnings
16.1** Letter re: Change in Certifying Accountant
21.1 List of Wade Cook Financial Corporation Subsidiaries
30
<PAGE>
Exhibit No. Description
- - ----------- -----------
27.1 Financial Data Schedule - December 31, 1998
* Previously filed as an exhibit to the Company's registration statement on
Form 10 filed with the SEC on April 30, 1997, as amended on June 29, 1997
and September 24, 1997
** Previously filed as an exhibit to the Company's Form 10-K filed with the
SEC on March 31, 1998
*** Previously filed as an exhibit to the Company's Form 10-K/A filed with the
SEC on July 20, 1998
**** Previously filed as an exhibit to the Company's Form 10-Q filed with the
SEC on August 8, 1998
(Infinity) Previously filed as an exhibit to the Company's Form 10-Q filed with
the SEC on November 16, 1998
(Function) This document has been identified as a management contract or
compensatory plan or arrangement.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the fourth
quarter of 1998.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Wade Cook Financial Corporation has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
March 23, 1999.
Wade Cook Financial Corporation
By: /s/ Wade B. Cook
------------------------------------
Wade B. Cook, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
to be signed by the following persons on behalf of Wade Cook Financial
Corporation in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Wade B. Cook Chief Executive Officer, Director March 23, 1999
- - ------------------------ (principal executive officer)
Wade B. Cook
/s/ Richard Smith Chief Financial Officer March 26, 1999
- - ------------------------ (chief accounting officer)
Richard Smith
- - ------------------------ Director/Secretary March __, 1999
Laura Cook
/s/ Robert Hondel Director March 29, 1999
- - ------------------------
Robert Hondel
/s/ Robin Anderson Director March 29, 1999
- - ------------------------
Robin Anderson
* Director March 29, 1999
- - ------------------------
Nicolas Dettman
______________________ Director March 30, 1999
Joel Black
/s/ Janice Leysath Director March 29, 1999
- - ------------------------
Janice Leysath
* Director March 30, 1999
- - ------------------------
John Lang
- - ------------
* Signed by Richard Smith pursuant to a power-of-attorney dated March 30,
1999
32
<PAGE>
Tel: (310)576-6880 MILLER AND CO.
Fac: (310)576-6881 CERTIFIED PUBLIC ACCOUNTANTS MEMBERS OF
EMAIL: milco@ 501 SANTA MONICA BOULEVARD S.E.C. PRACTICE
ix.netcom.com SECOND FLOOR SECTION OF THE
SANTA MONICA, CALIFORNIA 90401 AMERICAN INSTITUTE
OF CERTIFIED PUBLIC
ACCOUNTANTS
Established 1949
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, 1998 and 1997, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for the years ended December 31, 1998, 1997, and 1996. 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 opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Wade
Cook Financial Corporation and subsidiaries as of December 31, 1998 and 1997,
and the results of their consolidated operations and their consolidated cash
flows for the years ended December 31, 1998, 1997, and 1996 in conformity with
generally accepted accounting principles.
As discussed in Note-H to the financial statements, the Company has restated its
1996 earnings per share.
/s/ Miller and Co.
Certified Public Accountants
Santa Monica, California
February 26, 1999
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
December 31,
(in thousands) --------------------------------------
CURRENT ASSETS NOTES 1998 1997
- - -------------- ------------ ----------------- -----------------
<S> <C> <C> <C>
Cash and cash equivalents A $ 1,742 $ 540
Marketable securities A,C 2,870 6,163
Trade and credit card receivables B 3,112 3,283
Inventory A 3,743 1,312
Due from related parties B,F 65 750
Notes receivable - employees, current portion B,F 112 243
Prepaid expenses 354 236
Deferred tax asset A - 251
----------------- -----------------
TOTAL CURRENT ASSETS 11,998 12,778
----------------- -----------------
PROPERTY AND EQUIPMENT A,D,Q 29,203 10,425
- - ---------------------- ----------------- -----------------
GOODWILL A 3,061 2,638
- - -------- ----------------- -----------------
OTHER ASSETS
Non-marketable investments A,L 9,493 7,331
Other investments 255 247
Deposits E 152 4,093
Notes receivable - employees B,F 2,920 3,293
Due from related parties B,F 1,616 599
----------------- -----------------
TOTAL OTHER ASSETS 14,436 15,563
----------------- -----------------
TOTAL ASSETS $58,698 $41,404
------------ ================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements. See accompanying independent auditors' report.
-2-
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
December 31,
-------------------------------------
CURRENT LIABILITIES NOTES 1998 1997
- - ------------------- ------------ ---------------- ----------------
<S> <C> <C> <C>
Current portion of long-term debt G $ 4,667 $ 1,445
Book overdrafts E - 2,156
Accounts payable and accrued expenses 9,198 6,451
Margin loans in investment accounts L 146 2,767
Payroll and other taxes withheld and accrued 163 163
Income taxes payable A,O 4,969 5,254
Deferred tax liability 642 -
Deferred revenue A 5,662 4,764
Due to related parties F 3,110 783
Notes payable to officer G 45 45
---------------- -----------------
TOTAL CURRENT LIABILITIES 28,602 23,828
LONG -TERM DEBT G 9,473 821
---------------- ----------------
TOTAL LIABILITIES 38,075 24,649
---------------- -----------------
COMMITMENTS & CONTINGENCIES N,T,U
MINORITY INTEREST 936 688
---------------- ----------------
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 64,345,630 shares and 64,245,923 shares outstanding
as of, December 31, 1998 and 1997, respectively H 644 642
Paid-in capital 4,093 3,692
Prepaid advertising I (500) (500)
Retained earnings 15,987 12,233
---------------- -----------------
20,224 16,067
---------------- -----------------
Less: treasury stock at cost H
(251,000 shares) 537 -
---------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 19,687 16,067
---------------- ---------------
TOTAL LIABILITIES, MINORITY INTEREST,
AND SHAREHOLDERS' EQUITY $ 58,698 $ 41,404
================ ================
</TABLE>
-3-
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
-------------------------------------------------------
<TABLE>
Years Ended
----------------------------------------------------------
December 31,
---------------------------------------------------------
(in thousands, except share data) NOTES 1998 1997 1996
- - --------------------------------- --------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
REVENUES, NET OF RETURNS AND DISCOUNTS P $ 118,207 $ 93,343 $ 37,008
COSTS OF REVENUES P
Royalties to related party 7,976 9,997 3,968
Speaker fees to related party 378 167 131
Other costs of revenues 48,409 29,328 10,361
---------------- ----------------- ----------------
TOTAL COSTS OF REVENUES 56,763 39,492 14,460
----------------- ---------------- ----------------
GROSS PROFIT 61,444 53,851 22,548
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 57,890 39,309 18,178
----------------- ---------------- ----------------
INCOME FROM OPERATIONS 3,554 14,542 4,370
----------------- ---------------- ----------------
OTHER INCOME (EXPENSE) G
Dividends and interest 624 385 60
Gain (loss) on trading securities A,C 837 (804) 93
Other income 386 128 58
Loss on non-marketable investments (435) (106) -
Loss on disposition of fixed assets - - (22)
Licensing fees V 1,697 - -
Interest expense (1,453) (309) (263)
----------------- ---------------- ----------------
TOTAL OTHER INCOME (EXPENSE) 1,656 (706) (74)
----------------- ---------------- ----------------
INCOME BEFORE INCOME TAXES 5,210 13,836 4,296
PROVISION FOR INCOME TAXES O 2,346 5,579 1,452
----------------- ---------------- ----------------
INCOME BEFORE MINORITY INTEREST 2,864 8,257 2,844
MINORITY INTEREST 127 21 -
----------------- ---------------- ----------------
INCOME FROM CONTINUING OPERATIONS
2,991 8,278 2,844
----------------- ---------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements. See accompanying independent auditors' report.
-4-
<PAGE>
<TABLE>
Years Ended
----------------------------------------------------------
December 31,
----------------------------------------------------------
(in thousands, except share data) NOTES 1998 1997 1996
- - --------------------------------- --------- ----------------- ---------------- ------------------
<S> <C> <C> <C> <C>
DISCONTINUED OPERATIONS V
Income from operations of Entity
Planners, Inc., to be disposed of (net
of income taxes of $315,000 in 1998,
$484,000 in 1997, and $149,000 in 1996) 585 714 221
Operating income of Entity Planners, Inc.,
during phase-out period (net of income tax
of $8,280 in 1998) 15 - -
Gain on disposal of Entity Planners, Inc.
(net of income tax of $87,500 in 1998) 163 - -
----------------- ---------------- ----------------
INCOME FROM DISCONTINUED
OPERATIONS 763 714 221
----------------- ---------------- ----------------
NET INCOME $ 3,754 $ 8,992 $3,065
================ ================= ================
EARNINGS PER SHARE A
Income from continuing operations $ .05 $ .13 $ .05
Income from discontinued operations .01 .01 -
Income during phase-out period - - -
Gain on disposal - - -
----------------- ---------------- ----------------
Net income $ .06 $ 14 $ .05
================ ================= ================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 63,888 63,363 $59,610
================ ================= ================
</TABLE>
-5-
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
<TABLE>
Class A
Common Stock
----------------------
Additional Retained Total
Paid-in Earnings Prepaid Treasury Shareholders
(in thousands) Shares Amount Capital (Deficit) Advertising Stock Equity
- - -------------- --------- --------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances - December 31, 1996
as restated, Note X 6,681 $ 67 $ 894 $3,241 $ (500) - $ 3,702
Issuance of restricted stock
in exchange for finders' fees
relating to purchase of interest
in Fairfield Inn, Provo, Utah 10 .1 34 34
Issuance of restricted stock 11 .1 32 32
Issuance of restricted stock in
exchange for finders' fees
relating to purchase of interest
in Hampton Inn & Suites,
Park City, Utah 4 .4 52 52
Issuance of restricted stock
for 12% interest in 45th
South Hotel Partners, LC 10 .1 60 60
Authorized but unissued
restricted Stock in exchange for
stock of Ideal Travel Concepts,
Inc., at August 1, 1997 358 4 2,146
Issuance of restricted stock in
exchange for the common stock
of Origin Book Sales, Inc. at
August 27, 1997 30 - 196 196
Issuance of restricted stock in
exchange for the common stock
of Gold Leaf Press, Inc. at
August 27, 1997 8 .08 51 51
Issuance of restricted stock 20 - 32 32
Effect of 3 for 1 stock split 14,265 143 (143)
Issuance of restricted shares
in Exchange for 7% interest in
Wood Cross Hotel Partners, LC 12 .1 119 119
Issuance of restricted stock 2 .02 8 8
Effect of 3 for 1 stock split 42,821 428 (428)
Authorized but unissued
restricted stock for employee
bonus 14 .1 -
Return of stock sale profits by 633 633
officer (Note B)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements See accompanying independent auditors' report.
-6-
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
<TABLE>
Class A
Common Stock
----------------------
Additional Retained Total
Paid-in Earnings Prepaid Treasury Shareholders
Shares Amount Capital (Deficit) Advertising Stock Equity
--------- --------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Collection of subscription
Receivable 6 6
Net Income for year ended
December 31, 1997 8,992 8,992
--------- --------- ----------- ----------- ----------- ----------- ------------
Balances - December 31, 1997 64,246 $ 643 $ 3,692 $ 12,233 $ (500) $ - $16,067
--------- --------- ----------- ----------- ----------- ----------- ------------
Issuance of restricted common
stock in exchange for the
common stock of Information
Quest, Inc. at January 1, 1998 45 .5 188 189
Issuance of restricted common
stock in exchange for the
common stock of Quantum
Marketing, Inc. at January 1, 45 .5 188 189
1998
Issuance of restricted common
stock in exchange for all of
the common stock of
Convenience Specialty Stores,
Inc. (OTC BB: CSVC) at April 10 - 25 25
23, 1998
Common stock purchased and
held in treasury at December 537 (537)
31, 1998
Net income for the year ended
December 31, 1998 3,754 3,754
--------- --------- ----------- ----------- ----------- ----------- ------------
64,346 $ 644 $ 4,093 $ 15,987 $ (500) $ 537 $19,687
========= ========= =========== =========== =========== =========== ============
</TABLE>
-7-
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
---------------------------------
<TABLE>
Years Ended
December 31,
----------------------------------------------------------
(in thousands) 1998 1997 1996
- - -------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,754 $ 8,992 $ 3,065
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,958 1,287 345
(Gains) losses on trading securities (684) 804 (93)
Losses on disposition of fixed assets - - 22
Loss on investment in non-marketable securities 443 106 -
Purchases of trading securities (24,963) (20,806) (11,290)
Proceeds from sale of trading securities 26,942 19,319 9,035
Changes in assets and liabilities: net of effects of acquisitions:
Receivables 171 (2,423) (3,250)
Inventory (2,431) (582) (350)
Prepaid expenses (118) (143) (141)
Deferred taxes 893 532 (776)
Deposits 3,941 (4,058) -
Due from related parties (332) - -
Accounts payable and accrued expenses 2,747 8,536 475
Payroll and other taxes withheld and accrued - (688) 693
Income taxes payable (285) 3,178 1,981
Deferred revenue 898 (396) 4,809
Due to related party - 118 -
Royalties payable 2,327 172 (136)
----------------- ---------------- -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 15,261 13,948 4,389
----------------- ---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable from employees and officers 504 (1,571) -
Capital expenditures (18,926) (4,157) (4,729)
Purchase of non-marketable investments (2,162) (6,286) -
Subsidiary's investment 139 (769) (88)
Return of subsidiary's investment 248 - 800
Payment for purchase of companies, net of cash acquired (423) (1,748) -
----------------- ----------------
NET CASH USED FOR INVESTING ACTIVITIES (20,620) (14,531) (4,017)
----------------- ---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of subsidiary's minority interest - 70 321
Payment of book overdrafts (2,156) - -
Long-term borrowings 11,875 - -
Repayment on short-term borrowings (2,621) (292) (193)
Issuance of common stock - 72 108
Collection on subscription receivables and
return of stock profits by officer - 638 -
Purchase of treasury stock (537) - -
----------------- ---------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,561 488 236
----------------- ---------------- -----------------
NET INCREASE (DECREASE) IN CASH 1,202 (95) 608
CASH, beginning of year 540 635 27
----------------- ---------------- -----------------
CASH, end of year $ 1,742 $ 540 $ 635
================= ================ =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements See accompanying independent auditors' report.
-8-
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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), a holding
company, whose principal operating subsidiaries include:
Wade Cook Seminars, Inc. (WCS), (formerly known as United Support
Association, 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. WCS also hosts a subscriber internet service,
Wealth Information Network (WIN), which allows subscribers
to log on for information related to the stock market.
Lighthouse Publishing Group, Inc. (Lighthouse) - publishes books
on investment, financial and motivational topics.
Left Coast Advertising, Inc. (Left Coast) - is an advertising
agency, with only inter-company sales.
Origin Book Sales, Inc. (Origin) - is a book distributor.
Worldwide Publishers, Inc. (Worldwide) - is a book publisher.
Gold Leaf Press, Inc. (Gold Leaf) - is a book publisher.
IdealTravel Concepts, Inc. (Ideal) - is a travel agency, also in
the business of selling travel agent training kits.
Bountiful Investment Group, Inc. - owns interest in real estate
ventures, primarily hotels.
In 1998, the Company acquired the following business enterprises
(Note R):
Information Quest, Inc. (IQ) - the producer of the IQ Pager,
which provides subscribers with paging services for stock
related information.
Quantum Marketing Inc. (Quantum) - which provides local marketing
through its website on the internet and retail centers
located in Tacoma and Seattle, Washington and Santa Ana,
California. The retail centers also provide consumers with
online terminals with access to stock market information
through the WIN.
Get Ahead Bookstores, Inc. - a retail distributor of financial
education, personal development, and inspirational products,
including books, audio tapes, and video tapes located in the
Quantum education centers.
Copyrights
The copyrights to most seminars, video and audio tapes, and
written materials are now owned by Wade B. Cook, a related party.
As used hereafter, "Company" refers to Wade Cook Financial
Corporation and its consolidated subsidiaries.
10
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 have been used to
prepare the consolidated financial statements as of December 31,
1996. 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 or 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 during 1998, WCFC acquired IQ, Quantum, and Get Ahead
Bookstores, the purchase method of accounting was used for all
acquisitions (see Note R and S). The consolidated financial
statements include the activity of each identified acquisition
from the date of acquisition through December 31, 1998 and 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 $124,000, and
$50,000 as of December 31, 1998 and 1997, respectively.
Marketable securities
Brokerage accounts are 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 in earnings 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 straight-line and accelerated methods over the
estimated useful lives of the related assets for both financial
reporting and tax reporting purposes. Leasehold improvements are
amortized using 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
11
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Summary of Significant Accounting Policies (continued)
------------------------------------------
Property and equipment (continued)
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 to be disposed of. SFAS 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
In 1998 and 1997 acquisitions (Note R) resulted in the Company
recording 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
If the Company owns less than 20% of the investee, the Company
accounts for non-marketable investments using the cost method.
The Company uses the equity method when the investment represents
ownership between 20% and 50%.
Revenue recognition
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.
IQ sells pager services in twelve or twenty-four month contract
subscriptions, but receives the revenue in advance, which is
presented in the financial statements as deferred revenue until
earned. The deferred revenues are recognized on a monthly basis
over the term of the contract.
Other revenues are recognized when finished products are shipped
to customers or services have been rendered.
Advertising costs
Advertising costs are expensed when incurred. Advertising costs
amounted to $19.230 million, $13.685 million, and $6.095 million
for the years ended December 31, 1998, 1997 and 1996,
respectively.
12
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note A - Summary of Significant Accounting Policies (continued)
------------------------------------------
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.
As of December 31, 1998, the Company owed the United States
treasury $2.701 million in income taxes and accrued penalties and
interest on unpaid income taxes for the year ended December 31,
1997. In addition, the Company owed various state governments
$481,000 in unpaid taxes and accrued penalties and interest, also
on unpaid taxes for the year ended December 31, 1997. The Company
has not made any estimated tax payments on income earned in the
year ended December 31, 1998, and no provision for this
underpayment penalty has been made.
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 airtime advertising in exchange for
common stock. The transaction is discussed in Note I.
Earnings per share
The Company accounts 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 1997 and 1996
financial statements to conform to the 1998 financial statement
presentation. Such reclassifications had no effect on net income
as previously reported.
New Accounting Pronouncements
The Accounting Standards Executive Committee (AcSEC) of the
American Institute of Certified Public Accountants (AICPA) issued
in March 1998, Statement of Position (SOP) 98-1, Accounting for
the Costs of Computer Software Developed or Obtained for Internal
Use, which provides guidance on accounting for the costs of
computer software developed or obtained for internal use. In
1998, the Company began installation of a company-wide software
program, SAP. The Company has contracted with an outside
engineering firm for the installation, implementation, and
training. As of December 31, 1998, the Company has spent $795,000
and estimates that an additional $1.205 million will be required
to have the computer system operating. As of December 31, 1998,
the progress payments on the installation phase are classified as
a fixed asset, with no depreciation being taken. Once the
software performs in its intended use, the Company will begin
depreciating.
13
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note A - Summary of Significant Accounting Policies (continued)
------------------------------------------
New Accounting Pronouncements (continued)
The AICPA in April 1998, issued SOP 98-5, Reporting on the Costs
of Start-up Activities, which provides guidance on the financial
reporting of start-up costs and organization costs. It requires
costs of start-up activities and organization costs to be expense
as incurred. In 1998, the Company adopted SOP 98-5, and does not
believe that it had a material effect on its financial statements
or disclosures.
The Financial Accounting Standards Board (FASB) in February of
1999, issued an exposure draft (ED) of a proposed Statement of
Financial Accounting Standards (SFAS), Consolidated Financial
Statements: Purpose and Policy. The Company believes that the
proposed accounting standards will not have a material effect on
the consolidated financial statements.
Note B - Receivables
Following is a summary of receivables:
<TABLE>
December 31, December 31,
(in thousands) 1998 1997
-------------- ----------------- -----------------
<S> <C> <C>
Trade and credit card receivables $3,112 $3,242
Notes receivable - employees 3,032 3,536
Due from related parties 1,681 1,349
Other - 41
================= =================
Total $7,825 $8,168
================= =================
</TABLE>
An allowance for uncollectible accounts is maintained, and at
December 31, 1998 and 1997, the allowance amounted to $629,000
and $58,000, respectively. Amounts reported on the balance sheet
are shown net of the allowance.
Note C - Marketable Securities
The net unrealized gain (loss) in trading securities that has
been included in earnings during the period amounted to $684,000,
$(755,000), and $93,000 for the years ended December 31, 1998,
1997, and 1996, respectively.
14
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note D - Property and Equipment
The following is a summary of property and equipment:
<TABLE>
December 31, December 31,
(in thousands) 1998 1997
-------------- ----------------- -----------------
<S> <C> <C>
Land $ 532 $ 532
Land - hotels 2,906 -
Building 8,723 6,022
Building - hotels 9,190 -
Equipment 5,307 2,447
Automobiles 1,634 1,280
Furniture and fixtures 3,704 1,774
----------------- -----------------
31,996 12,055
Less: Accumulated depreciation (3,295) (1,630)
Less: Accumulated depreciation - hotels (293) -
----------------- -----------------
28,408 10,425
Software installation in progress 795 -
----------------- -----------------
Total $ 29,203 $ 10,425
================= =================
</TABLE>
Depreciation expense charged to operations was $1.958 million,
$1.269 million, and $345,000 in December 31, 1998, 1997, and
1996, respectively.
Note E- Deposits and Book Overdrafts
Deposits as of December 31, 1998 and 1997 amounted to $152,000
and $4.093 million, respectively. Deposits represent the
following:
<TABLE>
December 31,
-------------------------------------
Description 1998 1997
-----------
---------------- -----------------
<S> <C> <C>
Held by credit card processors $50 $ 2,050
Held for purchase of hotel - 1,913
Purchase of AVRI equipment - 120
Held for security on buildings 24 10
Held in escrow accounts 78 -
================ =================
Totals $ 152 $ 4,093
</TABLE>
Book overdrafts as of December 31, 1998 and 1997, amounted to
none and $2.156 million, respectively. 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" on the balance sheet.
15
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note F - Related Party Transactions
The Company entered into a product agreement with Wade B. Cook,
to obtain the rights to promote and sponsor seminars, entity
formation services (discontinued in June 1998) and products owned
and controlled by Wade B. Cook for a royalty. Royalty expenses
totaled $7.976 million, $9.997 million, and $3.968 million for
the years-ended December 31, 1998, 1997, and 1996, respectively.
As of December 31, 1998 and 1997, accrued royalties were $2.989
million and none, respectively.
In 1998, the Company renegotiated its product agreement with Wade
B. Cook, under the new terms of the agreement, Mr. Cook did not
receive any third quarter royalties. Under the previous
agreement, Mr. Cook would have received $2.037 million in
royalties. In addition, during for the year ended December 31,
1998, Mr. Cook and the Board of Directors agreed that Mr. Cook
would repay the Company amounts paid on his behalf for legal
expenses, totaling $642,000.
The Company obtained services from seminar speakers provided by
companies owned by officers of the Company. Total speaker fees
paid to such companies totaled $378,000, $167,000, and $131,000
for the years ended December 31, 1998, 1997, and 1996. There were
no additional amounts due to such companies as of December 31,
1998 and 1997.
Due from related parties represent advances to the following:
<TABLE>
December 31, 1998 December 31, 1997
-------------------------- ------------------------
(in thousands) Non- Non-
Related Parties Relationship Current Current Current Current
------------------- -------------------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Newstart 50% owned and controlled
Centre, Inc. by President/CEO of WCFC
or his affiliates $ 60 808 $ 43 $ 599
Get Ahead Prior to 1998, majority
Bookstores stockholder was an
employee of WCFC - - 156 -
Quantum Marketing Prior to 1998, majority
stockholder was a
director of WCFC - - 525 -
Crossroads General partner is
President/CEO of WCFC - 250 - -
Five Star General partner is
Consulting, Inc. President/CEO of WCFC
- 38 25 -
Related Associated with WCFC
Individuals 5 520 1 -
============ ========== ========== ==========
Total $ 65 $ 1,616 $ 750 $ 599
============ ========== ========== ==========
</TABLE>
16
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note F - Related Party Transactions (continued)
Due to related parties consists of the following:
<TABLE>
December 31, December 31,
(in thousands) Relationship 1998 1997
-------------------------- ----------------------------- ----------------- ----------------
<S> <C> <C> <C>
Wade B. Cook President/CEO of WCFC $ 3,110 $ -
Information Quest, Inc. Prior to 1998, majority
stockholder was employee of
WCFC - 683
Board of Directors
advances Directors of WCFC - 100
----------------- ----------------
Total $ 3,110 $ 783
================= ================
</TABLE>
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 none stated 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. 114 to allow a
creditor to use existing methods for recognizing interest income
on an impaired loan. At December 31, 1998 and 1997, reductions in
the notes receivable of $243,000 and $287,000, respectively, were
recorded to reflect impaired notes. Substantially all of the
reductions were 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, 1998 and 1997, due from employees amounted to
$3.032 million and $3.536 million, respectively, of which,
$112,000 and $243,000, respectively, has been classified as
current. Amounts due from employees represent loans both secured
and unsecured:
(in thousands) December 31, December 31, 1997
Loan 1998 1997
---------------- ---------------- ------------------
Secured $ 2,909 $ 3,098
Unsecured 123 438
Total $ 3,032 $ 3,536
================ ==================
For the years ended December 31, 1998 and 1997, interest income
resulting from the employee note receivables were $270,000 and
$200,000, respectively. Interest income is calculated by
multiplying the outstanding balance of unimpaired loans with
their respective interest rate. Interest income is not calculated
on impaired loans.
17
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
<TABLE>
Note G- Long-Term Debt
December 31,
(in thousands, except in descriptions) 1998 1997
-------------------------------------- ----------------- ----------------
<S> <C> <C>
Mortgage payable (Seattle, WA), secured by land and
building, due in monthly installments of principal
and interest of $100,000 from September 1, 1997 to
February 1, 1999, and $555,682 on March 1, 1999,
including interest at 9% per annum $ 746 $ 1,825
Real estate contract payable (Seattle, WA), secured
by land and building, payable in monthly
installments of $2,157, including interest at 7%
per annum, with an original maturity date of
September 1, 1998 340 340
Mortgage payable, secured by land and building
(Memphis, TN), due in monthly installments of principal
and interest of $13,380 from April 1, 1998 through
January 1, 2016, including interest of 11% per annum
(See Note X) 1,053 -
Note payable, secured by land (Best Western McCarran
House, Sparks, NV), with interest only monthly payments
of $6,250, at 15% per annum, with principal due June 1,
1999 500 -
Note payable, secured by land (72 South, Salt Lake City, UT),
due October 1, 1999, due in one payment of principal with
quarterly payments of accrued interest beginning January 1,
1999 at 10.5% per annum
450 -
Note payable, secured by land and building (Best Western
McCarran House, Sparks, NV), due June 30, 2011, in monthly
installments of principal and interest of $30,514, with
interest at 10% per annum, and with a balloon payment of
$2 million on June 30, 2001 3,437 -
Note payable, secured by land and building (Best Western
McCarran House, Sparks, NV), due March 10, 1999, with
monthly interest payments at 10% per annum (see Note X) 895 -
Mortgage payable, secured by land and building (Airport
Ramada Suites, Salt Lake City, UT), due in December 2003,
in monthly installments of principal and interest of $18,470,
with an initial interest rate of 10.35% per annum 1,817 -
</TABLE>
18
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note G- Long-Term Debt (continued)
<TABLE>
December 31,
--------------------------------------
(in thousands, except in descriptions) 1998 1997
-------------------------------------- ----------------- ----------------
<S> <C> <C>
Mortgage payable, secured by land and building (Four
Points by Sheraton, St. George, Utah), due February 1,
2023, in monthly installments of principal and interest
of $24,084, at 11.0% per annum 2,967 -
Mortgage payable, secured by land and building (Santa
Ana, CA), due March 2000, in monthly installments of
principal and interest of $28,719, at 8.0% per annum 409 -
Various secured notes payable, at market rates of interest
ranging from 6.9% to 19.05% per annum, with due dates
ranging from June 1999 to December 31, 2003 1,526 101
Unsecured note payable to related party originally due
October 15, 1996, at 10% per annum, due on demand 45 45
----------------- ----------------
Total Long Term Debt 14,185 2,311
Less: Current maturities
Others (4,667) (1,445)
related parties - -
officer (45) (45)
----------------- ----------------
Net Long Term Debt $ 9,473 $ 821
================= ================
</TABLE>
The following are maturities of long-term debt for each of the
next five years:
1999 $ 4,712
2000 949
2001 2,825
2002 771
2003 661
Thereafter 4,267
-----------------
Total $ 14,185
=================
19
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note H - Shareholders' Equity
The Company did not declare or pay any 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 million and 64.232 million common shares,
respectively, (7.132 million and 21.411 million 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 million common shares (3.325 million 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.
The Company has corrected its comparative weighted average number
of common shares outstanding from 26.575 million to 59.610
million for 1996. Earnings per share changed from $0.12 to $0.05
in 1996.
In compliance with the Company's plans to re-acquire up to one
million shares of its own common stock, the Company purchased
251,000 shares at a cost of $537,000. The re-acquired shares are
classified as treasury stock and are stated using the cost
method. The shares have not been retired and therefore are still
considered outstanding.
Returns 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,
$633,000 has been returned to the Company by its officer.
Note I - Prepaid Advertising
In 1995, the Company entered into an agreement with Associated
Reciprocal Traders, Ltd. (ART) to purchase from ART 20,000
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 September 10, 1996. The prepaid
advertising is shown as a reduction of shareholders' equity
rather than as an asset (Note H).
Note J - Concentration of Risks
Cash in banks, based on bank balances, exceeded federally insured
limits by $799,000 and $187,000 at December 31, 1998 and 1997,
respectively. Receivables from four credit card companies
aggregated approximately $880,000 and $487,693 at December 31,
1998 and 1997, respectively. The Company invests excess cash in
marketable securities. Marketable securities are carried at fair
market value, which amounted to $2.870 million and $6.163 million
as of December 31, 1998, and
20
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note J - Concentration of Risks (continued)
1997, and accounted for 5% and 15% of the Company's consolidated
assets as of December 31, 1998 and 1997, respectively.
The following table shows the percentage of revenues:
1998 1997 1996
---- ---- ----
Seminars 65% 65% 64%
Product sales 18% 31% 36%
Travel services 5% 4% -
Hotel revenue 3% - -
Pager services 8% - -
Pager services 1% - -
The following table shows the states from which the Company
derived over 10% of its seminar revenues:
1998 1997 1996
---- ---- ----
California 16% 15% 15%
Washington 6% 9% 13%
Florida 10% 10% 8%
Historically, the Company's success has been reliant upon the
success of Wade B. Cook and the products and seminars under his
control. Mr. Cook's products and seminars account for the vast
majority of the revenue of the Company, as well as, the majority
of the new products and seminars that have been created.
Currently, the Company is attempting to diversify through
acquisitions and the signing of new authors, however, in the
foreseeable future, the ability of the Company to continue to
generate similar revenue and profitable operations is reliant on
maintaining a licensing agreement with Mr. Cook.
Note K - Stock Incentive Plan
The Company's 1997 Incentive Stock Plan (Plan) provides for the
granting of stock, restricted stock, phantom stock, stock
appreciation rights both stand-alone and tandem (SAR's), stock
options, and other stock-based awards, including Incentive Stock
Options (ISO's). The Plan is to be administered by the Board of
Directors (Board). Under the terms of the Plan, plan administers
have the right to grant awards to eligible recipients and to
determine the terms and conditions of award agreements. Eligible
participants will be directors, officers, consultants and other
employees of the Company.
The maximum number of shares of Company stock reserved for
issuance under the plan is 1,000,000 shares. 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 determine the expiration date of each option,
provided that no ISO will be exercisable more than 10 years after
the date of grant. At December 31, 1998 and 1997, no stock was
issued under the provisions of the stock incentive plan.
21
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note K - Stock Incentive Plan (continued)
The Board may grant common stock as a bonus. 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 Internal Revenue Code
of 1986.
As of December 31, 1998, no form of stocks have been granted or
approved by the Plan administrators; therefore, shareholders'
equity has not been adjusted for any possible future
distributions associated with this Plan. In addition, earnings
per share and weighted average common shares outstanding do not
reflect any possible future distributions.
Note L - Non-Marketable Investments
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, 1998 and 1997. 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 $226,000 for the
year ending December 31, 1998 to write-down the carrying value of
an investment in a private company. The Company considers the
investment to have no market value.
Non-marketable investments consist of the following:
December 31, December 31,
(in thousands) 1998 1997
-------------- -------------- --------------
Cost method
Oil and gas $ 1,325 $ 650
Hotels/motels 784 1,177
Real estate 4,961 1,386
Private companies 750 1,250
---------------- --------------
7,820 4,463
---------------- --------------
Equity method
Hotels/motels 933 2,563
Real estate - 305
Private companies 740 -
---------------- --------------
1,673 2,868
---------------- --------------
Total $ 9,493 $ 7,331
================ ==============
22
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note L - Non-Marketable Investments (continued)
Investments in private companies in 1998, include: a privately
held computer software company ($750,000), an inactive public
company ($150,000), and a concrete repair business ($590,000).
Private companies in 1997, include: a privately held computer
software company ($750,000) and a wireless reseller company
($500,000), which was included in marketable securities in 1998.
Equity investments are shown net of their share of income and
losses for the year ended December 31, 1998 and 1997.
Accumulation deficit during the development stage was not
material in 1998 and 1997.
Note M - 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:
<TABLE>
<S> <C>
Cash and cash equivalents - The carrying amount of cash and cash equivalents
approximates its fair value.
Notes receivable
from Employees and Officers - The carrying amount of notes receivable approximated its fair value.
Marketable securities - The fair value of marketable securities were 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.
</TABLE>
23
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note M - Disclosures About Fair Value of Financial Instruments (continued)
The carrying amounts and fair values of the Company's financial
instruments at December 31, 1998 and 1997 are as follows:
<TABLE>
1998 1997
------------------------- ---------------------------
Carrying Fair Carrying Fair
(in thousands) Amount Value Amount Value
----------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 1,742 $ 1,742 $ 540 $ 540
Marketable securities 2,870 2,870 6,163 6,163
Receivables from employees and
officers 3,032 3,032 3,536 3,536
Non-marketable investments 9,493 9,493 7,331 7,331
Margin loans in investment
accounts 146 146 2,767 2,767
Long-term debt 9,473 9,473 821 821
</TABLE>
The carrying amounts in the table are included in the balance
sheet under the indicated captions, except for notes receivable
which has several components on the balance sheet.
Note N - Lease and Other Commitments
Operating lease commitments are primarily for the Company's
shipping warehouse and equipment rentals. Rental expense amounted
to $498,000, $135,000, and $295,000 for the years-ended December
31, 1998, 1997, and 1996, respectively.
Future minimum rental commitments are as follows:
(in thousands)
1999 $ 581
2000 506
2001 453
2002 441
2003 404
Thereafter 155
----------------
Total $ 2,540
================
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.
24
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note N - Lease and Other Commitments (continued)
The Company is committed to make renovations and improvements to
its hotel properties at an estimated $1 million to remain in
compliance with hotel franchisers.
The Company will incur an estimated, additional $1.2 million for
the remaining installation, implementation, and training in order
to have the SAP software performing to the Company's
expectations. Management is assessing the situation to determine
if the additional costs are warranted. If management decides to
abandon the project, the Company will expense the cost of the
software ($250 thousand) and the implementation costs already
incurred of $795 thousand.
Note O - Income Taxes
Provisions for income taxes in the consolidated statements of
income consist of the following components:
<TABLE>
Years ended December 31,
----------------------------------------------------------
(in thousands) 1998 1997 1996
-------------- ----------------- ----------------- -----------------
<S> <C> <C> <C>
Current
Federal $3,219 $ 4,660 $ 2,322
States 180 458 55
----------------- ----------------- -----------------
3,399 5,118 2,377
----------------- ----------------- -----------------
Deferred
Federal (550) 945 (776)
State (92) - -
----------------- ----------------- -----------------
(642) 945 (776)
----------------- ----------------- -----------------
Total income taxes $2,757 $ 6,063 $ 1,601
================= ================= =================
</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>
(in thousands) December 31,
-------------------------------------
Deferred tax assets: 1998 1997
-------------------- ---------------- -----------------
<S> <C> <C>
Unrealized (gain) loss on trading
securities $ (309) $254
State income tax - 160
---------------- -----------------
Total deferred tax assets (309) 414
---------------- -----------------
Deferred tax liabilities:
Accelerated depreciation (187) 70
Deferred revenues 1,109
State income tax 29 93
---------------- -----------------
Total deferred liabilities 951 163
---------------- -----------------
Net Deferred tax asset (liability) $ (642) $251
================ =================
</TABLE>
25
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note O - Income Taxes (continued)
The reconciliation of the effective income tax rate to the
Federal statutory rate is as follows:
<TABLE>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Federal income tax rate 35.0% 35.0% 35.0%
Unrealized loss on trading securities (9.1) 6.2 1.7
Deferred revenues 23.1 - 17.3
Accelerated depreciation (5.4) (1.3)
(1.3)
Capitalized interest - - (1.3)
State income tax 1.4 .4 .4
========= ========== ==========
Effective income tax rate 45.0% 40.3% 51.8%
========= ========== ==========
</TABLE>
Note P - Revenues and Other Cost of Revenues
<TABLE>
(in thousands) Pager Travel
Seminar Product Service Hotel Related
Revenue Sales Fees Income Service Other Total
--------- --------- ------- ------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Revenues, net of returns
and discounts $ 78,191 $ 20,696 $ 8,427 $ 3,336 $ 5,874 $ 1,683 $ 118,207
--------- --------- ------- ------- -------- ---------- -----------
Royalties to related party 6,521 1,290 - - - 165 7,976
Speaker fees to related 378 - - - - - 378
party
Other costs of revenues 28,943 11,167 525 4,100 3,562 112 48,409
--------- --------- ------- ------- -------- ---------- ----------
Total cost of revenues 35,842 12,457 525 4,100 3,562 277 56,763
--------- --------- ------- ------- -------- ---------- ----------
Gross Profit $ 42,349 $ 8,239 $ 7,902 $ (764) $ 2,312 $ 1,406 $ 61,444
========= ========= ======= ======= ======== ========== ==========
Year ended December 31, 1997:
Revenues, net of returns
And discounts $60,759 $29,386 $ - $ - $3,198 $ - $ 93,343
--------- --------- ------- ------- -------- ---------- ----------
Royalties to related party 6,559 3,438 - - - - 9,997
Speaker fees to related 155 12 - - - - 167
party
Other costs of revenues 12,605 13,760 - - 2,963 - 29,328
--------- --------- ------- ------- -------- ---------- ----------
Total cost of revenues 19,319 17,210 - - 2,963 39,492
--------- --------- ------- ------- -------- ---------- ----------
Gross Profit $ 41,440 $ 12,176 $ - $ - $ 235 $ - $ 53,851
========= ========= ======== ======== ========= ========= ===========
Year ended December 31, 1996:
Revenues, net of returns
And discounts $23,817 $13,191 $ - $ - $ - $ - $ 37,008
--------- --------- ------- ------- -------- ---------- ----------
Royalties to related party 2,907 1,061 - - - - 3,968
Speaker fees to related 131 - - - - - 131
party
Other costs of revenues 5,036 5,325 - - - - 10,361
Total costs revenues 8,074 6,386 - - - - 14,460
--------- --------- ------- ------- -------- ---------- ----------
Gross Profit $ 15,743 $6,805 $ - $ - $ - $ - $ 22,548
========= ========= ======== ======== ========= ======== ===========
</TABLE>
26
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note Q - Supplementary Disclosure of Cash Flow Information
The Company paid $1.453 million, $309,000, and $263,000 in
interest, and $2.750 million, $2.485 million, and $1.000 million
for income taxes for the years ended December 31, 1998, 1997, and
1996, respectively.
The Company purchased a three-story commercial building in July
1996, and relocated in January 1997. The $3.300 million purchase
was financed with a $2.550 million mortgage with an interest rate
of 9% per annum, and a down payment of $750,000. See Note G for
more information regarding the debt.
In 1998, the Company purchased three operating hotels. On March
11, 1998, the Company purchased the Best Western McCarran House F
in Sparks, Nevada. The purchase price was $5.25 million, which
included a $990,000 down payment and an assumption of promissory
notes totaling $4.260 million. See Note G for more information
regarding the debt.
In 1998, the Company purchased an operating hotel in St. George,
Utah. The purchase price was $4.659 million. The down payment of
$1.569 million was paid for in two installments: $769,000 and
$800,000 in 1998 and 1997, respectively. In the acquisition, the
Company assumed promissory notes totaling $3.090 million (Note G)
and recorded land, building, and equipment totaling $4.182
million.
In September 1997, the Company acquires its first 25% interest of
the Airport Ramada Suites, in Salt Lake City, Utah, with a cash
deposit of $250,000. In June and September 1998, the Company
acquired an additional 25% each transaction in trades of other
hotel property interests; bringing the Company's ownership to
75%. Once majority ownership was obtained, the Company recorded
land, building, and equipment of $2.763 million and notes payable
of $2.294 million (Note G).
In April 1998, through its wholly owned subsidiary, Bountiful
Investment Group, the Company purchased an office building in
Memphis, Tennessee. The $1.425 million purchase was financed with
a $1.068 million mortgage and a down payment of $357,000. See
Note G for more information regarding the debt.
Note R - Acquisitions
During 1998, the Company completed the acquisition of Information
Quest (IQ), Quantum Marketing, Inc. (Quantum), and Get Ahead
Bookstores, Inc.
In January 1998, the Company acquired IQ, a Nevada corporation,
and the producer of the IQ Pager, which provides subscribers with
paging service for stock related information. WCFC exchanged
45,000 shares of restricted common stock for 50,000 shares of IQ,
representing all of the issued and outstanding shares of IQ. On
the date of acquisition, the market value of the stock issued was
$188,000. The acquisition was accounted for as a purchase,
resulting in assets of $1,961 million, liabilities assumed of
$1,835 million, and goodwill of $126,000.
In January 1998, the Company acquired Quantum, a Nevada
Corporation. WCFC exchanged 45,000 shares of restricted common
stock for 24 million shares of Quantum, representing all of the
issue
27
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note R - Acquisitions (continued)
and outstanding capital stock of Quantum. On the date of
acquisition, the market value of the stock issued was $189,000.
The acquisition was accounted for as a purchase, resulting in
goodwill of $189,000.
In January 1998, WCFC acquired Get Ahead Bookstores, a Nevada
corporation, a retail distributor of financial education,
personal development, and inspirational products, including
books, audio tapes, and video tapes, located in Quantum's
financial education centers. WCFC paid $1.00 for an assignment of
all interest, rights, and claims in Get Ahead Bookstores.
At December 31, 1998 and 1997, goodwill was $3.166 million and
$2.664 million, and accumulated amortization was $105,000 and
$26,000, recording net goodwill of $3.061 million and $2.638
million, respectively.
Note S - Pro-Forms Financial Statements
The following pro-forma information is presented for the years
ended December 31, 1998, 1997, and 1996, as if the IQ, Quantum,
and Get Ahead Bookstores, as described in Note R; and the
acquisition of three hotel properties as described in Note Q, had
been combined as of the beginning of the period. All amounts
represent historical values without acquisition adjustments as
described in Note R.
Amounts in thousands
Fiscal year ended December 31, 1998 (unaudited)
<TABLE>
Hotel-
Get Hotel - Hotel- Best
Balance Sheet Ahead Ramada St. Western
Book- Salt Lake George, Sparks,
WCFC IQ Quantum Stores City, Utah Utah Nevada Total
--------- -------- -------- --------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets $ 42,687 $ 3,904 $ - $ 305 2,729 $ 3,537 $ 5,535 $ 58,697
Liabilities 25,598 1,339 - 287 2,624 3,286 4,940 38,074
Stockholders
equity 17,089 2,565 - 18 104 251 595 20,622
Income
Statement
Revenues 111,249 3,226 - 178 818 1,215 1,611 118,293
Expenses 109,725 724 - 234 922 1,466 2,206 115,277
--------- -------- -------- --------- ---------- ---------- --------- ----------
Income from
continuing
operations $ 1,524 $ 2,502 $ - $ (56) $ (104) $ (251) $ (595) $ 3,020
========= ======== ======== ========= =========== ========= ======== ==========
</TABLE>
28
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note S - Pro-Forms Financial Statements (continued)
Amounts in thousands
Fiscal year ended December 31, 1997 (unaudited)
<TABLE>
Hotel-
Get Hotel - Hotel- Best
Balance Sheet Ahead Ramada St. Western
Book- Salt Lake George, Sparks,
WCFC IQ Quantum Stores City, Utah Utah Nevada Total
--------- -------- -------- --------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets $ 41,404 $ 473 $ - $ - $ 2,602 $ 4,371 $ 5,433 $ 54,283
Liabilities 24,649 169 - - 2,283 3,108 4,479 34,688
Stockholders
equity 16,755 304 - - 319 1,263 954 19,595
Income
Statement
Revenues 93,343 1,725 - - 18 N/A N/A 95,086
Expenses 85,065 1,418 - - 249 N/A N/A 86,732
--------- -------- -------- --------- ---------- ---------- --------- ----------
Income from
continuing
operations $ 8,278 $ 307 $ - $ - $ (231) N/A N/A $ 8,354
========= ======== ======== ========= =========== ========= ======== ==========
</TABLE>
Display of pro-forma information for the year ended December 31,
1996 has been omitted, since none of the acquired ventures had
begun operations. Income statement amounts, for the year ended
December 31, 1997, was not available for the hotels in Sparks,
Nevada or St. George, Utah. Pro-forma financial information is
shown after adjustments for discontinued operations.
Note T - 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.
On February 4, 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. In July 1998, the Court issued a
preliminary ruling stating that the Company is not required to
deliver the stock certificates to ART and may refuse to allow the
stock to be sold until the issue of whether or not ART has
breached the contract is decided. A trial date has been set for
June 21, 1999. The Company has not yet determined any impact on
its financial statements and no provision for losses has been
made.
On January 11, 1999, a civil suit was filed in the Superior Court
of the state of California by the California State Attorney
General's office alleging violations of Section 1678.20 through
1693 of the California Civil Code. The Attorney General alleges
that the Company: (1) made or caused to be
29
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note T - Pending Litigation (continued)
made and disseminated untrue or misleading statements in
violation of the California Business and Professional Code; and
(2) engaged in unlawful and unfair or fraudulent practices and
unfair, deceptive and untrue or misleading advertising. The suit
seeks (1) an injunction against the Company from directly or
indirectly engaging in the alleged unlawful behavior; (2)
disgorgement of money or property acquired in violation of state
or federal law; (3) a penalty of $2,500 for each violation, but
in any event not less than four million dollars ($4,000,000) in
the aggregate; (4) imposition of a constructive trust on the
money or property acquired in violation of state and federal law;
(5) payment of court costs. The Company has not yet determined
any impact on its financial statements and no provision for
losses has been made.
On March 1, 1999, the Attorneys General of eight states opened
investigations to determine whether the Company has engaged in
business and advertising practices that violate such states'
consumer protection laws and regulations. The Company does not
believe that it has engaged in any unlawful activities in any of
the states and is cooperating fully with each state's
investigation. Although no civil or criminal charges have been
brought, and the Company does not believe that it or its officers
or directors have violated applicable laws, no assurance can be
given that enforcement proceedings will not be brought against
the Company, or its officers or directors, or as to the outcome
of any proceedings that are brought.
Note U - Legal Proceedings
In March 1998, the District 4 Subcommittee of the Unauthorized
Practice of Law Committee in the state of Texas sent a request to
WCSI and two former employees of the Company asking that the
parties sign an agreement to voluntarily cease and desist in the
activities which may constitute the unauthorized practice of law
in Texas. The committee alleged that WCSI offered to set up
Nevada corporations, Living Trusts, Keogh Plans, and Corporate
Pension Plans, Family Limited Partnerships, Massachusetts
Business Trust, and Charitable Remainder Trusts. The committee
further alleged that the Company advised clients about legal
structuring, legal advantages and legal strategies associated
with such entities, and provided specific proposals of
structuring an individual's assets and businesses. The Company
declined to enter into a voluntary cease and desist on behalf of
the former employees named in the request because they no longer
work for the Company. In 1998, the Company divested that portion
of its business associated with the activities specified in the
request. The Company has not yet determined any impact on its
financial statements and no provision for losses has been made.
On May 1, 1998, the Attorney General of Texas filed a lawsuit in
the District Court of Bexar County, Texas contending that the
Company has engaged in false, deceptive and misleading acts and
practices in the course of trade and commerce as defined in the
Texas Deceptive Trade Practices-Consumer Protection Act.
Specifically, the state of Texas contends that the company's
sales contracts fail to have the statutorily required notice of
the three day right to cancel. The Company has not yet determined
any impact on its financial statements and no provision for
losses was made.
30
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note U - Legal Proceedings (continued)
In September 1998, the Company filed a lawsuit against Publishers
Distribution Center, Inc. (PDC), a Utah Corporation, and William
Beutler, Cora Beutler, and Scott Beutler, as individuals, in the
Third Judicial District Court, Salt Lake County in the state of
Utah. The complaint alleges fraud and negligent misrepresentation
relating to the Company's attempted purchase of PDC and requests
restitution in the amount of $420,000, in addition to other
relief. PDC has filed counter claims against the company alleging
fraud, breach of fiduciary duty and conversion. No trial date has
been set, and the Company has not yet determined any impact on
its financial statements and no provision for losses has been
made.
In July 1998, the Illinois Attorney General's Consumer Fraud
Division initiated a formal investigation to determine whether
the Company has engaged in unlawful practices in the state of
Illinois. To date, the Attorney General has issued a Civil
Investigative Demand, requesting specific information and Company
records. The Company has not yet determined any impact on its
financial statements and no provision for losses has been made.
On December 30, 1998, a class action lawsuit was instituted in
the District Court, in the county of Denver, in the state of
Colorado against the Company, WCSI, and Wade B. Cook, an
individual, officer, director, and majority stockholder of the
Company. The plaintiffs' class consists of nine Colorado
residents who allege that the defendants participated in the
following unlawful practices: (a) deceptive and misleading trade
practices in violation of Colorado Revised Statues (CRS) section
6-1-105 (1);(b) securities fraud in violation of CRS section
11-51-501(1)(a);(c) common law fraud and conspiracy in connection
therewith; and (d) negligent misrepresentation. The plaintiffs
seek actual damages, including treble damages where appropriate,
court costs and reasonable attorney fees; exemplary damages; and
interest. The plaintiffs have requested a jury trial on all
issues of fact. The Company has not yet determined any impact on
its financial statements and no provision for losses has been
made.
Note V - Discontinued Operations
On June 15, 1998, the Company adopted a formal plan to sell
Entity Planners, Inc. (EPI), a wholly owned subsidiary of WCFC.
On June 30, 1998, the Company sold the stock of EPI, the holder
of a five year licensing agreement with the Company enabling it
to provide entity structuring services relating to the topic of
asset protection, estate planning, and tax reduction. EPI was
sold to a newly formed company by principals who have been
involved in the production, selling, and marketing of products
and seminars for the Company. The stock of EPI was sold for
$250,000.
Operating results of EPI for the year ended December 31, 1998 are
shown separately in the accompanying income statement. The income
statement for the years ended December 31, 1997 and 1996 have
been restated and operating results of EPI are also shown
separately.
As a result of the sale of EPI, the licensing agreement between
the Company and EPI was transferred to the new owners of EPI. The
agreement provides for aggregate licensing fees of $17.720
million payable with future cash flows of the business
transferred. The payment schedule requires, on a
31
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note V - Discontinued Operations (continued)
weekly basis, the remittance of an amount ranging from 70% to 75%
of net sales or 30% of gross sales, whichever greater, for a
period of five years. Total licensing revenue for the year ended
December 31, 1998 was $1.697 million. At the end of five years,
the licensing agreement can be renewed at the option of EPI.
Note W - Segment Reporting
During 1998, the Company adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which
establishes standards for the way that companies report
information about operating segments, based on the approach that
management utilizes to organize the segments for management
reporting and decision making.
The Company operates through six business segments: seminars,
product sales, hotels, pager services, travel services, and
other. The seminar segment conducts educational investment and
business seminars. The product sales includes the publishing and
distribution of 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. The hotel segment includes
the ownership of operating hotels. The pager services segment
produces the IQ Pager, which provides subscribers with paging
services for stock related information. The travel service is a
travel agency that is also in the business of selling travel
agent training kit. The other segment includes retail book sales,
interest in real estate ventures, and an inter-company
advertising agency.
Information on the Company's business segments for the years
ended December 31,
<TABLE>
(in thousands) 1998 1997 1996
-------------- -------------- ------------- -------------
<S> <C> <C> <C>
Net revenues and sales
Seminars $ 78,191 $ 60,759 $ 23,817
Product sales 20,696 29,386 13,191
Hotels 3,336 - -
Pager service 8,427 - -
Travel service 9,533 3,198 -
Other 8,576 4,302 -
Less: inter-company sales (10,552) (4,302) -
-------------- ------------- -------------
$ 118,207 $ 93,343 $ 37,008
============== ============= =============
</TABLE>
32
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
<TABLE>
Note W - Segment Reporting (continued)
(in thousands) 1998 1997 1996
-------------- -------------- ------------- -------------
<S> <C> <C> <C>
Operating income
Seminars $ 483 $ 10,907 $ 2,406
Product sales 813 3,538 1,964
Hotels (267) - -
Pager services 2,494 - -
Travel services 508 97 -
Other 254 - -
Less: inter-company profit (731) - -
-------------- ------------- -------------
3,554 14,542 4,370
Other income (expense) 1,656 (706) (74)
-------------- ------------- -------------
Income from continuing operations
before income taxes $ 5,210 $ 13,836 $ 4,296
============== ============= =============
Identifiable assets
Seminars $ - $ - $ -
Product sales 487 - -
Hotels 13,482 - -
Pager services 1,521 - -
Travel services 18 18 -
-------------- ------------- -------------
Segmented assets 15,508 18 -
Corporate assets 17,283 12,037 7,898
-------------- ------------- -------------
Total identifiable assets 32,791 12,055 7,898
-------------- ------------- -------------
Accumulated depreciation and
Amortization
Seminars - - -
Product sales 264 - -
Hotels 293 - -
Pager services 257 - -
Travel services 1 - -
-------------- ------------- -------------
Segmented asset depreciation and
Amortization 815 - -
Corporate asset depreciation and
Amortization 2,773 1,630 361
-------------- ------------- -------------
Total accumulated depreciation and
amortization 3,588 1,630 361
-------------- ------------- -------------
Net identifiable assets $ 29,203 $ 10,425 $ 7,537
============== ============= =============
</TABLE>
33
See accompanying independent auditors' report.
<PAGE>
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note W - Segment Reporting (continued)
<TABLE>
(in thousands) 1998 1997 1996
-------------- -------------- ------------- -------------
<S> <C> <C> <C>
Capital expenditures
Seminars $ - $ - $ -
Product sales 487 - -
Hotels 13,482 - -
Pager services 1,521 - -
Travel services - - -
-------------- ------------- -------------
Total segment expenditures 15,490 - -
Corporate expenditures 5,246 4,157 4,729
============== ============= =============
Total capital expenditures $ 20,736 $ 4,157 $ 4,729
============== ============= =============
</TABLE>
In all material respects, the Company accounts for inter-company
sales and transfers as if the sales or transfers were to third
parties for purposes of reporting on the business segment
information. Identifiable assets are those assets used in a
segment's operation. Corporate assets consist of certain
non-current assets used by multiple segments. Discontinued
operations have not been included in the calculation of segmented
information. In arriving at operating income, certain expenses
were allocated based on the Company's policy for allocating
expenses.
Substantially all of the Company's sales are domestic, See Note J
for a summary of material domestic sales. All of the Company's
assets are located within the continental United States. No
customer accounted for greater than 10% of the Company's
revenues. No vendor accounted for more than 10% of the Company's
expenses.
Note X - Subsequent Events
On March 10, 1999, the Company had a note payable become due in
the amount of $895,000, which was secured by the Best Western
McCarran House. The Company renegotiated this payment in an
agreement with the creditor, whereby, the Company paid $600,000,
including interest of $8,000 on March 10, 1999 and agreed to pay
the remaining $295,000 no later than April 10, 1999. As a result
of the late payment, the Company must pay a 4% late fee as
prescribed in the loan documents.
On February 22, 1999, the Company sold the office building which
it had purchased on April 14, 1998. The building was located in
Memphis, Tennessee and served as the main office for Ideal Travel
Concepts, Inc (Ideal). The purchase price of the building was
$1.425 million and the sales price was $1.434 million. Ideal will
continue to operate in one of the suites of the building under an
operating lease.
See accompanying independent auditors' report
34
<PAGE>
Exhibit No. Description
- - ----------- -----------
2.1(Infinity) Stock Purchase Agreement dated June 30, 1998, by and among
the Company, Entity Planners, Inc., and Berry, Childers &
Associates, L.L.C.
2.2(Infinity) Amendment to Stock Purchase Agreement dated September 30,
1998 by and among the Company, Entity Planners Inc. and
Berry, Childers & Associates, L.L.C.
2.3* Purchase and Sale Agreement, dated July 4, 1996, between
United Support Association and Seller
2.4* 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
2.5** Share Exchange Agreement, dated January 1, 1998, between
Wade Cook Financial Corporation and Information Quest, Inc.
2.6** Stock Purchase Agreement, dated August 8, 1997, between
Profit Financial Corporation and Curtis A. Taylor and
Stanley J. Zenk regarding Worldwide Acquisition.
2.7** Stock Purchase Agreement, dated August 1, 1997, between Wade
Cook Financial Corporation and John V. Childers, Sr., Brenda
Childers, Tracy Allan Childers and John V. Childers, Jr.
regarding Ideal Acquisition.
2.8** Share Exchange Agreement, dated August 15, 1997, between
Profit Financial Corporation and Gold Leaf Press, Inc.
2.9** Share Exchange Agreement, dated August 15, 1997, between
Profit Financial Corporation and Origin Book Sales, Inc.
2.10*** Assignment and Assumption of Interest, Consent Agreement,
Memorandum of Terms re: Airport Hotel Partners, L.L.C.
2.11*** Limited Liability Company Interest Purchase Agreement re:
Woods Cross Hotel Partners, L.C. dated November 29, 1997
2.12*** Limited Liability Company Interest Purchase Agreement with
exhibits re: Park City Hotel Partners, L.C. dated February
4, 1997
2.13*** Memorandum of Terms, Assignment and Assumption of Interest,
Warranty Deed re: Airport Lodging Associates, L.L.C.
2.14**** Share Exchange Agreement, dated January 1, 1998, between
WCFC & Quantum Marketing, Inc.
2.15**** Stock Assignment Agreement dated January 1, 1998, between
WCFC & Glendon H. Sypher
3.1** Articles of Incorporation of Wade Cook Financial Corporation
3.2** Bylaws of Wade Cook Financial Corporation
4.1** Form of Wade Cook Financial Corporation's Common Stock
Certificate 10.1**(Function) 1997 Stock Incentive Plan of
Wade Cook Financial Corporation
10.2** Form of Indemnification Agreement of Wade Cook Financial
Corporation
10.3* Product Agreement, dated June 25, 1997, and effective as of
July 1, 1997, among Wade Cook Seminars, Inc., Money Chef,
Inc., and Wade B. Cook
10.4* Agreement dated February 1, 1996, between Wade B. Cook and
Lighthouse Publishing Group, Inc.
10.5* Amended Agreement, dated June 26, 1997, between Wade B. Cook
and Lighthouse Publishing Group, Inc.
10.6* Agreement Dated January 1, 1997, between Wade B. Cook and
Lighthouse Publishing Group, Inc.
<PAGE>
Exhibit No. Description
- - ----------- -----------
10.7* Amended Agreement dated June 26, 1997, between Wade B. Cook
and Lighthouse Publishing Group, Inc.
10.8* Agreement dated March 1, 1997, between Wade B. Cook and
Lighthouse Publishing Group, Inc.
10.9* Agreement dated May 1, 1997, between Wade B. Cook and
Lighthouse Publishing Group, Inc.
10.10*(Function) Employment Agreement dated June 26, 1997, by and between
Wade Cook Seminars, Inc., and Wade B. Cook
10.11* Commercial Lease dated June 25, 1997, by and between Wade
Cook Seminars, Inc. and U.S.A. Corporate Services, Inc.
10.12* Agreement dated November 1, 1996, between Wade B. Cook and
Lighthouse Publishing Group, Inc.
10.13* Secured Loan Agreement and Promissory Note (Secured) between
U.S.A., Wade Cook Seminars, Inc. and Newstart Centre, Inc.
10.14** Open-Ended Product Agreement, dated March 20, 1998, between
Wade Cook Financial Corporation and Wade B. Cook
10.15*** Product Agreement, dated March 23, 1998, between Planet
Cash, Inc., Steven Allyn Wirrick and Wade Cook Financial
Corporation
10.16*** Stock Assignment Agreement, dated January 1, 1998, between
Get Ahead Bookstores, Inc., Glendon H. Sypher and Wade Cook
Financial Corporation
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 September 12, 1997, between
Profit Financial Corporation and Applied Voice Recognition,
Inc.
10.19** Publishing Agreement, effective October 1, 1997 and signed
January 12, 1998, between Lighthouse Publishing Group, Inc.
and Wade B. Cook
10.20** Secured Loan Agreement, Promissory Note, and Certificate of
Delivery and Receipt of Documents, dated May 23, 1997,
between USA/Wade Cook Seminars, Inc. and Newstart Centre,
Inc.
10.21** Secured Loan Agreement, Promissory Note, and Certificate of
Delivery and Receipt of Documents, dated June 20, 1997,
between Wade Cook Seminars, Inc. and Newstart Centre, Inc.
10.22** Secured Loan Agreement, Promissory Note, and Certificate of
Delivery and Receipt of Documents, dated July 25, 1997,
between Wade Cook Seminars, Inc. and Newstart Centre, Inc.
10.23** Secured Loan Agreement, Promissory Note, and Certificate of
Delivery and Receipt of Documents, dated August 22, 1997,
between Information Quest, Inc. and Newstart Centre, Inc.
10.24** Secured Loan Agreement, Promissory Note and Certificate of
Delivery and Receipt of Documents, dated October 9, 1997,
between Information Quest, Inc. and Newstart Centre, Inc.
10.25** Secured Loan Agreement, Promissory Note and Certificate of
Delivery and Receipt of Documents, dated October 9, 1997,
between Left Coast Advertising, Inc. and Newstart Centre,
Inc.
<PAGE>
Exhibit No. Description
- - ----------- -----------
10.26** Secured Loan Agreement, Promissory Note and Certificate of
Delivery and Receipt of Documents dated August 19, 1997,
between Left Coast Advertising, Inc. and Newstart Centre,
Inc.
10.27*** Secured Loan Agreement, Promissory Note and Certificate of
Delivery and Receipt of Documents, dated January 20, 1998,
between Wade Cook Seminars, Inc. and Newstart Centre, Inc.
10.28** Secured Promissory Note, dated July 31, 1997, between Wade
Cook Seminars, Inc. and Robert and Meda Hondel
10.29*** Secured Promissory Note, dated June 18, 1997, between Paul
and Laurie Cook and Wade Cook Seminars, Inc.
10.30*** Secured Promissory Note, dated January 1, 1998, between Paul
and Laurie Cook and Wade Cook Seminars, Inc.
10.31*** Warranty Deed, Articles of Organization re: Red Rock Lodging
Associates
10.32**** Contract for Sale of Real Estate dated January 20, 1998 by
and between Ideal Travel Concepts, Inc. and/or assigns and
Kenneth B. Lenoir
10.33(Infinity) Exclusive Product License Agreement dated June 30, 1998 by
and between Wade B. Cook, and Entity Planners, Inc.
10.34(Infinity) Exclusive Product License Agreement dated June 30, 1998 by
and between Wade Cook Financial Corporation, and Entity
Planners, Inc.
10.35(Infinity) Open Ended Product Agreement between the Company and Wade
Cook dated March 20, 1998
10.36(Infinity) Amendment to the Open Ended Product Agreement dated November
13, 1998 by and between the Company and Wade Cook
10.37 Assignment and Assumption of Interest dated August 22, 1996
by and between Zion's Management and Development Co.,
Airport Lodging Associates L.C. and Wade Cook Seminars, Inc.
10.38 Real Estate Purchase Contract dated August 22, 1997 (St.
George Hilton)
10.39 Addendum No. 1/Counteroffer to Real Estate Purchase Contract
dated August 1997 (St. George Hilton
10.40 Real Estate Lease dated July 16, 1998 between Origin Book
Sales, Inc. and California Avenue Associates, LLC.
10.41 Form of Speaker Agreement
10.42 Agreement dated December 11, 1998 between THH Ventures L.C.
and the Company
10.43 Purchase Agreement dated February 28, 1998 between Ki Hong
Kim, Hoo Hyung Kim and Zions Management and Development
11.1 Statement of Computation of Per Share Earnings
16.1** Letter re: Change in Certifying Accountant
21.1 List of Wade Cook Financial Corporation Subsidiaries
<PAGE>
Exhibit No. Description
- - ----------- -----------
27.1 Financial Data Schedule - December 31, 1998
* Previously filed as an exhibit to the Company's registration statement on
Form 10 filed with the SEC on April 30, 1997, as amended on June 29, 1997
and September 24, 1997
** Previously filed as an exhibit to the Company's Form 10-K filed with the
SEC on March 31, 1998
*** Previously filed as an exhibit to the Company's Form 10-K/A filed with the
SEC on July 20, 1998
**** Previously filed as an exhibit to the Company's Form 10-Q filed with the
SEC on August 8, 1998
(Infinity) Previously filed as an exhibit to the Company's Form 10-Q filed with
the SEC on November 16, 1998
(Function) This document has been identified as a management contract or
compensatory plan or arrangement.
****FDS Here
Exhibit 10.37
ASSIGNMENT AND ASSUMPTION OF INTEREST
THIS ASSIGNMENT AND ASSUMPTION OF INTEREST is made this 22nd day of August,
1996 by Zions Management and Development Co. (herein "Zions"), a Utah
corporation, to Airport Lodging Associates, L.C. (Herein "ALA") and Wade Cook
Seminars.
RECITALS:
A. Zions owns fifty percent (50%) interest in ALA.
B. Zions agrees to relinquish the rights to twenty-five percent (25%) of its
interest to ALA.
C. ALA agrees to sell and assign the acquired twenty-five percent (25%) to Wade
Cook Seminars and Wade Cook Seminars agrees to accept the assignment for the sum
of $250,000.
AGREEMENT:
1. Zions hereby assigns to ALA a twenty five percent (25%) interest in and to
ALA.
2. ALA accepts the foregoing assignment and agrees to sell this interest to Wade
Cook Seminars.
3. Wade Cook Seminars agrees to buy the foregoing interest in ALA for the sum of
$250,000 and agrees to perform any and all obligations which it may thereby have
under the Articles of Organization or Operating Agreement of ALA.
IN WITNESS WHEREOF, the parties have entered into this Agreement the day
and year first above written.
ZIONS MANAGEMENT AND DEVELOPMENT CO.
/s/ Glen A. Overton
By -----------------------------------------
Glen A. Overton, President
<PAGE>
AIRPORT LODGING ASSOCIATES, L.C.
/s/ Glen A. Overton
By -----------------------------------------
Zions Management and Development Co.,
Managing Member
WADE COOK SEMINARS
By -----------------------------------------
Wade R. Cook, President
On this 22nd day of August, 1997, Glen A. Overton did personally appear
before me, who being duly sworn did say that he the said Glen A. Overton is the
President of Zions Management and Development Co. And that the within and
foregoing instrument was signed in behalf of the said corporation.
/s/ Deborah A. Whitlock
---------------------------------------------
NOTARY PUBLIC
Residing in: Provo, UT
[NOTARY STAMP]
My Commission Expires:
1999
- - ------------
Exhibit 10.38
To: Wade R. Cook
From: Glen Overton
Subject: Property #UT-040, St. George, Utah
Date: August 15, 1997
HILTON INN
- - --------------------------------------------------------------------------------
Location: 1450 South Hilton Drive
St. George, Utah 84770
Property sets on approximately 5.5 acres
Description: Existing 100 units, 2-story inn with attached (and leased)
Tony Romas Restaurant and service station site. The U-shaped
building surrounds a courtyard with an outdoor pool and hot
tub.
Time Line: Offer to be made 8/14/97
Projected closing, October, 1997
Hotel Cost: Purchase offer is for $4,050,000 ($3.8 mil hotel & $250k
service station) Y.E. 1996 NOI of $518,000 = a hotel cap
rate of 13.63
Equity
Distribution: East Bay Lodging Associates, Ltd to receive 50% ownership
Wade Cook Seminars, Inc. to receive 50% ownership.
Investment: East Bay Lodging Associates, Ltd to invest $500,000 cash as
down payment plus given credit for locating and organizing
purchase, overseeing ownership transfer, and secure debt
financing for $3,050,000.
Wade Cook Seminars, Inc. to invest $800,000 cash, $500,000
as down payment and $300,000 for capital renovation as
required by franchise.
Cook Payments: $250,000 due August 28, 1997
$250,000 due September 15, 1997
$250,000 due October 15, 1997
$50,000 due November 15, 1997
Agreement Accepted by
/s/ Wade Cook 8/22/97
- - ----------------------------------- ---------------------------
Wade Cook Seminars, Inc. by Date
Wade Cook, ---------
<PAGE>
COMMERCIAL - INDUSTRIAL - INVESTMENT
REAL ESTATE PURCHASE CONTRACT
This is a legally binding Contract. It has been prepared by the Utah
Association of REALTORS(R) for the use of its members only, in their
transactions with clients and customers. Parties to this Contract may agree
in writing to alter or delete provisions of this Contract. Seek advice from
your attorney or tax advisor before entering into a binding Contract.
- - --------------------------------------------------------------------------------
EARNEST MONEY RECEIPT
The Buyer, Glen Overton/East Bay Lodging, offers to purchase the Property
described below and delivers as Earnest Money Deposit $500.00 in the form of a
check to: Associated Title Company.
[ ] The Brokerage, to be deposited within three business days after Acceptance
of this Offer to Purchase by all parties.
[X] The Title/Escrow Company identified below.
Broker or Title Escrow Company: Associated Title Company
Address: -------------------------------
Received by: Mary Lou Webster on ---------- Phone Number: 801-383-0909
(If Title/Escrow Company) for deposit no later than -----------------
- - --------------------------------------------------------------------------------
OFFER TO PURCHASE
1. PROPERTY: The Hilton Inn & Service Station, approximately 6 acres.
Exhibit A attached.
Address: 1450 Hilton Drive, City of St. George, County of Washington,
State of Utah
For legal description, see: [ ] Attached Addendum #_______. [ ]
Preliminary title report when available as provided below.
1.1 INCLUDED ITEMS. Unless included herein, this sale shall include all
fixtures presently attached to the Property. The following personal
property shall also be included in this sale and conveyed under
separate Bill of Sale with warranties as to title: All.
1.2 EXCLUDED ITEMS. These items are excluded from this sale: None.
2. PURCHASE PRICE AND FINANCING. Buyer agrees to pay for the Property as
follows:
$500,000 Earnest Money Deposit
$--------- Loan Proceeds:
[] Representing the liability to be assumed by Buyer under an existing
assumable loan ( with without Seller being released of liability) in
this approximate amount with Buyer Seller agreeing to pay any loan
transfer and assumption fees. Any [illegible] differences between the
approximate balance of the loan shown above and the actual balance at
Closing shall be then adjusted in cash other.
[] From new institutional financing on terms no less favorable to the
Buyer than the following: --------- (interest rate for first period
prior to adjustment, if any): ----------- (amortization period):
----------(term). Other than these, the loan terms shall be the best
obtainable under the loan for which the Buyer applies below.
[] From Seller-held financing, as described in the attached Seller
Financing Addendum.
$---------- Other: -----------------------
$ 3,500,000 Balance of purchase price in cash at closing
$ 4,050,000 TOTAL PURCHASE PRICE
3. CLOSING. This transaction shall be closed on January 2, 1998. Closing shall
occur when: (a) Buyer and Seller have signed and delivered to each other
(or to the escrow/title company), all documents required by this Contract,
by the lender, by written escrow instructions signed by the Buyer and the
Seller, and by applicable law; (b) the monies required to be paid under
these documents have been delivered to the escrow/title company in the form
of collected or cleared funds; and (c) the deed which the Seller has agreed
to deliver under Section 6 has been recorded. Seller and Buyer shall each
pay one-half of the escrow Closing fee, unless otherwise agreed by the
parties in writing. Taxes and assessments for the current year, rents, and
interest on assumed obligations shall be prorated as set forth in this
Section. All deposits on tenancies shall be transferred to Buyer at
Closing. Prorations set forth in this Section shall be made as of the date
of Closing: [X] date of possession; [ ] other.
4. POSSESSION. Seller shall deliver possession to Buyer by 11:59 p.m., October
1, 1997.
5. CONFIRMATION OF AGENCY DISCLOSURE. At the signing of this Contract the
Listing Agent, Kimball Investment Company, represents [X] Seller [ ] Buyer,
and the Selling Agent (None) represents Seller Buyer. Buyer and Seller
confirm that prior to signing this Contract written disclosure of the
agency relationship was provided to him/her. ( ) Buyer's initials ( )
Seller's initials. A brokerage commission equal to 1% of the purchase price
shall be paid by Seller in cash at closing to Kimball Investment Company.
6. TITLE TO PROPERTY AND TITLE INSURANCE. (a) Seller has, or shall have at
Closing, fee title to the Property and agrees to convey such title to Buyer
by [ ] general [X] special warranty deed, free of financial encumbrances as
warranted under Section 10 (?); (b) Seller agrees to pay for, and furnish
Buyer at Closing with a current standard form Owner's policy of title
insurance in the amount of the Total Purchase Price; (c) the title policy
shall conform with Seller's obligations under Subsections (a) and (b).
Unless otherwise agreed under Section 8.4, the commitment shall conform
with the title insurance commitment provided under Section 7.1.
[X] The Buyer elects to obtain a full-coverage extended ALTA policy of
title insurance under 6(b). The cost of this coverage, above that of a
standard Owner's policy, shall be paid for by the [X] Buyer, Seller.
1
<PAGE>
7. SPECIFIC UNDERTAKINGS OF SELLER AND BUYER.
7.1 SELLER DISCLOSURES. The Seller will deliver to the Buyer the following
Seller Disclosures no later than the number of calendar days indicated
below which shall be days after Acceptance.
(Days)
[ ] (a) a Seller Property Condition Disclosure for the
Property, signed and dated by Seller:
[X] (b) a commitment for the policy of title insurance required 15
under Section 6, to be issued by the title insurance company
chosen by Seller, including copies of all documents listed
as Exceptions on the Commitment:
[ ] (c) a copy of all loan documents relating to any loan now
existing which will encumber the Property after Closing:
[ ] (d) a copy of all leases and rental agreements now in effect 15
with regard to the Property together with a current rent
roll:
[ ] (e) operating statement of the Property for December 31, 15
1996 full fiscal years of operation plus the current fiscal
year through July 1997: (f) tenant Estoppel agreements:
Seller agrees to pay any charge for cancellation of the title commitment
provided under Subsection (b).
If Seller does not provide any of the Seller Disclosures within the time
periods agreed above, the Buyer may either waive the particular Seller
Disclosure requirement by taking no timely action or the Buyer may notify
the Seller in writing within 5 calendar days after the expiration of the
particular disclosure time period that the Seller is in Default under this
Contract and that the remedies under Section 15 are at the Buyer's
disposal. The holder of the Earnest Money Deposit shall, upon receipt of a
copy of Buyer's written notice, return to the Buyer the Earnest Money
Deposit without the requirement of further written authorization from the
Seller.
7.2 BUYER UNDERTAKINGS. The Buyer agrees to:
[ ] (a) apply for approval of the assumption or funding of the loan
proceeds described in Section 2 by completing, signing, and
delivering to the Lender the initial loan application and
documentation required by the Lender and by paying all fees as
required by the Lender (including appraisal fee) no later than
------- calendar days after Acceptance; and -------
[ ] (b) no later than -------- calendar days after Acceptance, obtain
from the Lender to whom application is made under Subsection (a)
a written commitment to approve the assumption of the existing
loan or to fund the new loan subject only to changes of
conditions in Buyer's credit worthiness and to normal loan
closing procedures; or, if Buyer elects, providing the Seller
with absolute assurance, within the same time frame, that the
proceeds required for funding the Total Purchase Price are
available. -------
These Buyer Undertakings are at the sole expense of the Buyer and are
material elements of this Contract for the benefit of both the Buyer
and the Seller.
If Buyer does not initial any Buyer Undertakings and provide Seller
with written confirmation in the time agreed above, the Seller may
either waive the particular Buyer Undertakings requirement by taking
no timely action or the Seller may notify the Buyer in writing within
5 calendar days of the expiration of the particular undertaking time
period that the Buyer is in Default under this Contract and that the
remedies under Section 15 are at the Seller's disposal. The holder of
the Earnest Money Deposit shall, upon receipt of a copy of Seller's
written notice, deliver to the Seller the Earnest Money Deposit
without the requirement of further written authorization from the
Buyer.
7.3 ADDITIONAL DUE DILIGENCE. The Buyer shall undertake the following
Additional Due Diligence elements at its own expense and for its own
benefit for the purpose of complying with the Contingencies under
Section 8.
[](a)Ordering and obtaining an appraisal of the Property if one is not
otherwise required under Section 7.2;
[](b)Ordering and obtaining a survey of the Property if one is not
otherwise required under Section 6;
[](c)Ordering and obtaining any environmentally related study of the
Property;
[X](d)Ordering and obtaining a physical inspection report
regarding, and completing a personal inspection of, the Property;
[](e)Requesting and obtaining verification that the Property complies
with all applicable federal, state and local laws, ordinances and
regulations with regard to zoning and permissible use of the
Property.
Seller agrees to cooperate fully with Buyer's completing those Due
Diligence matters and to make the Property available as reasonable and
necessary for the same.
8. CONTINGENCIES. This offer is subject to the Buyer's approving, in the sole
discretion, the Seller Disclosures, the Buyer Undertakings and Additional
Due Diligence matters in Section 7. However, the Buyer's discretion in
approving the terms of the loan under Subsection (b) is subject to Buyer's
covenant with regard to minimally acceptable financing terms under Section
2.
2
<PAGE>
8.1 Buyer shall have 5 calendar days after the times specified in Section 7.1
and 7.2 for receipt of Seller Disclosures and for completion of Buyer
Undertakings to review the content of the disclosures and the outcome of
the undertakings. The latest applicable date under Section 7.1 and 7.2
applies for completing a review of Additional Due Diligence matters under
Section 7.3. This time period is the length due to extensive due diligence
being done prior to this offer being submitted.
8.2 If Buyer does not deliver a written objection to Seller regarding a Seller
Disclosure, Buyer Undertaking or Due Diligence matter within the time
provided in Section 8.1, that item will be deemed approved by Buyer.
8.3 If Buyer objects, Buyer and Seller have 15 calendar days after receipt of
the objections to resolve Buyer's objections. Seller may, but shall not be
required to, resolve Buyer's objections. Likewise, the Buyer is under no
obligation to accept any resolution proposed by the Seller. If Buyer's
objections are not received within the stated time, Buyer may void this
Contract by providing written notice to Seller within same stated time. The
holder of the Earnest Money Deposit shall, upon receipt of a copy of
Buyer's written notice, return to Buyer the Earnest Money Deposit without
the requirement of any further written authorization from Seller. If this
Contract is not voided by Buyer, Buyer's objection is deemed to have been
waived. However, this waiver does not affect warranties under Section 10.
8.4 Resolution of Buyer's objections under Section 8.3 shall be in writing and
shall become part of this Contract.
9. SPECIAL CONTINGENCIES. This offer is made subject to:
------------------------------ . The terms of the attached Addendum #1 are
incorporated into this Contract by this reference.
10. SELLER'S LIMITED WARRANTIES. Seller's warranties to Buyer regarding the
Property are limited to the following:
10.1 [Intentionally deleted]
10.2 [Intentionally deleted]
10.3 [Intentionally deleted]
10.4 [Intentionally deleted]
10.5 [Intentionally deleted]
10.6 At Closing, Seller will bring current all financial obligations
encumbering the Property which are assumed in writing by Buyer and
will discharge all such obligations which Buyer has not so assumed;
11. VERIFICATION OF WARRANTED AND INCLUDED ITEMS. After all contingencies
have been removed and before Closing, the Buyer may conduct a
"walk-through" inspection of the Property to determine whether or not
items warranted by Seller in Section 10.1, 10.2, 10.3 and 10.4 are in
the warranted condition and to verify that items included in Section
1.1 are presently on the Property. If any item is not in the warranted
condition, Seller will correct, repair or replace it as necessary or,
with the consent of Buyer and (if required) Lender, escrow an amount
at Closing to provide for such repair or replacement. The Buyer's
failure to conduct a "walk-through" inspection or to claim during the
"walk-through" inspection that the Property does not include all items
referenced in Section 1.1 or is not in the condition warranted in
Section 10, shall constitute a waiver of Buyer's rights under Section
1.1 and the warranties contained in Section 10.
12. CHANGES DURING
TRANSACTION. Seller agrees that no changes in any existing leases
shall be made, no new leases entered into, and no substantial
alteration or improvements to the Property shall be undertaken without
the written consent of the Buyer.
13. AUTHORITY OF SIGNERS. If Buyer or Seller is a corporation, partnership,
trust, estate, or other entity, the person signing this Contract on its
behalf warrants his or her authority to do so and to bind Buyer or Seller
and the heirs or successors in interest to Buyer or Seller. If the Seller
is not the vested Owner of the Property but has control over the vested
Owner's disposition of the Property, the Seller agrees to exercise this
control and deliver title under this Contract as if it had been signed by
the Vested Owner.
14. COMPLETE CONTRACT. This instrument (together with its Addenda, any attached
Exhibits, and Seller Disclosures) constitutes the entire Contract between
the parties and supersedes all prior dealings between the parties. This
Contract cannot be changed except by written agreement of the parties.
15. DISPUTE RESOLUTION. The parties agree that any dispute or claim relating to
this Contract, including but not limited to the disposition of the Earnest
Money Deposit and the breach or termination of this Contract, shall first
be submitted to mediation in accordance with the Utah Real Estate
Buyer/Seller Mediation Rules of the American Arbitration Association. Each
party agrees to bear its own costs of mediation. Any Agreement signed by
the parties pursuant to the mediation shall be binding. If mediation fails,
the procedures applicable and remedies available under this Contract shall
apply. Nothing in this Section shall prohibit the Buyer from seeking
specific performance by the Seller by filing a complaint with the court,
serving it on the Seller by means of summons or as otherwise permitted by
law, and recording a lis pendens with ----------- regard to the action
provided that the Buyer permits the Seller to refrain from answering the
complaint pending mediation. Also, the parties may agree in writing to
waive mediation.
16. DEFAULT. If Buyer defaults, Seller may elect to either retain the Earnest
Money Deposit as liquidated damages or to return
3
<PAGE>
the Earnest Money Deposit and sue Buyer to enforce Seller's rights. If
Seller defaults, in addition to return of the Earnest Money Deposit, Buyer
may elect to either accept from Seller as liquidated damages a sum equal to
the Earnest Money Deposit or sue Seller for specific performance and/or
damages. If Buyer elects to accept the liquidated damages, Seller agrees to
pay the liquidated damages to Buyer upon demand. Where a Section of this
Contract provides a specific remedy, the articles intend that the remedy
shall be exclusive regardless of rights which might otherwise be available
under common law.
17. ATTORNEY'S FEES. In any action arising out of Contract, the prevailing
party shall be entitled to costs and reasonable attorney's fees.
18. DISPOSITION OF EARNEST MONEY. The Earnest Money Deposit shall not be
released unless it is authorized by: (a) Section 7.1, 7.2 and 8.3; (b)
separate written agreement of the parties, including an agreement under
Section 15 if (a) does not apply; or (c) court order.
19. ABROGATION. Except for express warranties made in this Contract, the
provision of this Contract shall not apply after Closing.
20. RISK OF LOSS. All risk of loss or damage to the Property shall be borne by
Seller until Closing.
21. TIME IS OF THE ESSENCE. Time is of the essence regarding the dates set
forth in this transaction. Extensions must be agreed to in writing by all
parties. Performance under each Section of this Contract which references a
date shall be required absolutely by 5:00 p.m. Mountain Time on the stated
date.
22. COUNTERPARTS AND FACSIMILE (FAX) DOCUMENTS. This Contract may be signed in
counterparts, and each counterpart bearing an original signature shall be
considered one document with all other bearing original signature. Also,
facsimile transmission of any signed original document and re-transmission
of any signed facsimile transmission shall be the same as delivery of an
original.
23. ACCEPTANCE. Acceptance occurs when Seller or Buyer, responding to an offer
or counteroffer of the other: (a) signs the offer or counteroffer where
noted to indicate acceptance; and (b) communicates to the other party or
the other party's agent that the offer or counteroffer has been signed as
required.
24. OFFER AND TIME FOR ACCEPTANCE. Buyer offers to purchase the Property on the
above terms and conditions. If Seller does not accept this offer AM PM
Mountain Time, August 25, 1997, this offer shall lapse, and the holder of
the Earnest Money Deposit shall return it to the Buyer.
/s/ Glen Overton
- - -------------------------------------- ------------------------------
Buyer's Signature Offer Reference Date
- - --------------------------------------
Buyer's Name (please print)
- - -------------------------------------- ------------------------------
Notice Address Phone
- - --------------------------------------------------------------------------------
ACCEPTANCE/ REJECTION/ COUNTER OFFER
[ ] Acceptance of Offer to Purchase: Seller accepts the foregoing offer on the
terms and conditions specified above.
[Illegible] 8/26/97
- - -------------------------------------- -------------- -----------
Seller's Signature Date Time
- - --------------------------------------
Seller's Name (please print)
- - -------------------------------------- ------------------------------
Notice Address Phone
[ ] Rejection: Seller rejects the foregoing offer.
- - ---------- Seller's initials --------------- Date ------------ Time
Counter Offer: Seller presents for Buyer's Acceptance the terms of Buyer's offer
subject to the exceptions or modifications as specified in the attached Counter
Offer #------------.
4
Exhibit 10.39
ADDENDUM #1/COUNTEROFFER #___
TO
REAL ESTATE PURCHASE CONTRACT
This is an ADDENDUM/COUNTER OFFER to the Real Estate Purchase Contract (the
"Contract") with an Offer Reference date of ____________, 19___, including all
addenda and counter offers between Glen Overton\East Bay Lodging, as Buyer and
St. George Inn L.C., as Seller concerning the property known as Hilton Inn and
the adjacent Service Station as more specifically described in the Contract.
The following terms are hereby incorporated as part of the Contract, and to the
extent those terms modify or conflict with any provisions of the Contract, those
terms shall control. All other terms of the Contract not modified shall remain
the same. The term "Real Estate Purchase Contract" shall be deemed to include a
Deposit Receipt, Earnest Money Contract, or any similar document.
1. In house guest ledger shall belong to Seller through September 30, 1997.
2. Seller and Buyer will go through accounts, receipts and any account not
longer than 30 days old Buyer will purchase.
3. All prepaid insurance supplies and rents will be purchased from Seller at
face value.
4. Employees vacation pay will be pro-rated as of the 30th of September.
5. Seller will provide Buyer with all information concerning environmental
conditions of the subject properties within 15 days of acceptance of this
agreement.
6. Buyer understands and acknowledges that Hilton Corporation has told Seller
that they intend to cancel franchise unless Seller is capable of and Hilton
Corp. accepts construction changes to meet Hilton ____ on Inn standards.
7. Buyer will accommodate Seller in a 103' exchange which may at Sellers sole
option extend the closing date.
8. Earnest Money will be given to Seller and will become HARD and non-refundable
five (5) days prior to Buyer taking possession. All contingencies will have to
be removed prior to possession and Earnest Monies going hard and becoming
non-refundable.
9. Any update of the survey will be the cost of the Buyer.
10. Existing management contract will be canceled 30 days from Seller receiving
receipt of the non-refundable Earnest Money.
11. Buyer to pay all hotel cost associated with the property as of the
possession date, i.e., existing debt, utilities, etc. Prorations will be from
possession date.
[ ]Seller [ ] Buyer shall have until ________ [ ] A.M. [ ] P.M. Mountain Time,
8/26, 1997 to accept these terms in accordance with Section 23 of the Contract.
Unless so accepted, this offer shall lapse.
Seller: /s/ [Illegible] Purchaser:
---------------------- --------------------------
<PAGE>
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
SETTLEMENT STATEMENT
Page 1 of 3
<PAGE>
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
SETTLEMENT STATEMENT
Page 2 of 3
<PAGE>
U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
SETTLEMENT STATEMENT
Page 3 of 3
<PAGE>
ST. GEORGE INN, L.C.
* * * * *
EAST BAY LODGING ASSOCIATES, LTD.
File No. D205457
<PAGE>
THANK YOU FOR YOUR ORDER
THIS DOCUMENT HAS BEEN PREPARED FOR:
Victor M. Kimball
Kimball Investment Company
8 East Broadway, Suite 200
Salt Lake City, Utah 84111
Mark Brown
Bullock Brothers Engineering
91 West 1470 South, Suite 102
St. George, Utah 84770
Mary Lou Webster
Associated Title Company
560 South 300 East
Salt Lake City, Utah 84111
REFERENCE:
EAST BAY LODGING ASSOCIATES, LTD.
Property Address:
1450 South Hilton Drive
St. George, Utah 84770
ESTIMATED TITLE FEES:
FAM Extended Owner's Policy $4,050,000.000 $12,670.00
----------
Total $12.670.00
* * * * *
PLEASE DO NOT PAY FROM THIS ESTIMATE.
AN INVOICE WILL FOLLOW.
Please refer to our File No. D205457
ASSOCIATED TITLE COMPANY
560 SOUTH 300 EAST
SALT LAKE CITY, UTAH 84111-3509
Phone (801) 578-8888
Fax (801) 578-8844
<PAGE>
SCHEDULE A
File No. D205457
1. Effective Date: August 28, 1997 at 8:00 A.M.
2. Policy to be issued:
"ALTA" Extended Owner's Policy $4,050,000.00
(10/17/92)
Proposed Insured:
EAST BAY LODGING ASSOCIATES, LTD.
3. The estate or interest in the land described or referred to in this
Commitment and covered herein is:
Fee Simple
4. Title to the estate or interest covered herein is at the effective date
hereof vested in:
ST. GEORGE INN, L.C. - as to Parcel 1
ST. GEORGE INN, L.C., a Utah limited liability company - as to Parcel
2
5. The land referred to in this Commitment is situated in the State of Utah,
County of Washington and is described as follows:
PARCEL 1:
BEGINNING at a point South 0(degree)48'46" East 4.86 feet along the
section line from the Northwest corner of the Southwest 1/4 of the
Southwest 1/4 of Section 31, Township 42 South, Range 15 West, Salt
Lake Base and Meridian, and running thence North 89(degree)12'12" East
606.76 feet to the West line of the 1-15 frontage road and a point on
a curve to the right, the radius point of which is South
73(degree)30'44" West 1349.86 feet; thence Southeasterly 362.02 feet
along the arc of said curve and the West line of said frontage road;
thence South 89(degree)00'06" West 108.06 feet; thence South
0(degree)59'54" East 146.73 feet to a point on the North line of 1470
South Street; thence North 89(degree)03'46" West 336.62 feet
-1-
<PAGE>
SCHEDULE A
along the North line of 1470 South Street; thence North
0(degree)48'46" West 160.72 feet; thence South 89(degree)02'33" West
16.52 feet; thence North 1(degree)27'42" West 17.58 feet; thence South
88(degree)32'18" West 8.44 feet; thence North 0(degree)58'28" West
36.63 feet; thence South 89(degree)10'12" West 93.07 feet; thence
South 0(degree)53'46" East 6.64 feet; thence North 89(degree)03'46"
West 94.63 feet to a point on the West line of said Section 31; thence
North 0(degree)48'46" West 283.39 feet to the point of BEGINNING.
PARCEL 2:
BEGINNING at a point on the North line of 1470 South Street, said
point being North 0(degree)48'46" West 838.26 feet along the section
line and South 89(degree)03'46" East 549.62 feet along said North line
of street from the Southwest corner of Section 31, Township 42 South,
Range 15 West, Salt Lake Base and Meridian, and running thence North
0(degree)59'54" West 146.73 feet; thence North 89(degree)00'06" East
108.06 feet to the West line of the 1-15 frontage road and a point on
the curve to the right, the radius point of which is South
88(degree)52'42" West 1349.86 feet; thence Southerly 101.54 feet along
the arc of said curve and the West line of said frontage road to a
point on a compound curve to the right, the radius point of which is
North 72(degree)14'59" West 79.89 feet; thence Southwesterly 65.99
feet along the arc of said curve to a point on the North line of 1470
South Street; thence North 89(degree)03'46 West 61.24 feet along said
North line of street to the point of BEGINNING.
For Information Purposes Only:
Property Address:
1450 South Hilton Drive
St. George, Utah 84770
-2-
<PAGE>
SCHEDULE B-1
(Requirements)
File No. D205457
The following are the requirements to be complied with:
1. Payment to, or for the account of, the sellers or mortgagors of the full
consideration for the estate or interest to be insured.
2. Instruments in insurable form which must be executed, delivered and duly
filed for record.
3. NOTE: The Company hereby reserves the right to add additional special
exceptions to coverage and/or requirements for the issuance of any policy
pursuant to this commitment upon its receipt of additional information
including, but not limited to, any items hereinbelow.
4. In the event that Exception No. 4, Schedule B-2 of this Commitment is to be
deleted in any Policy issued pursuant hereto, the Company will require the
following:
Delivery to and approval by the Company of a survey plat, based on a
survey made in accordance with "Minimum Standard Detail Requirements
for Land Title Surveys", jointly established and adopted by ALTA and
ACSM in 1992.
5. Approval by the Company's Underwriter of the contents hereof and
satisfaction of any conditions or requirements imposed thereby.
6. Reconveyance of Trust Deed, clearing Schedule B-2, Exception No. 11,
attached hereto.
7. Reconveyance of Trust Deed, clearing Schedule B-2, Exception No. 12,
attached hereto.
8. Termination of UCC-1 Financing Statement, clearing Schedule B-2, Exception
No. 13, attached hereto.
-3-
<PAGE>
SCHEDULE B-1
(Requirements)
9. Termination of Easement, clearing Schedule B-2, Exception No. 17, attached
hereto.
10. Delivery to and approval by the Company of a survey plat, based on a
survey, made in accordance with "Minimum Standard Detail Requirements for
Land Title Surveys," jointly established and adopted by ALTA and ACSM in
1992.
11. Articles of Organization and Operation Agreement and any amendments thereto
for ST. GEORGE INN. L.C., a limited liability company.
12. Copy of Partnership Agreement for EAST BAY LODGING ASSOCIATES, LTD.
designating therein the partners authorized to execute appropriate closing
documents.
13. A Deed for ST. GEORGE INN, L.C. vesting fee simple title to EAST BAY
LODGING ASSOCIATES, LTD.
-4-
<PAGE>
SCHEDULE B-2
(Exceptions)
File No. D205457
The policy or policies to be issued will contain exceptions to the following
unless the same are disposed of to the satisfaction of the Company.
1. Taxes or assessments which are not shown as existing liens by the records
of any taxing authority that levies taxes or assessments on real property
or by the public records.
2. Any facts, rights, interests, or claims which are not shown by the public
records but which could be ascertained by an inspection of said land or by
making inquiry of persons in possession thereof.
3. Easements, claims of easement or encumbrances which are not shown by the
public records.
4. Discrepancies, conflicts in boundary lines, shortage in area,
encroachments, or any other facts which a correct survey would disclose,
and which are not shown by the public records.
5. Unpatented mining claims; reservations or exceptions in patents or in Acts
authorizing the issuance thereof; water rights, claims or title to water.
6. Any lien, or right to a lien, for services, labor or material theretofore
or hereafter furnished, imposed by law and not shown by the public records.
7. Defects, liens, encumbrances, adverse claims or other matters, if any,
created, first appearing in the public records or attaching subsequent to
the effective date hereof but prior to the proposed insured acquiring of
record for value the estate or interest or mortgage thereon covered by this
commitment.
(THE FOLLOWING AFFECTS ALL OF PARCEL 1)
8. Taxes for the year 1997 are now accruing as a lien, but are not yet due and
payable. Taxes for the year 1996 were paid in the amount of $36,459.91.
(Tax Parcel No. SG-5-2-31-33421).
-5-
<PAGE>
SCHEDULE B-2
(Exceptions)
(THE FOLLOWING AFFECTS ALL OF PARCEL 2)
9. Taxes for the year 1997 are now accruing as a lien, but are not yet due and
payable. Taxes for the year 1996 were paid in the amount of $1,496.87. (Tax
Parcel No. SG-5-2-31-3347).
(THE FOLLOWING AFFECTS ALL OF THE SUBJECT PROPERTY, TOGETHER WITH
OTHER PROPERTY)
10. Said property is located within the boundaries of St. George City and is
subject to charges and assessments levied thereunder. 801-634-5800.
(THE FOLLOWING AFFECTS A PORTION OF PARCEL 1, TOGETHER WITH OTHER
PROPERTY)
11. Trust Deed securing an indebtedness of the amount stated therein and any
other amounts payable under the terms thereof:
Dated August 15, 1985
Trustor THE COURT CLUB LTD., a Utah limited partnership
Amount $4,500.00
Trustee DIXIE TITLE COMPANY
Beneficiary JOHN MORGAN, JR.
Recorded August 28, 1985
Entry No. 280811
Book 386
Page 496
(THE FOLLOWING AFFECTS A PORTION OF PARCEL 1)
12. Trust Deed and Security Agreement with Assignment of Rents securing an
indebtedness of the amount stated therein and any other amounts payable
under the terms thereof:
Dated May 21, 1993
Trustor ST. GEORGE INN. L.C
Amount $1,264,320.00; $535,680.00; $200,000.00
Trustee ZIONS FIRST NATIONAL BANK, a national
association
-6-
<PAGE>
SCHEDULE B-2
(Exceptions)
Beneficiary ZIONS FIRST NATIONAL BANK, a national
association
Recorded May 25, 1993
Entry No. 434327
Book 729
Page 824
(THE FOLLOWING AFFECTS A PORTION OF PARCEL 1, TOGETHER WITH OTHER
PROPERTY)
13. UCC-1 Financing Statement with a schedule attached thereto, executed by
UTAH RESOURCES INTERNATIONAL INC., as Debtor, in favor of ZIONS FIRST
NATIONAL BANK, as Secured Party, regarding certain rights and collateral
associated with the subject property, recorded July 01, 1996, as Entry No.
537045, in Book 1015, at Page 283, Washington County Recorder's Office.
(THE FOLLOWING AFFECTS ALL OF PARCEL 2)
14. Terms and conditions of that certain Deed of Dedication, dated December 21,
1981, by SERVICE STATION LIMITED PARTNERSHIP #2, a Utah limited
partnership, wherein the following described parcel was dedicated for a
public street:
BEGINNING at the Southeast corner of the Grantor's property, said
corner being South 00(degree)48'46" East along the section line 492.79
feet and South 89(degree)03'46" East 626.62 feet from the Northwest
corner of the Southwest 1/4 of the Southwest 1/4 of Section 31,
Township 42 South, Range 15 West, Salt Lake Base and Meridian, and
running thence North 89(degree)03'46" West 15.76 feet to a point on a
79.89 foot radius curve to the left (radius point bears North
24(degree)55'22" West); thence Northeasterly along the arc of said
curve 66.01 feet to a point of cusp with a 1349.86 foot radius curve
to the right (radius point bears South 86(degree)48'41" East); thence
Southerly along the arc of said curve 5.88 feet to the East corner of
the Grantor's property; thence South 31(degree)46'14" West 50.00 feet
to the point of BEGINNING.
Said Deed of Dedication contains the following paragraph:
Adjoining land owned by the limited partnership shall be available for
property drainage, if necessary, but no soil or dirt shall be removed
or otherwise altered or modified any construction undertaken by the
City of St. George on the described land and dedicated herewith.
-7-
<PAGE>
SCHEDULE B-2
(Exceptions)
Said Deed of Dedication recorded February 01, 1982, as Entry No. 235143, in
Book 304, at page 852, Washington County Recorder's Office.
(THE FOLLOWING AFFECTS A PORTION OF PARCEL 1)
15. Right of Way and Easement Grant, dated October 19, 1988, in favor of
MOUNTAIN FUEL SUPPLY COMPANY, a Corporation of the State of Utah, a right
of way and easement 16.0 feet in width to lay, maintain, operate, repair,
inspect, protect, remove and replace pipe lines, valves, valve boxes and
other gas transmission and distribution facilities, through and across a
portion of the subject property, more particularly described as follows:
Land of the Grantor located in the Southwest quarter of Section 31,
Township 42 South, Range 15 West, Salt Lake Base and Meridian, the
center line of said right of way and easement shall extend through and
across the above described land and premises as follows, to-wit:
BEGINNING at a point located on the North right of way line of Hilton
Drive; thence North 830.91 feet and East 430.55 feet from the
Southwest corner of said Section 31; thence North 0(degree)56'14" East
210.00 feet.
Said Right of Way and Easement Grant recorded January 20, 1989, as Entry
No. 343113, in Book 510, at Page 161, Washington County Recorder's Office.
(THE FOLLOWING AFFECTS A PORTION OF PARCEL 1)
16. Easement for a 15.0 foot wide sewer line as disclosed by that certain Quit
Claim Deed, dated November 08, 1993, by and between THE CITY OF ST. GEORGE,
a Utah municipal corporation, as Grantor, and ST. GEORGE INN, L.C., as
Grantee, over, across, through and under a portion of the subject property
being more particularly described as follows:
BEGINNING at a point North 0(degree)48'46" West 838.26 feet along the
section line, South 89(degree)03'46" East 173.50 feet along the North
line of 1470 South Street and North 2(degree)20' East 213.91 feet from
the Southwest corner of Section 31, Township 42 South, Range 15 West,
Salt Lake Base and Meridian, and running thence North 2(degree)20'
East 271.72 feet; thence South 88(degree)05' East 414.66 feet to a
point on a curve to the right on the West line of the I-15 frontage
road, the radius point of which is South 74(degree)44'15" West 1349.86
feet; thence Southeasterly 15.67 feet along the arc of said curve and
said West line
-8-
<PAGE>
SCHEDULE B-2
(Exceptions)
of Frontage Road; thence North 88(degree)05' West 404.31 feet; thence
South 2(degree)20' West 310.20 feet; thence South 89(degree)02'33"
West 0.83 feet; thence North 1(degree)27'42" West 17.58 feet; thence
South 88(degree)32'18" West 8.44 feet; thence North 0(degree)58'28"
West 36.63 feet; thence South 89(degree)10'12" West 2.48 feet to the
point of BEGINNING.
Said Quit Claim Deed also contains the following paragraph:
This easement interest is conveyed upon condition that Grantee will
remove the top three (3) feet of existing sewer manholes places or
maintained by Grantor in the easement conveyed herewith, and that
Grantee will further wholly fill the resultant hole and entire
remaining manhole with compacted dirt as a safety measure.
Said Quit Claim Deed recorded November 22, 1993, as Entry No. 450099, in
Book 773, at Page 637, Washington County Recorder's Office.
(THE FOLLOWING AFFECTS ALL OF PARCEL 2)
17. Terms and conditions of that certain Declaration of Easement, dated April,
1997, by and between ST. GEORGE INN, L.C., a Utah limited liability
company, as Grantor, and SERVICE STATION LIMITED PARTNERSHIP #2, a Utah
limited partnership, recorded April 15, 1997, as Entry No. 563096, in Book
1092, at Page 59, Washington County Recorder's Office.
(THE FOLLOWING AFFECTS ALL OF PARCELS 1 AND 2)
18. Access to that certain freeway lying East the subject property was
condemned by that certain Final Order of Condemnation in favor of the UTAH
DEPARTMENT OF TRANSPORTATION for a parcel of property in fee for a freeway
known as Project No. I-15-1(7)6, which reads in part as follows:
"Together with any and all rights or easements appurtenant to the
remaining portion of said entire tract of property by reason of the
location thereof with reference to said freeway, and with all abutters
rights of access in and to the inner through traffic lanes of said
freeway, PROVIDED, however, that such remaining property shall abut
upon and have access to a frontage road which will be connected with
said inner through traffic lanes only at such points as may be
established by public authority."
-9-
<PAGE>
SCHEDULE B-2
(Exceptions)
Said Final Order of Condemnation recorded April 12, 1971, as Entry No.
144186, in Book 103, at Page 480, Washington County Recorder's Office.
(THE FOLLOWING AFFECTS ALL OF PARCELS 1 AND 2)
19. Notwithstanding those items described hereinabove, the property is also
subject to any additional discrepancies, conflicts in the boundary lines,
shortage in area, encroachments, or any other facts which an A.L.T.A.
Survey [made in accordance with "Minimum Standard Detail Requirements for
Land Title Surveys" jointly established and adopted by (ALTA) American Land
Title Association and (ACSM) American Congress on Surveying and Mapping in
1992] may disclose.
(THE FOLLOWING AFFECTS ALL OF PARCELS 1 AND 2, TOGETHER WITH OTHER
PROPERTY)
20. Reservation of all oil, gas and other mineral rights in favor of JOSEPH T.
ATKIN and SUSIE J. ATKIN, as Grantor, as created by Warranty Deed, dated
February 02, 1928, recorded February 28, 1928, as Entry No. 29581, in Book
Y-6, at Page 543, Washington County Recorder's Office.
(THE FOLLOWING AFFECTS THE INTEREST TO BE ACQUIRED BY THE PROPOSED
INSURED OWNER(S) OF THE SUBJECT PROPERTY OR PARTIES WITH SIMILAR
NAMES)
21. The identity of the General Partner(s) of EAST BAY LODGING ASSOCIATES, LTD.
has not been disclosed to the Company and the interest of said General
Partner(s) shall be subject to any liens or judgments as may apply.
(THE FOLLOWING AFFECTS ALL OF PARCELS 1 AND 2)
22. Subject to the rights of parties in possession of the subject property
under unrecorded Leases, Rental or Occupancy Agreements and any claims
thereunder.
-10-
<PAGE>
SCHEDULE B-2
(Exceptions)
NOTE: The following name(s) have been checked for judgments:
ST. GEORGE INN, L.C.
EAST BAY LODGING ASSOCIATES, LTD.
GLEN OVERTON
Except for those shown hereinabove, if any, no unsatisfied judgments
have been filed within the past eight years and no Federal Tax Liens
have been recorded within the last ten years.
NOTE: NO COVERAGE IS GIVEN FOR ANY CLAIMS CONCERNING OR ARISING OUT OF
ENVIRONMENTAL PROTECTION LAWS, ORDINANCES OR REGULATIONS ENACTED,
ESTABLISHED OR PROMULGATED BY ANY GOVERNMENTAL ENTITY (HEREIN DEFINED
AS BEING THE UNITED STATES OF AMERICA, THE STATE OF UTAH, THE COUNTY
OF SALT LAKE, ANY MUNICIPAL ENTITY, OR ANY AGENCY OR OFFICE CREATED BY
OR MADE A PART THEREOF), OR THE EFFECT OF ANY VIOLATION OF THESE LAWS,
ORDINANCES OR GOVERNMENTAL REGULATIONS, REGARDLESS OF WHETHER OR NOT A
NOTICE OF A DEFECT, LIEN OR ENCUMBRANCE RESULTING FROM A VIOLATION OR
ALLEGED VIOLATION AFFECTING THE LAND HAS BEEN RECORDED IN THE PUBLIC
RECORDS AS OF THE EFFECTIVE DATE HEREOF AND REGARDLESS OF WHETHER OR
NOT ASSOCIATED TITLE COMPANY MAY HAVE ACTUAL OR CONSTRUCTIVE NOTICE OF
ANY DEFECT OR NOTICE THEREOF.
NOTE: ANY MATTER IN DISPUTE BETWEEN YOU AND FIRST AMERICAN TITLE INSURANCE
COMPANY ("THE COMPANY") CONCERNING THE POLICY OR POLICIES ISSUED
PURSUANT TO THIS COMMITMENT MAY BE SUBJECT TO ARBITRATION AS AN
ALTERNATIVE TO COURT ACTION, PURSUANT TO THE RULES OF THE AMERICAN
ARBITRATION ASSOCIATION OR OTHER RECOGNIZED ARBITRATOR, A COPY OF
WHICH IS AVAILABLE UPON REQUEST FROM THE COMPANY. ANY DECISION REACHED
BY ARBITRATION SHALL BE BINDING UPON BOTH YOU AND THE COMPANY. THE
ARBITRATION AWARD MAY INCLUDE ATTORNEY'S FEES AND MAY BE ENTERED AS A
JUDGMENT IN ANY COURT OF PROPER JURISDICTION.
* * * * *
For escrow inquiries contact Mary Lou Webster. (578-8811)
* * * * *
For title inquires contact Collin Van Kleeck. (578-8831)
-11-
Exhibit 10.40
CB Richard Ellis Real Estate Lease
CB Richard Ellis, Inc.
Brokerage and Management
Licensed Real Estate Broker
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the
Lease referred to in this Article One explain and define the Basic Terms and are
to be read in conjunction with the Basic Terms.
Section 1.01. Date of Lease: July 16, 1998
Section 1.02. Landlord (include legal entity): CALIFORNIA AVE. ASSOCIATES,
LLC Address of Landlord: 2961 West California Avenue, Salt Lake City, UT
Section 1.03. Tenant (include legal entity): ORIGIN BOOK SALES, INC., a
Utah Corporation Address of Tenant: 2961 West California Avenue, Building B,
Suite E. Salt Lake City, UT
Section 1.04. Property: The Property is part of the Landlord's multi-tenant
real property development known as California Commerce Centre and described or
depicted in Exhibit "A" (the "Project"). The Project includes the land, the
buildings and all other improvements located on the land, and the common areas
described in Paragraph 4.05(a). The Property is (include street address,
approximate square footage and description): Approximately 28,066 square feet of
office/warehouse space, with approximately 6,745 square feet of office space,
located at 2961 West California Avenue, Building B. Suite E. Salt Lake City, UT.
Section 1.05. Lease Term: Six (6) years, -0- months beginning on September
1, 1998 or such other date as is specified in this Lease, and ending on
September 30, 1998.
Section 1.06. Permitted Uses; (see Article Five): General administrative,
storage and distribution use for book distribution.
Section 1.07. Tenant's Guarantor; (if none, so state): Wade Cook Financial
Corporation.
Section 1.08. Brokers; (See Article Fourteen)(If note, so state): Landlords
Broker: CB Richard Ellis, Inc. Tenant's Broker: CB Richard Ellis, Inc.
Section 1.09. Commission payable to Landlord's Broker (See Article
Fourteen): $
Section 1.10. Initial Security Deposit; (See Section 3.03): $16,494.00
(Sixteen thousand four hundred ninety-four dollars and no cents)
Section 1.11. Vehicle Parking Spaces Allocated to Tenant; (See Section
4.06): Twenty-five (25) non-designated spaces.
Section 1.12. Rent and Other Charges Payable by Tenant:
(a) BASE RENT: Fourteen thousand six hundred fifty-four and ten cents
Dollars ($4,654.10) per month for the first twelve (12) months, as provided in
Section 3.01, an shall be increased on the first day of the thirteenth month(s)
after the Commencement Date, either (i) as provided in Section 3.02, or (ii)
fixed three (3%) percent increases per annum. (If (ii) is completed, then (i)
and Section 3.02 are inapplicable.)
(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes; (See Section 4.02);
(ii) Utilities; (See Section 4.03); (iii) Insurance Premiums; (See Section
4.04); (iv) Tenant's Initial Pro Rata Share of Common Area Expenses, 58%; (See
Section 4.05); (v) Impounds for Insurance Premiums and Property Taxes; (See
section 4.09); (vi) Maintenance, Repairs and Alterations; (See Article Six).
Section 1.13. Landlord's Share of Profit on Assignment or Sublease; (See
Section 9.05): One Hundred percent (100%) of the Profit (the "Landlord's
Share").
Section 1.14. Riders: The following Riders are attached to and made a part
of this Lease; (if none, so state): Addendum One: Personal Guaranty.
ARTICLE TWO: LEASE TERM
Section 2.01. Lapse of Property For Lease Term. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the Period stated in Section 1.05 above and shall
begin and end on the dates specified in Section 1.05 above, unless the beginning
or end of the Lease Term is changed under any provision of this Lease. The
"Commencement Date" shall be the date specified in Section 1.05 above for the
beginning of the Lease Term, unless advanced or delayed under any provision of
this Lease.
Section 2.02. Delay in Commencement. Landlord shall not be liable to
Tenant if Landlord does not deliver possession of the Property to Tenant on the
Commencement Date. Landlord's non-delivery of the Property to Tenant on that
date shall not affect this Lease or the obligations of Tenant under this Lease
except that the Commencement Date shall be delayed until the Landlord delivers
possession of the Property to Tenant and the Lease Term shall be extended for a
period equal to the delay in delivery of possession of the Property to Tenant,
plus the number of days necessary to end the Lease Term on the last day of a
month. If Landlord does not deliver possession of the Property to Tenant within
sixty (60) days after the Commencement Date, Tenant may elect to cancel this
Lease by giving written notice to Landlord within ten (10) days after the sixty
(60) day period ends. If Tenant gives such notice, the Lease shall be canceled
and neither Landlord nor Tenant shall have any further obligations to the other.
If tenant does not give such notice, Tenant's right to cancel the Lease shall
expire and the Lease Term shall commence upon the delivery of possession of the
Property to Tenant. If delivery of possession of the Property to Tenant is
delayed, Landlord and Tenant shall, upon such delivery, execute and amendment to
this Lease, setting forth the actual
1
Initials ----------
-------------------
<PAGE>
Commencement Date and expiration date of the Lease. Failure to execute such an
amendment shall not affect the actual Commencement Date and expiration date of
the Lease.
Section 2.03. Early Occupancy. If the Tenant occupies the Property prior to
the Commencement Date, Tenant's occupancy of the Property shall be subject to
all the provisions of this Lease. Early occupancy of the Property shall not
advance the expiration date of this Lease. Tenant shall pay Base Rent and all
other charges specified in the Lease for the early occupancy period.
Section 2.04. Holding Over. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease Tenant shall reimburse Landlord
for and indemnify Landlord against all damages which Landlord incure from
Tenant's delay in vacating the Property. If Tenant does not vacate the Property
upon the expiration or earlier termination of the Lease and Landlord thereafter
accepts rent from Tenant, Tenant's occupancy of the Property shall be a
"month-to-month" tenancy, subject to all the terms of this Lease applicable to a
month-to-month tenancy, except that the Base Rent then in effect shall be
increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
Section 3.01. Time and Manner of Payment. Upon execution of this lese,
Tenant shall pay Landlord the Base Rent in the amount stated in paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction, or prior demand.
The Base Rent shall be payable at Landlord's address or at such other place as
Landlord may designate in writing.
Section 3.02. [intentionally deleted]
(a) [intentionally deleted]
(b) [intentionally deleted]
Section 3.03. Security Deposit; Increase.
(a) Upon the execution of this Lease, Tenant shall deposit with Landlord a
cash Security Deposit in the amount set forth in Section 1.10 above. Landlord
may apply all or part of the Security Deposit to any unpaid rent or other
charges due from Tenant or to cure any other defaults of Tenant. If the Landlord
uses any part of the Security Deposit, Tenant shall restore the Security Deposit
to its full amount within ten (10) days after the Landlord's written request.
Tenant's failure to do so shall be a material default under this Lease. Not
interest shall be paid on the Security Deposit. Landlord shall not be required
to keep the Security Deposit separate from its other accounts and no trust
relationship is created with respect to the Security Deposit.
(b) Each time the Base Rent is increased, Tenant shall deposit additional
funds with the Landlord sufficient to increase the Security Deposit to an amount
which bears the same relationship to the adjusted Base Rent as the initial
Security Deposit bore to the initial Base Rent.
Section 3.04. Termination; Advance Payments. Upon termination of this Lease
under Article Seven (Damage or Destruction), Article Eight (Condemnation), or
any other termination not resulting from Tenant's default, and after Tenant has
vacated the Property in the manner required by this Lease, Landlord shall refund
or credit to Tenant (or Tenant's successor) the unused portion of the Security
Deposit, any advance rent or other advance payments made by Tenant to Landlord,
and any amounts paid for real property taxes and other reserves with apply to
any time periods after termination of the Lease.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. Additional Rent. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The term "rent" shall mean Base Rent and Additional Rent.
Section 4.02. Property Taxes.
(a) Real Property Taxes. Tenant shall pay all real property taxes on the
Property (including any fees, taxes or assessments against, or as a result of,
any tenant improvements installed on the Property by or for the benefit of
Tenant) during the Lease Term. Subject to Paragraph 4.02(c) and Section 4.08
below, such payment shall be made at least ten (10) days prior to the
delinquency date of the taxes. Within such ten (10) day period, tenant shall
furnish Landlord with satisfactory evidence that the real property taxes have
been paid. Landlord shall reimburse Tenant for any real property taxes paid by
Tenant covering any period of time prior to or after the Lease Term. If Tenant
fails to pay the real property taxes when due, Landlord may pay the taxes and
Tenant shall reimburse Landlord for the amount of such tax payment as Additional
Rent.
(b) Definition of "Real Property Tax." "Real Property Tax" means; (i) any
fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty, or tax imposed by any taxing authority
against the Property; (ii) any tax on the Landlord's right receive, or the
receipt of, rent or income from the Property or against the Landlord's business
of
2
Initials ----------
-------------------
<PAGE>
leasing [illegible] property; (iii) and tax or charge for fire
protection,[illegible] walks, road maintenance, refuse or other services
[illegible] property by any government agency; (iv) any tax.[illegible].upon
this transaction or based upon a re-assessment of the Property due to a change
of ownership, as defined by applicable law, or other transfer of all or part of
Landlord's interest in the Property; and (v) any charge or fee replacing any tax
previously included within the definition of real property tax. "Real property
tax" does not, however, include Landlord's federal or state income, franchise,
inheritance, or estate taxes.
(c) Joint Assessment. If the Property is not separately assessed, Landlord
shall reasonably determine Tenant's share of the real property tax payable by
Tenant under Paragraph 4.02(a) from the assessor's worksheets or other
reasonably available information. Tenant shall pay such share to Landlord within
fifteen (15) days after receipt of Landlord's written statement.
(d) Personal Property Taxes.
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other property belonging to Tenant. Tenant
shall try to have personal property taxes separately from the Property.
(ii) If any of Tenant's personal property is taxed with the Property,
Tenant shall pay Landlord the taxes for the personal property within
fifteen (15) days after Tenant receives a written statement from Landlord
for such personal property taxes.
Section 4.03. Utilities. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
Section 4.04. Insurance Policies.
(a) Liability insurance. During the Lease Term, Tenant shall maintain a
policy of commercial general liability insurance (sometimes known as broad form
comprehensive general liability insurance) insuring Tenant against liability for
bodily injury, property damage (including loss of use of property) and personal
injury arising out of the operation, use or occupancy of the Property. Tenant
shall name Landlord as an additional insured under such policy. The initial
amount of such insurance shall be One Million Dollars ($1,000,000) per
occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.04(a) shall (i) be primary and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.05, if the matters giving rise to the Indemnity
under Section 6.05 result from the negligence of Tenant. The amount and coverage
of such insurance shall not limit Tenant's liability nor relieve Tenant or any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary insurance.
(b) Property and Rental Income Insurance. During the Lease Term, Landlord
shall maintain policies of Insurance covering loss of or damage to the Property
in the full amount of its replacement value. Such policy shall contain an
Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risks), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain insurance
for Tenant's fixtures or equipment or building improvements installed by Tenant
on the Property. During the Lease Term, Landlord shall also maintain a rental
income insurance policy, with loss payable to Landlord, in an amount equal to
one year's Base Rent, plus estimated real property taxes and insurance premiums.
tenant shall be liable for the payment of any deductible amount under Landlord's
or Tenant's insurance policies maintained pursuant to this Section 4.04, in an
amount not to exceed Ten Thousand Dollars($10,000). Tenant shall not do or
permit anything to be done which invalidates any such insurance policies.
(c) Payment of premiums. Subject to Section 4.08. Tenant shall pay all
premiums for the insurance policies described in Paragraphs 4.04(a) and (b)
(whether obtained by Landlord or Tenant) within fifteen (15) days after Tenant's
receipt of a copy of the premium statement or other evidence of the amount due,
except Landlord shall pay all premiums for non-primary comprehensive public
liability insurance which Landlord elects to obtain as provided in paragraph
4.04(a). For insurance policies maintained by Landlord which cover improvements
on the entire Project, Tenant shall pay Tenant's prorated share of the premiums,
in accordance with the formula in Paragraph 4.05(e) for determining Tenant's
share of Common Area costs. If insurance policies maintained by Landlord cover
improvements on real property other than the Project, Landlord shall deliver to
Tenant a statement of the premium applicable to the Property showing in
reasonable detail how Tenant's share of the premium was computed. If the Lease
Term expires before the expiration of an insurance policy maintained by
Landlord, Tenant shall be liable for Tenant's prorated share of the insurance
premiums. Before the Commencement Date, Tenant shall deliver to Landlord the
expiration of any such policy. Tenant shall deliver to Landlord a renewal of
such policy. As an alternative to providing a policy of insurance, Tenant shall
have the right to provide Landlord with a certificate of insurance, executed by
an authorized officer of the insurance company, showing that the insurance which
Tenant is required to maintain under this Section 4.04 is in full force and
effect and containing such other information which Landlord reasonably requires.
(d) General Insurance Provisions.
(i) Any insurance which tenant is required to maintain under this
Lease shall include a provision which requires insurance carrier to give
Landlord not less than thirty (30) days' written notice prior to any
cancellation or modification of such coverage.
(ii) If Tenant fails to deliver any policy, certificate or renewal to
Landlord required under this Lease within the prescribed time period or if
any such policy is canceled or modified during the Lease Term without
Landlord's consent, Landlord may obtain such insurance, in which case
Tenant shall reimburse Landlord for the cost of such insurance within
fifteen (15) days after receipt of a statement that indicates the cost of
such insurance.
(iii) Tenant shall maintain all insurance required under this Lease
with companies holding a "General Policy Rating" of A-12 or better, as set
forth in the most current issue of "Best Key Rating Guide." Landlord and
Tenant acknowledge the insurance markets are rapidly changing and that
insurance in the form and amounts described in this Section 4.04 may not be
available in the future. Tenant acknowledges that the insurance described
in this Section 4.04 for the primary benefit of Landlord. If at any time
during the Lease Term, Tenant is unable to maintain the insurance required
under the Lease,
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Tenant shall nevertheless maintain insurance coverage [illegible] may and
[illegible] reasonable in the insurance inc....enant's type of business, as
the coverage may [illegible] from time to time. Landlord makes no
representation as to the adequacy of such insurance to protect Landlord's
or Tenant's interests. Therefore, Tenant shall obtain any such additional
property or liability insurance which Tenant deems necessary to protect
Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance policies
maintained, Landlord and Tenant each hereby waive any and all rights of
recovery against the other, or against the officers, employees, agents or
representatives of the other, for loss of or damage to its property or the
property of others under its control, if such loss or damage is covered by
an insurance policy in force (whether or not described in this lease) at
the time of such loss or damage. Upon obtaining the required policies of
insurance, Landlord and Tenant shall give notice to the insurance carriers
of this mutual wavier of subrogation.
Section 4.05. Common Areas: Use, maintenance and Costs.
(a) Common Areas. As used in this Lease, "Common Areas" shall mean all
areas within the Project which are available for the common use of tenants of
the project and which are not leased or held for the exclusive use of the Tenant
or other tenants, including, but not limited to, parking areas, driveways,
sidewalks, loading areas, access roads, corridors, landscaping and planted
areas. Landlord, from time to time may change the size, location, nature, and
use of any of the Common Areas, convert Common Areas into leaseable areas,
construct additional parking facilities (including parking structures) in the
Common Areas and increase or decrease Common Area land and/or facilities. Tenant
acknowledges that such activities may result in inconveniences to Tenant. Such
activities and changes are permitted if they do not materially affect the
Tenant's use of the Property.
(b) Use of Common Areas. Tenant shall have the nonexclusive right (in
common with other tenants and all others to whom the Landlord has granted or may
grant such rights) to use the Common Areas for the purposes intended, subject to
such reasonable rules and regulations as Landlord may establish from time to
time. Tenant shall abide by such rules and regulations and shall use its best
effort to cause others who use the Common Areas with Tenant's express or implied
permission to abide by Landlord's rules and regulations. At any time, Landlord
may close any Common Areas to perform any acts in the Common Areas as, in
Landlord's Judgement, are desirable to improve the Project. tenant shall not
interfere with the rights of Landlord, or other tenants or any other person
entitled to use Common Areas.
(c) Specific Provision re; Vehicle Parking. Tenant shall be entitled to use
the number of vehicle parking spaces in the Project allocated to the Tenant in
Section 1.11 of the Lease without paying any additional rent. Tenant's parking
shall not be reserved and shall be limited to vehicles no larger than standard
size automobiles, pickup utility vehicles. Tenant shall not cause large trucks
or other large vehicles to be parked within the Project or on the adjacent
public streets. Temporary parking of large delivery vehicles in the Project may
be permitted by the rules and regulations established by Landlord. Vehicles
shall be parked only in striped parking spaces and not in driveways, loading
areas or other locations not specifically designated for parking. handicapped
spaces shall only be used by those legally permitted to use them. If Tenant
parks more vehicles in the parking area than the number set forth in Section
1.11 of this Lease, such conduct shall be a material breach of this lease. in
addition to the Landlord's other remedies under the lease, Tenant shall pay a
daily charge determined by Landlord for each such additional vehicle.
(d) Maintenance of Common Areas. Landlord shall maintain the Common Areas
in good order, condition and repair and shall operate the Project in Landlord's
sole discretion, as a first-class industrial/commercial real property
development. Tenant shall pay Tenant's pro rata share (as determined below) of
all cost incurred by Landlord for the operation and maintenance of the Common
Areas. Common Area costs include, but are not limited to, costs and expenses for
the following: gardening and landscaping; utilities, water and sewage charges;
maintenance of signs (other than tenant's signs); premiums for liability,
property damage, fire and other types of causality insurance on the Common Areas
and worker's compensation insurance; all personal property taxes levied on or
attributable to the Common Areas and all Common Area improvements; all personal
property taxes levied on or attributable to personal property used in connection
with the Common Areas; straight-line depreciation on personal property owned by
Landlord which is consumed in the operation or maintenance of the Common Areas;
rental or lease payments paid by Landlord for rented or leased personal property
used in the operation or maintenance of the Common Areas; fees for required
licenses and permits; repairing, resurfacing, repaving, maintaining, painting,
lighting, cleaning, refuse removal, security and similar items; reserves for
roof replacement and exterior painting and other appropriate reserves; and
reasonable allowance to Landlord for Landlord's supervision of the Common Areas
(not to exceed five percent (5%) of the gross rents of the project for the
calendar year). Landlord may cause any or all of such services to be provided by
third parties and the cost of such services shall be included in Common Area
costs. Common Area costs shall not include depreciation of real property which
forms part of the Common Areas.
(e) Tenant's Share and Payment. Tenant shall pay Tenant's annual pro rata
share of all Common Area costs (prorated for any fractional month) upon written
notice from Landlord that such costs are due and payable, and in any event prior
to delinquency. Tenant's pro rata share shall be calculated by dividing the
square foot area of the Property, as set forth in section 1.04 of the Lease, by
the aggregate square foot area of the Project which is leased or held for lease
by tenants, as of the date on which the computation is made. Tenant's initial
pro rata share is set out in Paragraph 1.12(b). Any changes in the Common Area
costs and/or the aggregate area of the Project leased or held for lease during
the Lease Term shall be effective on the first day of the month after such
change occurs. Landlord may, at Landlord's election, estimate in advance and
charge to Tenant as Common Area costs, all real property taxes for which Tenant
is liable under Section 4.02 of the Lease, all insurance premiums for which
Tenant is liable under Section 4.04 of the lease, all maintenance and repair
costs for which Tenant is liable under Section 6.04 of the Lease, and all other
common Area costs payable by Tenant hereunder. At Landlord's election such
statements of estimated Common Area costs shall be delivered monthly, quarterly,
or at any other periodic intervals to be designated by the Landlord. Landlord
may adjust such estimates at any time based upon Landlord's experience and
reasonable anticipation of costs. Such adjustments shall be effective as of the
next rent payment date after notice to Tenant. Within sixty (60) days after the
end of each calendar year of the Lease Term, Landlord shall deliver to Tenant a
statement prepared in accordance with generally accepted accounting principles
setting forth, in reasonable detail, the Common Area costs paid or incurred by
Landlord during the preceding calendar year and Tenant's pro rata share. upon
receipt of such statement there shall be an adjustment between Landlord and
Tenant, with payment to or credit given by Landlord (as the case may be) so that
Landlord shall receive the entire amount of Tenant's share of such costs and
expenses for such period.
Section 4.06 Late Charges. Tenant's failure to pay rent promptly may cause
Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by any ground lease, mortgage or trust deed encumbering the
Property. Therefore, if Landlord does not receive any rent payment within ten
(10) days after it
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becomes due, Tenant shall pay Landlord late charge equal to ten percent (10%) of
the overdue amount. The parties agree that such percentage represents a fair and
reasonable estimate of costs Landlord will incur by reason of such late payment.
Section 4.07. Interest on past Due Obligations. Any amount owed by Tenant
to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amount shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.08. Impounds for Insurance Premiums and Real Estate Taxes. If
requested by any ground lessor or lender to whom Landlord has granted a security
interest in the Property, or if Tenant is more than ten (10) days late in the
payment of rent more than once in any consecutive twelve (12) -month period,
Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the annual real
property taxes and insurance premiums payable by Tenant under this Lease,
together with each payment of Base Rent. Landlord shall hold such payments in a
non-interest bearing impound account. If unknown, Landlord shall reasonably
estimate the amount of real property taxes and insurance premiums when due.
Tenant shall pay any deficiency of funds in the impound account to Landlord upon
written request. If Tenant defaults under this Lease, Landlord may apply any
funds in the impound account to any obligation then due under this Lease.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. Permitted Uses. Tenant may use the Property only for the
Permitted Uses set forth in Section 1.06 above.
Section 5.02. Manner of Use. Tenant shall not cause or permit the Property
to be used in any way which constitutes a violation of any law, ordinance, or
governmental regulation or order, which annoys or interferes with the rights of
tenants of the Project, or which constitutes a nuisance or waste. Tenant shall
obtain and pay for all permits, including a Certificate of Occupancy, required
for Tenant's occupancy of the Property and shall promptly take all actions
necessary to comply with all applicable statutes, ordinances, rules,
regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act.
Section 5.03. Hazardous Materials. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as of included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
other similar compounds, and including any different products and materials
which are subsequently found to have adverse effects on the environment or the
health and safety of persons. Tenant shall not cause or permit any Hazardous
Material to be generated, produced, brought upon, used, stored, treated or
disposed of in or about the Property by Tenant, its agents, employees,
contractors, sublessees or invitees without the prior written consent of
Landlord. Landlord shall be entitled to take into account such other factors or
facts as Landlord may reasonably determine to be relevant in determining whether
to grant or withhold consent to Tenant's proposed activity with respect to
Hazardous Material. In no event, however, shall Landlord be required to consent
to the installation or use of any storage tanks on the Property.
Section 5.04. Signs and Auctions. Tenant shall not place any signs on the
Property without Landlord's prior written consent. Tenant shall not conduct or
permit any auctions or sheriff's sales at the Property.
Section 5.05. Indemnity. Tenant shall indemnify Landlord against and hold
Landlord harmless from any and all costs, claims or liabilities arising from:
(a) Tenant's use of the Property; (b) the conduct of Tenant's business or
anything else done or permitted by Tenant to be done in or about the Property,
including any contamination of the Property or any other property resulting from
the presence or use of Hazardous Material caused or permitted by Tenant; (c) any
breach or default in the performance of Tenant's obligations under this Lease;
(d) any misrepresentation or breach of warranty by Tenant under this Lease; or
(e) other acts or omissions of Tenant. Tenant shall defend Landlord against any
such cost, claim or liability at Tenant's expense with counsel reasonably
acceptable to Landlord, or, at Landlord's election, Tenant shall reimburse
Landlord for any legal fees or costs incurred by Landlord in connection with any
such claim. As a material part of the consideration to Landlord, Tenant assumes
all risk of damage to property or injury to persons in or about the Property
arising from any cause, and Tenant hereby waives all claims in respect thereof
against Landlord, except for any claim arising out of Landlord's gross
negligence or willful misconduct. As used in this Section, the term "Tenant"
shall include Tenant's employees, agents, contractors, and invitees, if
applicable.
Section 5.06. Landlord's Access. Landlord or its agents may enter the
Property at all reasonable times to show the Property to potential buyers,
investors or Landlords or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems necessary. Landlord shall give
Tenant prior notice of such entry, except in the case of an emergency, Landlord
may place customary "For Sale" or "For Lease" signs on the Property.
Section 5.07. Quiet Possession. If Tenant pays the rent and complies with
all other terms of this Lease, Tenant may occupy and enjoy the Property for the
full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. Existing Conditions. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental regulations and orders. Except as provided
herein, Tenant acknowledges that neither Landlord nor any agent of Landlord has
made any representation as to the condition of the Property or the suitability
of the Property for Tenant's intended use. Tenant represents and warrants that
Tenant has made its own inspection of and inquiry regarding the condition of the
Property and is not relying on any representations of Landlord or any Broker
with respect thereto. If Landlord or Landlord's Broker has provided a Property
Information Sheet or other Disclosure Statement regarding the Property, a copy
is attached as an exhibit to the Lease.
Section 6.02. Exemption of Landlord from Liability. Landlord shall not be
liable for any damage or injury to the person, business (or any loss of income
therefrom) goods, wares, merchandise or other property of Tenant, Tenant's
employees, invitees, customers or any other person in or about the Property,
whether such damage or injury is caused by or results from: (a) fire, steam,
electricity, water, gas or rain; (b) the breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures or any other cause; (c) conditions arising in or about the
Property or
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upon other portions of the Project, or from other sources or ----------; (d) any
act or omission of any other Landlord of the Project. ----------- shall not be
liable for any such damage or injury ---------------- the cause of or the means
of repairing such damage ------------------ not accessible to Tenant. The
provisions of this Section 6.02 shall not, however, exempt Landlord from
liability for Landlord's gross negligence or willful misconduct.
Section 6.03. Landlord's Obligations.
(a) Except as provided in Article Seven (Damage or Destruction) and Article
Eight (Condemnation), Landlord shall keep the following in good order, condition
and repair: the foundations, exterior walls and roof of the Property (including
painting the exterior surface of the exterior walls of the Property not more
often than once every five (5) years, if necessary) and all components of
electrical, mechanical, plumbing, heating and air conditioning systems and
facilities located in the Property which are concealed or used in common by
Landlords of the Project. However, Landlord shall not be obligated to maintain
or repair windows, doors, plate glass or the interior surfaces of the exterior
walls. Landlord shall make repairs under this Section 6.03 within a reasonable
time after receipt of a written notice from Tenant of the need for such repairs.
(b) Tenant shall pay or reimburse Landlord for all costs Landlord incurs
under Paragraph 6.03(a) above as Common Area costs as provided for in Section
4.05 of the Lease. Tenant waives the benefit of any statute in effect now or in
the future which might give Tenant the right to make repairs at Landlord's
expense or to terminate this Lease due to Landlord's failure to keep the
Property in good order, condition and repair.
Section 6.04. Tenant's Obligations.
(a) Except as provided in Section 6.03, Article Seven (Damage or
Destruction) and Article Eight (Condemnation), Tenant shall keep all portions of
the Property (including structural, nonstructural, interior, systems and
equipment) in good order, condition and repair (including interior repainting
and refinishing, as needed). If any portion of the Property or any system or
equipment in the Property which Tenant is obligated to repair cannot be fully
repaired or restored, Tenant shall promptly replace such portion of the Property
or system or equipment in the Property, regardless of whether the benefit of
such replacement extends beyond the Lease Term; but if the benefit or useful
life of such replacement extends beyond the Lease Term (as such terms may be
extended by exercise of any options), the useful life of such replacement shall
be prorated over the remaining portion of the Lease Term (as extended), and
Tenant shall be liable only for that portion of the cost which is applicable to
the Lease Term (as extended). Tenant shall maintain a preventive maintenance
contract providing for the regular inspection and maintenance of the heating and
air conditioning system by a licensed heating and air conditioning contractor.
Landlord shall have the right, upon written notice to Tenant, to undertake the
responsibility for preventive maintenance of the heating and air conditioning
system at Tenant's expense. In addition, Tenant shall, at Tenant's expense,
repair any damage to the roof, foundation or structural portions of walls caused
by Tenant's act or omissions. It is the intention of Landlord and Tenant that,
at all times during the Lease Term, Tenant shall maintain the Property in an
attractive, first-class and fully operative condition.
(b) Tenant shall pay when due all claims for labor and material furnished
to the Property. Tenant shall give Landlord at least twenty (20) days' prior
written notice of the commencement of any work on the Property, regardless of
whether Landlord's consent to such work is required. Landlord may elect to
record and post notices of non-responsibility on the Property.
Section 6.06. Condition upon Termination. Upon termination of the Lease,
Tenant shall surrender the Property to Landlord, broom clean and in the same
condition as received except for ordinary wear and tear which Tenant was not
otherwise obligated to remedy under any provision of this Lease. However, Tenant
shall not be obligated to repair any damage which Landlord is required to repair
under Article Seven (Damage or Destruction). In addition, Landlord may require
Tenant to remove any alterations, additions or improvements (whether or not made
with Landlord's consent) prior to the expiration of the Lease and to restore the
Property to its prior condition, all at Tenant's expense. All alterations,
additions and improvements which Landlord has not required Tenant to remove
shall become Landlord's property and shall be surrendered to Landlord upon the
expiration or earlier termination of the Lease, except that Tenant may remove
any of Tenant's machinery or equipment which can be removed without material
damage to the Property. Tenant shall repair, at Tenant's expense, any damage to
the Property caused by the removal of any such machinery or equipment. In no
event, however, shall Tenant remove any of the following materials or equipment
(which shall be deemed Landlord's property) without Landlord's prior written
consent: any power wiring or power panels; lighting or lighting fixtures; wall
coverings; drapes, blinds or other window coverings; carpets or other floor
coverings; heaters, air conditioners or any other heating or air conditioning
equipment; fencing or security gates; or other similar building operating
equipment and decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. Partial Damage to Property.
(a) Tenant shall notify Landlord in writing immediately upon the occurrence
of any damage to the Property. If the Property is only partially damages (i.e.,
less than fifty percent (50%) of the Property is untenantable as a result of
such damage or less than fifty percent (50%) of Tenant's operations are
materially impaired) and if the proceeds received by Landlord from the insurance
policies described in Paragraph 4.04(b) are sufficient to pay for the necessary
repairs, this Lease shall remain in effect and Landlord shall repair the damage
as soon as reasonably possible. Landlord may elect (but is not required) to
repair any damage to Tenant's fixtures, equipment, or improvements.
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(b) ----------- proceeds received by Landlord are not ----------- pay
the entire cost of repair or if the cause of the damage is covered by the
insurance policies which Landlord ---------- under Paragraph 4.04(b), Landlord
may elect either to (i) repair the damage as soon as reasonably possible, in
which case this Lease shall remain in full force and effect, or (ii) terminate
this Lease as of the date the damage occurred. Landlord shall notify Tenant
within thirty (30) days after receipt of notice of the occurrence of the damage
whether Landlord elects to repair the damage or terminate the Lease. If Landlord
elects to repair the damage, Tenant shall pay Landlord the "deductible amount"
(if any) under Landlord's insurance policies and, if the damage was due to an
act or omission of Tenant, or Tenant's employees, agents, contractors or
invitees, the difference between the actual cost of repair and any insurance
proceeds received by Landlord. If Landlord elects to terminate the Lease, Tenant
may elect to continue this Lease in full force and effect, in which case Tenant
shall repair any damage to the Property and any building in which the Property
is located. Tenant shall pay the cost of such repairs, except that upon
satisfactory completion of such repairs, Landlord shall deliver to Tenant any
such insurance proceeds received by Landlord for the damage repaired by Tenant.
Tenant shall give Landlord written notice of such election within ten (10) days
after receiving Landlord's termination notice.
(c) If the damage to the property occurs during the last six (6) months of
the Lease Term and such damage will require more than thirty (30) days to
repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the Damage.
Section 7.02. Substantial or Total Destruction. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the preceding
sentence, if the Property can be rebuilt within six (6) months after the date of
destruction, Landlord may elect to rebuild the Property at Landlord's own
expense, in which case this Lease shall remain in full force and effect.
Landlord shall notify Tenant of such election within thirty (30) days after
Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.03. Temporary Reduction of Rent. If the Property is destroyed or
damaged and Landlord or Tenant repairs or restores the Property pursuant to the
provisions of this Article Seven, any rent payable during the period of such
damage, repair and/or restoration shall be reduced according to the degree, if
any, to which Tenant's use of the Property is impaired. However, the reduction
shall not exceed the sum of one year's payment of Base Rent, insurance premiums
and real property taxes. Except for such possible reduction in Base Rent,
insurance premiums and real property taxes, Tenant shall not be entitled to any
compensation, reduction, or reimbursement from Landlord as a result of any
damage, destruction, repair, or restoration of or to the Property.
Section 7.04. Waiver. Tenant waives the protection of any statute, code or
judicial decision which grants a Tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provisions of Section 7.02 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of eminent
domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or possession, whichever occurs first.
If more than twenty percent (20%) of the floor area of the building in which the
Property is located, or which is located on the Property, is taken, either
Landlord or Tenant may terminate this Lease as of the date the condemning
authority takes title or possession, by delivering written notice to the other
within ten (10) days after receipt of written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
takes title or possession). If neither Landlord nor Tenant terminates this
Lease, this Lease shall remain in effect as to the portion of the Property not
taken, except that the Base Rent and Additional Rent shall be reduced in
proportion to the reduction in the floor area of the Property. Any Condemnation
award or payment shall be distributed in the following order: (a) first, to any
ground lessor, mortgagee or beneficiary under a deed of trust encumbering the
Property, the amount of its interest in the Property; (b) second, to Tenant,
only the amount of any award specifically designated for loss of or damage to
Tenant's trade fixtures or removable personal property; and (c) third, to
Landlord, the remainder of such award, whether as compensation for reduction in
the value of the leasehold, the taking of the fee, or otherwise. If this Lease
is not terminated, Landlord shall repair any damage to the Property caused by
the Condemnation, except that Landlord shall not be obligated to repair any
damage for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. Landlord's Consent Required. No portion of the Property or of
Tenant's interest in this Lease may be acquired by any other person or entity,
whether by sale, assignment, mortgage, sublease, transfer, operation of law, or
act of Tenant, without Landlord's prior written consent, except as provided in
Section 9.02 below. Landlord has the right to grant or withhold its consent as
provided in Section 9.05 below. Any attempted transfer without consent shall be
void and shall constitute a non-curable breach of this Lease. If Tenant is a
partnership, any cumulative transfer of more than twenty percent (20%) of the
partnership interests shall require Landlord's consent. If Tenant is a
corporation, any change in the ownership of a controlling interest of the voting
stock of the corporation shall require Landlord's consent.
Section 9.02. Tenant Affiliate. Tenant may assign this Lease or sublease
the Property, without Landlord's consent, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger or consolidation with Tenant ("Tenant's Affiliate").
In such case, any Tenant's Affiliate shall assume in writing all of Tenant's
obligations under this Lease.
Section 9.03. No Release of Tenant. No transfer permitted by this Article
Nine, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article Nine. Consent to one transfer
is not a consent to any subsequent transfer. If Tenant's transferee defaults
under this Lease, Landlord may proceed directly against Tenant without pursuing
remedies against the Transferee. Landlord may consent to subsequent assignments
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or modify ------------ this Lease by Tenant's transferee, without notifying
- - ---------- or obtaining the consent. Such action shall not relieve -------------
under this Lease.
Section 9.04. Offer to Terminate. If Tenant desires to assign the Lease or
sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of the date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all terms and
provisions of the Lease governing termination shall apply. If Landlord does not
so elect, the Lease shall continue in effect until otherwise terminated and the
provisions of Section 9.05 with respect to any proposed transfer shall continue
to apply.
Section 9.05. Landlord's Consent.
(a) Tenant's request for consent to any transfer described in Section 9.01
shall set forth in writing the details of the proposed transfer, including the
name, business and financial condition of the prospective transferee, financial
details of the proposed transfer (e.g., the term of and the rent and security
deposit payable under any proposed assignment or sublease), and any other
information Landlord deems relevant. Landlord shall have the right to withhold
consent, if reasonable, or to grant consent, based on the following factors: (i)
the business of the proposed assignee or subTenant and the proposed use of the
Property; (ii) the net worth and financial reputation of the proposed assignee
or subTenant; (iii) Tenant's compliance with all of its obligations under the
Lease; and (iv) such other factors as Landlord may reasonably deem relevant. If
Landlord objects to a proposed assignment solely because of the net worth and/or
financial reputation of the proposed assignee, Tenant may nonetheless sublease
(but not assign), all or a portion of the Property to the proposed transferee,
but only in the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the Lease
the Landlord's Share (stated in Section 1.14) of the Profit (defined below)
on such transaction as and when received by Tenant, unless Landlord gives
written notification to Tenant and the assignee or subTenant that
Landlord's Share shall be paid by the assignee or subTenant to Landlord
directly. The "Profit" means (A) all amounts paid to Tenant for such
assignment or sublease, including "key" money, monthly rent in excess of
the monthly rent payable under the Lease, and all fees and other
consideration paid for the assignment or sublease, including fees under any
collateral agreements, less (B) costs and expenses directly incurred by
Tenant in connection with the execution and performance of such assignment
or sublease for real estate broker's commissions and costs of renovation or
construction of Tenant improvements required under such assignment or
sublease. Tenant is entitled to recover such costs and expenses before
Tenant is obligated to pay the Landlord's Share to Landlord. The Profit in
the case of a sublease of less than all the Property is the rent allocable
to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement certifying all
amounts to be paid from any assignment or sublease of the Property within
thirty (30) days after the transaction documentation is signed, and
Landlord may inspect Tenant's book and records to verify the accuracy of
such statement. On written request, Tenant shall promptly furnish to
Landlord copies of all the transaction documentation, all of which shall be
certified by Tenant to be complete, true and correct. Landlord's receipt of
Landlord's Share shall not be a consent to any further assignment or
subletting. The breach of Tenant's obligation under this Paragraph 9.05(b)
shall be a material default of the Lease.
Section 9.06. No Merger. No merger shall result from Tenant's sublease of
the Property under this Article Nine, Tenant's surrender of this Lease or the
termination of this Lease in any other manner. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. Covenants and Conditions. Tenant's performance of each of
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants and
conditions.
Section 10.02. Defaults. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the Property
results in the cancellation of any insurance described in Section 4.04;
(b) If Tenant fails to pay rent or any other charge when due;
(c) If Tenant fails to perform any of Tenant's non-monetary obligations
under this Lease for a period of thirty (30) days after written notice from
Landlord; provided that if more than thirty (30) days are required to complete
such performance, Tenant shall not be in default if Tenant commences such
performance within the thirty (30) -day period and thereafter diligently pursues
its completion. However, Landlord shall not be required to give such notice if
Tenant's failure to perform constitutes a non-curable breach of this Lease. The
notice required by this Paragraph is intended to satisfy any and all notice
requirements imposed by law on Landlord and is not in addition to any such
requirement.
(d) (i) If Tenant makes a general assignment or general arrangement for the
benefit of creditors; (ii) if a petition for adjudication of bankruptcy or for
reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take possession (or if Tenant remains a debtor in
possession) and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional Rent, the excess, if any, of the rent
(or any other consideration) paid in connection with such assignment or sublease
over the rent payable by Tenant under this Lease.
(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.03. Remedies. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any lawful
means, in which case this Lease shall terminate and Tenant shall immediately
surrender possession of the Property to Landlord. In such event, Landlord shall
be entitled to recover
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from ------------- all damages incurred by Landlord by reason of --------,
including ------------- worth at the time of the award of the ------- Rent,
Additional Rent and other charges which ------------- earned at the time of the
termination; (ii) the worth at the time of the award of the amount by which the
unpaid Base Rent, Additional Rent and other charges which Landlord would have
earned after termination until the time of the award exceeds the amount of such
rental loss that Tenant provides Landlord could have reasonably avoided; (iii)
the worth at the time of the award of the amount by which the unpaid Base Rent,
Additional Rent and other charges which Tenant would have paid for the balance
of the Lease Term after the time of award exceeds the amount of such rental loss
that Tenant provides Landlord could have reasonably avoided; and (iv) any other
amount necessary to compensate Landlord for all the detriment proximately caused
by Tenant's failure to perform its obligation sunder the Lease or which in the
ordinary course of things would be likely to result therefrom, including, but
not limited to, any costs and expenses Landlord incurs in maintaining or
preserving the Property after such default, the cost of recovering possession of
the Property, expenses of reletting, including necessary renovation or
alteration of the Property, Landlord's reasonable attorneys' fees incurred in
connection therewith, and any real estate commission paid or payable. As used in
subparts (i) and (ii) above, the "worth at the time of the award" is computed by
allowing interest on unpaid amounts at the rate of fifteen percent (15%) per
annum, or such lesser amount as may then be the maximum lawful rate. As used in
subpart (iii) above, the "worth at the time of the award" is computed by
discounting such amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of the award, plus one percent (1%). If Tenant has
abandoned the Property, Landlord shall have the option of (i) retaking
possession of the Property and recovering from Tenant the amount specified in
this Paragraph 10.03(a), or (ii) proceeding under Paragraph 10.03(b);
(b) Maintain Tenant's right to possession. In which case this Lease shall
continue in effect whether or not Tenant has abandoned the Property. In such
event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due;
(c) Pursue any other remedy now or hereafter available to Landlord under
the laws or judicial decisions of the state in which the Property is located.
Section 10.04. Repayment of "Free" Rent. If this Lease provides for a
postponement of any monthly rental payments, a period of "free" rent or other
rent concession, such postponed rent or "free" rent is called the "Abated Rent."
Tenant shall be credited with having paid all of the Abated Rent on the
expiration of the Lease Term only if Tenant has fully, faithfully, and
punctually performed all of Tenant's obligations hereunder, including the
payment of all rent (other than the Abated Rent) and all other monetary
obligations and the surrender of the Property in the physical condition required
by this Lease. Tenant acknowledges that its right to receive credit for the
Abated Rent is absolutely conditioned upon Tenant's full, faithful and punctual
performance of its obligations under this Lease. If Tenant defaults and does not
cure within any applicable grace period, the Abated Rent shall immediately
become due and payable in full and this Lease shall be enforced as if there were
no such rent abatement or other rent concession. In such case Abated Rent shall
be calculated based on the full initial rent payable under this Lease.
Section 10.05. Automatic Termination. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default shall
include all costs and fees, including reasonable attorneys' fees that Landlord
incurs in connection with the filing, commencement, pursuing and/or defending of
any action in any bankruptcy court or other court with respect to the Lease; the
obtaining of relief from any stay in bankruptcy restraining any action to evict
Tenant; or the pursuing of any action with respect to Landlord's right to
possession of the Property. All such damages suffered (apart from Base Rent and
other rent payable hereunder) shall constitute pecuniary damages which must be
reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.06. Cumulative Remedies. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. Subordination. Landlord shall have the right to subordinate
this Lease on any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall execute
such further documents and assurances as such lender may require, provided that
Tenant's obligation under this Lease shall not be increased in any material way
(the performance of ministerial acts shall not be deemed material), and Tenant
shall not be deprived of its rights under this Lease. Tenant's right to quiet
possession of the Property during the Lease Term shall not be disturbed if
Tenant pays the rent and performs all of Tenant's obligation under this Lease
and is not otherwise in default. If any ground lessor, beneficiary or mortgagee
elects to have this Lease prior to the lien of its ground lease, deed of trust
or mortgage and gives written notice thereof to Tenant, this Lease shall be
deemed prior to such ground lease, deed of trust or mortgage whether this Lease
is dated prior or subsequent to the date of said ground lease, deed of trust or
mortgage or the date of recording thereof.
Section 11.02. Attornment. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or success as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.03. Signing of Documents. Tenant shall sign and deliver any
Instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant fails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.04. Estoppel Certificates.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been canceled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by such payment; (iv) that Landlord is not in
default under this Lease (or, if
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Landlord is claimed to be default, stating why); and (v) ------------
representations or information with respect to Tenant or ------------ Landlord
may reasonably request or which ---------- purchaser or encumbrancer of the
Property may -------- shall deliver such statement to Landlord within ten (10)
days after Landlord's request. Landlord may give any such statement by Tenant to
any such prospective purchaser or encumbrancer of the Property. Such purchaser
or encumbrancer may rely conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within such ten
(10) -day period, Landlord, and any perspective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been canceled or terminated except as
otherwise represented by Landlord; (iii) that not more than one month's Base
Rent or other charges have been paid in advance; and (iv) that Landlord is not
in default under the Lease. In such event, Tenant shall be estopped from denying
the truth of such facts.
Section 11.05. Tenant's Financial Condition. Within ten (10) days after
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subTenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. Legal Proceedings. If Tenant and Landlord shall be in breach
or default under this Lease, such party (the "Defaulting Party") shall reimburse
the other party (the "Nondefaulting Party") upon demand of any costs or expenses
that the Nondefaulting Party incurs in connection with any breach or default of
the Defaulting Party under this Lease, whether or not suit is commenced or
judgment entered. Such costs shall include legal fees and costs incurred for the
negotiation of a settlement, enforcement of rights or otherwise. Furthermore, if
any action for breach of or to enforce the provisions of this Lease is
commenced, the court in such action shall award to the party in whose favor a
judgment is entered, a reasonable sum as attorneys' fees and costs. The losing
party in such action shall pay such attorneys' fees and costs. Tenant shall also
indemnify Landlord against and hold Landlord harmless from all costs, expenses,
demands and liability Landlord may incur if Landlord becomes or is made a party
to any claim or action (a) instituted by Tenant against any third party, or by
any third party against Tenant, or by or against any person holding any interest
under or using the Property by license of or agreement with Tenant; (b) for
foreclosure of any lien for labor or material furnished to or for Tenant or such
other person; (c) otherwise arising out of or resulting from any act or
transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
proceeding under title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
Section 12.02. Landlord's Consent. Tenant shall pay Landlord's reasonable
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article Nine (Assignment and Subletting), or in connection with
any other act which Tenant proposes to do and which requires Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. Non-Discrimination. Tenant promises, and it is a condition
to the continuance of this Lease, that there will be no discrimination against,
or segregation of, any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
Section 13.02. Landlord's Liability; Certain Duties.
(a) As used in this Lease, the term "Landlord" means only the current owner
or owners of the fee title to the Property or Project or the leasehold estate
under a ground lease of the Property or Project at the time in question. Each
Landlord is obligated to perform the obligations of Landlord under this Lease
only during the time such Landlord owns such interest or title. Any Landlord who
transfers its title or interest is relieved of all liability with respect to the
obligations of Landlord under this Lease to be performed on or after the date of
transfer. However, each Landlord shall deliver to its transferee all funds that
Tenant previously paid if such funds have not yet been applied under the terms
of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to perform
any of its obligation sunder this Lease to Landlord and to any ground lessor,
mortgagee or beneficiary under any deed of trust encumbering the Property whose
name and address have been furnished to Tenant in writing. Landlord shall not be
in default under this Lease unless Landlord (or such ground lessor, mortgagee or
beneficiary) fails to cure such non-performance within thirty (30) days to cure,
Landlord shall not be in default if such cure is commenced within such thirty
(30) -day period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligation sunder
this Lease is limited to Landlord's interest in the Property and the Project,
and neither the Landlord nor its partners, shareholders, officers or other
principals shall have any personal liability under this Lease.
Section 13.03. Severability. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision of
this Lease, which shall remain in full force and effect.
Section 13.04. Interpretation. The captions of the Articles or Sections of
this Lease are to assist the Parties in reading this Lease and are not a part of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include the
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
Section 13.05. Incorporation of Prior Agreements; Modifications. This Lease
is the only agreement between the parties pertaining to the Lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.06. Notices. All notices required or permitted under this Lease
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address
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specified in Section 1.03 above, except thereupon Tenant's --------- of the
Property, the Property shall be Tenant's ------------ purposes. Notices to
Landlord shall be -------- address specified in Section 1.02 above. All notices
shall be effective upon delivery. Either party may change its notice address
upon written notice to the other party.
Section 13.07. Waivers. All waivers must be in writing and signed by the
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.08. No Recordation. Tenant shall not record this Lease without
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.09. Binding Effect; Choice of Law. This Lease binds any party
who legally acquires any rights or interest in this Lease from Landlord or
Tenant. However, Landlord shall have no obligation to Tenant's successor unless
the rights or interests of Tenant's successor are acquired in accordance with
the terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10. Corporate Authority; Partnership Authority. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the partnership, that he or it has full authority
to sign for the partnership and that this Lease binds the partnership and all
general partners of the partnership. Tenant shall give written notice to
Landlord of any general partner's withdrawal or addition. Within thirty (30)
days after this Lease is signed, Tenant shall deliver to Landlord a copy of
Tenant's recorded statement of partnership or certificate of limited
partnership.
Section 13.11. Joint and Several Liability. All parties signing this Lease
as Tenant shall be jointly and severally liable for all obligations of Tenant.
Section 13.12. Force Majeure. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood, or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13. Execution of Lease. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
Section 13.14. Survival. All representations and warranties of Landlord and
Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS
Section 14.01. Broker's Fee. When this Lease is signed by and delivered to
both Landlord and Tenant, Landlord shall pay a real estate commission to
Landlord's Broker named in Section 1.08 above, if any, as provided in the
written agreement between Landlord and Landlord's Broker, or the sum stated in
Section 1.09 above for services rendered to Landlord by Landlord's Broker in
this transaction. Landlord shall pay Landlord's Broker a commission if Tenant
exercises any option to extend the Lease Term or to buy the Property, or any
similar option or right which Landlord may grant to Tenant, if Landlord's Broker
is the procuring cause of any other lease or sale entered into between Landlord
and Tenant covering the Property. Such commission shall be the amount set forth
in Landlord's Broker's commission schedule in effect as of the execution of this
Lease. If a Tenant's Broker is named in Section 1.06 above, Landlord's Broker
shall pay an appropriate portion of its commission Tenant's Broker if so
provided in any agreement between Landlord's Broker and Tenant's Broker. Nothing
contained in this Lease shall impose any obligation on Landlord to pay a
commission or fee to any party other than Landlord's Broker.
Section 14.02. Protection of Brokers. If Landlord sells the Property, or
assigns Landlord's interest in this Lease, the buyer or assignee shall, by
accepting such conveyance of the property or assignment of the Lease, be
conclusively deemed to have agreed to make all payments to Landlord's Broker
thereafter required of Landlord under this Article Fourteen. Landlord's Broker
shall have the right to bring a legal action to enforce or declare rights under
this provision. The prevailing party in such action shall be entitled to
reasonable attorneys' fees to be paid by the losing party. Such attorneys' fees
shall be fixed by the court in such action. This Paragraph is included in his
Lease for the benefit of Landlord's Broker.
Section 14.03. Agency Disclosure; No Other Brokers. Landlord and Tenant
each warrant that they have dealt with no other real estate broker(s) in
connection with this transaction except: CB Richard Ellis, Inc., who represents
Landlord, and CB Richard Ellis, Inc., who represents Tenant.
In the event that CB Richard Ellis, Inc. represents both Landlord and
Tenant, Landlord and Tenant hereby confirm that they were timely advised of the
dual representation and that they consent to the same, and that they do not
expect said broker to disclose to either of them the confidential information of
the other party.
ARTICLE FIFTEEN: COMPLIANCE
The parties hereto agree to comply with all applicable federal, state and
local laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this Agreement,
including, but not limited to, the 1964 Civil Rights Act and all amendments
thereto, the Foreign Investment in Real Property Tax Act, the Comprehensive
Environmental Response Compensation and Liability Act, and The Americans With
Disabilities Act.
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<PAGE>
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A __________ RIDERS ATTACHED
HERETO OR IN THE BLANK SPACE _____. IF NO ADDITIONAL PROVISIONS ARE INCLUDED,
PLEASE DRAW A LINE THROUGH THE SPACE BELOW.
12
Initials ----------
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<PAGE>
Landlord and Tenant have signed this Lease at the place and the dates
specified adjacent to their signatures below and have _________ Riders which are
attached to or incorporated by _____ in this Lease.
"LANDLORD"
Signed on July 20, 1997 CALIFORNIA AVE. ASSOCIATES, LLC
at -------------------
By: [Illegible]
------------------------------------
Its: Managing Partner
"TENANT"
Signed on July 20, 1997 ORIGIN BOOK SALES, INC.
at -------------------
By: [Illegible]
------------------------------------
Its: President
IN ANY REAL ESTATE TRANSACTIONS, IT IS RECOMMENDED THAT YOU CONSULT WITH A
PROFESSION, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON WITH
EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE POSSIBLE
PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE TANKS.
THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION
OF THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS, INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN
CALIFORNIA CHAPTER OF SOCIETY OF INDUSTRIAL AND OFFICE REALTORS, INC., ITS LEGAL
COUNSEL. THE REAL ESTATE BROKERS NAMED HEREIN, OR THEIR EMPLOYEES AGENTS, AS TO
THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS LEASE OR OF THIS
TRANSACTION. LANDLORD AND Tenant SHOULD RETAIN LEGAL COUNSEL TO ADVISE THEM ON
SUCH MATTERS AND SHOULD RELY UPON THE ADVICE OF SUCH LEGAL COUNSEL.
13
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<PAGE>
EXHIBIT "A"
Attached to and made part of that Lease bearing the Lease Reference Date of July
16, 1998 between California Avenue Associates, LLC, as Landlord and Origin Book
Sales, Inc. as Tenant.
Premises Site Plan
Exhibit A is intended only to show the general layout of the property as of the
beginning of the Term of this Lease.
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<PAGE>
EXHIBIT __
Attached ___ ____ made part of that Lease bearing the lease Refer______ ______
of October 2, 1997 between California Associates, LLC, as Landlord and Origin
Book Sales, Inc., as Tenant.
Sign Specifications
General Notes
1. The purpose of these criteria is to establish a unified sign program and
the standards necessary to insure coordinated proportional exposure for all
Tenants. Conformance shall be strictly enforced and the Tenant shall remove
any non-conforming signs.
2. No signage shall be permitted except as expressly allowed by these sign
criteria. Without limiting the general statement in any way, signage shall
be permitted only on the signage fascia band on the Premises, or as
provided for in the Allowable Signage section below. In no case shall
signage be permitted on the roof, other walls, or columns, nor shall any
freestanding monument or pole be permitted.
3. Each Tenant shall submit to the Landlord for approval four (4) copies of a
detailed shop drawing of the proposed sign, in conformance with these
criteria. Each submittal shall include, but not be limited to, pertinent
dimensions, installation details and color call-outs. The Landlord must
approve sign contractors prior to any design work or fabrication.
4. Styles or Tenant logos may be permitted subject to approval by the
Landlord. Landlord's design approval will be based upon compatibility with
signfront design, and with regard for the character intended of the overall
development.
5. The Tenant shall submit Landlord-approved drawings to all agencies
requiring approval, and shall pay for required permits.
6. Tenant will be responsible for supplying Landlord with copy of sign permit
prior to sign installation. The Tenant shall pay for all signs and their
installation and maintenance.
7. All signs shall be of excellent quality and workmanship. Work shall be
performed by contractor licensed to do business in Utah. Landlord reserves
the right to reject any work determined to be of substandard quality. This
applies to manufacturing and installation of all signs. Tenant shall be
fully responsible for the operations of Tenant's sign contractor. The sign
company shall carry workers compensation and public liability insurance in
an amount approved by Landlord.
8. All signs and their installation must comply with the Salt Lake City Sign
Ordinance, as well as local building and electrical codes.
9. Signs built and/or installed without Landlord and City approvals and
permits, or contrary to corrections made by Landlord or City, shall be
altered to conform to these standards at the Tenant's expense. If Tenant's
sign has not been brought into conformance within fifteen (15) days after
written notice from Landlord, Landlord shall have the right to correct said
sign at the expense of the Tenant.
10. Within fifteen (15) days of vacating the premises, Tenant must remove the
sign and repair the fascia in accordance with Landlord's standards. If
Tenant has not removed the sign and repaired the fascia to Landlord's
satisfaction, Landlord may deduct the cost of such repair from the Tenant's
security deposit. Any Tenant sign not removed within fifteen (15) days of
Tenant's vacating the promises becomes the property of the Landlord.
General Specifications
1. Walls or fascia signs shall consist of non-illuminated individual sheet
metal channel letters with a baked on enamel finish, Plexiglass faces and
bronze trim cap and returns.
2. No animated, flashing, audible or revolving signs shall be permitted.
3. Permanent advertising devices such as attraction boards, posters, cardboard
signs, stickers/decals, banners and flags will not be permitted, without
Landlord's written approval.
4. All Tenant signs installed in the fascia shall be vertically and
horizontally centered within the fascia band fronting their Premises. No
projections above or below designated sign area will be permitted. Building
signs on rear flat walls shall be centered at the same level as signs on
other sides of the building.
Allowable Signage
1. The maximum length for each Tenant's wall or fascia sign shall be 70% of
the leased frontage.
2. The maximum letter height shall be 18 inches for single line signs, 12
inches for two line signs, or stacked copy. Overall height maximum for
stacked copy with spacing will be 37 inches.
3. Each Tenant shall be permitted one sign, except for the end space Tenants,
which shall be permitted one sign on each frontage. Rear signs shall be
permitted.
4. Each Tenant shall be allowed to place in the upper window panel adjacent to
the entrance door not more than 144 square inches of hand-painted, decal or
stick-on lettering or graphics indicating hours of business, telephone
numbers of emergency contact, approved credit cards, etc.
5. Each Tenant must identify its service door for delivery and emergency
purposes only. Signs shall not exceed 144 square inches and shall be two
(2) inches high Helvetica Medium letters printed on white self-adhesive
vinyl.
6. Temporary advertising, banners and flags will, with written approval from
Landlord, be permitted for a maximum of thirty (30) days after Tenant opens
for business. Tenant shall submit a drawing of adequate size to reflect the
size, copy, method and location of attachment for such temporary signage.
After thirty (30) days, the Landlord has the right to remove all temporary
signage at Tenant's expense.
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<PAGE>
EXHIBIT "B"
Attached to and made part of that Lease bearing the Lease Reference Date of July
16, 1998 between California Avenue Associates, LLC as Landlord and Origin Book
Sales, Inc., as Tenant.
Tenant Improvements
Please reference working drawings by Fitzsimmons Murray, dated July 20, 1998.
Initials ----------
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Exhibit 10.41
WADE COOK FINANCIAL CORPORATION
FORM OF SPEAKER AGREEMENT
This Speaker Agreement (the "Agreement) is entered into on this day of March,
1999 (the "Effective Date"), by and between Wade Cook Financial Corporation and
its subsidiaries, a Nevada Corporation, located at 14675 Interurban Avenue
South, Seattle, Washington 98168, ("WCFC"), and ___________.
BACKGROUND
WCFC, through its subsidiary 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.
- - ------------------- is an individual with experience in providing Speaker
Services.
WCFC and ------------------- desire to enter into a relationship, whereby
- - ------------------- will act as an Independent Contractor and Authorized
Speaker, to provide speaker, sales and other services related to WCFC's seminar
business.
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the parties agree as
follows:
1. Term
WCFC engages _________ as an Authorized Speaker, for the period commencing
upon the Effective Date through December 31, 1999, unless otherwise
terminated as provided herein. Thereafter, this Agreement may be renewed
for additional terms of one (1) year each upon the agreement of both
parties.
2. Relationship of the Parties
A. Independent Contractor
The parties intend that the relationship between them created under
this Agreement is that of an independent contractor only.
------------------- is not an employee of WCFC. Nothing in this
Agreement shall be construed as creating an agency relationship, a
partnership, or a joint venture between the parties.
------------------- shall not be covered by any WCFC benefit programs,
including but not limited to health insurance, social security,
workers' compensation or unemployment compensation.
B. No Guarantee of Employment
This Agreement may not be construed as an employment agreement, as a
guarantee of continued use of services, or as a limitation upon WCFC's
discretion with respect to the termination of -------------------'s
services, it being understood that -------------------'s services are
terminable at will by either party, subject to the terms and
conditions hereunder.
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3. Services
The primary services to be provided by ----------- shall be as a speaker at
seminars developed by WCFC or in which WCFC has either exclusive or
non-exclusive license to market and distribute, and shall also sell
authorized seminar products, books, audio and video tapes and such other
products as WCFC may from time to time add to its inventory (Exhibit B -
"Products"). The WCFC seminars for which ------------ shall be engaged as
the primary speaker are listed in Exhibit B. The parties from time to time
may add or delete seminars from this list, based on the business needs of
WCFC.
4. Compensation
Payment for services to be provided by ------------, shall vary according
to the amount of sales per event less refunds and returns, training
participation and such other specifics as may from time to time be agreed
upon by the parties in the ordinary course of business. The specifics of
the compensation shall appear in a Work Order, based on the areas outlined
below and submitted to the Authorized Speaker, for signature in advance of
the event. This Work Order shall include the name of the seminar, date,
time, location and compensation for each of the services to be provided.
The Work Order shall document ------------'s commitment to the particular
event and shall be incorporated into this contract by reference. The
proposed Work Order is attached as Exhibit C. For the term of this
Agreement, ----------- warrants that the Authorized Speaker(s) have Work
Order signature authority. Notwithstanding the above, cancellations,
refunds or returns received by WCFC more than sixty (60) days after the
date of sale shall not be deducted from ----------'s compensation.
A. Base Compensation
For each unit of Product(s) sold at a seminar, WCFC shall pay
------------- a percentage of the gross sales of Product(s) to
attendees. Proceeds realized during the event shall be identified by
the appropriate marketing key code, less any refunds and returns.
B. Additional Compensation
------------ will be paid an additional percentage of gross sales
which will be determined by the degree of participation in the
following:
1) Speaker Training
WCFC has an established schedule of dates and times for which all
Authorized Speakers may attend training classes at its corporate
offices in Seattle, Washington or such other locations as from
time to time it may designate. This portion of the additional
compensation will be paid only for complete attendance at the
speaker training classes. In the event that the speaker does not
attend the requisite training, this compensation shall not be
paid for any seminars during that month. The parties acknowledge
that training is currently monthly, however, WCFC reserves the
right, with advance notice, to alter the training schedule If
------------ feels that there is a valid reason for missing the
training sessions, this must be put in writing and sent to WCFC
prior to the training. WCFC shall have the sole right to accept
or reject written reasons for missed training.
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2) Trading
Trading, either paper or actual trades on all strategies that are
taught by WCFC are to be performed by the Authorized Speaker on a
consistent basis. Upon request, copies of all trades for the week
shall be sent to WCFC to verify compliance and entitlement to the
additional payment.
3) Video Taping
Authorized Speaker's should videotape all seminars and workshops
that they teach. ----------- shall retain these tapes for a
period of three (3) years. WCFC will have the right to
periodically audit and request tapes from specific seminars, to
verify entitlement to payment under this section. Furthermore,
since WCFC is unable to monitor every seminar to assure that no
misrepresentations, exaggerations or other activities prohibited
by Section 7 of this Agreement occur, videotaping of seminars
will be necessary in order for WCFC to provide ------------ with
indemnification as provided in Section 6.A. below.
4) Content & Testing
At WCFC's discretion, one week prior to a seminar, WCFC will send
to the Authorized Speaker training materials and testing designed
to determine the speaker's understanding of the content
associated with the next seminar he will be teaching. Upon
request, tests shall be returned to WCFC prior to the seminar.
C. Method of Payment
Payment shall be due and payable no later than fourteen (14) days
after each seminar and shall accompany the reports described in
Section 4E. Payment shall be made directly to ------------ or as
otherwise directed, and shall be in United States dollars.
D. Taxes
WCFC shall collect and pay all national, state and local sales, use,
value-added and other taxes, customs duties and similar tariffs and
fees, imposed by any jurisdiction and required by law, based on this
Agreement or any deliveries made hereunder, excluding any income taxes
levied on -----------'s income. ----------- shall be responsible for
the payment of any and all taxes relating to WCFC's compensation to it
for its services rendered under this Agreement.
E. Reports
WCFC shall maintain sales reports, for sales made by ------------,
from seminars taught by each Authorized Speaker. Said reports shall
specify the Authorized Speaker, event, date, location, total sales,
refunds and returns and total compensation per event. WCFC shall
submit such reports to ----------- with each compensation check.
F. Records
WCFC shall keep accurate records, books of account and logs concerning
the sales and distribution of the Products, adequate to determine the
amount of Compensation and Additional Compensation owed to ----------,
which
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shall be preserved by WCFC in a safe place for a period of two (2)
years, following the termination of this Agreement.
The parties recognize that WCFC is a public company, and as such, an
independent public accountant audits its records. Therefore, during
the term of this Agreement, and during the two-year period immediately
following termination, any audit of WCFC's books and records by
------------ shall be permitted, only if it directly relates to the
sales and distribution of the products at seminars taught by an
Authorized Speaker, and if requested by ------------, such audit shall
be performed by the above mentioned independent public accountant, at
the requesting entity's expense. Such audits shall be conducted during
regular business hours at the facilities of WCFC, and shall be limited
to once every six months, and shall not unreasonably interfere with
WCFC's business activities. WCFC reserves the right to exclude its
customers names and addresses and any other information identifying
its customers from such audit.
G. Cancellation of Seminars
WCFC reserves the right to cancel any seminar or event due to low
attendance, acts of God, or as reasonably necessary in the ordinary
course of business. Each of the parties will bear their own expenses
incurred prior to such cancellation. WCFC shall notify Authorized
Speaker, by telephone or e-mail, within twenty-four (24) hours of the
cancellation of the event. Notwithstanding the above, in the event
that cancellation occurs within seven (7) days of the event, and the
Authorized Speaker is unable to obtain a refund for incurred travel
expenses, WCFC will reimburse ------------ up to $400 of the actual
nonrefundable amount.
5. Confidential Information
A. Definition
For purposes of this Agreement, "Confidential Information" means: (i)
All proprietary information of WCFC, (ii) all information marked or
designated by WCFC as confidential, (iii) all information, whether or
not in written or other tangible form and whether or not designated as
confidential, which is treated by WCFC as confidential, (iv) the
subject matter of this Agreement, (v) all information provided to WCFC
by third parties, which WCFC is obligated to keep confidential.
Without limiting the foregoing, Confidential information includes:
Inventions, discoveries, trade secrets, ideas, drawings,
specifications, techniques, data, models, programs, documentation,
processes, know-how, customer lists, product plans, marketing plans
and financial information.
Notwithstanding the foregoing, Confidential Information shall not
include information which: (i) was in -----------'s lawful possession
prior to the disclosure and had not been obtained by ------------
either directly or indirectly from WCFC, (ii) is independently
developed by ------------ without reference to WCFC's Confidential
Information, (iii) is lawfully disclosed to ----------- by a third
party without restriction on disclosure, (iv) is publicly disclosed by
WCFC. It shall be the receiving party's burden to show information is
not Confidential Information of the other party.
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B. Obligation of Confidentiality
------------ agrees that it shall not directly or indirectly disclose,
disseminate, publish articles concerning, or otherwise make known or
available to any person or entity not confidentially bound to WCFC,
any Confidential Information of WCFC, without prior written permission
of WCFC. ------------- agrees not to use Confidential Information for
any purpose other than the implementation of this Agreement, and then
such use shall only be by employees and authorized independent
contractors of WCFC in the course of performing this Agreement.
------------ agrees to take all necessary steps to ensure that
Confidential Information is not disclosed or distributed by its
employees, Independent Contractors or Agents in violation of the
provisions of this Agreement.
Upon WCFC's request, ------------- shall provide WCFC in writing, the
names of the persons to whom the Confidential Information has been
disclosed and/or the steps being taken to maintain the confidentiality
of WCFC's Confidential Information. THE DISCLOSING PARTY MAKES NO
OTHER EXPRESS OR IMPLIED WARRANTIES WITH RESPECT TO CONFIDENTIAL
INFORMATION AND DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
6. Indemnification
A. By WCFC
WCFC shall indemnify, defend and hold harmless -------------, against
any claim that the Products infringe any copyright, trademark
(provided use of such trademark has been in accordance with this
Agreement), or trade secret. Each party shall have full authority, at
its sole option, to defend or settle such claim. However, WCFC shall
fully cooperate in the defense or settlement of such claim, and shall
render reasonable assistance to the other party as required. If WCFC
becomes aware that the products do or may infringe any such rights,
WCFC will either: (i) obtain the right to continue using and licensing
the Product, (ii) replace or modify the Products so that they become
non-infringing, or if such remedies are not reasonably available,
(iii) require return of the Products, in which case ------------ will
promptly refund the compensation paid, with respect to such returned
products.
WCFC will also indemnify ------------ against claims that information
provided by WCFC, in accordance with WCFC-approved speakers' text and
training, results in false, deceptive or misleading representations
relating to WCFC or the Products. Other than as set forth in this
Section, WCFC shall have no liability to ------------- for any claim
arising from or based on the provision of speaker services.
B. By -----------------
------------- shall indemnify and hold harmless, WCFC against any
claim that information provided to customers by ------------- results
in false, deceptive or misleading representations, relating to the
content of the presentation, WCFC or the Products. Notwithstanding the
foregoing, --------------, shall not be required to indemnify WCFC, if
----------
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<PAGE>
and its Authorized Speakers materially follow the speakers' text and
training as approved and provided by WCFC.
C. Conditions
The foregoing indemnity shall be contingent upon the following
conditions: (i) give prompt written notice to the other of any claim,
demand, or action for which indemnity is sought as soon as it becomes
aware of such a claim, demand or action, (ii) fully cooperate, at the
expense of the indemnifying party, in the defense or settlement of any
such claim, demand, or action; and (iii) obtain the written agreement
of the other party prior to any settlement or proposal of settlement,
which agreement shall not unreasonably be withheld. Each party shall
have the right, at its own expense, to retain its own attorney in the
defense of such claim, demand or action.
7. Prohibited Marketing Activities
During the course of the seminar, WCFC shall not, and shall not permit
Authorized Speakers, to make false or misleading representations, with
regard to WCFC or its Products. ------------ shall not, and shall not
employ or cooperate in the publication or employment of, any
misleading or deceptive advertising with regard to the Products. Nor
shall ------------ make representations, warranties or guarantees to
WCFC attendees or to the trade with respect to the specifications,
features or capabilities of the Products, other than those which are
consistent with the then-current sales literature and documentation of
WCFC.
8. Ownership, Reproduction and Use
A. Proprietary Rights
----------- acknowledges that WCFC is the owner or licensee of all
copyrights and other proprietary rights to the Products. -----------
shall not remove, destroy, obfuscate or conceal any copyright or other
proprietary markings or confidential legends, placed upon or contained
within the Products, and will not duplicate or modify all or any
portion of the Products, unless expressly authorized by WCFC.
B. Return of Materials
Upon termination of this Agreement, or earlier if WCFC requires,
------------- agrees to deliver to and leave with WCFC, any and all
objects, materials, documents or devices (including without
limitation, all documents, records, notebooks, recordings, drawings,
video and audio tapes, seminar instructional materials, sales
literature, prototypes, models, schematic diagrams, computer programs,
customer lists and other materials belonging to WCFC (regardless of
the media on which they are stored) and similar repositories or
objects, which describe, depict, contain, constitute, reflect or
record Confidential Information, and all copies thereof, in
------------'s possession or under its control, whether or not
prepared by --------------.
9. Use of Voice, Photographs, Audio and Video Tapes
-------------- grants to WCFC permission to use, reuse, broadcast,
display, reproduce, distribute and reprint, in any form and through
any
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media, the image or likeness in a photograph, videotape, film, digital
medium, illustration or art work, the name, voice and biographical
information of the Authorized Speaker. This grant shall be for
purposes of advertising or marketing WCFC Products.
10. Non-Solicitation
During the term of this Agreement, and for a period of two (2) years
thereafter -------------- shall not, directly or indirectly, solicit,
divert or appropriate (or attempt to solicit, divert or appropriate)
to or for himself or any other third party, any person or entity that
is or was a customer or prospective customer of WCFC during such
non-solicitation period. During the term of this Agreement and for a
period of one (1) year thereafter, ------------ shall not, directly or
indirectly, solicit, divert or hire away (or attempt to solicit,
divert, or hire away) to or for himself or any third party, any
employee of WCFC, whether or not such employee is full-time, part-time
or temporary, whether or not such employment is pursuant to a written
agreement and whether or not such employment is for a determined
period or terminable at will.
11. Disclosure of Proposed Employment
------------ agrees that before it agrees to undertake any other
employment, consultancy or independent contractor relationship, for
itself or with a third party, that will utilize or involve subject
matter related to activities of the type contemplated by this
Agreement or in which WCFC is involved, ------------ shall give WCFC
reasonable advance notice of no less than thirty (30) days, and fully
disclose the proposed employment, consultancy, or independent
contractor relationship to WCFC. -------------'s duty to give notice
and disclose under this Section shall apply during the Effective Date
of this Agreement and during the period of time the non-competition
provisions of Section 10 above are in full force and effect.
12. Injunctive Relief
------------- acknowledges that the breach or threatened breach of
this Agreement would cause irreparable injury to WCFC, that could not
be adequately compensated by money damages. Accordingly, WCFC may seek
and obtain a restraining order and/or injunction prohibiting
-------------'s breach or threatened breach of this Agreement, without
the need to prove damages or losses, in addition to any other legal or
equitable remedies that may be available.
13. Termination
A. Termination for Cause
Either party hereto, may terminate this Agreement upon (a) thirty (30)
days written notice to the other, or following any material breach or
omission by the other with respect to any term, representation,
warranty, condition, or covenant hereof, and (b) the failure of such
other party to cure such breach or omission prior to the expiration of
such 30-day period.
B. Automatic Termination
This Agreement shall terminate automatically if (I) a receiver is
appointed for any party or its property; (ii) any party makes an
assignment for the benefit of its creditors; (iii) any proceedings are
commenced by, for or against any party under any bankruptcy,
insolvency or debtor's relief law; (iv) any party is liquidated or
dissolved; or (v) --------- comes under the direct or indirect control
of
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<PAGE>
any person, firm, company or entity manufactures, markets or otherwise
deals with any products which compete with WCFC products or services.
C. Termination Without Cause
Any party may terminate this Agreement for any reason upon thirty (30)
days written notice.
D. Effect of Termination
Upon termination of this Agreement, ------------ shall immediately
cease to hold itself out as representing or performing any Services on
behalf of or for WCFC, and shall return all WCFC property in its
possession in accordance with Section 8B.
E. Final Accounting
Following the normal reporting timetable under this Agreement, the
parties will render a complete and final accounting and will promptly
pay all moneys due each other.
14. Entire Agreement
This Agreement, Exhibits and any Work Orders contain the entire
understanding and agreement of the parties with respect to matters
addressed herein, and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement.
15. Severability
If one or more of the provisions contained in this Agreement shall for
any reason be held to be unenforceable or excessively broad as to
time, duration, scope, activity or subject, such provision will be
construed, by limiting or reducing it, so as to be enforceable to the
extent compatible with the then applicable law. If any provision of
this Agreement, or the application of such provision to any person or
circumstance, shall be held invalid, the remainder of this Agreement,
or the application of such provision to persons or circumstances other
than those as to which it is held invalid, shall not be affected
thereby.
16. Waiver
Waiver by any party of one or more terms, conditions or defaults, of
this Agreement, shall not constitute a waiver of the remaining terms
and conditions of any future defaults of this Agreement.
17. Notices
All notices and other communications required or permitted under this
Agreement shall be validly given, made, or served if in writing and
delivered personally or sent by registered mail, to the other party,
at the address listed in the preamble. Each party may, by notice to
the other as provided herein, designate a different address.
18. Survival of Certain Provisions
WCFC's rights and obligations and --------' rights and obligations, as
the provided in Sections 3, 4D, 4F, 5, 6, 8,10, 11, 14, 15, 19, 21,
22, 23 and 26, will survive the termination, for any reason, of this
Agreement.
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19. Governing Law; Jurisdiction
This Agreement and the rights and obligations of the parties herein, shall
be construed in accordance with the laws of the State of Washington and
applicable federal law. ------------ hereby consents to the jurisdiction
and venue of the courts of the State of Washington or any federal court
located in such state.
20. Assignment
---------- shall not assign its interest in this Agreement, without the
express written consent of WCFC.
21. Attorneys Fees
The prevailing party in disputes relating to this Agreement shall be
entitled to the award of reasonable attorney fees, necessary expenses and
costs of collection and enforcement, whether or not litigation is
commenced.
22. Independent Agreement
The benefits provided hereunder are independent and unrelated to any
payments, benefits, rights or interest of ------------ in any other
agreements or arrangements between WCFC and -----------. The existence of
any claim or cause of action by ----------- against WCFC shall not
constitute a defense to the enforcement of this Agreement or excuse
performance of the obligations assumed by -------------. The provisions of
this Agreement shall not be construed as limiting any rights or remedies
that WCFC may otherwise have under applicable law.
23. Arbitration
A. All disputes arising out of or under this Agreement, which cannot be
settled by agreement of the parties, shall be submitted to the
American Arbitration Association (AAA), to be heard in King County,
Washington, under the rules then in force, or such other rules or
venue agreed upon by the parties. The prevailing party in any dispute
shall be reimbursed all of its reasonable costs, including reasonable
attorney's fees by the other party.
B. The aggrieved person can initiate arbitration by sending written
notice of an intention to arbitrate by registered or certified mail to
all parties and to AAA. The notice must contain a description of the
dispute, the amount involved (if any) and the remedy sought. If and
when a demand for arbitration is made by any party, the parties agree
to execute a Submission Agreement, provided by AAA, setting forth the
rights of the parties if the case is arbitrated, and the rules and
procedures to be followed at the arbitration hearing. The parties
shall agree on a jurist from the AAA panel. If they are unable to
agree, AAA will provide a list of three available panel members and
each party may strike one. The remaining judge will serve as the
arbitrator.
C. Prior to the arbitration hearing, the parties to the dispute shall
mediate any dispute before a mediator of their mutual choosing or as
selected by the arbitrator form the AAA panel.
D. The arbitrator may, at a minimum, hear summary motions, make such
procedural rulings as he or she may deem appropriate, and resolve all
questions of fact or
Page 9 of 13 - Speaker Agreement, between WCFC and -------------------
<PAGE>
law. The arbitrator may make monetary awards consistent with the terms
of this Agreement and award commercially reasonable interest thereon.
The arbitrator has the authority to award reasonable attorneys' fees,
arbitrators' fees, costs and other reasonable expenses, to the
prevailing party in the dispute, provided each party to the dispute
must pay its own witness fees.
24. Further Action
The parties hereto shall execute and deliver documents, provide all
information and take or forbear from all such action as may be necessary or
appropriate to achieve the purposes of the Agreement.
25. Counterparts
This Agreement may be executed in several counterparts and all so executed,
shall constitute one Agreement, binding on all the parties hereto even
though, all the parties are not signatories to the original or the same
counterpart.
26. Parties in Interest
Nothing herein shall be construed to benefit any third party, nor is it
intended that any provision shall be for the benefit of any third party.
IN WITNESS WHEREOF, the parties have entered into this Agreement by their duly
authorized representatives, as of the Effective Date written above.
WADE COOK FINANCIAL CORPORATION
By: --------------------------------------
Name: Kiman A. Lucas
Title: General Counsel
By: --------------------------------------
Name: -----------------------------
Title: Speaker
Page 10 of 13 - Speaker Agreement, between WCFC and -------------------
<PAGE>
EXHIBIT A
AUTHORIZED SPEAKERS
1.
Page 11 of 13 - Speaker Agreement, between WCFC and -------------------
<PAGE>
EXHIBIT B
WADE COOK FINANCIAL CORPORATION PRODUCTS
Products to be sold and promoted by -------------, shall include, but not be
limited to:
1. Wall Street Workshop Seminars
2. Semper Financial Convention
3. Zero to Zillion Tape Set
4. Financial Clinic Seminars
5. Next Step Seminars
6. Real Estate Workshop Seminars
7. Financial Fortress Tape Set
8. Cook University
9. Wealth Information Network
10. The Support Package
11. Fortify Your Income
12. Executive Retreat
13. Wealth Academy
Seminars to be taught by Authorized Speaker, shall include, but not be limited
to:
1. Financial Clinic
2. Wall Street Workshop Seminars
3. Fortify Your Income
4. Semper Financial Convention
5. The Support Package
Page 12 of 13 - Speaker Agreement, between WCFC and -------------------
<PAGE>
EXHIBIT C
SPEAKER WORK ORDER
The following is a request for Services to be provided by -------------. All
services provided under this Work Order shall be in compliance with the Terms
and Conditions of the Speaker Agreement currently in effect between ----------
and Wade Cook Financial Corporation.
1. Name of WCFC Subsidiary Requesting Services:
2. Name of Event:
3. Date of Event:
4. Location of Event:
5. Contact Person:
6. Services to be Provided:
7. Primary Speaker Compensation:
--- Base Compensation of six percent (6%) of gross sales
--- Travel - one percent (1%) of gross sales
--- Additional Compensation
--- Video taping this event - one percent (1%) of gross sales
--- Content and Testing - one percent (1%) of gross sales
Total Compensation for this Event is ---- percent of gross sales
Conditions accepted by:
- - ----------------------------------------
Authorized Speaker
Dated: ---------------------------------
Page 13 of 13 - Speaker Agreement, between WCFC and -------------------
Exhibit 10.42
THH VENTURES L.C.
208 West Lucy Avenue
Salt Lake City, Utah 84101
801 467-3535
December 11, 1998
via facsimile: 801 375-7833
David Peterson,
Dear David.
This is to confirm our discussion and agreement regarding the sale by THH
Ventures L.C. of its 15% interest in Airport Loding Associates, L.C., the owner
of the Ramada Inn in the International Center, Sale Lake City, Utah.
The purchase price is $150,000.00, payable:
$50,000 at closing, on or before December 29, 1998;
$50,000 on or before June 1, 1999;
$50,000 on or before December 1, 1999.
The purchaser is Wade Cook or an entity in which he is a principal. The
purchaser will pay THH's share of the capital call recently made, and any and
all capital calls hereafter.
The 15% interest will be transferred to the purchaser when payment has been
made in full. If either the June or December payment is not made when due, or
within ten days of the due date, a late charge of four percent will be paid by
the purchaser. If either the June or December payment is not made within 20
calendar days of notice to the purchaser of non-payment, the notice to be given
after the due date, THH shall retain all amounts paid as liquidated damages and
shall have no further obligation to the purchaser. Upon payment of the purchase
price in full, THH shall transfer the 15% interest to the purchaser and shall
cooperate in signing any documents necessary to document the transfer and to
make the purchaser a member of Airport Lodging Associates, L.C., in the place of
THH.
If this correctly states the agreement, please have the purchaser confirm
and accept the agreement by signing below under "Acceptance." Then return the
signed Acceptance to me. If the foregoing does not correctly state the
agreement, or if other terms or provisions are necessary, please advise.
<PAGE>
David Peterson
December 11, 1998
Page 2
I will appreciate hearing from you.
Very truly yours,
THH Ventures L.C.
/s/ Allen R. Trevino
-------------------------------------------
Allen R. Trevino, Manager
ACCEPTANCE
The undersigned accepts the foregoing agreement and agrees to perform in
accordance with the terms set forth above.
[If a legal entity, insert the name
immediately below]
/s/ Michael M. Hunter
-------------------------------------------
If a legal entity, print the name and
the capacity of the person signing.
Michael M. Hunter, CEO
Bountiful Investment Group, Inc.
<PAGE>
SOUTHERN UTAH TITLE COMPANY
40 South 100 East
St. George, Utah 84770
BUYERS SETTLEMENT STATEMENT
Sellers Buyers
------- ------
ST. GEORGE INN., L.C. SOUTHGATE SERVICES INVESTMENT L.C., a
a Utah Limited Liability Company Utah Limited Liability Company
Sellers Address Buyers Address
--------------- --------------
8 East Broadway, Suite #200 2601 No. Canyon Road, Suite #203
Salt Lake City, Utah 84111 Provo, Utah 84604
<TABLE>
Property Address/Description Closing Date Order Number
- - -------------------------------------------------------------------- -------------------- --------------------
<S> <C> <C>
1460 South Hilton Drive 07/10/98 78741
St. George, Utah 84770
Charges Credits
- - -------------------------------------------------------------------- -------------------- --------------------
SALES PRICE 202,000.00
Down Payment to Seller 5,000.00
EXPENSES:
Title Insurance Premium 633.60
Recording Fee 48.00
Closing Fee 302.00
Escrow Closing Fee 0.00
Federal Express
Additional Documents
PRORATIONS 0/01/98 TO 0/10/98
Taxes for 1998 12 Mo. @ 0.00
Buyers are responsible for insurance as of the date of closing.
Southern Utah Title Company will not be held liable.
Trust Deed and Note with Seller 197,000.00
Credit to Seller for June 30th payment @ $50,000.00 principal, plus
interest @ 12% on $197,00.00 to June 30, 1998 @ 11,722.84 61,722.84
Credit to Seller for additional incurred Legal Fees 1,500.00
Credit for monies tendered on Buyers behalf by STATE BANK 61,000.00
Note: Sellers portion of 1998 taxes @ 0.00 paid directly to
Washington County Treasurer by Southern Utah Title at Closing 0.00 0.00
Sub-Totals $266,206.44 $263,000.00
Balance Due from Buyer $3,206.44
TOTALS $266,206.44 $266,206.44
- - -------------------------------------------------------------------- -------------------- --------------------
</TABLE>
Approved By:
Southern Utah Title Company SOUTHGATE SERVICE INVESTMENT, L.C.,
a Utah Limited Liability Co.
By: /s/ Elizabeth Hart By: /s/ Glen A. Overton
---------------------------- ---------------------------------
ELIZABETH HART GLEN A. OVERTON, Member
Exhibit 10.43
Marcus & Millichap
PURCHASE AGREEMENT
THIS DOCUMENT IS MORE THAN A RECEIPT FOR MONEY. IT IS INTENDED TO BE A LEGALLY
BINDING AGREEMENT. READY IT CAREFULLY.
Marcus & Millichap Real Estate Investment Brokerage Company ("Agent"), as agent
for Ki Hong Kim and Hoo Hyung Kim ("Seller") has received from Zions Management
and Development ("Buyer") the sum of Fifty Thousand Dollars ($50,000.00) in the
form of a check which has been deposited with First American Title Company,
Reno, NV, Escrow $196,388-TD. This sum is a deposit ("Deposit") to be applied to
the purchase price of that certain real property (referred to as the
("Property") located in the City of Sparks, County of Washoo, State of Nevada,
and more particularly described as follows:
Best Western McCarran Inn - a 220 room full service hotel located at 55 E.
Nugget Ave., Sparks, NV 89431. APN NO.'s: 034-101-08 and 034-101-25. Purchase
includes all of Seller's rights, title and interest, together with leases,
contracts, all transferable licenses or permits and all associated improvement,
furniture, fixtures, inventory (consisting of linens, paper goods, cleaning and
operating supplies), historical business and marketing records in existence on
the Closing Date, and other personal property, in the Best Western McCarran
House. The sale shall not include any cash (house bank, operating bank accounts,
etc.) accounts receivable, proceeds thereof or other rights to the payment of
money arising out of operations prior to closing, nor any accounts payable or
other liabilities of the Seller. Inventory of stock in trade related to food and
beverage shall be taken at the time of possession and Buyer shall pay the amount
thereof.
TERMS AND CONDITIONS
Seller agrees to sell the Property, and Buyer agrees to purchase the Property,
on the following terms and conditions:
1) PURCHASE PRICE. The purchase price for the Property is five million four
hundred thousand dollars ($5,400,000.00). Buyer's Deposit shall be
delivered to Agent upon Seller's execution of this Purchase Agreement (the
"Agreement"). Agent shall deliver and deposit same in escrow as provided in
Paragraph 3 below. The balance of the purchase price shall be payable at
close of escrow pursuant to the terms stated below.
2) DOWN PAYMENT: A) Buyer shall make a cash down payment of eight hundred
thousand dollars ($800,000.00) or B) ---------------------- ---------- .
3) ESCROW: Within three (3) calendar days after (A) x the Effective Date (as
defined in Paragraph 35 below) (B) , the date contingencies (as specified
in paragraph(s) are removed. Seller's Agent shall open escrow with First
American Title Company, Tina Donovan, Reno, NV (the "Escrow Holder") by the
simultaneous deposit of a copy of this Agreement and Buyer's Deposit with
Escrow Holder. If alternative (B) above is checked, Agent shall hold the
Deposit in Agent's trust account until escrow is opened. Seller and Buyer
agree to prepare and execute such escrow instructions as may be necessary
and appropriate to close the transaction within thirty-three (33) calendar
days from the date escrow is opened. Should said instructions fail to be
executed as required, Escrow Holder shall and is hereby directed to close
escrow pursuant to the terms and conditions of this Agreement. Close of
escrow (or the "Closing Date", which shall mean the date on which the deed
transferring title is recorded) shall occur on or before March 10, 1998.
Escrow fee shall be paid by Buyer and Seller 50/50. All other closing costs
shall be paid in accordance with the custom in the country in which the
Property is located.
4) PRORATIONS: Rents, real property taxes, premiums on insurance acceptable to
Buyer, interest on any debt being assumed or taken subject to by Buyer, and
any other expenses of the Property shall be prorated as of the Closing
Date. Security deposits, advance rentals, and the amount of any future
lease credits shall be credited to Buyer. The amount of any bond or
assessment which is a lien and not customarily paid with real property
taxes shall be (select one "X") x paid assumed by Seller.
1 of 7
Buyers Initials -- Sellers Initials
<PAGE>
TITLE: Promptly after the Effective Date of this Agreement, Seller shall procure
and cause to be delivered to Buyer a preliminary title report issued by
First American Title Co., Reno, NV (the "Title Company") on the Property.
Within twenty-one (21) calendar days following receipt thereof, Buyer shall
either approve in writing the exceptions contained in said title report or
specify in writing any exceptions to which Buyer reasonably objects. If
Buyer objects to any exceptions, Seller shall, within seven (7) calendar
days after receipt of Buyer's objections, deliver to Buyer written notice
that either (i) Seller will, at Seller's expense, attempt to remove the
exception(s) to which Buyer has objected before the Closing Date or (ii)
Seller is unwilling or unable to eliminate said exception(s). If Seller
fails to so notify Buyer or is unwilling or unable to remove such exception
by the Closing Date, Buyer may elect to terminate this Agreement and
receive back the entire Deposit, in which event Buyer and Seller shall have
no further obligations under this Agreement; or alternatively, Buyer may
elect to purchase the Property subject to such exception(s).
Seller shall convey by grant deed to Buyer (or to such other person or
entity as Buyer may specify) marketable fee title subject only to the
exceptions approved by Buyer in accordance with this Agreement. Title shall
be insured by a standard California Land Title Association owner's policy
of title insurance issued by the Title Company in the amount of the
purchase price with premium paid by Seller. Any additional premium for
Extended ALTA coverage and survey, if required, shall be paid by Buyer.
6) FINANCING CONTINGENCIES:
6.1) PURCHASE SUBJECT TO/ASSUMPTION OF FIRST: Buyer shall (select on "X") xx
purchase the Property subject to assume the existing promissory note (the
("First Note") and first deed of trust in favor of Dr. Oh. Said First Note
has a present unpaid principal balance of approximately three million five
hundred thousand dollars ($3,500,000.00), bears interest at the rate of
percent ( %) per year (select on "X") fixed rate other, and is current
payable in monthly installments of principal and interest of dollars ($ ),
due in (----------------------------------------------------- -----------
------------------ -------) years. If Buyer is to take subject to the First
Note, Seller shall provide Buyer, within ten (10) calendar days following
the Effective Date documentary evidence issued by the lender verifying the
last payment received by the lender and current balance of the First Note.
If Buyer is to assume and fails to qualify to assume the First Note and
deed of trust within ( ) calendar days following the Effective Date, this
transaction shall be null and void and the entire Deposit shall be returned
to Buyer. Seller agrees to furnish to Buyer, on or before the Closing Date,
a beneficiary statement from the holder of the First Note which shall (a)
specify the unpaid balance of the First Note as of the Closing Date and (b)
state that there is no default under the First Note or under any instrument
securing its payment. In the event the unpaid principal balance of said
First Note shall be more or less than the amount stated, the difference
shall be adjusted in the down payment due upon the Closing Date. Buyer
agrees to pay to the holder of the First Note an assumption fee, if any,
not to exceed percent ( %) of the existing principal balance of the First
Note. In the event the assumption fee is greater than percent ( %), Seller
agrees to pay the additional fee. If assumption is elected, Buyer shall
submit a written application to assume the First Note to the lender within
( ) calendar days of the Effective Date and shall authorize said lender to
confirm in writing to Seller that said application has been received.
6.2) AGENT CARRIES BACK THIRD: A portion of the balance of the purchase price in
the amount of one hundred thirty-five thousand dollars ($135,000.00) shall
be evidenced by a promissory note secured by a third deed of trust to be
executed by Buyer in favor of Agent and delivered to Agent upon the Closing
Date. Said note shall bear interest at the rate of ten percent (10%) per
year, (select one "X") x fixed rate other, and shall be payable as
follows: monthly payments, interest only. Said note shall be due and
payable twelve (12) calendar months from the Closing Date and shall be
prepayable, principal and/or interest, at any time, and from time to time,
in whole or in part, without premium, notice, or penalty. Said note shall
be on standard title company forms and shall be (select one "X") assumable
assumable one time only x not assumable.
6.3) SELLER CARRIES BACK FOURTH: The remaining balance of the purchase price in
the amount of eight hundred fifty-five thousand dollars ($855,000.00) shall
be evidenced by a promissory note secured by a fourth deed of trust to be
executed by Buyer in favor of Seller and delivered to Seller upon the
Closing Date. Said note shall bear interest at the
rate of ten percent (10%) per year (select one "X") x fixed rate other, and
shall be payable as follows: monthly payments, interest only. Said note shall be
due and payable twelve (12) calendar months from the Closing Date and shall be
prepayable, principal and/or interest, at any time, and from time to time, in
whole or in part, without premium, notice, or penalty. Said note shall be on
standard title company forms and shall be (select one "X") assumable assumable
one time only x not assumable.
7) PEST CONTROL CONTINGENCIES:
2 of 7
Buyers Initials -- Sellers Initials
<PAGE>
7) 1NO PEST CONTROL CONTINGENCY - "AS IS" Buyer has conducted Buyer's own
investigation with regard to possible infestation and/or infection by
wood-destroying pests or organisms and agrees to purchase the Property in
its present condition. Buyer acknowledges that Buyer is not relying upon
any representations or warranties made by Seller or Agent, regarding the
presence or absence of such infestation or infection.
8) INSPECTION CONTINGENCIES:
8.1) BOOKS AND RECORDS: Seller agrees to provide Buyer with items a through g
listed below within seven (7) calendar days ----------- ------ - following
the Effective Date:
a. All rental agreements, leases, service contracts, insurance policies,
latest tax bill(s) and other written agreements or notices which
affect the Property.
b. All available historical operating statements of the Property.
c. For commercial properties, copies of whatever documents the Seller may
have regarding the financial condition, business prospects or
prospective continued occupancy of any tenant (including but not
limited to financial statements, credit reports, etc.).
d. All notes and security instruments affecting the Property.
e. A complete and current rent roll, including a schedule of all tenant
deposits and fees.
f. A written inventory of all items of Personal Property to be conveyed
to Buyer at close of escrow.
g. The following items, if readily available to Seller: all available
reports, studies, documents affecting the property.
Buyer shall acknowledge receipt of those items in writing. Buyer shall have
twenty-one (21) calendar days following receipt thereof to review and
approve in writing each of these items. If Buyer fails to approve these
items within the specified time, this Agreement shall be rendered null and
void, Buyer's entire deposit shall be returned, and Buyer and Seller shall
have no further obligations hereunder.
8.2) PHYSICAL INSPECTION: Buyer shall have twenty-one (21) calendar days
following the Effective Date to inspect the physical condition of the
Property, including, but not limited to the soil conditions and the
presence or absence of lead-based paint and other hazardous materials on or
about the Property, and to notify the Seller in writing that Buyer approves
same. Buyer shall bear the cost for any reports or studies required by
Buyer. If Buyer fails to approve the physical condition of the Property
within the specified time, this Agreement shall be null and void, Buyer's
entire deposit shall be returned, and Buyer and Seller shall have no
further obligations hereunder, except that Buyer shall release to Seller
copies of any reports or studies which Buyer has caused to be performed.
9) DEPOSIT INCREASE: not applicable.
10) DEPOSIT TRANSFER: Buyer's Deposit shall remain in trust, if held by Agent,
or in escrow if previously deposited in escrow, until removal of the
inspection contingencies set forth in paragraph(s) 8.1, 8.2 hereof. Upon
removal of said contingencies, Buyer's Deposit shall be delivered to escrow
by Agent (if same has been held in trust by Agent); a grant deed duly
executed by Seller, sufficient to convey title to Buyer, shall be delivered
to escrow by Seller; and Buyer and Seller shall execute escrow instructions
directing the Escrow Holder to release immediately from escrow and deliver
to Seller Buyer's entire Deposit (including increases, if any). Seller
shall hold Buyer's Deposit subject to the remaining terms and conditions of
this Agreement. If the Property is made unmarketable by Seller, or acts of
God, the Deposit shall be returned to Buyer and deed shall be returned to
Seller.
11) ESTOPPEL CERTIFICATE CONTINGENCIES (Leased Properties):
11.1) ESTOPPEL CERTIFICATES NOT APPLICABLE.
12) PRORATIONS: Rent, real estate and personal property taxes, premiums on
insurance acceptable to Buyer, interest on any debt being assumed or taken
subject to by Buyer, water and other utility charges, transferable licenses
and deposits shall be prorated as of the Closing Date. The amount of any
bond or assessment which is a lien and not customarily paid with real
property taxes shall be (select one "X") xx paid assumed by Seller.
Additionally, all income received and accruable for lodging utilized prior
to 12:00 noon of the Closing Date, and all operating expenses, including
wages, accruable to 12:00 noon on the Closing Date shall be for Seller's
account, and all income and expense accruable after such times shall be for
the account of Buyer. All pro-rations shall be based upon a thirty day
month, 360 day year.
13) PERSONAL PROPERTY: Title to any personal property to be conveyed to Buyer
in connection with the sale of the Property shall be conveyed to Buyer by
Bill of Sale on the Closing Date free and clear of all encumbrances (except
those approved by Buyer as provided above). The price of these items shall
be included in the Purchase Price for the Property, and Buyer agrees to
accept all such personal property in "as is" condition.
3 of 7
Buyers Initials -- Sellers Initials
<PAGE>
14) CONDITION OF PROPERTY: It is understood and agreed that the Property is
being sold "as is" that Buyer has, or will have prior to the Closing Date,
inspected the Property; and that neither Seller nor Agent makes any
representation or warranty as to the physical condition or value of the
Property or its suitability for Buyer's intended use.
Buyers Initials -- Sellers Initials
15) RISK OF LOSS: Risk of loss to the Property shall be borne by Seller until
title has been conveyed to Buyer. In the event that the improvements on the
Property are destroyed or materially damaged between the Effective Date of
this Agreement and the date title is conveyed to Buyer, Buyer shall have
the option of demanding and receiving back the entire Deposit and being
released from all obligations hereunder, or alternatively, taking such
improvements as Seller can deliver. Upon Buyer's physical inspection and
approval of the Property, Seller shall maintain the Property through close
of escrow in the same condition and repair as approved, reasonable wear and
tear excepted.
16) POSSESSION: Possession of the Property shall be delivered to Buyer on
Closing Date.
17) LIQUIDATED DAMAGE: By placing their initials immediately below, Buyer and
Seller agree that it would be impracticable or extremely difficult to fix
actual damages in the event of a default by Buyer, and that the amount of
Buyer's Deposit hereunder (as same may be increased by the terms hereof) is
the parties' reasonable estimate of Seller's damages in the event of
Buyer's default, and that upon Buyer's default in its purchase obligations
under this agreement, not caused by any breach by Seller, Seller shall be
released from its obligations to sell the Property and shall return Buyer's
Deposit (as same may be increased by the terms hereof) as liquidated
damages, which shall be Seller's sole and exclusive remedy in law or at
equity for Buyer's default.
Buyers Initials -- Sellers Initials
18) SELLER EXCHANGE: Buyer agrees to cooperate should Seller elect to sell the
Property as part of a like-kind exchange under IRO Section 1081. Seller's
contemplated exchange shall not impose upon Buyer any additional liability
or financial obligation, and Seller agrees to hold Buyer harmless from any
liability that might arise from such exchange. This Agreement is not
subject to or contingent upon Seller's ability to acquire a suitable
exchange property or effectuate an exchange. In the event any exchange
contemplated by Seller should fail to occur, for whatever reason, the sale
of the Property shall nonetheless be consummated as provided herein.
19) BUYER EXCHANGE: Seller agrees to cooperate should Buyer elect to purchase
the Property as part of a like-kind exchange under IRO Section 1031.
Buyer's contemplated exchange shall not impose upon Seller any additional
liability or financial obligation and Buyer agrees to hold Seller harmless
from any liability that might arise from such exchange. This Agreement is
not subject to or contingent upon Buyer's ability to dispose of its
exchange property or effectuate an exchange. In the event any exchange
contemplated by Buyer should fail to occur, for whatever reason, the sale
of the Property shall nonetheless be consummated as provided herein.
20) DISCLOSURE OF REAL ESTATE LICENSURE:
20.1)The ------------- in this transaction is a licensed real estate agent
acting as a principal, and is associated ------------------------ with, a
licensed real estate broker. ---------------------------------
21) AUTHORIZATION: Buyer and Seller authorize Agent to disseminate sales
information regarding this transaction, including the purchase price of the
Property.
22) AGENCY DISCLOSURE:
22.1)EXCLUSIVE LISTING: Marcus & Millichap Real Estate Investment Brokerage
Company is the exclusive listing broker of the property that is the subject
of this transaction. Under Nevada law, Marcus & Millichap represents the
Seller as the Seller's agent. Marcus & Millichap also has procured the
Buyer in this transaction. Marcus & Millichap is not the agent of the
Buyer; however, Marcus & Millichap does have the following alternative
legal obligations to the Buyer:
a. Diligent exercise of reasonable skill and care in the performance of
its duties.
b. A duty of honest and fair dealing and good faith.
c. A duty to disclose all facts known to it materially affecting the
value or desirability of the property that are not known to, or within
the diligent attention and observation of, the Buyer.
23) OTHER BROKERS: Buyer and Seller agree that, in the event any broker other
than Agent or a broker affiliated with Agent is involved in the disposition
of the Property, Agent shall have no liability to Buyer or Seller for the
acts or omissions of such other broker, who shall not be deemed to be a
subagent of Agent.
4 of 7
Buyers Initials -- Sellers Initials
<PAGE>
24) LIMITATION OF LIABILITY: Except for Agent's gross negligence or willful
misconduct, Agent's liability for any breach or negligence in its
performance of this Agreement shall be limited to the greater of $50,000 or
the amount of compensation actually received by Agent in any transaction
hereunder.
25) SCOPE OF AGENT'S AUTHORITY AND RESPONSIBILITY: Agent shall have no
authority to bind either Buyer or Seller to any modification or amendment
of this Agreement. Agent shall not be responsible for performing any due
diligence or other investigation of the Property on behalf of either Buyer
or Seller, or for providing either party with professional advice with
respect to any legal, tax, engineering, construction or hazardous materials
issues. Except for maintaining the confidentiality of any information
regarding Buyer or Seller's financial condition and any future negotiations
regarding the terms of this Purchase Agreement, Buyer and Seller agree that
their relationship with Agent is at arms' length and is neither
confidential nor fiduciary in nature.
26) BROKER DISCLAIMER: Buyer and Seller acknowledge that, except as otherwise
expressly stated herein, Agent has not made any investigation,
determination, warranty or representation with respect to any of the
following: (a) the financial condition or business prospects of any tenant,
or such tenant's intent to continue or renew its tenancy in the Property;
(b) the legality of the present or any possible future use of the Property
under any federal, state or local law; (c) pending or possible future
action by any governmental entity or agency which may affect the Property;
(d) the physical condition of the Property, including but not limited to,
soil conditions, the structural integrity of the improvements, and the
presence or absence of fungi or wood-destroying organisms; (e) the accuracy
or completeness of income and expense information and projections of square
footage figures, and of the basis of leases, options, and other agreements
affecting the Property; (f) the possibility that lease, options or other
documents exist which affect or encumber the Property and which have not
been provided or disclosed by Seller; or (g) the presence or location of
any hazardous materials on or about the Property, including, but not
limited to, asbestos, PCB's, or toxic, hazardous or contaminated
substances, and underground storage tanks.
Buyer agrees that investigation and analysis of the foregoing matters is
Buyer's sole responsibility and that Buyer shall not hold Agent responsible
therefor. Buyer further agrees to reaffirm its acknowledgment of this
disclaimer at close of escrow and to confirm that it has relied upon no
representations of Agent in connection with its acquisition of the
Property.
Buyers Initials -- Sellers Initials
27) LEAD-BASED PAINT HAZARDS: not applicable.
28) ARBITRATION OF DISPUTES: If a controversy arises with respect to the
subject matter of this Purchase Agreement or the transaction contemplated
herein (including but not limited to the parties' rights to the Deposit or
the payment of commissions as provided herein), Buyer, Seller and Agent
agree that such controversy shall be settled by final, binding arbitration
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. 8 of
7 Buyers Initials Sellers Initials -- -------- Notice: By initialing in the
space below you are agreeing to have any dispute arising out of the matters
included in the "Arbitration of Disputes" provision decided by neutral
arbitration as provided by Nevada law and you are giving up any rights you
might possess to have the dispute litigated in court or jury trial. By
initialing in the space below you are giving up your judicial rights to
discovery and appeal, unless such rights are specifically included in the
"Arbitration of Disputes" provision. If you refuse to submit to arbitration
after agreeing to this provision, you may be compelled to arbitrate under
the authority of the Nevada Code of Civil Procedure. Your agreement to this
arbitration provision is voluntary.
We have read and understand the foregoing and agree to submit disputes
arising out of the matters included in the "Arbitration of Disputes"
provision to neutral arbitration.
Buyers Initials -- Sellers Initials
29) SUCCESSORS & ASSIGNS: This Agreement and any addenda hereto shall be
binding upon and insure to the benefit of the heirs, successors, agents,
representatives and assigns of the parties hereto.
30) ATTORNEYS' FEES: In any litigation, arbitration or other legal proceeding
which may arise between any of the parties hereto, including Agent, the
prevailing party shall be entitled to recover its costs, including costs of
arbitration, and reasonable attorneys' fees in addition to any other relief
for which such party may be entitled.
31) TIME: Time is of the essence of this Agreement.
32) NOTICES: All notices required or permitted hereunder shall be given to the
parties in writing (with a copy to Agent) at their respective addresses as
set forth below. Should the date upon which any act required to be
performed by this Agreement fall on a Saturday, Sunday or holiday, the time
for performance shall be extended to the next business day.
5of 7
Buyers Initials -- Sellers Initials
<PAGE>
33) FOREIGN INVESTOR DISCLOSURE: Seller and Buyer agree to execute and deliver
any instrument, affidavit or statement, and to perform any act reasonably
necessary to carry out the provisions of this Foreign Investment in Real
Property Tax Act and regulations promulgated thereunder.
34) ADDENDA: Any addendum attached hereto and either signed or initialed by the
parties shall be deemed a part hereof. This Agreement, including addenda,
if any, expresses the entire agreement of the parties and supersedes any
and all previous agreements between the parties wit regard to the Property.
There are no other understandings, oral or written, which in any way alter
or enlarge its terms, and there are no warranties or representations of any
nature whatsoever, either express or implied, except as set forth herein.
Any future modification of this Agreement will be effective only if it is
in writing and signed by the party to be charged.
35) ACCEPTANCE AND EFFECTIVE DATE: Buyer's signature hereon constitutes an
offer to Seller to purchase the Property on the terms and conditions set
forth herein. Unless acceptance hereof is made by Seller's execution of
this Agreement and delivery of a fully executed copy to Buyer, either in
person or by mail at the address shown below, on or before February 5,
1998, this offer shall be null and void, the Deposit shall be returned to
Buyer, and neither Seller nor Buyer shall have any further rights or
obligations hereunder. Delivery shall be effective upon personal delivery
to Buyer or Buyer's agent, or, if by mail, on the next business day
following the date of postmark. The "Effective Date" of this Agreement
shall be the latter of (a) the date on which Seller executes this
Agreement, or (b) the date of or written acceptance (by either Buyer or
Seller) of the final counter-offer submitted by the other party.
36) GOVERNING LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada.
37) OTHER TERMS AND CONDITIONS:
1. Seller will retain $110,000 of equity in the Property. Seller's equity
will increase by a prorated ten percent (10%) per year. For example,
at the end of 12 months after the Closing Date, Seller's equity will
be $121,000. At the end of 24 months, Seller's equity will be
$133,100. At the end of 36 months after the Closing Date, Seller's
equity will be $146,410, and so forth until Buyer pays Seller for
Seller's equity. Buyer shall pay Seller's equity off when the first
mortgage (existing All Inclusive Trust Deed) is retired. Buyer agrees
to pay off the first mortgage on or before 36 months after the Closing
Date.
2. Buyer shall give Seller and Agent an unconditional personal guarantee
securing all payments to be made under the Notes and Deeds of Trust,
to be executed prior to the Close of Escrow.
3. Buyer shall assume all existing contracts and leases affecting the
Property, copies of which shall be provided to Buyer as part the due
diligence documents.
4. Within three calendar days of execution, Buyer shall submit to Seller
a copy of Buyer's current financial statements (Balance Sheet, Profit
& Loss Statement, Tax Return). Seller shall have three calendar days
to disapprove in writing Buyer's financial ability to perform under
the terms of this contract, in which case Buyer's deposit shall be
returned to Buyer and neither party shall have any further obligation
to each other.
5. Best Western transfer fees, if any, shall be paid by Buyer.
6. Buyer shall pay to Seller 98% of the value of the Accounts Receivable
at the Close of Escrow.
7. Close of Escrow is subject to Seller obtaining authorization from Dr.
Oh for Seller to bring Buyer in as a 90% partner and agreement from
Dr. Oh that the existing Note will not be accelerated. In the event
Dr. Oh authorizes a full assumption of the existing note without
requiring Seller to remain on title, Buyer agrees to pay Seller's
$110,000 equity in cash to Seller at the Close of Escrow.
6 of 7
Buyers Initials -- Sellers Initials
<PAGE>
THE PARTIES ARE ADVISED TO CONSULT THEIR RESPECTIVE ATTORNEYS WITH REGARD TO THE
LEGAL EFFECT AND VALIDITY OF THIS PURCHASE AGREEMENT.
The undersigned Buyer hereby offers and agrees to purchase the above described
Property for the price and upon the terms and conditions herein stated.
This offer is made by Buyer to Seller on this day of February, 1998. The
undersigned Buyer hereby acknowledges receipt of an executed copy of this
Agreement, including the Agency Disclosure contained in Paragraph 22 above.
BUYER: -------------------------- ADDRESS:------------------------------------
Zions Management and Development
SELLERS ACCEPTANCE AND AGREEMENT TO PAY COMMISSION
The undersigned Seller accepts the foregoing offer and agrees to sell the
Property to Buyer for the price and on the terms and conditions stated herein.
Seller acknowledges receipt of an executed copy of this Agreement and authorizes
Agent to deliver an executed copy to Buyer.
Seller reaffirms its agreement to pay to Agent a real estate brokerage
commission pursuant to the terms of that certain Representation Agreement
between Agent and Seller on file, which shall remain in full force and effect.
Said commission is payable in full on the Closing Date and shall be paid in cash
through escrow. Escrow Holder is directed to make such payment to Agent from
Seller's proceeds of sale. The provisions of this paragraph may not be amended
or modified without the written consent of Agent.
Seller acknowledges and agrees that payment of said commission is not contingent
upon the closing of the transaction contemplated by this Agreement, and that, in
the event completion of the sale is prevented by default of Seller, then Seller
shall immediately be obligated to pay to Agent the entire commission. Seller
agrees that in the event completion of the sale is prevented by default of
Buyer, then Seller shall be obligated to pay to Agent an amount equal to one
half of any damages on other monetary compensation (including liquidated
damages) collected from Buyer by suit or otherwise as a consequence of Buyer's
default, if and when such damages or other monetary compensation are collected;
provided, however, that the total amount paid to Agent by Seller shall not in
any case exceed the brokerage commission hereinabove set forth. Seller
acknowledges and agrees that the existence of any direct claim which Agent may
have against Buyer in the event of Buyer's default shall not alter or in any way
limit the obligations of Seller to Agent as set forth herein.
SELLER: -------------------------- ADDRESS:------------------------------------
Ki Hong Kim
DATE: -------------------------- TELEPHONE:----------------------------------
SELLER: -------------------------- ADDRESS:------------------------------------
Hoo Hyung Kim
DATE: -------------------------- TELEPHONE:----------------------------------
Agent accepts and agrees to the foregoing.
AGENT: MARCUS & MILLICHAP REAL ESTATE INVESTMENT BROKERAGE
COMPANY
BY: ------------------------------ ADDRESS:------------------------------------
Kenneth Blomsterberg
DATE: -------------------------- TELEPHONE:----------------------------------
- - --------------------------------------------------------------------------------
NO REPRESENTATION IS MADE BY AGENT AS TO THE LEGAL OR TAX EFFECT OR VALIDITY OF
ANY PROVISION OF THIS PURCHASE AGREEMENT. A REAL ESTATE BROKER IS QUALIFIED TO
GIVE ADVICE ON REAL ESTATE MATTERS. IF YOU DESIRE LEGAL, FINANCIAL OR TAX
ADVICE, CONSULT YOUR ATTORNEY, ACCOUNTANT OR TAX ADVISOR.
- - --------------------------------------------------------------------------------
7 of 7
Buyers Initials -- Sellers Initials
<PAGE>
ADDENDUM TO PURCHASE AGREEMENT
This document is an addendum ("Addendum") to the Purchase Agreement
("Agreement") between Ki Hong Kim and Hoo Hyung Kim ("Seller") and Zions
Management and Development ("Buyer") executed by Buyer on the 5th day of
February, 1998 for that certain real property located at Best Western McCarran
Inc., a 220 room full service hotel located at 55 E. Nugget Ave., Sparks, NV
89431.
The provisions of this Addendum are hereby added to and incorporated in the
Terms and Conditions in the aforementioned Agreement. Any provision of this
Addendum which is not numbered and fully completed shall have in force or
effect.
1. Purchase price is $5,250,000.
2. Down payment is $800,000.
3. Buyer will close subject to the existing Notes and Seller will carry a
Third Trust Deed for the balance of the Purchase Price per the terms of the
Purchase Agreement.
4. Agent's commission is reduced to $195,000 to be paid in cash at the Close
of Escrow.
5. Close of Escrow is on or before March 10, 1998.
6. Buyer shall immediately increase the deposit to $100,000, which shall be
applied toward the Purchase Price.
7. Escrow is -----------------------------
8. Seller hereby removes all contingencies and Buyer's deposit is hereby
nonrefundable.
9. Close of Escrow is conditioned on Dr. Oh's approval of Buyer's closing
"Subject To" the existing Note, per the Purchase Agreement.
10. Buyer shall submit to Seller, for Dr. Oh's approval, a list of proposed
improvements to be made to the Property.
ACCEPTANCE
The undersigned Buyer, Seller and Agent accept and agree to the foregoing.
BUYER: s/s [Illegible], CFO 2/28/98
-------------------------------- DATE: -------------------------------
Zion Management and Development
SELLER: ------------------------------- DATE: -------------------------------
Ki Hong Kim
SELLER: ------------------------------- DATE: -------------------------------
Koo Hyung Kim
AGENT: MARCUS & MILLICHAP REAL ESTATE INVESTMENT BROKERAGE
COMPANY
BY: ---------------------------------- DATE: ---------------------------------
Kenneth Blomsterberg
- - --------------------------------------------------------------------------------
NO REPRESENTATION IS MADE BY AGENT AS TO THE LEGAL EFFECT OR VALIDITY OF ANY
PROVISION OF THIS ADDENDUM. A REAL ESTATE BROKER IS QUALIFIED TO GIVE ADVICE ON
REAL ESTATE MATTERS. IF YOU DESIRE LEGAL, FINANCIAL, OR TAX ADVICE, CONSULT YOUR
ATTORNEY, ACCOUNTANT OR TAX ADVISOR.
- - --------------------------------------------------------------------------------
1 of 1
Buyers Initials -- Sellers Initials
<PAGE>
ADDENDUM TO PURCHASE AGREEMENT
This document is an addendum ("Addendum") to the Purchase Agreement
("Agreement") between Ki Hong Kim and Hoo Hyung Kim ("Seller") and Zions
Management and Development ("Buyer") executed by Buyer on the 5th day of
February, 1998 for that certain real property located at Best Western McCarran
Inc., a 220 room full service hotel located at 55 E. Nugget Ave., Sparks, NV
89431.
The provisions of this Addendum are hereby added to and incorporated in the
Terms and Conditions in the aforementioned Agreement. Any provision of this
Addendum which is not numbered and fully completed shall have in force or
effect.
1. Purchase price is $5,250,000.
2. Down payment is $800,000.
3. Buyer will close subject to the existing Notes and Seller will carry a
Third Trust Deed for the balance of the Purchase Price per the terms of the
Purchase Agreement.
4. Agent's commission is reduced to $195,000 to be paid in cash at the Close
of Escrow.
5. Close of Escrow is on or before March 10, 1998.
6. Buyer shall immediately increase the deposit to $100,000, which shall be
applied toward the Purchase Price.
7. Escrow is -----------------------------
8. Seller hereby removes all contingencies and Buyer's deposit is hereby
nonrefundable.
9. Close of Escrow is conditioned on Dr. Oh's approval of Buyer's closing
"Subject To" the existing Note, per the Purchase Agreement.
10. Buyer shall submit to Seller, for Dr. Oh's approval, a list of proposed
improvements to be made to the Property.
ACCEPTANCE
The undersigned Buyer, Seller and Agent accept and agree to the foregoing.
BUYER: s/s [Illegible], CFO 2/28/98
-------------------------------- DATE: -------------------------------
Zion Management and Development
SELLER: /s/ [Illegible] Feb. 27, 1998
------------------------------- DATE: -------------------------------
Ki Hong Kim
SELLER: ------------------------------- DATE: -------------------------------
Koo Hyung Kim
AGENT: MARCUS & MILLICHAP REAL ESTATE INVESTMENT BROKERAGE
COMPANY
BY: ---------------------------------- DATE: ---------------------------------
Kenneth Blomsterberg
- - --------------------------------------------------------------------------------
NO REPRESENTATION IS MADE BY AGENT AS TO THE LEGAL EFFECT OR VALIDITY OF ANY
PROVISION OF THIS ADDENDUM. A REAL ESTATE BROKER IS QUALIFIED TO GIVE ADVICE ON
REAL ESTATE MATTERS. IF YOU DESIRE LEGAL, FINANCIAL, OR TAX ADVICE, CONSULT YOUR
ATTORNEY, ACCOUNTANT OR TAX ADVISOR.
- - --------------------------------------------------------------------------------
1 of 1
Buyers Initials -- Sellers Initials
<PAGE>
ADDENDUM TO PURCHASE AGREEMENT OF
BEST WESTERN - SPARKS, NEVADA
6.1 Subject to terms and conditions of note being accepted. These were omitted
from Purchase Agreement.
14. After an inspection of the Property by Buyer and its representative, Buyer
can elect to cancel agreements, during the due diligence period, based upon
the findings of the inspection, if negotiations with the Seller cannot
resolve the concerns.
20.1 Section needs to be completed.
37.6 Buyer shall pay to the Seller 98% of the value of the Accounts Receivable
less than 90 days old at the Close of Escrow. Any Accounts Receivable over
90 days are the responsibility of the Seller.
/s/ [Illegible] 2/6/98
- - ----------------------------------------- -----------------------------
Buyer Zions Management & Development Co. Date
- - ----------------------------------------- -----------------------------
Seller Date
EXHIBIT 11.1
WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
Year ended Year ended Year ended
December 31, December 31, December 31,
------------ ------------ ------------
1998 1997 1996
------------ ------------ ------------
(in thousands, except earnings per share)
<S> <C> <C> <C>
Net income for the period attributable
to primary earnings per common share $ 3,754 $ 8,992 $ 3,065
------------ ------------ ------------
Net income for the period attributable to
fully diluted earnings per common share $ 3,754 $ 8,992 $ 3,065
------------ ------------ ------------
Weighted average shares outstanding 63,888 63,363 59,610
Common equivalent shares
Stock options - - -
Loan notes - - -
Special warrants - - -
Share purchase warrants - - -
Other potentially dilutive securities - - -
Treasury stock (1) - - -
------------ ------------ ------------
Total shares for primary and fully diluted
earnings per common share 63,888 63,363 59,610
============ ============ ============
Other potentially dilutive securities - - -
------------ ------------ ------------
Total shares for fully diluted earnings
per common share 63,888 63,363 59,610
============ ============ ============
Primary earnings per common share $ 0.06 $ 0.14 $ 0.05
============ ============ ============
Fully diluted earnings per common share $ 0.06 $ 0.14 $ 0.05
============ ============ ============
</TABLE>
(1) As of December 31, 1998, treasury stock consisted of 251,000 shares of
common stock; however, since the shares are held in a brokerage account,
they have been classified as outstanding shares for purposes of calculating
weighted average number of shares and earnings per share
Exhibit 21.1
<TABLE>
State of
Corporate Name (1) Principal Business Incorporation
- - ------------------ ------------------ -------------
<S> <C> <C>
Wade Cook Seminars, Inc. Financial Education Seminars Nevada
Lighthouse Publishing Group, Inc. Publishing Nevada
Left Coast Advertising, Inc. Support Services Nevada
Bountiful Investment Group, Inc. Commercial Real Estate Nevada
Ideal Travel Concepts, Inc. Support Services Nevada
Origin Book Sales, Inc. Publishing Utah
Worldwide Publishers, Inc. Publishing Utah
Gold Leaf Press, Inc. Publishing Nevada
Get Ahead Bookstores, Inc. Retail (bookstores) Nevada
Quantum Marketing, Inc. (2) Support Services Nevada
Information Quest, Inc. Retail (pagers) Nevada
American Newsletter Co., Inc. (2) Publishing Nevada
Unlimited Potential, Inc. (2) Commercial Real Estate Nevada
Hotel Associates Management #1, Inc. (2) Commercial Real Estate Nevada
American Publisher's Network, Inc. (2) Publishing Nevada
Forward Thinking Group, Inc. (2) Retail Sales Nevada
Money Works, Inc. (2) Support Services Nevada
Entity Planners International, Inc. (2) Commercial Real Estate Nevada
Wade Cook Financial Education Center, Inc. Retail (education centers) Nevada
Winvest Centers, Inc. (2) Retail Sales Nevada
Wade Cook Financial Education Network (2) Publishing Nevada
Semper Financial Corporation (2) Financial Education Seminars Nevada
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Dec-31-1998
<CASH> 1,742
<SECURITIES> 2,870
<RECEIVABLES> 3,112
<ALLOWANCES> 0
<INVENTORY> 3,743
<CURRENT-ASSETS> 11,998
<PP&E> 29,203
<DEPRECIATION> 0
<TOTAL-ASSETS> 58,698
<CURRENT-LIABILITIES> 28,602
<BONDS> 9,473
0
0
<COMMON> 644
<OTHER-SE> 19,043
<TOTAL-LIABILITY-AND-EQUITY> 58,698
<SALES> 0
<TOTAL-REVENUES> 118,207
<CGS> 56,763
<TOTAL-COSTS> 56,763
<OTHER-EXPENSES> 57,890
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,453
<INCOME-PRETAX> 5,210
<INCOME-TAX> 2,346
<INCOME-CONTINUING> 2,991
<DISCONTINUED> 763
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,754
<EPS-PRIMARY> .059
<EPS-DILUTED> .059
</TABLE>
