-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NAy3/iPzdzkK7M3qmZ+4sGoAeCbsGNfRk8V+QKHPg6LcBzB5vxdxayfbUSEjCIsr qGv7Ai40OUch8IMJonGQuA== 0001047469-97-008836.txt : 19971229 0001047469-97-008836.hdr.sgml : 19971229 ACCESSION NUMBER: 0001047469-97-008836 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19970926 FILED AS OF DATE: 19971224 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OLYMPIC CASCADE FINANCIAL CORP CENTRAL INDEX KEY: 0001023844 STANDARD INDUSTRIAL CLASSIFICATION: SECURITY & COMMODITY BROKERS, DEALERS, EXCHANGES & SERVICES [6200] IRS NUMBER: 364128138 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 333-12907 FILM NUMBER: 97744606 BUSINESS ADDRESS: STREET 1: 1001 FOURTH AVENUE STREET 2: STE 2200 CITY: SEATTLE STATE: WA ZIP: 98154 MAIL ADDRESS: STREET 1: 1001 FOURTH AVENUE STREET 2: STE 2200 CITY: SEATTLE STATE: WA ZIP: 98154 10-K405 1 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended Commission File No. 001-12629 September 26, 1997 ----------- ------------------ OLYMPIC CASCADE FINANCIAL CORPORATION ------------------------------------- (Exact Name of Registrant as specified in its charter) DELAWARE 36-4128138 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1001 Fourth Avenue, Suite 2200, Seattle, WA 98154 - ------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (206) 622-7200 Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: Common stock $.02 par value --------------------------- (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405) of this chapter is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes X No ----- ----- As of December 1, 1997, 1,018,456 shares of the Company's common stock were held by non-affiliates, having an aggregate market value of $5,092,000. Number of common shares outstanding as of December 1, 1997 was 1,444,205 at a par value of $.02. -1- PART I ITEM 1 - BUSINESS GENERAL EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN THIS REPORT CONTAIN CERTAIN FORWARD-LOOKING INFORMATION THAT INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE RESULTS TO DIFFER MATERIALLY, INCLUDING CHANGING MARKET CONDITIONS AND OTHER RISKS DETAILED IN THIS ANNUAL REPORT OR FORM 10-K AND OTHER DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION FROM TIME TO TIME. Olympic Cascade Financial Corporation ("Olympic" or the "Company") is a diversified financial services organization, operating through its four wholly owned subsidiaries, National Securities Corporation ("National"), L. H. Friend, Weinress, Frankson & Presson, Inc. ("Friend"), WestAmerica Investment Group ("WestAmerica") and Travis Capital, Inc. ("Travis"). Olympic is committed to establishing a significant presence in the financial services industry by providing financing options for emerging, small and middle capitalization companies through institutional research and sales and investment banking services for both public offerings and private placements, and also provides retail brokerage and trade clearance operations. In November 1996, the shareholders of National approved a restructuring whereby, National's shareholders exchanged their shares on a one-for-one basis for shares of Olympic resulting in National becoming a wholly owned subsidiary of Olympic. This restructuring became effective in February 1997, accordingly, Olympic is the successor Registrant to National. In March 1997, the Company acquired all of the outstanding stock of Friend, a Southern California based broker-dealer specializing in investment banking, institutional brokerage, research and trading activities for middle market companies. Friend was acquired in exchange for 250,000 unregistered shares of Olympic common stock. In June 1997, the Company acquired all of the outstanding stock of WestAmerica, a Scottsdale, Arizona based broker-dealer specializing in retail brokerage services. WestAmerica was acquired for $443,000 in cash and an agreement that provides for the payment of bonus compensation to certain brokers. In July 1997, the Company acquired all of the outstanding stock of Travis, a Salt Lake City, Utah based broker-dealer focusing on private placement of securities for emerging and middle market companies in the U.S. and internationally. Travis was acquired in exchange for 20,000 unregistered shares of Olympic common stock. National conducts a national securities brokerage business through its main office in Seattle, Washington and in 35 other offices located in 17 states. Its business includes securities brokerage for individual and institutional clients, market-making trading activities, asset management and corporate finance services. National concentrates upon retail brokerage with an emphasis on personalized service. National's executive office, which is also its largest sales office, is located in Seattle, Washington. The majority of National's transactions with the public involves solicited trades and approximately 70% of these involve sales of securities to customers. -2- ITEM 1 - BUSINESS (CONTINUED) GENERAL (Continued) Friend is a registered securities broker-dealer specializing in investment banking, institutional brokerage, research and trading activities for middle market companies. Friend has its main office in Irvine, California and a branch office in Century City, California. WestAmerica, based in Scottsdale, Arizona is a registered securities broker- dealer providing primarily retail brokerage operations. The majority of WestAmerica's transactions with the public involves solicited trades with 80% involving sales of securities to customers. Travis, based in Salt Lake City, Utah is a registered broker-dealer specializing in private placement of securities for emerging and middle market companies in the U.S. and internationally. The Company's plan is the concept of growth using the currency and liquidity of this public vehicle to purchase and roll-up complementary businesses. Management believes that consolidation within the industry is inevitable. Concerns attributable to the longevity of the current bull market help explain the increasing number of acquisition opportunities continuously introduced to the Company. The Company is focused on maximizing the profitability of the acquisitions that have been consummated to date, while it continues to seek additional selective strategic acquisitions. BROKERAGE SERVICES Brokerage services to retail clients are provided through the Company's sales force of investment executives at National and WestAmerica. NATIONAL SECURITIES CORPORATION National is registered as a broker-dealer with the Securities and Exchange Commission ("SEC") and licensed in 50 states, the District of Columbia and Puerto Rico. National is also a member of the National Association of Securities Dealers, Inc. ("NASD"), the Municipal Securities Rulemaking Board ("MSRB") the Securities Investor Protection Corporation ("SIPC"), and the Chicago Stock Exchange ("CSE"). National is organized to meet the needs of its investment executives and their clients. To foster individual service, flexibility and efficiency, and to reduce fixed costs, investment executives at National act as independent contractors responsible for providing their own office facilities, sales assistants, telephone service, supplies and other items of overhead. Investment executives are given broad discretion to structure their own practices and to specialize in different areas of the securities market subject to supervisory procedures. In addition, investment executives have direct access to research materials, management, traders, and all levels of support personnel. -3- ITEM 1 - BUSINESS (CONTINUED) BROKERAGE SERVICES (Continued) It is not National's policy to recommend particular securities to customers. Recommendations to customers are determined by individual investment executives based upon their own research and analysis, and subject to applicable NASD customer suitability standards. Most investment executives perform fundamental (as opposed to technical) analysis. Solicitations may be by telephone, seminars or newsletters. Investment executives may request trading to acquire an inventory position to facilitate sales to customers (subject to the investment executive's own risk). Supervisory personnel review trading activity from inventory positions to ensure compliance with applicable standards of conduct. Salespersons in the brokerage industry are traditionally compensated on the basis of set percentages of total commissions and mark-ups generated. Most brokerage firms bear substantially all of the costs of maintaining their sales forces, including providing office space, sales assistants, telephone service and supplies. The average commission paid to the salespersons in the brokerage industry generally ranges from 30% to 40% of total commissions generated. Since National requires most of its investment executives to absorb their own overhead and expenses, it is able to pay an average of 70% of commissions and mark-ups generated by the investment executive. This arrangement also reduces fixed costs and lowers risk of operational losses for non-production. National's operations include execution of orders, processing of transactions, receipt, identification and delivery of funds and securities, custody of customer securities, internal financial controls and compliance with regulatory and legal requirements. National's data processing is supplied by an independent vendor on a time- sharing basis to process orders, reports, confirmations and statements as well as to maintain the general ledger and files of customers, and other market data. National owns other computers which are used for investment executive payroll and telephone cost allocation, including word processing and other office applications. National clears approximately 90% of its own securities transactions and posts its books and records daily, with the remaining 10% of the transactions clearing through Bear Stearns Securities Corporation. Periodic reviews of controls are conducted, and administrative and operations personnel meet frequently with management to review operating conditions. Operations personnel monitor compliance with applicable laws, rules and regulations. WESTAMERICA INVESTMENT GROUP WestAmerica is registered as a broker-dealer with the SEC and licensed in 36 states and the District of Columbia. WestAmerica is also a member of the NASD, the MSRB and the SIPC. WestAmerica, offers traditional securities brokerage and financial planning business and fee based investment management business to its retail clients. -4- ITEM 1 - BUSINESS (CONTINUED) BROKERAGE SERVICES (Continued) Unlike National, the majority of WestAmerica's investment executives are employees. As such the average commission payout is approximately 20-30% lower than National's commission payout of approximately 70%. Since the commission payout is much lower WestAmerica provides office space, equipment, supplies and other resources for its investment executives. WestAmerica operates pursuant to the exemptive provisions of SEC Rule 15c3-3(k)(2)(ii) and clears all transactions with and for customers on a fully disclosed basis. WestAmerica has a clearing arrangement with Correspondent Services Corporation ("CSC"), a wholly owned subsidiary of PaineWebber Incorporated. CSC provides WestAmerica with back office support, transaction processing services on all principal national securities exchanges and access to many other financial services and products. This agreement with CSC allows WestAmerica to offer a range of products and services that is generally offered only by firms that are larger or have more capital. INVESTMENT BANKING The Company through its subsidiaries National, Friend and Travis provide investment banking, research and institutional sales NATIONAL SECURITIES CORPORATION National provides corporate finance and investment banking services, including underwriting the sale of securities to the public and arranging for the private placement of securities with investors. National is expanding its corporate finance operations to provide a broader range of financial and corporate advisory services, including mergers and acquisitions, project financing, capital structure and specific financing opportunities. National has underwritten both equity securities and convertible corporate bonds as initial or secondary public offerings. National will manage, underwrite and sell shares of each underwriting. National collects fees from the underwriting proceeds for providing these services, including non-accountable expenses. Additionally, National participates as an underwriter in the syndicate group of other underwritings which it does not manage. All of these activities require a substantial commitment of capital and expose National to additional risk. Accordingly, National maintains a commitment committee that reviews every proposed underwriting and must approve each underwriting in order for it to proceed. Additionally, such activities are periodically reviewed by members of the Board of Directors. National's corporate finance department is headquartered in Chicago, Illinois. This office includes investment executives, investment bankers and employees. The office and the corporate finance department is under the direction of the Company's Chairman Steven A. Rothstein. -5- ITEM 1 - BUSINESS (CONTINUED) INVESTMENT BANKING (Continued) L. H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC. Friend is registered as a broker-dealer with the SEC and licensed in nine states. Friend is also a member of the NASD, the MSRB and the SIPC. Friend provides corporate finance services to middle market companies including underwriting the sale of securities both publicly and privately, institutional sales, merger and acquisition services, advisory services and investment research. Friend will co-manage, underwrite and sell shares of each underwriting. Additionally, Friend participates as an underwriter in the syndicate group of other underwritings which it does not manage. Friend markets its research to a variety of institutional investors including pension funds, mutual funds, insurance companies and other investment managers located throughout the United States and Europe. Friend operates pursuant to the exemptive provisions of SEC Rule 15c3-3(k)(2)(ii) and clears all transactions with and for customers on a fully disclosed basis. Friend's corporate finance department is headquartered in Irvine, California. This office includes investment bankers, research analysts and institutional brokers. Additionally, Friend has an institutional sales and research office in Chicago, Illinois. Friend's institutional trades are cleared through Bear Stearns Securities Corporation. TRAVIS CAPITAL, INC. Travis is registered as a broker-dealer with the SEC and licensed in Utah. Travis is also a member of the NASD and the SIPC. Travis' business focus is on private placements for emerging and middle market companies in the United States and internationally. Funding for these placements is arranged principally with institutions and other accredited investors. Additionally, Travis provides merger and acquisition related services. Travis operates pursuant to the exemptive provisions of SEC Rule 15c3-3(k) and does not carry customer accounts, hold customer funds or securities, or owe money or securities to customers. PRINCIPAL AND AGENCY TRANSACTIONS The Company buys and maintains inventories in equity securities as a "market- maker" for sale of those securities to other dealers and to customers through National and Friend. The Company also maintains inventories in corporate and municipal debt securities for sale to customers. At National a staff of seven traders and assistants at its Seattle headquarters, and three traders and assistants in its Spokane, Washington office, manage an inventory of securities, and conduct market-making activities. As of September 26, 1997, National made a market in approximately 114 equity securities, the majority of which are quoted on the NASDAQ system. This includes all companies for which National managed or co-managed a public offering. -6- ITEM 1 - BUSINESS (CONTINUED) PRINCIPAL AND AGENCY TRANSACTIONS (Continued) With a staff of four traders and assistants, Friend manages an inventory of securities and conducts market making activities. As of September 26, 1997, Friend made a market in approximately 22 equity securities, the majority of which are quoted on the NASDAQ system, including companies for which Friend co- managed a public offering. The Company's trading departments require a substantial commitment of capital. Most principal transactions place the Company's capital at risk. Profits and losses are dependent upon the skill of the traders, price movement, trading activity and the size of inventories. Because the Company's trading activities occasionally may involve speculative and thinly capitalized stock, including stabilizing the market for securities which it has underwritten, the Company imposes position limits to reduce its potential for loss. In executing customer orders to buy or sell a security in which the Company makes a market, the Company may sell or purchase from customers at a price which is substantially equal to the current inter-dealer market price plus or minus a mark-up or mark-down. The Company may also act as agent and execute a customer's purchase or sale order with another broker-dealer market-maker at the best inter-dealer market price available and charge a commission. The Company's mark-ups, mark-downs and commissions are competitive based on the services it provides to its customers. In executing customers' orders to buy or sell listed and over-the-counter securities in which it does not make a market, the Company generally acts as agent and charges commissions which the Company believes are competitive based on the services the Company provides to its customers. SUPERVISION The Securities Exchange Act of 1934, as amended, and the NASD Conduct Rules require the Company's subsidiaries to supervise the activities of its investment executives. As part of providing such supervision, the subsidiaries maintain an Operations and Procedures Manual. Compliance personnel conduct inspections of branch offices no less frequently than annually to review compliance with the Company's procedures. A registered principal provides continuous supervision at each of the Company's larger offices. The other offices (averaging two investment executives per office) are not required by NASD rules to have a registered principal on site and are therefore supervised by registered principals of the subsidiaries. Traders and other personnel review each investment executive's order tickets to ensure compliance with the NASD Conduct Rules including mark-up guidelines. -7- ITEM 1 - BUSINESS (CONTINUED) EMPLOYEES As of September 26, 1997, the Company and its subsidiaries had approximately 185 employees and 250 independent contractors. Of these totals, approximately 360 were registered representatives. Persons who have entered into independent contractor agreements are not considered employees for purposes of determining the Company's obligations for federal and state withholding, unemployment and social security taxes. The Company's independent contractor arrangements conform with accepted industry practice and therefore the Company does not believe there is a material risk of an adverse determination from the tax authorities which would have a significant effect on the Company's ability to recruit and retain investment executives, or on the Company's current operations and financial results of operations. No employees are covered by collective bargaining agreements and the Company believes its relations are good with both its employees and independent contractors. COMPETITION The Company is engaged in a highly competitive business. With respect to one or more aspects of its business, its competitors include member organizations of the New York Stock Exchange, Inc. and other registered securities exchanges in the United States and Canada, and members of the NASD. Many of these organizations have substantially greater personnel and financial resources and more sales offices than the Company. Discount brokerage firms affiliated with commercial banks provide additional competition as well as companies which provide electronic on-line trading. In many instances, the Company is also competing directly for customer funds with investment opportunities offered by real estate, insurance, banking, and savings and loans industries. ITEM 2 - PROPERTIES The Company owns no real property. Its corporate headquarters are shared with National in leased space in Seattle, Washington and Chicago, Illinois. Additionally, through its subsidiaries, the Company leases office space in Century City and Irvine, California, Scottsdale, Arizona, Spokane, Washington and Salt Lake City, Utah. The branch offices which are run by independent contractors are leased by those contractors. Leases expire at various times through October 2003. The Company believes the rent at each of its locations is at current market rates. At current production levels, the Company believes its leased space is suitable and adequate, however, increased activity could require additional space to be leased. -8- ITEM 3 - LEGAL PROCEEDINGS 1. THE MAXAL TRUST, ET AL. V. NATIONAL SECURITIES CORPORATION ET AL., United States District Court, Central District of California, Case No. CV-97-4392 ABC (Shx). In April 1997, the plaintiffs brought action against the Company and its subsidiary National, alleging National breached an agreement to purchase their shares of Interact Medical Technologies Corp. ("Interact"). The plaintiffs alleged claims under section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder, for common law fraud and misrepresentation, for breach of express and implied contract, and for negligence and are seeking damages in excess of $4,000,000. The Company and National moved to dismiss the plaintiffs' claims on various grounds, and the plaintiffs moved for partial summary judgment on their claims of breach of contract. In late October 1997 the Court (i) dismissed all of plaintiffs' claims against the Company; (ii) dismissed plaintiffs' Securities law claims against National; and (iii) denied plaintiffs' motion entirely. Consequently, the case is proceeding against National on theories of common law fraud, misrepresentation, breach of contract and negligence. National denies all liability to the plaintiffs and believes it has meritorious defenses to plaintiffs' claims. National presently intends to continue its vigorous defense of this action. 2. MAYNARD MALL REALTY TRUST V. NATIONAL SECURITIES CORPORATION, ET AL., United States District Court, Western District of Washington, Case No. 97- CV-00967. In May 1997, the plaintiffs brought action against the Company, its subsidiary National, and several officers and directors of the Company and National, originally alleging fraud, breach of fiduciary duties and state securities law violations in connection with the share exchange between the Company and National (the "Share Exchange") and otherwise. The plaintiff, prosecuting the case both individually and derivatively, seeks monetary damages, corporate dissolution of the Company and National, recission of the Share Exchange, and the fair value of its shares in an appraisal proceeding. In an amended pleading, plaintiff dropped all allegations of fraud and the claim for recission of the Share Exchange, and alleged that the defendants breached fiduciary duties by, among other things, secretly receiving excessive and otherwise inappropriate overrides and other compensation, and that defendants traded in the Company's stock with knowledge of material, non-public information. The second amended complaint also alleges that the proxy statement underlying the Share Exchange wrongly failed to disclose that shareholders' rights would be governed by Delaware, and not Washington law, and that the plaintiff was wrongly denied access to the Company's books and records. National denies all liability to the plaintiffs and believes it has meritorious defenses to plaintiffs' claims. National presently intends to continue its vigorous defense of this action as well. -9- ITEM 3 - LEGAL PROCEEDINGS (CONTINUED) 3. CASULL ARMS CORPORATION V. NATIONAL SECURITIES CORP. AND ROBERT A. SHUEY, III., United States District Court, District of Wyoming, 97CV-229B. In October 1997, plaintiffs served National with a complaint alleging National and a former National representative, Robert A. Shuey, III. ("Shuey"), breached a contract and committed various torts by failing to perform an alleged promise to raise capital for plaintiff through an initial public offering of stock. The plaintiff sought not less than $8.5 million in actual damages and not less than $42.5 million in punitive damages. National negotiated an agreement whereby applicable statutes of limitations would be tolled through calendar 1997 and all claims against it would be dismissed. On November 4, 1997, all claims against National were dismissed without prejudice. In the event plaintiffs' claims against it are renewed, National believes it has meritorious defenses to plaintiffs' claims, and further believes it is not legally responsible for any alleged conduct of Shuey. If this lawsuit is again raised, National presently intends to vigorously contest liability. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Company's initial public offering of its common stock was completed in September 1986. From the initial offering to June 22, 1987, the Company's common stock was traded over-the-counter and was not quoted on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"). Effective June 23, 1987, the Company's common stock became eligible to list on NASDAQ. The Company's common stock trades on the NASDAQ Small-Cap Market using the symbol NATS. As of September 26, 1997, the Company had approximately 400 shareholders of record. This amount includes those shareholders holding stock in street name and trust accounts. Currently, there are five market makers in the Company's stock, including National. Delaware law authorizes the Board of Directors to declare and pay dividends with respect to the Company's common stock either out of its surplus (as defined in the Delaware Corporation Law) or, in case there is no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year; provided, however, that no dividend may be paid out of net profits unless the Company's capital exceeds the aggregate amount represented by the issued and outstanding stock of all classes having a preference in the distribution of assets. As of this time, no shareholder holds preferential rights in liquidation. The Company has never declared a cash dividend, and does not presently foresee declaring one in the coming fiscal year. The Company did, however, declare 5% stock dividends for all shareholders of record on June 4, 1996, September 5, 1996, January 27, 1997, May 20, 1997 and August 29, 1997. Additionally, the Company declared a 5% stock dividend for all shareholders of record on December 8, 1997. -10- ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS (CONTINUED) High and low bid quotations from September 30, 1995 to September 26, 1997 have been obtained from NASDAQ. The range of market prices for each quarter of fiscal years ended September 26, 1997 and September 27, 1996 are as follows: Period High Low - ------ ---- --- September 28, 1996/December 31, 1996 $8.75 $7.00 January 1, 1997/March 27, 1997 $9.50 $6.50 March 28, 1997/June 27, 1997 $8.25 $4.75 June 28, 1997/September 26, 1997 $6.50 $4.75 September 30, 1995/December 29, 1995 $4.88 $3.25 December 30, 1995/March 29, 1996 $4.62 $3.76 March 30, 1996/June 28, 1996 $7.88 $4.13 June 29, 1996/September 27, 1996 $9.25 $6.50 These past stock prices have not been adjusted for the recent stock dividends. The closing bid of the Company's common stock on December 1, 1997 as reported on the NASDAQ Small Cap Market was $5.00 per share. ITEM 6 - SELECTED FINANCIAL DATA Set forth below is the historical financial data with respect to the Company for the fiscal years ended 1997, 1996, 1995, 1994 and 1993. This information has been derived from, and should be read in conjunction with, the audited financial statements which appear elsewhere in this report. All information is expressed in thousands of dollars except per share information.
Fiscal Year --------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- --------- Net revenues $ 39,994 $ 34,899 $ 14,275 $ 11,487 $ 11,438 Net income after tax 101 1,735 257 510 680 Net income per common share 0.07 1.45 0.32 0.64 0.77 Total assets 63,774 57,955 41,891 18,627 18,259 Long-term obligations - - - - 79 Subordinated debt - - - - 200 Stockholders' equity 7,604 5,316 3,180 2,509 1,936 Cash dividends - - - - -
-11- ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996 EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN THIS REPORT CONTAIN CERTAIN FORWARD-LOOKING INFORMATION THAT INVOLVE RISKS AND UNCERTAINTIES THAT COULD CAUSE RESULTS TO DIFFER MATERIALLY, INCLUDING CHANGING MARKET CONDITIONS AND OTHER RISKS DETAILED IN THIS ANNUAL REPORT OR FORM 10-K AND OTHER DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION FROM TIME TO TIME. During its fiscal year 1997, the Company continued implementation of the largest growth program in its 50-year history. In the course of restructuring, acquiring subsidiary broker-dealers and forming new branch offices, the Company incurred certain non-recurring, non-operating expenses. The Company's plan is the concept of growth using the currency and liquidity of this public vehicle to purchase and roll-up complementary businesses. Management believes that consolidation within the industry is inevitable. Concerns attributable to the longevity of the current bull market help explain the increasing number of acquisition opportunities continuously introduced to the Company. The Company is focused on maximizing the profitability of the acquisitions that have been consummated to date, while it continues to seek additional selective strategic acquisitions. As of fiscal year ended September 26, 1997, total assets were $63,774,000, and stockholders' equity was $7,604,000, compared to total assets of $57,955,000 and stockholders' equity of $5,316,000 as of September 27, 1996. This represents a 10% increase in total assets and a 43% increase in stockholders' equity during the 12-month period. The Company's fiscal year 1997 resulted in net income of $101,000 or $.07 per share fully diluted as compared with net income of $1,735,000 or $1.45 per share fully diluted for 1996. Revenues increased 15% in 1997 to $39,994,000 from $34,899,000 in 1996, however, expenses increased nearly 23% during the same period. This increase in expenses is due to additional costs relating to the increased level of operations and certain non-recurring, non-operating expenses incurred relating to the corporate restructuring, the acquisition of three broker-dealers, the addition of two significant branch offices, and continued growth in brokerage operations (discussed below). In November 1996, the shareholders of National approved a restructuring whereby, National shareholders exchanged their shares on a one-for-one basis for shares of Olympic resulting in National becoming a wholly owned subsidiary of Olympic. In March 1997, the Company acquired Friend, a Southern California based broker- dealer specializing in investment banking, institutional brokerage, research and trading activities for middle market companies. -12- ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (Continued) FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996 (Continued) In June 1997, the Company completed the acquisition of WestAmerica, a Scottsdale, Arizona based broker-dealer specializing in retail brokerage services. In July 1997, the Company acquired Travis, a Salt Lake City, Utah based broker- dealer focusing on private placement of securities of emerging and middle market companies. National added two significant branch offices in 1997. In March, National opened a branch office in Melville, New York and in April, National opened a branch office in Southern California. These two branches have added approximately 60 registered representatives. Due to these events the Company incurred non-recurring, non-operating expenses of approximately $900,000 during the year. These expenditures were a necessary element of management's long-term goal to establish a significant market presence in retail and institutional trading and to provide financing options for small and mid-sized companies. During fiscal year 1997 commission revenue increased $3,006,000 or 21% to $17,496,000 from $14,490,000 in 1996. National, Friend and WestAmerica were equally responsible for the increase in commission revenue. Inventory gains increased $1,531,000 or 47% to $4,782,000 from $3,251,000. This increase was primarily due to the acquisition of Friend, which accounted for $1,072,000 of the gain. Underwriting revenue decreased $354,000 or 3% to $12,837,000 in 1997 from $13,191,000 in 1996. National's underwriting revenue decrease of $2,885,000 to $10,306,000 in 1997 from $13,191,000 in 1996 was substantially offset by Friend's $2,452,000 of underwriting revenue. Although National managed eight underwritings in 1997, which totaled approximately $161 million of gross proceeds raised, whereas in 1996 National managed 12 underwritings, which totaled approximately $150 million of gross proceeds raised, net underwriting revenues decreased due to lower percentage payouts for commissions and fees in 1997 compared to 1996. In October 1997, National gave notice to Ray Dirks Research, a New York branch office, that it wished to sever its relationship. It is anticipated that Ray Dirks Research will no longer be an office of National effective by the end of December 1997. This will negatively impact National's underwriting revenues and net income in fiscal 1998, however, the Company is currently implementing plans to replace both these revenues and net income as the current year progresses. -13- ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (Continued) FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996 (Continued) The overall increase in expenses was due in large part to increases in revenues. The two largest components of expense are (i) commission expense and (ii) salaries and benefits expense, both of which vary directly with securities related revenue. In the 1997 these expenses totaled $28,381,000 or a 12% increase from $25,436,000 in 1996. Commission expense increased $781,000 or 4% in 1997 from $21,236,000 in 1996 to $22,017,000. Commission expense as a percentage of commission related revenues (commissions, inventory gains and underwriting fees), was approximately 63% in 1997 down from approximately 69% in 1996. This is primarily due to the acquisition of Friend and WestAmerica, which have a lower commission payout than National. Conversely, employee compensation and benefits increased $2,164,000 or 52% to $6,364,000 in 1997 from $4,200,000 in 1996 because certain commission salespeople with a lower payout also receive salaries, as well as the increase in management, operating and administrative salaries for Olympic and the additional subsidiaries. The additional salaries for Olympic and the newly acquired subsidiaries totaled approximately $2,132,000 in 1997. Interest expense increased $459,000 in 1997, or 25% to $2,265,000 from $1,806,000, primarily because of increased customer deposits, on which the Company pays interest. However, this expense was more than offset by the increased interest income of $854,000, or 29% to $3,775,000 from $2,921,000. The Company realized record levels of net interest income (interest income less interest expense) of $1,510,000 in 1997, a 35% increase from the prior record levels reached a year earlier. The Company earns the majority of this interest through National from its investments in U.S. Government obligations and U.S. Government agency obligations and interest received on customer margin debits. National earns a spread between what it pays customers on free credit balances and what it earns investing these balances. As a result of this spread, as the overall customer debits and credits increase, the Company is able to earn more interest income. With the additional subsidiaries the Company has acquired, and the additional branch offices opened by National during the year, communications and occupancy expenses have increased $1,974,000 or 81% to $4,426,000 in 1997 from $2,452,000 in 1996. Clearing expenses increased $279,000 or 41% in 1997. These increases are attributable to Friend and WestAmerica, which combined, accounted for $354,000 of clearing expenses, offset by a decrease in National's clearing expenses of $75,000. Finally, other expenses increased $1,351,000 or 142% to $2,300,000 in 1997 from $949,000 in 1996. The largest components include an increase in travel of $630,000, an increase in printing of $100,000 and an increase in insurance of $190,000. These increases are attributable to the Company's growth. -14- ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (Continued) FISCAL YEAR 1997 COMPARED WITH FISCAL YEAR 1996 (Continued) The Company's financial success is greatly influenced by the strength of the securities markets. During fiscal 1997, the securities markets continued to be strong, although there was some weaknesses experienced in the market for initial public offerings. While management is optimistic that the financial markets will remain healthy, a downturn in these markets would have an adverse effect on future profitability. Management believes a market downturn may provide the opportunity to acquire additional sources of production at a reasonable cost. Management is hopeful that the operational investments it made during the last fiscal year will allow the Company to weather any downturn and make potential acquisitions accretive to future earnings. FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995 The Company's fiscal year 1996 exhibited an exceptional increase in revenues and net income as compared to the prior year. Net income grew to $1,735,000 from $257,000 in 1995, an increase of 575%, while fully diluted earnings per share grew to $1.45 in 1996 from $0.32 in 1995. Revenues increased $20,624,000, or 144% to a record $34,899,000 from $14,275,000. The increase in earnings was largely the result of increased underwriting activity and increased commission production from additional investment executives. Revenues earned on commissions and trading inventory gains increased to $17,741,000 from $11,631,000 or 53%. These increases were due to favorable market conditions and the production by additional investment executives hired during the fiscal year. Revenues earned on underwritings had the most significant impact on the overall increase in revenues. Because the Company began its corporate finance department in the fourth quarter of 1995, related revenues for fiscal 1995 were minimal. However, during fiscal 1996, the Company managed or co-managed 12 underwritings which generated the majority of this revenue. These underwritings ranged in size from $3,000,000 of proceeds to over $40,000,000. The fee revenue and concessions generated from underwritings aggregated to $13,191,000 in 1996, up 3265% from 1995 revenues and concessions of $392,000. Interest and dividend income increased $1,311,000 or 81% from $1,610,000 in 1995 to $2,921,000 in 1996. The Company realized net interest income (interest income less interest expense) of $1,115,000 in 1996, almost doubling the previous high of $564,000 in 1995. The Company earns the majority of this interest from its investments in U.S. Government obligations and U.S. Government agency obligations and interest received on customer margin debits. The Company earns a spread between what it pays customers on free credit balances and what it earns investing these balances. As a result of this spread, as the overall customer debits and credits increase, the Company is able to earn more interest income. Correspondingly, combined customer debits and credits increased $14,639,000 to $64,560,000 in 1996, or 29%, from $49,921,000 in 1995. -15- ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS (Continued) FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995 (Continued) As anticipated overall expenses increased dramatically. Total expenses increased $18,464,000 from $13,892,000 in fiscal 1995 to $32,356,000 in fiscal 1996 or approximately 133%. The majority of the increase in expenses both in dollars and as a percent was commission expense. The Company pays commissions on brokerage transactions as well as on the fees earned on underwritings. Commission expense amounted to $21,236,000 in 1996, up $13,472,000 or 174%, from $7,764,000 in 1995. The Company's commission payout as a percentage of commission generated revenue (this includes commission revenue, net dealer inventory gains and underwriting revenue) grew to approximately 69% in 1996, or 4%, from approximately 65% in 1995. The Company's pay out varies with the type of product or transaction involved, and therefore, this percentage increased as more mutual fund purchases and underwritings (transactions with generally higher commission payouts) were processed. LIQUIDITY AND CAPITAL RESOURCES As with most financial firms, substantial portions of the Company's assets are liquid, consisting mainly of cash or assets readily convertible into cash. These assets are financed primarily by National's interest bearing and non- interest bearing customer credit balances, other payables and equity capital. Occasionally, National utilizes short-term bank financing to supplement its ability to meet day-to-day operating cash requirements. Such financing has been used to maximize cash flow and is regularly repaid. National has a $3,000,000 revolving unsecured credit facility with Seafirst Bank and may borrow up to 70% of the market value of eligible securities pledged through an unrelated broker- dealer. These borrowings are short-term and have not extended beyond a few days. Although at times National has not satisfied and may not in the future satisfy a minor loan covenant, the bank has continued to provide all necessary borrowings. At September 26, 1997 there were no borrowings outstanding. On September 16, 1997 the Company executed a promissory note with Seafirst Bank for $900,000. The proceeds of this loan were used to repay a previous note with an unrelated company. The note is to be repaid in six equal installments commencing on May 1, 1998 through October 1, 1998. The note bears annual interest at 8.95% with accrued interest to be paid monthly, beginning on October 1, 1997. On November 17, 1997, the Company executed two promissory notes totaling $925,000. The notes bear interest at 8% and the principal is to be repaid in 24 monthly installments commencing on December 31, 2000. In addition, warrants for the purchase of 120,000 shares at an exercise price of $5.625 per share of the Company's common stock were issued. The warrants are valued at $120,000 and have been recorded as original issue discount. -16- ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) LIQUIDITY AND CAPITAL RESOURCES (Continued) National, as a registered broker-dealer is subject to the SEC's Uniform Net Capital Rule 15c3-1, which requires the maintenance of minimum net capital. National has elected to use the alternative standard method permitted by the rule. This requires that National maintain minimum net capital equal to the greater of $250,000 or 2% of aggregate debit items. At September 26, 1997, National's net capital exceeded the requirement by $1,654,000. Friend and WestAmerica, as registered broker-dealers are also subject to the SEC's Net Capital Rule 15c3-1, which, under the standard method, requires that each company maintain minimum net capital equal to the greater of $100,000 or 6 2/3% of aggregate indebtedness. At September 30, 1997, Friend and WestAmerica's net capital exceeded the requirement by $290,000 and $121,000, respectively. Travis, also subject to the SEC's Net Capital Rule, is required to maintain the greater of $5,000 or 6 2/3% of aggregate indebtedness. As of September 30, 1997, Travis had a net capital deficit of $7,000. This deficit was corrected promptly in October following discovery. Advances, dividend payments and other equity withdrawals from National, Friend, WestAmerica or Travis are restricted by the regulations of the SEC, and other regulatory agencies. These regulatory restrictions may limit the amounts that these subsidiaries may dividend or advance to Olympic. The objective of liquidity management is to ensure the Company has ready access to sufficient funds to meet commitments, fund deposit withdrawals and efficiently provide for the credit needs of customers. Cash flow from operations and earnings contribute significantly to liquidity. Unlike the Company's other subsidiaries, National requires its investment executives to be responsible for substantially all of the overhead expenses associated with their sales efforts, including their office furniture, sales assistants, telephone service and supplies. The Company believes its internally generated liquidity, together with access to external capital and debt resources will be sufficient to satisfy existing operations. However, if the Company continues to expand its operations and acquire other businesses the Company will require additional capital. INFLATION The Company believes that the effect of inflation on its assets, consisting of cash, securities, office equipment, leasehold improvements and computers has not been significant. -17- ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) INFLATION (Continued) Whereas inflation has not had a materially adverse impact on the costs or the operations of the Company, inflation does have an effect on the Company's business. Increases in inflation rates may be accompanied by increases in interest rates, which may adversely affect short-term stock prices and, thereby, adversely affect the Company's performance. Additionally, as inflation increases the effect on corporate finance activities may change. If interest rates rise the demand for underwritings may decrease, however, other corporate financing activities may become more readily pursued, such as financial advisory services. It is, therefore, difficult to predict the net impact of inflation on the Company. NEW ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128. The new standard replaces primary and fully diluted earnings per share with basic and diluted earnings per share. SFAS No. 128 is required to be adopted by the Company in the year ending September 25, 1998. Had the Company been required to adopt SFAS No. 128 for the periods presented, the adoption would not have materially impacted primary or fully diluted earnings per share. In June 1997, the FASB issued SFAS Nos. 130 and 131. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components. SFAS No. 131 establishes standards for reporting about operating segments, products and services, geographic areas, and major customers. The standards become effective for fiscal years beginning after December 15, 1997. Management plans to adopt these standards in the year ending September 25, 1998. Management believes that the provisions of SFAS Nos. 130 and 131 will not have a material effect on its financial condition or reported results of operation. IMPACT OF THE YEAR 2000 ISSUE The Year 2000 Issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Based on a recent assessment, the Company determined that material costs and resources will not be required to modify or replace significant portions of its software so that its computer systems will properly utilize dates beyond December 31, 1999. -18- ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) IMPACT OF THE YEAR 2000 ISSUE (Continued) The Company has initiated formal communications with its significant data processing vendors to determine the extent to which the Company is vulnerable to those third parties' failure to remediate their own Year 2000 Issue. These vendors have represented to the Company they will be compliant with the requirements of the year 2000. The costs of the project and the date on which the Company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, and similar uncertainties. ITEM 8 - FINANCIAL STATEMENTS See part III, Item 13(a)(1) for a list of financial statements filed as part of this report. -19- INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors Olympic Cascade Financial Corporation We have audited the accompanying consolidated statement of financial condition of Olympic Cascade Financial Corporation and subsidiaries as of September 26, 1997 and September 27, 1996 and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended September 26, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Olympic Cascade Financial Corporation and subsidiaries as of September 26, 1997 and September 27, 1996, and the results of its consolidated operations and cash flows for each of the years in the three-year period ended September 26, 1997, in conformity with generally accepted accounting principles. Seattle, Washington November 14, 1997 -20- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL CONDITION SEPTEMBER 26, 1997 AND SEPTEMBER 27, 1996
ASSETS 1997 1996 ------------- ------------- CASH, SUBJECT TO IMMEDIATE WITHDRAWAL $ 979,000 $ 2,727,000 CASH, CASH EQUIVALENTS AND SECURITIES 30,934,000 33,005,000 DEPOSITS 1,292,000 777,000 RECEIVABLES Customers 22,114,000 16,172,000 Brokers and dealers 1,847,000 879,000 Other 481,000 443,000 Refundable federal income tax 597,000 - SECURITIES HELD FOR RESALE, AT MARKET 2,066,000 3,367,000 ------------- -------------- 60,310,000 57,370,000 FIXED ASSETS, net 1,528,000 534,000 GOODWILL, net of accumulated amortization of $37,000 1,391,000 - OTHER ASSETS 545,000 51,000 ------------- -------------- $ 63,774,000 $ 57,955,000 ------------- -------------- ------------- -------------- LIABILITIES AND STOCKHOLDERS' EQUITY PAYABLES Customers $ 48,828,000 $ 48,388,000 Brokers and dealers 1,752,000 87,000 Federal income tax - 429,000 SECURITIES SOLD, BUT NOT YET PURCHASED, AT MARKET 1,047,000 1,337,000 ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES 3,634,000 2,398,000 NOTE PAYABLE 909,000 - ------------- -------------- 56,170,000 52,639,000 ------------- -------------- COMMITMENTS AND CONTINGENCIES (Notes 13 and 14) STOCKHOLDERS' EQUITY Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued and outstanding - - Common stock, $.02 par value, 5,000,000 shares authorized, 1,444,205 and 845,248 shares issued and outstanding, 29,000 17,000 respectively Additional paid-in capital 5,045,000 1,825,000 Retained earnings 2,530,000 3,474,000 ------------- -------------- 7,604,000 5,316,000 ------------- -------------- $ 63,774,000 $ 57,955,000 ------------- -------------- ------------- --------------
The accompanying notes are an integral part of these financial statements. -21- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS YEARS ENDED SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
1997 1996 1995 ------------- ------------- ------------ REVENUES Commissions $ 17,496,000 $ 14,490,000 $ 9,014,000 Net dealer inventory gains 4,782,000 3,251,000 2,617,000 Underwriting 12,837,000 13,191,000 392,000 Interest and dividends 3,775,000 2,921,000 1,610,000 Transfer fees and clearance services 620,000 576,000 401,000 Other 484,000 470,000 241,000 ------------- ------------- ------------- 39,994,000 34,899,000 14,275,000 ------------- ------------- ------------- EXPENSES Commissions 22,017,000 21,236,000 7,764,000 Employee compensation and related expenses 6,364,000 4,200,000 1,856,000 Occupancy and equipment costs 2,927,000 1,730,000 1,085,000 Interest 2,265,000 1,806,000 1,046,000 Clearance fees 965,000 686,000 520,000 Communications 1,499,000 722,000 400,000 Taxes, licenses, registration 874,000 609,000 283,000 Professional fees 589,000 418,000 354,000 Other operating expenses 2,300,000 949,000 584,000 ------------- ------------- ------------- 39,800,000 32,356,000 13,892,000 ------------- ------------- ------------- INCOME BEFORE INCOME TAXES 194,000 2,543,000 383,000 PROVISION FOR INCOME TAXES (93,000) (808,000) (126,000) ------------- ------------- ------------- NET INCOME $ 101,000 $ 1,735,000 $ 257,000 ------------- ------------- ------------- ------------- ------------- ------------- EARNINGS PER SHARE OF COMMON STOCK Primary $ 0.07 $ 1.74 $ 0.32 ------------- ------------- ------------- ------------- ------------- ------------- Fully diluted $ 0.07 $ 1.45 $ 0.32 ------------- ------------- ------------- ------------- ------------- -------------
The accompanying notes are an integral part of these financial statements. -22- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
Common Stock Additional ------------------------- Paid-In Retained Shares Amount Capital Earnings Total ---------- ---------- ------------ ------------- --------------- BALANCE, September 30, 1994 597,688 $ 12,000 $ 400,000 $ 2,097,000 $ 2,509,000 Issuance of common stock 100,000 2,000 498,000 - 500,000 Exercise of stock options, including $16,000 income tax benefit 25,750 1,000 69,000 - 70,000 Redemption and retirement of common stock (46,500) (1,000) (49,000) (106,000) (156,000) Net income - - - 257,000 257,000 ---------- ---------- ------------ ------------- -------------- BALANCE, September 29, 1995 676,938 14,000 918,000 2,248,000 3,180,000 Issuance of common stock related to transfer of registered representatives and customer accounts including $90,000 income tax benefit 60,000 1,000 299,000 - 300,000 Exercise of stock options, including $26,000 income tax benefit 32,586 - 101,000 - 101,000 Stock dividends 75,724 2,000 507,000 (509,000) - Net income - - - 1,735,000 1,735,000 ---------- ---------- ------------ ------------- -------------- BALANCE, September 27, 1996 845,248 17,000 1,825,000 3,474,000 5,316,000 Exercise of stock options, including $78,000 income tax benefit 153,978 3,000 719,000 - 722,000 Stock dividends 174,979 4,000 1,041,000 (1,045,000) - Common stock issued in connection with acquisitions 270,000 5,000 1,460,000 - 1,465,000 Net income - - - 101,000 101,000 ---------- ---------- ------------ ------------- -------------- BALANCE, SEPTEMBER 26, 1997 1,444,205 $ 29,000 $ 5,045,000 $ 2,530,000 $ 7,604,000 ---------- ---------- ------------ ------------- -------------- ---------- ---------- ------------ ------------- --------------
The accompanying notes are an integral part of these financial statements. -23- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEARS ENDED SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995
1997 1996 1995 ------------ ------------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 101,000 $ 1,735,000 $ 257,000 Adjustments to reconcile net income to net cash from operating activities Depreciation and amortization 498,000 390,000 171,000 Loss on disposal of fixed assets 2,000 - 68,000 Deferred income tax benefit (45,000) - - Gain on foreign currency translation (43,000) - - Changes in assets and liabilities Cash, cash equivalents and securities 2,071,000 (7,611,000) (16,235,000) Deposits (515,000) (598,000) (120,000) Receivables (6,900,000) (2,910,000) (7,779,000) Federal income tax receivable/payable (948,000) 585,000 (39,000) Securities held for resale 1,350,000 (2,538,000) (272,000) Other assets (439,000) 42,000 5,000 Payables 2,105,000 10,986,000 22,029,000 Securities sold, but not yet purchased (290,000) 1,142,000 74,000 Accounts payable, accrued expenses and other liabilities 1,181,000 1,476,000 411,000 ------------ ------------- ----------- (1,872,000) 2,699,000 (1,430,000) ------------ ------------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of fixed assets (1,313,000) (251,000) (324,000) Deferred cost payments - - (100,000) Purchase of goodwill (83,000) - - ------------ ------------- ----------- (1,396,000) (251,000) (424,000) ------------ ------------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock 724,000 - 500,000 Redemption and retirement of common stock - - (156,000) Exercise of stock options 644,000 75,000 54,000 Proceeds from notes payable 1,805,000 - - Payments on notes payable (1,653,000) - (11,000) ------------ ------------- ----------- 1,520,000 75,000 387,000 ------------ ------------- ----------- INCREASE (DECREASE) IN CASH (1,748,000) 2,523,000 (1,467,000) CASH BALANCE Beginning of year 2,727,000 204,000 1,671,000 ------------ ------------- ----------- End of year $ 979,000 $ 2,727,000 $ 204,000 ------------ ------------- ----------- ------------ ------------- ----------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for Interest $ 2,265,000 $ 1,806,000 $ 1,046,000 ------------ ------------- ----------- ------------ ------------- ----------- Income tax $ 1,117,000 $ 223,000 $ 165,000 ------------ ------------- ----------- ------------ ------------- ----------- SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES Deferred cost and issuable common stock (Note 9) $ - $ 210,000 $ 105,000 ------------ ------------- ----------- ------------ ------------- ----------- Tax effect of common stock issued and stock options exercised $ 78,000 $ 116,000 $ 16,000 ------------ ------------- ----------- ------------ ------------- ----------- Acquisition of subsidiaries Fair value of assets acquired, other than cash $ 1,596,000 $ - $ - Liabilities assumed 855,000 - - ------------ ------------- ----------- Common stock issued $ 741,000 $ - $ - ------------ ------------- ----------- ------------ ------------- -----------
The accompanying notes are an integral part of these financial statements. -24- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS - Olympic Cascade Financial Corporation ("Olympic" or the "Company") is a diversified financial services organization, operating through its four wholly owned subsidiaries, National Securities Corporation ("National"), L. H. Friend, Weinress, Frankson & Presson, Inc. ("Friend"), WestAmerica Investment Group ("WestAmerica") and Travis Capital, Inc. ("Travis"). Olympic is committed to establishing a significant presence in the financial services industry by providing financing options for emerging, small and middle capitalization companies through institutional research and sales and investment banking services for both public offerings and private placements, and also provides retail brokerage and trade clearance operations. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Olympic and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. USE OF ESTIMATES - The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. ACCOUNTING METHOD - Customer security transactions and the related commission income and commission expense are recorded on a settlement date basis. The Company's financial condition and results of operations using the settlement date basis are not materially different from that of the trade date basis. Revenue from consulting services and investment banking activities is recognized as the services are performed. DEPRECIATION - Fixed assets are stated at cost and are depreciated over their estimated useful lives of three to seven years. Depreciation is computed using the straight-line method. EARNINGS PER SHARE - Primary earnings per common share is based upon the net income for the year divided by the weighted average number of common shares and common stock equivalents outstanding during the year. For fiscal years ended 1997, 1996 and 1995, the number of shares used in the primary earnings per share calculation was 1,357,258, 997,934, and 811,851, respectively. The weighted average number of shares outstanding, assuming full dilution, includes common stock equivalents which would arise from the exercise of stock options and assumes that all have been converted to common shares using the treasury stock method at the beginning of the year. For fiscal years 1997, 1996 and 1995, the number of shares used in the fully diluted earnings per share calculation was 1,357,258, 1,197,158 and 811,851, respectively. All shares used in primary and fully diluted calculations have been restated to show the effect of the stock dividends as described in Note 15. -25- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 1 - OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES - The Company utilizes an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on currently enacted tax laws and rates. FISCAL YEAR - The Company has a 52 or 53 week year, ending on the last Friday in September. CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows, the Company considers only cash subject to immediate withdrawal. Cash, cash equivalents and securities as discussed in Note 4 are not considered a change in cash for this purpose. NEW ACCOUNTING STANDARDS - In February 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 128. The new standard replaces primary and fully diluted earnings per share with basic and diluted earnings per share. SFAS No. 128 is required to be adopted by the Company in the year ending September 25, 1998. Had the Company been required to adopt SFAS No. 128 for the periods presented, the adoption would not have materially impacted primary or fully diluted earnings per share. In June 1997, the FASB issued SFAS Nos. 130 and 131. SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components. SFAS No. 131 establishes standards for reporting about operating segments, products and services, geographic areas, and major customers. The standards become effective for fiscal years beginning after December 15, 1997. Management plans to adopt these standards in the year ending September 25, 1998. Management believes that the provisions of SFAS Nos. 130 and 131 will not have a material effect on its financial condition or reported results of operation. NOTE 2 - CORPORATE RESTRUCTURING AND ACQUISITIONS CORPORATE RESTRUCTURING - In November 1996, the Company's stockholders approved a restructuring whereby National's stockholders exchanged their shares of common stock on a one-for-one basis for shares of common stock of the Company resulting in National becoming a wholly owned subsidiary of Olympic. This restructuring became effective in February 1997 and was accounted for as a pooling of interests. -26- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 2 - CORPORATE RESTRUCTURING AND ACQUISITIONS (CONTINUED) ACQUISITIONS - In March 1997, the Company acquired all of the outstanding stock of Friend, a Southern California based broker-dealer specializing in investment banking, institutional brokerage, research and trading activities for middle market companies. Friend was acquired in exchange for 250,000 unregistered shares of Olympic common stock valued at $1,375,000. The Company recorded this transaction under the purchase method of accounting and has recorded goodwill of $1,300,000 for the purchase price and direct costs in excess of the net fair value of the assets acquired. In June 1997, the Company acquired all of the outstanding stock of WestAmerica, a Scottsdale, Arizona based broker-dealer specializing in retail brokerage services. WestAmerica was acquired for $443,000 in cash and an agreement that provides for the payment of bonus compensation to certain brokers. The Company recorded this transaction under the purchase method of accounting and has recorded goodwill of $83,000 for the purchase price and direct costs in excess of the net fair value of the assets acquired. In June 1997, the Company acquired all of the outstanding stock of Travis, a Salt Lake City, Utah based broker-dealer focusing on private placement of securities for emerging and middle market companies in the U.S. and internationally. Travis was acquired in exchange for 20,000 unregistered shares of Olympic common stock valued at $90,000. The Company recorded this transaction under the purchase method of accounting and has recorded goodwill of $45,000 for the purchase price and direct costs in excess of the net fair value of the assets acquired. The operating results of these acquired companies are included in the consolidated statement of income from their respective acquisition dates. Goodwill resulting from these transactions is being amortized over 5 to 25 years. The following unaudited summary, prepared on a pro forma basis, combines the consolidated condensed results of operations as if Friend, WestAmerica and Travis had been acquired as of the beginning of the fiscal year ended September 29, 1995. There are no material adjustments which impact the summary. 1997 1996 1995 ------------- ------------ ------------- Total revenues $ 45,203,000 $ 44,174,000 $ 22,765,000 Income (loss) before income taxes $ (323,000) $ 2,875,000 $ 828,000 Net income (loss) $ (223,000) $ 2,062,000 $ 698,000 Earnings (loss) per share of common stock $ (0.15) $ 1.38 $ 0.63 Weighted average shares outstanding during the period 1,512,083 1,493,783 1,108,482 -27- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 2 - CORPORATE RESTRUCTURING AND ACQUISITIONS (CONTINUED) The pro forma results are not necessarily indicative of the actual results of operations that would have occurred had the transactions been consummated as indicated nor are they intended to indicate results that may occur in the future. NOTE 3 - FAIR VALUE OF FINANCIAL INSTRUMENTS Substantially all of the Company's financial instruments are carried at fair value. Assets, including cash, cash equivalents and securities, deposits, certain receivables, securities held for resale and other assets, are carried at fair value or contracted amounts which approximate fair value. Similarly, liabilities, including certain payables, securities sold but not yet purchased and notes payable are carried at fair value or contracted amounts approximating fair value. NOTE 4 - CASH, CASH EQUIVALENTS AND SECURITIES Cash, cash equivalents, and securities have been segregated in special reserve bank accounts for the exclusive benefit of customers under Rule 15c3-3 of the Securities and Exchange Commission and consist of: SEPTEMBER 26, SEPTEMBER 27, 1997 1996 -------------- -------------- United States Government obligations $ 29,158,000 $ 31,426,000 Reverse repurchase agreement 1,770,000 1,579,000 Cash 6,000 - -------------- -------------- $ 30,934,000 $ 33,005,000 ------------- -------------- ------------- -------------- The United States Government and agencies obligations mature at various dates through February 2027 and are stated at current market values. The reverse repurchase agreements are carried at cost which approximates market value. The Company purchases these obligations at fixed, variable and adjustable interest rates in order to reduce exposure to interest rate changes. -28- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 5 - CUSTOMER RECEIVABLES AND PAYABLES The Company seeks to protect itself from the risks associated with customer activities by requiring customers to maintain margin collateral in compliance with regulatory and its own internal guidelines, which are more stringent than regulatory margin requirements. Margin levels are monitored daily and additional collateral must be deposited as required. Where customers cannot meet collateral requirements, the Company will liquidate underlying financial instruments sufficient to bring the accounts in compliance. Exposure to credit risk is affected by the markets for financial instruments, which can be volatile and may impair the ability of clients to satisfy their obligations to the Company. Credit limits are established and closely monitored for customers and broker-dealers engaged in transactions deemed to be credit-sensitive. Included in amounts receivable from and payable to customers are balances in accounts of officers and directors totaling: SEPTEMBER 26, SEPTEMBER 27, 1997 1996 ------------- ------------- Receivable $ - $ 28,000 ------------- ------------- ------------- ------------- Payable $ 659,000 $ 558,000 ------------- ------------- ------------- ------------- NOTE 6 - BROKER-DEALER RECEIVABLES AND PAYABLES Amounts receivable from and payable to brokers and dealers include: SEPTEMBER 26, SEPTEMBER 27, 1997 1996 -------------- -------------- Due from clearing organization $ 708,000 $ 347,000 Deposits paid for securities borrowed 588,000 284,000 Commissions receivable 470,000 - Securities failed to deliver 81,000 248,000 ------------- ------------ Total receivable $ 1,847,000 $ 879,000 ------------- ------------ ------------- ------------ Due to clearing organization $ 1,518,000 $ - Securities failed to receive 234,000 87,000 ------------- ------------ Total payable $ 1,752,000 $ 87,000 ------------- ------------ ------------- ------------ -29- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 6 - BROKER-DEALER RECEIVABLES AND PAYABLES (CONTINUED) Securities borrowed are recorded at the amount of cash collateral advanced or received. The Company monitors the market value of securities borrowed and loaned on a daily basis and obtains additional collateral from counterparties as necessary. The Company has receivables and payables for financial instruments sold to and purchased from broker-dealers. The Company is exposed to risk of loss from the inability of broker-dealers to pay for purchases or to deliver financial instruments sold, in which case the Company would have to sell or purchase the financial instruments at prevailing market prices. NOTE 7 - SECURITIES HELD FOR RESALE Securities held for resale and securities sold, but not yet purchased consist of the following: SEPTEMBER 26, 1997 SEPTEMBER 27, 1996 ------------------------ ------------------------- SOLD, BUT SOLD, BUT NOT YET NOT YET OWNED PURCHASED OWNED PURCHASED ---------- ---------- ---------- ----------- Government bonds $ - $ - $ 5,000 $ - State and municipal obligations 71,000 - 132,000 - Corporate obligations 5,000 - 6,000 - Corporate stocks 1,990,000 1,047,000 3,224,000 1,337,000 ---------- ---------- ---------- ----------- $2,066,000 $1,047,000 $3,367,000 $ 1,337,000 ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------- Securities held for resale and securities sold, but not yet purchased are recorded at fair value. Fair value is generally based upon quoted market prices. If quoted market prices are not available, or if liquidating the Company's position is reasonably expected to impact market prices, fair value is determined based upon other relevant factors, including dealer price quotations, price activity of similar instruments and pricing models. Pricing models consider the time value and volatility factors underlying the financial instruments and other economic measurements. -30- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 7 - SECURITIES HELD FOR RESALE (CONTINUED) Securities sold, but not yet purchased commit the Company to deliver specified securities at predetermined prices. The transactions may result in market risk since, to satisfy the obligation, the Company must acquire the securities at market prices, which may exceed the values reflected on the Consolidated Statement of Financial Condition. NOTE 8 - FIXED ASSETS Fixed assets, at cost, consist of the following: SEPTEMBER 26, SEPTEMBER 27, 1997 1996 ------------- ------------- Office machines $ 427,000 $ 255,000 Furniture and fixtures 1,542,000 500,000 Electronic equipment 1,333,000 892,000 Leasehold improvements 212,000 54,000 ----------- ------------ 3,514,000 1,701,000 Less accumulated depreciation and amortization 1,986,000 1,167,000 ----------- ------------ $ 1,528,000 $ 534,000 ----------- ------------ ----------- ------------ NOTE 9 - DEFERRED COST AND ISSUABLE COMMON STOCK During 1995, National entered into an agreement with a brokerage firm and its principal stockholder. Under the terms of the agreement, the principal stockholder assisted in causing the transfer of the registered representatives and the customer accounts to National. National obtained no assets, tangible or intangible, and assumed no liabilities, with the exception of a short-term office lease. In exchange, National paid cash of $100,000 and issued 60,000 unregistered shares of National's stock plus options to purchase an additional 50,000 shares. An additional 40,000 shares were to be issued during 1997 contingent upon certain obligations and the registered representatives meeting certain revenue criteria. At September 26, 1997, the requirements of the contingency related to the issuance of 40,000 shares common stock had not been satisfied and no stock was issued. National has no further obligation under the agreement. -31- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 10 - LINE OF CREDIT National has an unsecured line of credit of up to $3,000,000. The line is subject to renewal in March 1998. Borrowings bear interest at the bank's prime rate. Interest is payable monthly. These borrowings are short-term and have not extended beyond a few days. Although at times National has not satisfied and may not in the future satisfy a minor loan covenant, the bank has continued to provide all necessary borrowings. At September 26, 1997 there were no borrowings outstanding. NOTE 11 - NOTES PAYABLE At September 26, 1997, the Company has a note payable to a bank with outstanding principal and interest of $909,000. Principal is payable in monthly installments of $150,000 from May through October of 1998. Accrued interest at 8.95% is to be paid monthly beginning October 1997. On November 17, 1997, the Company executed two promissory notes totaling $925,000. The notes bear interest at 8% and the principal is to be repaid in 24 monthly installments commencing on December 31, 2000. In addition, warrants for the purchase of 120,000 shares at an exercise price of $5.625 per share of the Company's common stock were issued. The warrants are valued at $120,000 and have been recorded as original issue discount. NOTE 12 - FEDERAL INCOME TAX The income tax benefit (provision) consists of: SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 29, 1997 1996 1995 ------------- ------------- ------------- Current Federal income tax $ (56,000) $ (808,000) $ (126,000) Deferred federal income tax 45,000 - - Current state income tax (82,000) - - ------------- ------------- ------------- $ (93,000) $ (808,000) $ (126,000) ------------- ------------- ------------- ------------- ------------- ------------- -32- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 12 - FEDERAL INCOME TAX (CONTINUED) The income tax provision varies from the federal statutory rate as follows: SEPTEMBER 26, SEPTEMBER 27, SEPTEMBER 29, 1997 1996 1995 ------------- ------------- ------------- Statutory Federal rate $ (66,000) $ (865,000) $ (130,000) State income taxes, net of federal income tax benefit (54,000) - - Other 27,000 57,000 4,000 ------------- ------------- ------------- $ (93,000) $ (808,000) $ (126,000) ------------- ------------- ------------- ------------- ------------- ------------- The Company has net operating loss (NOL) carryforwards for Federal income tax purposes of approximately $100,000, the benefit of which expires in the tax year 2012. The NOL's created by the Company's subsidiaries prior to their acquisition have limitations related to the amount of usage by each subsidiary or the consolidated group as described in the Internal Revenue Code. Significant components of the Company's deferred tax assets are as follows at September 26, 1997: Net operating losses $ 34,000 Other 11,000 --------- Total deferred tax asset $ 45,000 --------- --------- There were no deferred tax assets or liabilities at September 27, 1996. Management believes it is more likely than not that the benefits resulting from the deferred tax assets will be realized through future taxable earnings. -33- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 13 - COMMITMENTS As of September 26, 1997, the Company is committed under operating leases to future minimum lease payments as follows: Fiscal Year Ending ------------------ 1998 $ 1,605,000 1999 988,000 2000 601,000 2001 550,000 2002 444,000 Thereafter 325,000 ------------ $ 4,513,000 ------------ ------------ Rental expense for operating leases for the years ended September 26, 1997, September 27, 1996 and September 29, 1995 was $1,113,000, $672,000 and $369,000, respectively. UNDERWRITINGS - During fiscal 1997, the Company participated in underwriting securities for private placements, initial and secondary public offerings. At September 26, 1997, the Company has no outstanding commitments relating to underwriting transactions. NOTE 14 - CONTINGENCIES In April 1997, certain minority stockholders brought action against the Company and its subsidiary National, alleging National breached an agreement to purchase their shares of Interact Medical Technologies Corp. ("Interact"). The plaintiffs alleged claims under section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder, for common law fraud and misrepresentation, for breach of express and implied contract, and for negligence and are seeking damages in excess of $4,000,000. The Company and National moved to dismiss the plaintiffs' claims on various grounds, and the plaintiffs moved for partial summary judgment on their claims of breach of contract. In late October 1997 the Court (i) dismissed all of plaintiffs' claims against the Company; (ii) dismissed plaintiffs' Securities law claims against National; and (iii) denied plaintiffs' motion entirely. Consequently, the case is proceeding against National on theories of common law fraud, misrepresentation, breach of contract and negligence. -34- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 14 - CONTINGENCIES (CONTINUED) In May 1997, a Trust brought action against the Company, its subsidiary National, and several officers and directors of the Company and National, originally alleging fraud, breach of fiduciary duties and state securities law violations in connection with the share exchange between the Company and National (the "Share Exchange") and otherwise. The plaintiff, prosecuting the case both individually and derivatively, seeks monetary damages, corporate dissolution of the Company and National, recission of the Share Exchange, and the fair value of its shares in an appraisal proceeding. In an amended pleading, plaintiff dropped all allegations of fraud and the claim for recission of the Share Exchange, and alleged that the defendants breached fiduciary duties by, among other things, secretly receiving excessive and otherwise inappropriate overrides and other compensation, and that defendants traded in the Company's stock with knowledge of material, non-public information. The second amended complaint also alleges that the proxy statement underlying the Share Exchange wrongly failed to disclose that stockholders' rights would be governed by Delaware, and not Washington law, and that the plaintiff was wrongly denied access to the Company's books and records. In October 1997, a corporation served National with a complaint alleging National and a former National representative breached a contract and committed various torts by failing to perform an alleged promise to raise capital for plaintiff through an initial public offering of stock. The plaintiff sought not less than $8.5 million in actual damages and not less than $42.5 million in punitive damages. National negotiated an agreement whereby applicable statutes of limitations would be tolled through calendar 1997 and all claims against it would be dismissed. On November 4, 1997, all claims against National were dismissed without prejudice. The Company is a defendant in various other arbitrations and administrative proceedings, lawsuits and claims which arise out of the normal course of business. The Company intends to vigorously defend itself in these actions, and in any event, does not believe these actions singularly or combined would have a material adverse effect on the Company's financial statements or business operations. -35- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 15 - CONCENTRATIONS OF CREDIT RISK The Company is actively involved in securities underwriting, brokerage, distribution and trading. These and other related services are provided on a national basis to a large and diversified group of clients and customers, including corporations, governments, financial institutions and individual investors. The Company's exposure to credit risk associated with the non- performance of these customers and counterparties in fulfilling their contractual obligations can be directly impacted by volatile or illiquid trading markets which may impair the ability of customers and counterparties to satisfy their obligations to the Company. Substantially all of the securities held for the exclusive benefit of customers, pursuant to SEC Rule 15c3-3, consisted of issues by the U.S. Government or federal agencies. The Company's most significant counterparty concentrations are other brokers and dealers, commercial banks, institutional clients and other financial institutions. This concentration arises in the normal course of the Company's business. NOTE 16 - STOCKHOLDERS' EQUITY STOCK OPTIONS - The Company's stock option plans provide for the granting of stock options to certain key employees, directors and investment executives. Generally, options outstanding under the Company's stock option plan are granted at prices equal to or above the market value of the stock on the date of grant, vest either immediately or ratably over up to five years, and expire five years subsequent to award. The Company applies APB Opinion No. 25 and related Interpretations in accounting for its plans. FASB Statement No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") was issued by the FASB and, if fully adopted, changes the methods for recognition of cost on plans similar to those of the Company. Had compensation cost for the Company's stock option plans been determined base upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS 123, the Company's net income and earnings per share would have been reduced by approximately $779,000, or $0.54 per share in 1997, $282,000, or $0.33 per share in 1996, and $49,000, or $0.07 per share in 1995. The fair value of the options granted during 1997, 1996 and 1995 is estimated as $960,000, $620,000 and $463,000, respectively, on the date of grant using the Black-Scholes option-pricing model with the following assumptions: -36- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 16 - STOCKHOLDERS' EQUITY (CONTINUED) 1997 1996 1995 ---- ---- ---- Volatility 63.39% 63.64% 77.10% Risk-free interest rate 6.31% 6.31% 6.77% Expected life 5 years 5 years 5 years A summary of the status of the Company's stock options is presented below:
Weighted Average Price Per Authorized Granted Available Share ---------- ------- ---------- ---------- Balance, September 30, 1994 471,609 124,969 346,640 $1.78 Granted - 257,658 (257,658) $4.29 Exercised (29,809) (29,809) - $1.76 ---------- -------- ---------- Balance, September 29, 1995 441,800 352,818 88,982 $2.99 Creation of new plan 405,169 - 405,169 Granted - 293,544 (293,544) $4.08 Exercised (37,726) (37,726) - $2.00 ---------- -------- ---------- Balance, September 27, 1996 809,243 608,636 200,607 $3.79 Creation of a new plan 538,126 - 538,126 Granted - 289,275 (289,275) $6.09 Exercised (153,978) (153,978) - $3.59 ---------- -------- ---------- Balance, September 26, 1997 1,193,391 743,933 449,458 $4.88 ---------- -------- ---------- ---------- -------- ----------
-37- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 16 - STOCKHOLDERS' EQUITY (CONTINUED) The following table summarizes information about stock options outstanding at September 26, 1997: Options Outstanding Options Exercisable ----------------------------------- ---------------------- Weighted Weighted Weighted Range of Average Average Average Exercise Number Remaining Exercise Number Exercise Prices Outstanding Cont. Life Prices Exercisable Prices - ------------ ----------- ---------- -------- ----------- -------- $3.56 - 3.92 454,658 2.82 $ 3.82 321,773 $ 3.78 $4.00 - 4.76 37,800 4.00 $ 4.76 - $ - $5.00 - 5.95 97,125 4.00 $ 5.72 86,625 $ 5.72 $7.00 - 7.47 154,350 4.00 $ 7.47 154,350 $ 7.47 ---------- ---------- 743,933 562,748 ---------- ---------- ---------- ---------- STOCK WARRANTS - During 1997, the Company issued 31,500 stock warrants with an exercise price of $5.00 per share expiring five years from the award date to a lender. The warrants were valued at $20,000, net of tax benefit, which has been recorded as a discount on the note payable. The discount will be amortized to operations as the note payable is repaid. STOCK DIVIDENDS - During fiscal year 1997, the Company declared three 5% stock dividends to all common stockholders. The stock dividends were issued on January 27, 1997, May 30, 1997 and September 10, 1997. The stock dividends in 1997 increased the number of issued and outstanding shares by 174,979. During fiscal year 1996, the Company declared two 5% stock dividends to all common stockholders. The stock dividends were issued on June 4, 1996 and September 16, 1996. The stock dividends in 1996 increased the number of issued and outstanding shares by 75,724. All references in the accompanying financial statements to the number of stock options and warrants, and earnings per share have been restated to reflect the dividends. -38- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 17 - NET CAPITAL REQUIREMENTS National, as a registered broker-dealer is subject to the SEC's Uniform Net Capital Rule 15c3-1, which requires the maintenance of minimum net capital. National has elected to use the alternative standard method permitted by the rule. This requires that National maintain minimum net capital equal to the greater of $250,000 or 2% of aggregate debit items. At September 26, 1997, National's net capital exceeded the requirement by $1,654,000. Friend and WestAmerica, as registered broker-dealers are also subject to the SEC's Net Capital Rule 15c3-1, which, under the standard method, requires that each company maintain minimum net capital equal to the greater of $100,000 or 6 2/3% of aggregate indebtedness. At September 26, 1997, Friend and WestAmerica's net capital exceeded the requirement by $290,000 and $121,000, respectively. Travis, also subject to the SEC's Net Capital Rule, is required to maintain the greater of $5,000 or 6 2/3% of aggregate indebtedness. As of September 26, 1997, Travis had a net capital deficit of $7,000. This deficit was corrected promptly in October following discovery. Advances, dividend payments and other equity withdrawals from National, Friend, WestAmerica or Travis are restricted by the regulations of the SEC, and other regulatory agencies. These regulatory restrictions may limit the amounts that these subsidiaries may dividend or advance to the Company. NOTE 18 - EMPLOYEE BENEFITS The Company's subsidiaries have defined 401(k) profit sharing plans which cover substantially all of their employees. Under the terms of the plans, employees can elect to defer up to 25% of eligible compensation, subject to certain limitations, by making voluntary contributions to their respective plans. Each company's annual contributions are made at the discretion of the respective Board of Directors. During the fiscal year September 26, 1997 the Company charged $82,000 to operations in connection with the plans. During the fiscal years September 27, 1996 and September 29, 1995, the Company made no such contributions. -39- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 19 - FINANCIAL INFORMATION - OLYMPIC Olympic was formed February 6, 1997. The following Olympic (parent company only) financial information should be read in conjunction with the other notes to the consolidated financial statements. STATEMENT OF FINANCIAL CONDITION ASSETS September 26, 1997 ------------- Cash, subject to immediate withdrawal $ 11,000 Receivable from subsidiaries 545,000 ------------- 556,000 Investment in subsidiaries 9,134,000 Other assets 68,000 ------------- $ 9,758,000 ------------- ------------- LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable, accrued expenses and other liabilities $ 68,000 Payable to subsidiaries 1,177,000 Note payable 909,000 ------------- 2,154,000 ------------- Stockholders' equity 7,604,000 ------------- $ 9,758,000 ------------- ------------- -40- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 19 - FINANCIAL INFORMATION - OLYMPIC (CONTINUED) STATEMENT OF OPERATIONS Period from February 6, 1997 (Inception) to September 26, 1997 ------------------ Operating expenses $ 696,000 Other income (expense) Gain on foreign currency translation 43,000 Loss on investment in subsidiaries (159,000) ----------- Loss before income tax (812,000) Income tax benefit 270,000 ----------- Net loss $ (542,000) ----------- ----------- STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Additional ------------------------ Paid-In Retained Shares Amount Capital Earnings Total --------- --------- -------------- -------------- ------------ FORMATION, February 6, 1997 $ - $ - $ - $ - $ - Common stock issued in connection with acquisitions 1,203,930 24,000 7,648,000 - 7,672,000 Exercise of stock options, including $25,000 income tax benefit 109,175 2,000 472,000 - 474,000 Stock dividends 131,100 3,000 701,000 (704,000) - Net loss - - - (542,000) (542,000) --------- --------- -------------- ------------- ------------ BALANCE, September 26, 1997 1,444,205 $ 29,000 $ 8,821,000 * $ (1,246,000) * $ 7,604,000 --------- --------- -------------- ------------- ------------ --------- --------- -------------- ------------- ------------
* Additional paid-in capital and retained earnings for the parent company differ from consolidated amounts due to accounting for the merger with National using the pooling of interests method in the consolidated financial statements. -41- OLYMPIC CASCADE FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 26, 1997, SEPTEMBER 27, 1996 AND SEPTEMBER 29, 1995 (CONTINUED) NOTE 19 - FINANCIAL INFORMATION - OLYMPIC (CONTINUED) STATEMENT OF CASH FLOWS Period From February 6, 1997 (Inception) to September 26, 1997 ------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (542,000) Adjustments to reconcile net income to net cash from operating activities Gain of foreign currency translation (43,000) Loss on investment in subsidiaries 159,000 Changes in assets and liabilities Receivable from subsidiaries (545,000) Payable to subsidiaries 1,177,000 ----------- 206,000 ----------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of subsidiaries (443,000) Capital contributions to subsidiaries (1,177,000) ----------- (1,620,000) ----------- CASH FLOWS FROM FINANCING ACTIVITIES Exercise of stock options 474,000 Proceeds from notes payable 1,805,000 Payments on notes payable (854,000) ----------- 1,425,000 ----------- NET CHANGE IN CASH 11,000 CASH BALANCE Beginning of year - ----------- End of year $ 11,000 ----------- ----------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for Interest $ 43,000 ----------- ----------- SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES Investment in subsidiaries through issuance of common stock $ 7,672,000 ----------- ----------- -42- ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The following sets forth the names and ages of all directors and executive officers of the Company, all positions and offices held with the Company by such persons, and the principal occupations of each during the past five years. Steven A. Rothstein 47 Director, Chairman, and Chief Executive Officer of the Company, Director, Chairman, and Chief Executive Officer of National Mr. Rothstein became a member of the Board of National in May 1995 and was appointed Chairman on August 1, 1995. From 1979 through 1989, Mr. Rothstein was a registered representative, and Limited Partner at Bear Stearns & Co., Inc. in Chicago, Illinois and Los Angeles, California. From 1989 to 1992, Mr. Rothstein was a Senior Vice President in the Chicago office of Oppenheimer and Company, Inc. In December 1992 he joined Rodman and Renshaw, Inc., a Chicago-based broker-dealer serving as Managing Director, and joined H.J. Meyers, Inc. in Beverly Hills, California, a New York Stock Exchange member firm in March 1994. He resigned from H.J. Meyers and Company in March 1995 to associate with National. Mr. Rothstein is a 1972 graduate of Brown University, Providence, Rhode Island. Presently, Mr. Rothstein is a board member of American Craft Brewing International Limited, Gateway Data Sciences, Inc., Home Security International, Inc., New World Coffee, Inc., Sigmatron International, Inc. and Vita Food Products, Inc. Robert I. Kollack 51 Director of the Company Director and Vice Chairman of National Mr. Kollack was elected to the Board and was appointed Chief Executive Officer of National in August 1987. He served in those capacities until February, 1997, when he was appointed Vice-Chairman. From February 1981 to August 1987, Mr. Kollack acted as President and a Director of National. He joined National as an investment executive in 1972. From 1968 to 1972, he was an investment executive for Foster & Marshall, Inc., which at that time was a Seattle-based brokerage firm. -43- ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS (CONTINUED) Gary A. Rosenberg 57 Director and President of the Company Director of National Mr. Rosenberg was appointed to the Board of National in December, 1996. Mr. Rosenberg was Chairman and CEO of UDC Homes, Inc. (and its predecessors) from 1968 to 1994, and the Chairman (non-management) from 1994 to 1996. UDC Homes, Inc. filed a petition for relief under Chapter 11 of the Bankruptcy Code in May, 1995. Presently, Mr. Rosenberg is Chairman, Chief Executive Officer and Director of Canterbury Development Corporation, a family held company with financial, technology, entertainment and real estate interests. He is also a Director and Chairman of Dimyon Multimedia, Ltd., an Israeli multimedia and software company; Chairman and Director of the Rosenberg Foundation; Founder and Chairman of the Real Estate Research Center; member of the Board at the J. L. Kellogg Graduate School of Management at Northwestern University; and a Trustee of St. Norbert College. Mr. Rosenberg received his B.S. and M.B.A. from Northwestern University and his J.D. from the University of Wisconsin. EXECUTIVE OFFICERS Robert H. Daskal 56 Senior Vice President, Chief Financial Officer and Treasurer of the Company Mr. Daskal was appointed Senior Vice President, Chief Financial Officer and Treasurer of the Company in January, 1997. From 1994 to 1997 Mr. Daskal was a Director, Executive Vice President and Chief Financial Officer of Inco Homes Corporation, and from 1985 to 1994 he was a Director, Executive Vice President- Finance and Chief Financial Officer of UDC Homes, Inc. (and its predecessors). UDC Homes, Inc. filed a petition for relief under Chapter 11 of the Bankruptcy Code in May, 1995. Mr. Daskal, a former Tax Partner with Arthur Andersen & Co., became a CPA in Illinois in 1967. He received his B.B.A. and J.D. from the University of Michigan in Ann Arbor. Mr. Daskal is presently a director of Inco Homes Corporation. Mark Roth 36 Secretary and General Counsel of the Company Secretary and General Counsel of National Mr. Roth was appointed General Counsel of National in October 1995, and was appointed Secretary in March, 1997. Mr. Roth was appointed Secretary and General Counsel of the Company in February 1997. He received his B.S. in 1984 from the University of California, Irvine, and his J.D. in 1989 from Pepperdine University School of Law. Mr. Roth began the private practice of law in Southern California in 1989. Among other clients, he has represented National in transactional and litigation matters since moving to Seattle in September 1992. -44- ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS (CONTINUED) INDEMNIFICATION OF DIRECTORS AND OFFICERS The Company's bylaws provide that the Company shall indemnify and advance the expenses of individual directors, officers, employees and agents against costs, judgments and other financial liability resulting from any action alleged to have been taken or omitted by such individual. The bylaws permit such indemnification if, among other things, the proposed indemnity acted in good faith with reasonable belief that the conduct was in, or at least not opposed to, the best interests of the Company, and in the case of a criminal proceeding, with a reasonable belief that the conduct was not unlawful. The Company has obtained insurance on behalf of any person who is or was a director, officer or employee or agent of the Company or is or was serving at the request of the Company as an officer, employee, or agent of another corporation, partnership, joint venture, trust other enterprise or employee benefit plan, against any liability arising out of that person's status as such, whether or not the Company would have the power to indemnify that person against such liability. ITEM 11 - EXECUTIVE COMPENSATION The following table sets forth the cash compensation paid by the Company to each of its most highly compensated officers (the "Named Executive Officers") during the fiscal years ended 1997, 1996, and 1995:
Long-Term Annual Compensation Compensation -------------------------------------------- Securities Year Other Underlying Name and Capacity Ended Salary Bonus Compensation * Options - ------------------------ ----- ---------- ---------- -------------- --------------- Steven A. Rothstein 1997 $ 24,000 $ 32,000 $ 1,364,000 ** 81,375 Chairman and Chief 1996 $ 24,000 $ 194,000 $ 1,775,000 ** 110,581 Executive Officer 1995 $ 48,000 $ - $ 138,000 49,700 Robert I. Kollack 1997 $ 150,000 $ 32,000 $ 497,000 18,900 Vice Chairman and Director 1996 $ 150,000 $ 193,000 $ 495,000 - 1995 $ 170,000 $ 58,000 $ 27,000 75,000 Robert H. Daskal 1997 $ 82,000 $ - $ - 21,525 Senior Vice President, Chief Financial Officer and Treasurer Mark Roth 1997 $ 120,000 $ 7,000 $ - - Secretary and General Counsel 1996 $ 120,000 $ 43,000 $ 9,000 7,350
* Amounts relate to commissions earned in the normal course of business, fees received for Corporate Finance services and profit from the sale during the year of the Company's stock obtained through the exercise of stock options. -45- ITEM 11 - EXECUTIVE COMPENSATION (CONTINUED) ** This compensation paid to Mr. Rothstein by the Company represents a percentage of business generated or supervised by Mr. Rothstein as follows: he is paid 50% of the commission generated on retail trades (compared to the 70% typically paid to National's brokers), and 70% of the compensation collected by the firm (including warrants) on corporate finance transactions which he introduces and executes. Mr. Rothstein also collects an override on fees collected from all other corporate finance transactions as well as on business he creates for the firm. The Company has granted options to certain officers, directors, employees, and investment executives. The options granted during the last fiscal year (adjusted for stock dividends) to the Named Executive Officers are as follows:
Option Grants in Last Fiscal Year -------------------------------------------------------------------------------------------- Potential Realized Value Number of % of Total at Assumed Annual Rates Securities Options of Stock Price Appreciation Underlying Granted to for Option Term Options Employees Exercise Expiration ----------------------------- Name Granted in Fiscal Year Price Date 5% 10% - ------------------- ---------- -------------- -------- ---------- ---------- ----------- Steven A. Rothstein 55,125 20.96% $ 7.47 02/06/02 $ 169,000 $ 321,000 26,250 9.99% $ 5.71 06/17/02 $ 34,000 $ 92,000 Robert I. Kollack 11,025 4.20% $ 7.47 02/06/02 $ 34,000 $ 64,000 7,875 3.00% $ 5.71 06/17/02 $ 10,000 $ 27,000 Robert H. Daskal 11,025 4.20% $ 7.47 02/06/02 $ 34,000 $ 64,000 10,500 4.00% $ 5.71 06/17/02 $ 14,000 $ 37,000 Mark Roth 7,350 2.80% $ 5.94 08/13/02 $ 15,000 $ 30,000
The options exercised by the Named Executive Officers, and the fiscal year and value of unexercised options, are as follows:
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values ------------------------------------------------------------------------------------------------- Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options Shares Options at Fiscal Year End at Fiscal Year End Acquired Value ------------------------------- --------------------------------- Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable - ------------------- ----------- ---------- ----------- --------------- ----------- ------------- Steven A. Rothstein - - 272,818 - $ 315,000 - Robert I. Kollack 42,000 $ 160,000 67,876 - $ 71,000 - Robert H. Daskal - - 21,525 - - - Mark Roth - - - 7,350 - $ 3,000
-46- ITEM 11 - EXECUTIVE COMPENSATION (CONTINUED) The Company has employment agreements with the four Named Executive Officers. None of the Named Executive Officers may be terminated against his will without a finding of fraud, theft or defalcation. The agreements generally provide that the officers will devote their entire time and attention to the business of the Company, will refrain during employment and for a period of one year thereafter from competing with the Company, and will not disclose confidential or trade secret information belonging to the Company. Of the four agreements, Mr. Daskal's and Mr. Rothstein's provide for a cash severance payment. Mr. Rothstein's severance payment is contingent upon National's net capital, as defined under the SEC's Uniform Net Capital Rule 15c3-1, exceeds $3,500,000 after honoring the severance obligation. COMPENSATION COMMITTEE In lieu of a formal compensation committee, the Company's board of directors, listed under Item 10 - Directors, Executive Officers, Promoters and Control Persons, Compliance with Section 16(a) of the Exchange Act, determine executive officer compensation. The Company believes the compensation paid to its executive officers is competitive with companies within its industry that are comparable in size and by companies outside the industry with which the Company competes for executive talent. COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN The following compares cumulative total stockholder return on the Company's common stock with the cumulative total stockholder return on the common equity of the companies in the NASDAQ U.S. Index and the NASDAQ Financial Index (the "Peer Group") for the period from October 1, 1992 to September 26, 1997. Olympic NASDAQ Measurement Period Cascade NASDAQ Financial (Fiscal Year Covered) Financial U.S.Index Index --------------------- --------- --------- --------- 1992 100.00 100.00 100.00 1993 346.67 130.98 137.10 1994 346.67 132.06 144.50 1995 373.33 182.40 182.84 1996 1,029.00 216.44 226.35 1997 714.70 297.11 356.45 The above assumes a $100 investment on October 1, 1992, in each of Olympic Cascade Financial Corporation Common Stock, NASDAQ U.S. Index and the NASDAQ Financial Index (the "Peer Group"), and further assumes the reinvestment of all dividends. -47- ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT CERTAIN BENEFICIAL OWNERS The following information is furnished as of December 1, 1997, as to any person who the Company knows to be the beneficial owner of more than 5% of the Company's common stock: Amount of Name/Address of Beneficial Percent Title of Class Beneficial Owner Ownership(1) of Class - -------------- ------------------------- ------------ -------- Common stock Steven A. Rothstein 559,954(2) 26.13% 2737 Illinois Road Wilmette, IL 60091 Common stock Larry H. Friend 118,125(3) 5.52% 2 Barrenger Court Newport Beach, CA 92660 Common stock Marshall S. Geller 117,371(3) 5.48% 1875 Century Park East Suite 2200 Los Angeles, CA 90067 Common stock Gary A. Rosenberg 116,375(4) 5.43% 1427 North State Pkwy. Chicago, IL 60610 (1) All securities are beneficially owned directly by the persons listed in the table (except as otherwise indicated). (2) Includes 26,236 shares owned by direct family members, 46,866 shares owned by retirement plans and 307,818 shares of vested unexercised stock options. (3) Includes 15,750 shares of vested unexercised warrants to purchase common stock owned by Geller & Friend Capital Partners whereby Mr. Friend and Mr. Geller are each 50% partners. Accordingly, each are allocated 7,875 shares. (4) Includes 116,375 shares of vested unexercised stock options. -48- ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (CONTINUED) MANAGEMENT The following information is furnished as of December 1, 1997 as to each class of equity securities of the Company beneficially owned by all directors and officers of the Company as a group. Amount of Beneficial Percent Name and Title of Beneficial Owner Ownership of Class - ---------------------------------------------------------- --------- -------- Steven A. Rothstein - Chairman and Chief Executive Officer 559,954(1) 26.13% Robert I. Kollack - Vice Chairman and Director 67,876(2) 3.17% Gary A. Rosenberg - President and Director 116,375(2) 5.43% Robert H. Daskal - Senior Vice President, Chief Financial Officer and Treasurer 21,525(2) 1.01% Mark Roth - Secretary and General Counsel 348(3) - All officers and directors of the Company as a group (five persons) 766,078(4) 35.74% (1) Includes 26,236 shares owned by direct family members, 46,866 shares owned by retirement plans and 307,818 shares of vested unexercised stock options. (2) Includes only shares of vested unexercised stock options. (3) Excludes 7,350 shares of unvested stock options. (4) Includes 513,594 shares of vested unexercised stock options. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During the fiscal year 1997 the Company through National advanced certain monies to Steven A. Rothstein, its Chairman and Chief Executive Officer. The largest aggregate amount outstanding to the Company during the fiscal year was approximately $162,000. At September 26, 1997 the balance outstanding was approximately $30,000. Subsequent to year end the balance owing was paid in full. The Company has not charged Mr. Rothstein interest on these advances. -49- ITEM 14 - EXHIBITS AND REPORTS ON FORM 8-K (a) The following financial statements are included in Part II Item 7: 1. FINANCIAL STATEMENTS Independent Auditors' Report Consolidated Financial Statements Financial Condition, September 26, 1997 and September 27, 1996 Operations, Years Ended September 26, 1997, September 27, 1996 and September 29, 1995 Changes in Stockholders' Equity, Years ended September 26, 1997, September 27, 1996 and September 29, 1995 Cash Flows, Years ended September 26, 1997, September 27, 1996 and September 29, 1995 Notes to Financial Statements 2. FINANCIAL STATEMENT SCHEDULES Schedules not listed above have been omitted because they are not applicable or have been included in footnotes to the consolidated financial statements. (b) REPORTS ON FORM 8-K None (c) EXHIBITS See Exhibit Index -50- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OLYMPIC CASCADE FINANCIAL CORPORATION (Registrant) Date: December 23, 1997 By: Steven A. Rothstein -------------------------- ---------------------------------- Steven A. Rothstein, Chairman and Chief Executive Officer Date: December 23, 1997 By: Robert H. Daskal -------------------------- ---------------------------------- Robert H. Daskal, Senior Vice President, Chief Financial Officer and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: December 23, 1997 By: Steven A. Rothstein -------------------------- ---------------------------------- Steven A. Rothstein, Chairman and Chief Executive Officer Date: December 23, 1997 By: Robert I. Kollack -------------------------- ---------------------------------- Robert I. Kollack, Vice Chairman and Director Date: December 23, 1997 By: Gary A. Rosenberg ------------------------- ---------------------------------- Gary A. Rosenberg, President and Director -51- EXHIBIT INDEX 3.1* The Company's Articles of Incorporation 3.2* The Company's Bylaws 3.3* Amendment to the Articles of Incorporation dated February 25, 1992 5.1* Opinion of legal counsel 10.1* Line of credit arrangements between the Company and Seattle-First Bank dated May 1, 1989 10.2* Lease agreement between the Company and 1001 Fourth Avenue Associates dated January 31, 1989 10.3* Lease agreement between the Company and Sixth Colonial Property Investments, Inc. dated May 1, 1989 10.4* Lease agreement between the Company and United States Leasing Corporation dated December 28, 1988 10.5* Agreement between the Company and Computer Research, Inc. dated December 5, 1988 10.6* Agreement between the Company and Midwest Clearing Corporation dated May 13, 1987 10.7* Agreement between the Company and Jeffrey Pritchard dated November 20, 1990 10.8* Secured demand note collateral agreement between Mary Judith Block and the Company dated August 25, 1989 10.9* Secured demand note collateral agreement between Howard W. Jones Jr. and the Company dated July 25, 1989 10.10* Secured demand note collateral agreement between Robert I. Kollack and the Company dated July 25, 1989 10.11* Secured demand note collateral agreement between Jeffrey J. Pritchard and the Company dated August 2, 1989 10.12* Master repurchase agreement between Seattle-First National Bank and the Company 10.13* Secured demand note collateral agreement between Block Foundation, Inc. and the Company dated September 20, 1991 10.14* Secured demand note collateral agreement between Esther I. Block and the Company dated September 24, 1991 10.15* Extension of secured demand note collateral agreement between Block Foundation, Inc. and the Company dated October 22, 1992 10.16* Extension of secured demand note collateral agreement between Esther I. Block and the Company dated October 22, 1992 10.17* Lease agreement between the Company and Tucker Leasing - Capital Corporation dated July 31, 1992 10.18* Agreement with G.R. Stuart 10.19* Contract dated March 15, 1995 10.20* Contract dated May 22, 1995 10.21* Contract dated October 27, 1995 10.22* Contract dated October 15, 1996 10.23* National Asset Management Articles of Incorporation 10.24* National Asset Management Bylaws -52- EXHIBIT INDEX (CONTINUED) 10.25* SeaFirst Bank amended line of credit 10.26* Olympic Cascade Financial Corporation S-4 filing 10.27* Office lease, Chicago, Illinois 10.28* Office lease, Spokane Washington 10.29* Amended office lease, Chicago, Illinois 10.30 Purchase agreement between shareholders of Friend and the Company 10.31 Purchase agreement between shareholders of WestAmerica and the Company 10.32 Purchase agreement between shareholders of Travis and the Company 10.33 Borrowing agreement between Seattle-First National Bank and the Company 10.34 Note payable agreement 10.35 Note payable agreement 11. Computation of Earnings per Share 21. Subsidiaries of Registrant 27. Financial Data Schedule *Previously filed. -53- EX-10.30 2 EXHIBIT 10.30 EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION Among OLYMPIC CASCADE FINANCIAL CORPORATION, a Delaware corporation L. H. FRIEND, WEINRESS, FPANKSON & PRESSON, INC., a California corporation and THE SHAREHOLDERS OF L. H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC. Dated: as of February 12, 1997 EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION This EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") dated as of February 12, 1997, is entered into by and among Olympic Cascade Financial Corporation, a Delaware corporation ("Olympic"), L. H. Friend. Weinress, Frankson & Presson, Inc. a California corporation ("LHF"), and the shareholders of LHF listed on the signature page hereof (individually, a "Shareholder" and collectively, the "Shareholders"). RECITALS WHEREAS, LHF's authorized shares of capital stock consist of 100,000 shares of common stock, no par value (the "LHF Common Stock"); WHEREAS, the Shareholders own 18,250 shares (the "LHF Shares") of LHF Common Stock, constituting all of LHF's issued and outstanding shares of capital stock; WHEREAS, LHF is a broker-dealer duly registered with the Securities and Exchange Commission (the "SEC") and is a member in good standing with the National Association of Securities Dealers, Inc. (the "NASD") engaged in the general securities business; WHEREAS, National Securities Corporation, a Washington corporation ("National Securities"), is a broker-dealer duly registered with the SEC and a wholly-owned subsidiary of Olympic; WHEREAS, the Shareholders desire to exchange all of the LHF Shares owned by the Shareholders solely for shares of Olympic's common stock, par value S.02 per share (the "Olympic Common Stock") pursuant to the provisions contained herein (the "Exchange"), which Exchange is intended to qualify as a tax free reorganization pursuant to Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, Olympic desires to consummate the Exchange pursuant to the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the mutual promises herein made, and in consideration of the representations, warranties and covenants herein contained, the parties hereto agree as follows: ARTICLE I EXCHANGE OF STOCK; CLOSING 1.1 EXCHANGE OF STOCK. Subject to the terms and conditions herein stated and in reliance upon the representations and warranties herein set forth, (i) the Shareholders agree to transfer, convey, assign and deliver to Olympic at the Closing (as defined in Section 1.4 below) all of the LHF Shares, and (ii) Olympic agrees to acquire and accept the LHF Shares from the Shareholders, and in exchange therefore, further agrees to issue and deliver to the Shareholders an aggregate of Two Hundred Fifty Thousand (250,000) shares of Olympic Common Stock (the "Olympic Shares") to be apportioned among the Shareholders in accordance with their relative percentage ownership interests in LHF immediately prior to the Closing as set forth on Schedule 1.1 hereto. 1.2 PURCHASE PRICE. The consideration for the LHF Shares shall be the Olympic Shares. 1.3 TRANSFER TAXES. With respect to the payment of any and all foreign, federal, state and local taxes, impositions, liens, levies, assessments and similar charges due and owing as a result of the Exchange, the Shareholders shall be solely responsible therefor. 1.4 CLOSING. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Loeb & Loeb LLP, 1000 Wilshire Boulevard, Suite 1800, Los Angeles, California 90017, on the first business day following the satisfaction or waiver of all conditions to the obligations of the parties to consummate the transactions contemplated hereby, or at such other time and date as the parties hereto shall by written instrument designate. Such time and date are herein referred to as the "Closing Date." Notwithstanding the actual date of Closing, the effective date of the transfer of the LHF Shares and the applicable date for proration of liabilities shall be February 25, 1997 (the "Deemed Closing Date"). 1.4.1 All personal property taxes and assessments, real property taxes and utility payments with respect to the Remaining Assets (as defined in Section 8.9), all rental payments under any leases comprising the Remaining Assets, and all other costs and expenses paid by LHF which relate to the operation of LHF's business after the Deemed Closing Date, which will benefit LHF in the operation of its business after the Deemed Closing Date, shall be prorated as of 12:01 a.m. on the Deemed Closing Date on the basis of the number of days of the relevant tax year or period which have elapsed through the Deemed Closing Date, with the Shareholders being responsible for that portion arising prior to the Deemed Closing Date (the "Shareholders Portion") and LHF being responsible for that portion arising subsequent thereto. In addition, the Shareholders shall be credited in full for all security and other deposits paid by LHF to 2 lessors under any leases comprising the Remaining Assets, which credit shall apply against the Shareholders Portion. All such security and other deposits are set forth in SCHEDULE 1.4.1. 1.5 DELIVERY BY THE SHAREHOLDERS AT CLOSING. On the Closing Date, the Shareholders shall deliver to Olympic all certificates representing the LHF Shares duly endorsed or accompanied by a stock power duly executed in form for transfer, which LHF Shares shall be duly authorized, fully paid and non-assessable. 1.6 DELIVERY BY OLYMPIC AT CLOSING. On the Closing Date, Olympic shall, or shall cause its transfer agent, if any, to issue the Olympic Shares in the names of each of the Shareholders and to deliver to each of them a stock certificate dated as of the Closing Date representing the number of Olympic Shares to which such Shareholder is entitled to receive, as set forth on Schedule 1.1. 1.7 LEGEND. The following legend shall be placed on certificates for the Olympic Shares delivered to the Shareholders: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO OLYMPIC CASCADE FINANCIAL CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED." Each of the Shareholders further consents to Olympic instructing its transfer agent to place a "stop transfer" instruction on its transfer books as to all certificates representing the Olympic Shares until such times as instructions may be legally removed. ARTICLE II REPRESENTATIONS OF LHF LHF hereby represents and warrants to Olympic that: 2.1 LHF STOCK. The LHF Shares constitute one hundred percent (100%) of the issued and outstanding shares of stock of all classes of LHF. The LHF Shares are duly authorized, fully paid and nonassessable. 3 2.2 EXISTENCE AND GOOD STANDING. LHF is a corporation duly organized, validly existing and in good standing under laws of the State of California. LHF has the full corporate power and authority to own its property and to carry on its business all as and in the places where such properties are now owned or operated or such business is now being conducted. Except as set forth on Schedule 2.2, (i) LHF has not qualified to do business as a foreign corporation in any jurisdiction, and (ii) neither the character nor location of the properties owned or leased by LHF, nor the nature of the business conducted by LHF, requires such qualification in any jurisdiction other than in those set forth on Schedule 2.2 and other than such jurisdictions where the failure to so qualify would not have a material adverse effect on the assets, liabilities, business, condition (financial or otherwise), or the results of operation of Olympic. LHF is in good standing in each jurisdiction in which it is qualified to do business as a foreign corporation as set forth on Schedule 2.2. 2.3 CAPITAL STOCK. The authorized capital stock of LHF consists of 100,000 shares of common stock, no par value, of which 18,250 shares are issued and outstanding. All outstanding shares have been duly authorized and validly issued and are fully paid and non-assessable. No other class of capital stock of LHF is authorized or outstanding. Except as set forth on Schedule 2.3, there are no outstanding options, warrants, rights, calls, commitments, conversion rights, rights of exchange, plans or other agreements of any character providing for the purchase, issuance or sale of any shares of the capital stock of LHF. 2.4 SUBSIDIARIES, AFFILIATES AND INVESTMENTS. Except as set forth in Schedule 2.4, LHF does not own any capital stock or other equity or ownership or proprietary interest in any corporation, partnership, association, trust, joint venture or other entity. 2.5 FINANCIAL STATEMENTS AND NO MATERIAL CHANGES. 2.5.1 LHF has heretofore furnished to Olympic true and correct copies of a draft of the audited statement of financial condition of LHF as at December 31, 1996 (the "Balance Sheet") and the related statements of income, changes in shareholders' equity, changes in liabilities subordinated to the claims of general creditors, and cash flows for the year ended December 31, 1996 (the "Financial Statements"). 2.5.2 The Balance Sheet fairly presents the financial condition of LHF at the date thereof and, the Financial Statements fairly present the results of operations of LHF and cash flows for the period indicated. 2.5.3 Since December 31, 1996 (the "Balance Sheet Date"), there has been no material adverse change in the assets, liabilities, business, condition (financial 4 or otherwise), or the results of operations of LHF, except as contemplated by this Agreement. 2.5.4 The Balance Sheet and the Financial Statements (including the notes thereto) have been prepared in accordance with generally accepted accounting principles, applied on a consistent basis throughout the period covered thereby and are consistent with the books and records of LHF. 2.6 BOOKS AND RECORDS. All accounts, books, ledgers and official and other records material to the business of LHF have been properly and accurately kept and completed in all material respects, and there are no material inaccuracies or discrepancies of any kind contained or reflected therein. True and complete copies of the charter documents and bylaws of LHF, and all amendments thereto, have been delivered to Olympic. 2.7 TITLE TO PROPERTIES: ENCUMBRANCES. Except as set forth in Schedule 2.7, LHF has good and marketable title to (a) all of the material Remaining Assets (as defined in Section 8.9), (b) all the material Remaining Assets purchased by LHF since the Balance Sheet Date (except in each case for Remaining Assets reflected in the Balance Sheet or acquired since the Balance Sheet Date that have been sold or otherwise disposed of in the ordinary course of business); in each case subject to no encumbrance, lien, charge or other restriction of any kind or character, except for liens reflected in the Balance Sheet. 2.8 LEASES. SCHEDULE 2.8 contains an accurate and complete list of all real property leases and all equipment leases to which LHF is a party (as lessee or lessor). Each lease set forth in SCHEDULE 2.8 (or required to be set forth on SCHEDULE 2.8) is in full force and effect; all rents and additional rents due to date on each such lease have been paid; in each case, the lessee is in peaceable possession of the lease and is not in default thereunder, and no waiver, indulgence or postponement of the lessee' s obligations thereunder has been granted by the lessor; and, except as set forth in Schedule 2.8, there exists no default or event of default by LHF or to the knowledge of LHF, by any other party to such lease. No consent of any party to such leases is required to consummate the Exchange. 2.9 CONTRACTS. Except as set forth in SCHEDULE 2.9, LHF is not party to or bound by (a) any agreement, contract or commitment relating to any bonus, deferred compensation, pension, profit sharing, stock option, employee stock purchase, retirement or other employee benefit plan, (b) any agreement, indenture or other instrument which contains restrictions with respect to payment of dividends or any other distribution in respect of its capital stock, (c) any agreement, contract or commitment relating to capital expenditures, (d) any loan or advance to, or investment in, any other Person (as defined in Section 10.3) or any agreement, contract or 5 commitment relating to the making of any such loan advance or investment, (e) any guarantee or other contingent liability in respect of any indebtedness or obligation of any other Person (other than the endorsement of negotiable instruments for collection in the ordinary course of business), (f) any management service, employment, consulting or any other similar type of contract, (g) any agreement, contract or commitment which involves Fifty Thousand Dollars ($50,000) or more and is not cancelable without penalty within thirty (30) days, (h) any agreement with any officer or director of LHF, or (i) any contract with any Shareholder. Except as set forth in SCHEDULE 2.9, each contract or agreement set forth on SCHEDULE 2.9 is in full force and effect, and there exists no material default or event of default by LHF or to the knowledge of LHF, by any other party. Notwithstanding anything herein to the contrary, the parties acknowledge and agree that SCHEDULE 2.9 does not contain a list of existing agreements with clients, it being understood that such list will be delivered at Closing. 2.10 VALID AGREEMENTS: NO CONFLICTS. LHF has full authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly and validly authorized, executed and delivered by LHF and constitutes a valid and binding agreement of LHF, enforceable against LHF in accordance with its terms except as the enforcement thereof may be limited by bankruptcy, reorganization, moratorium, insolvency and other laws of general applicability relating to or affecting creditors' rights or general principles of equity. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby will not violate, conflict with or result in the breach of (i) any provision of the articles of incorporation or bylaws of LHF; (ii) subject to obtaining necessary consents specified in Schedule 2.20, any of the terms of, or constitute a default under any material obligation, contract, agreement, or other instrument to which LHF is a party or by which LHF or any of its assets or properties is bound or subject; (iii) any order, writ, judgment, injunction, award or decree of any court, arbitrator or governmental or regulatory body against, or binding upon, LHF or upon the assets of LHF; or (iv) any statute, law or regulation to which LHF or any of its assets is subject. 2.11 LITIGATION. Except as set forth in SCHEDULE 2.11, there is no action, suit, proceeding at law or in equity by any Person, or any arbitration or any administrative or other proceeding by or before any governmental or other instrumentality or agency, pending or, to the knowledge of LHF, threatened, against or affecting LHF, or its officers, directors, employees, registered representatives or registered principals, or any of its properties or rights, which, if adversely determined would have a material adverse effect on the assets, liabilities, business, condition (financial or otherwise), or the results of operations of LHF. LHF is not subject to any judgment, order or decree entered in any lawsuit or proceeding. 6 2.12 TAXES PAYABLE BY LHF. LHF and the Shareholders have elected for LHF as of December 29, 1987, to be treated as an S corporation under Section 1361(a) of the Code and under California Revenue and Taxation Code Section 17087.5. LHF has filed, or caused to be filed, in the manner prescribed by law, all federal, state, local and foreign returns, reports, declarations, claims for refunds, or information returns or statements relating to Taxes (as defined below), including any schedule or attachment thereto, and any amendment thereof ("Tax Returns") which are required to be filed by, or with respect to, LHF. Such Tax Returns reflect accurately taxable income and all liability for Taxes of LHF for the periods covered thereby. LHF has paid all federal, state, local and foreign income, profits, franchise, sales, use, occupancy, excise, payroll, accumulated earnings, gross receipts, license, employment, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Section 59A of the Code), customs duties, capital stock, withholding, social security (or similar), unemployment, disability, personal property, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax or assessment of any kind whatsoever, including any interest, penalty, or addition thereto, other than those which are being disputed in good faith ("Taxes") that have become due and payable. No examination of any return of LHF by any taxing authority is currently in progress and LHF has not received notice of any proposed audit, proceeding, investigation or examination. There are no outstanding agreements or waivers extending the statutory period of limitation applicable to any Tax Return of LHF. No claim has ever been made by an authority in a jurisdiction where LHF does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no liens, encumbrances or other security interests on any of the assets of LHF that arose in connection with any failure (or alleged failure) to pay any Taxes. LHF has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, shareholder or other third party. LHF has filed on a timely basis a Form 1099 for each of the four individuals set forth on SCHEDULE 2.12 classified by LHF as an independent contractor for the period in which such individual performed Devices for LHF. LHF has not filed a consent under Section 341(f) of the Code (or any corresponding provision of state, local or foreign tax law) concerning collapsible corporations. LHF has not made any payments, is not obligated to make any payments, or is not party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Section 280G of the Code. LHF has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(A)(ii) of the Code. LHF has disclosed on each of its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Section 6662 of the Code. LHF (A) has not been a member of an affiliated group filing a consolidated federal income Tax Return (other than a group the common parent of which was LHF) or (B) does not have any liability for the Taxes of any person (other than LHF) under Treas. Reg. Section 1.1502-6 (or any 7 similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. 2.13 LIABILITIES. Except as set forth on SCHEDULE 2.13, LHF has no outstanding claims, liabilities or indebtedness, contingent or otherwise, except as set forth in the Balance Sheet, other than (i) liabilities incurred subsequent to the Balance Sheet Date in the ordinary course of business not involving borrowing by LHF and which ate consistent with past practice and, individually or in the aggregate, are not material to the business, operations, properties, or condition (financial or otherwise) of LHF, (ii) liabilities set forth on any schedule hereto or which are not required to be set forth on any schedule hereto because such liabilities are specifically excluded from disclosure on the schedules provided for by the provisions of this Agreement, or (iii) any other liabilities provided for in this Agreement. SCHEDULE 2.13 sets forth a list of all current arrangements of LHF for borrowed money and all outstanding balances as of the date hereof with respect thereto. LHF is not in default in respect of the terms or conditions of any indebtedness. 2.14 INSURANCE. SCHEDULE 2.14 is a schedule of all insurance policies (including life insurance) or binders maintained by LHF. All such policies are in full force and effect and are such amounts, and insure against such losses and risks, as are generally maintained by comparable businesses and all premiums that have become due have been currently paid. None of such policies or binders shall lapse or terminate by reason of the transactions contemplated hereby. LHF has received no notice of cancellation or nonrenewal of any such policy or binder. 2.15 INTELLECTUAL PROPERTIES. SCHEDULE 2.15 contains an accurate and complete list of all trade names, trademarks, copyrights, service marks, trademark registrations and applications (including those which are pending), service mark registrations and applications, copyright registrations and applications (whether pending or abandoned), owned or used by LHF in the operation of its business (collectively, the "Intellectual Property") . No claim of infringement or misappropriation of intellectual property has been made against LHF and to the knowledge of LHF, LHF is not infringing or misappropriating any Intellectual Property. 2.16 COMPLIANCE WITH LAWS. LHF is in compliance in all material respects with all applicable laws, regulations, orders, judgments and decrees ("Requirements of Law"). LHF (i) has not been charged with, (ii) is not under any investigation with respect to, and (iii) has not been threatened with, any charge concerning any violation of any Requirements of Law. Without limiting the generality of the foregoing, except as set forth on Schedule 2.16, there is no investigation of, complaint against or inquiry regarding LHF pending before the National Association of Securities Dealers. 8 2.17 LICENSES. LHF has all licenses and permits and other governmental certificates, authorizations and approvals (collectively, "Licenses") required by any governmental or regulatory body for the operation of its business and the use of its properties as presently operated or used, except where the failure to have such Licenses would not have a material adverse effect on the assets, liabilities, business, condition (financial or otherwise), or the results of operations of LHF. All of the Licenses are in full force and effect and no action or claim is pending, nor to the knowledge of LHF, is threatened, to revoke or terminate any of the Licenses. 2.18 ERISA. 2.18.1 The name of each plan, program, arrangement, agreement or commitment sponsored or maintained by or on behalf of LHF or any ERISA Affiliate (as defined below) or to which LHF or any ERISA Affiliate makes or is obligated to make contributions or to which LHF or any ERISA Affiliate made or %,as obligated to make contributions during the five (5) year period ending on the date hereof, which is a pension, profit sharing, savings, thrift or other retirement plan, deferred compensation, stock purchase, stock option, performance share, bonus or other incentive plan, severance pay plan, policy or procedure, life, health, disability or accident insurance plan, (including, without limitation, each "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or vacation or other employee benefit plan, program, arrangement, agreement or commitment, whether or not written) (all of the foregoing being hereinafter referred to individually as a "Plan" and collectively as the "Plans") is set forth on SCHEDULE 2.18 hereto. LHF has substantially complied with all of the provisions of each Plan and all applicable provisions of ERISA and the Code, has administered each such Plan (including the payment of benefits thereunder) in all material respects in accordance with the provisions of each such Plan and all applicable provisions of ERISA and the Code, and no penalties under ERISA or any other applicable law or regulation are and at the Deemed Closing Date will be owed to any Plan participant and/or beneficiary and/or any governmental body with respect to the failure to file any reports or other information required under EIUSA or any other applicable law or regulation or to distribute or make available any such reports or other information. LHF has and at the Deemed Closing Date will have timely made all required contributions to each such Plan. 2.18.2 No such Plan is a "defined benefit plan' within the meaning of Section 3(35) of ERISA nor a "multi-employer plan' within the meaning of Section 3(37) of ERISA. 2.18.3 As of the date hereof and as of the Deemed Closing Date, LHF is entitled to cease its participation in each Plan referred to in this Section 2.18 and 9 each such Plan, by its provisions, permits LHF to amend to terminate, in whole or in part, such Plan without default, penalty, premium or any additional cost to LHF. 2.18.4 The transactions contemplated by this Agreement will not result in any payment or series of payments by Olympic or LHF of a "parachute payment" within the meaning of Section 280G of the Code. 2.18.5 With respect to each Plan maintained or sponsored by LHF which is an "employee welfare benefit plan" within the meaning of Section 3(1) of ERISA (a "Welfare Plan"): (i) the applicable requirements of Part III of Subchapter 8B of Chapter I of the Code are satisfied if benefits under such Welfare Plan are intended to qualify for tax-favored treatment; (ii) there is no disqualified benefit which would subject Olympic to tax under Section 4976(a) of the Code; and (iii) each such Welfare Plan which is a group health plan within the meaning of Section 4980B of the Code is and has at all times been in compliance in all material respects with the applicable requirements of Sections 601 through 608 of ERISA, and LHF is not now and has never been liable for any tax under Section 4980B of the Code. 2.18.6 None of the Plans is and, at the Deemed Closing Date, none will be under investigation or audit by either the United States Department of Labor or the Internal Revenue Service. 2.18.7 None of the Plans provides benefits including, without limitation, death or medical benefits (whether or not insured) with respect to any current or former employee of LHF beyond their retirement or other termination of service other than (i) coverage mandated by applicable law, (ii) disability benefits under any "employee welfare benefit plan" (as defined in Section 3(l) of ERISA) that have been fully provided for by insurance or otherwise, (iii) deferred compensation benefits accrued as liabilities on the books of LHF or (iv) benefits in the nature of severance pay. 2.18.8 For purposes of this Section 2.18, the term "ERISA Affiliate" shall mean all members of a controlled group of corporations and all trades and businesses (whether or not incorporated) under common control and all other entities which, together with LHF are treated as a single employer under any or all of Sections 414(b), (c), (m), (n) or (o) of the Code at any time during the period of five (5) years ending on the Deemed Closing Date. 2.19 NO CHANGES SINCE THE BALANCE SHEET DATE. Since the Balance Sheet Date (a) except as specifically stated on SCHEDULE 2.19 or contemplated by this Agreement, LHF has not (i) incurred any liability or obligation of any nature (whether accrued, absolute, contingent or otherwise), except in the ordinary course of business, (ii) permitted any of the material Remaining Assets to be subjected to any mortgage, 10 pledge, lien, security interest, encumbrance, restriction or charge of any kind, (iii) sold, transferred or otherwise disposed of any of the Remaining Assets except in the ordinary course of business, (iv) made any commitment for any capital expenditure, except in the ordinary course of business, (v) written down the value of any work in process except write-downs in the ordinary course of business, none of which, individually or in the aggregate, is material to LHF, (vi) except as set forth in the Employment Agreements (as defined in Section 6.4), granted any increase in the rate of wages, salaries, bonuses or other remuneration of any employee who after giving effect to such increase or prior thereto receives compensation at an annual rate of Fifty Thousand Dollars ($50,000) or more, (vii) made any change in any method of accounting or auditing practice, (viii) otherwise conducted its business or entered into any transaction, except in the usual and ordinary manner and in the ordinary course of its business, (ix) amended or terminated any agreement which is material to the business of LHF, (x) renewed, extended or modified any lease of real property, or except in the ordinary course of business, any lease of personal property, or (xi) agreed, whether or not in writing, to do any of the foregoing, and (b) there has been no material adverse change in the assets, liabilities, business, condition (financial or otherwise), or the results of operations of LHF. 2.20 REQUIRED APPROVALS, NOTICES AND CONSENTS. Except as set forth on SCHEDULE 2.20, no consent or approval of, other action by, or notice to, any governmental body or agency, domestic or foreign, or any third party to a material contract to which LHF is a party is required in connection with the execution and delivery by the Shareholders and LHF of this Agreement or the consummation by the Shareholders and LHF of the transactions contemplated hereby. 2.21 BROKER-DEALER REGISTRATION. LHF is a Broker-Dealer having duly registered with the SEC pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the "1934 Act"). Attached hereto as SCHEDULE 2.21 is a full and complete copy of LHF's Broker-Dealer application as amended through December 31, 1996. Neither the application for registration nor any amendment thereto contains any' untrue statement of a material fact or omits any statement of a material fact required to be stated or necessary in order to make statements contained therein not misleading. 2.22 NO THREATENED SEC PROCEEDINGS. LHF's registration as a Broker-Dealer is in good standing and, there is not currently pending or to the knowledge of the shareholders, threatened any inquiry, investigation, administrative proceeding, or civil action undertaken or initiated by the SEC concerning LHF or its officers, directors, or registered representatives. 2.23 NET CAPITAL. LHF is not in violation of the applicable net capital provisions of the 1934 Act and the general rules and regulations thereunder. 11 2.24 NASD MEMBERSHIP. LHF is a member in good standing with the NASD and there has not been for the most recent three years, nor is there currently pending or to the knowledge of LHF, threatened, any inquiry investigation or disciplinary proceeding undertaken by the NASD concerning LHF or any of its officers, directors, registered principals, or registered representatives, except as set forth on SCHEDULE 2.16. 2.25 FEES AND ASSESSMENTS. As of December 31, 1996 there are no, and as of the Deemed Closing Date, there shall not be, any fees or assessments owed to the NASD or the Security Investors Protection Corporation ("SIPC") for which bills have been received by LHF. 2.26 NASD RESTRICTIONS. There are no special restrictions or limitations imposed by the NASD relating to the conduct by LHF of the business of a Broker-Dealer which have a material adverse effect on the business or operations of LHF as currently conducted. 2.27 CRD REGISTRATION. LHF is registered with the Central Registration Depository under CRD Number 14152. 2.28 STATE BROKER-DEALER REGISTRATIONS. LHF is registered as a Broker-Dealer in the states and jurisdictions enumerated in SCHEDULE 2.28, and all of such registrations are current, and LHF is in good standing as a registered Broker-Dealer in each such state or jurisdiction. As of the Deemed Closing Date, no renewal or registration fee for which bills have been received will be due or owing to any state. Also set forth in SCHEDULE 2.28 are all states and jurisdictions in which applications for registration of LHF as a Broker-Dealer are currently pending. 2.29 NO STATE INQUIRIES. LHF's state Broker-Dealer registrations are in good standing and for the most recent three year period, there has not been, nor is there currently pending, or to LHF's knowledge, threatened, any inquiry, investigation, administrative proceeding, or civil action undertaken or initiated by such state or jurisdictions concerning LHF or its officers, directors, registered principals or registered representatives. 2.30 STATE NET CAPITAL COMPLIANCE. LHF is not in violation of the net capital provisions required to be maintained by each state or jurisdiction in which LHF is registered as a Broker-Dealer. 2.31 REGISTERED REPRESENTATIVES. Attached hereto as SCHEDULE 2.31 is a list of all registered representatives of LHF and each state or jurisdiction in which each individual is registered. 12 2.32 BROKERS BOND. LHF currently has in effect a blanket Broker-Dealer fidelity bond as summarized in SCHEDULE 2.32. 2.33 SIPC REGISTRATION. LHF is duly registered with SIPC. LHF has paid or has made adequate provision for the payment of all SIPC assessments as of December 31, 1996. 2.34 CLEARING AGREEMENT. LHF presently has a clearing agreement, as amended and to be effective on and after the Closing, with Bear, Steams & Co. Inc. ("Bear Stearns"), a true copy of which has been provided to Olympic. As of December 31, 1996, there was, and as of the Deemed Closing Date there will be, no amount due and owing to Bear Steams, nor was there as of December 31, 1996, nor will there be as of the Deemed Closing Date, any unsecured debts of customers for which LHF may be or become responsible. 2.35 DISCLOSURE. 2.35.1 None of this Agreement, the Financial Statements, the Balance Sheet, or any schedule hereto, or any certificate, document or statement in writing to be delivered as required under this Agreement by or on behalf of cLHF or the Shareholders, contains, or will contain, any untrue statement of a material fact, or omits, or will omit, any statement of a material fact required to be stated or necessary' in order to make statements contained herein or therein not misleading. 2.35.2 Notwithstanding specific cross references in the schedules hereto (each a "Schedule") , any disclosure under any Schedule shall be deemed to be a disclosure applicable to all representations and warranties of LHF and the Shareholders under this Agreement and under all other Schedules. To the extent that the Schedules contain exceptions to the representations and warranties set forth in Article II and III of this Agreement, the inclusion of an item in any Schedule shall not be deemed an admission by LHF or any Shareholder that such item is material to LHF or such Shareholder or that it will have a material adverse effect on the assets, liabilities, business, condition (financial or otherwise), or the results of operations of LHF. 2.36 REPRESENTATIONS TRUE AT CLOSING. All representations by LHF in this Article II or in any document delivered pursuant hereto in connection with the transactions contemplated hereby shall be true and accurate in all material respects as of the date when made and shall be deemed to be made again at the Closing as of the Closing Date and shall then be true and accurate in all material respects, except as affected by the transactions contemplated by this Agreement. 13 ARTICLE III INDIVIDUAL REPRESENTATIONS OF THE SHAREHOLDERS Each Shareholder hereby represents and warrants, individually on such Shareholder's own behalf, to Olympic that: 3.1 OWNERSHIP OF STOCK. The Shareholder is the record and beneficial owner of the LHF Shares specified in SCHEDULE 3.1 hereto, free and clear of all liens, encumbrances, restrictions and claims of every kind; the Shareholder has full legal right, power and authority to enter into this Agreement and has full legal right, power and authority to transfer and convey such Shareholder's LHF Shares pursuant to this Agreement; the delivery to Olympic of the LHF Shares pursuant to this Agreement will transfer to Olympic such Shareholder's valid title thereto, free and clear of all liens, encumbrances, restrictions and claims of every kind. 3.2 VALID AGREEMENTS; NO CONFLICTS. The Shareholder has full legal right and capacity to execute and deliver this Agreement and to perform such Shareholder's obligations hereunder. This Agreement has been duly executed and delivered by Shareholder and constitutes the valid and binding obligation of the Shareholder, enforceable against the Shareholder in accordance with its terms except as the enforcement thereof may be limited by bankruptcy, reorganization, moratorium, insolvency and other laws of general applicability relating to or affecting creditors' rights or general principles of equity. The execution, delivery and performance of this Agreement by the Shareholder and the consummation of the transactions contemplated hereby by such Shareholder will not (i) violate any order, writ, judgment, injunction, award or decree of any court, arbitrator or governmental or regulatory body against, or binding upon the Shareholder or upon the assets of the Shareholder; or (ii) violate any statute, law or regulation to which such Shareholder or such Shareholder's assets is subject. 3.3 INVESTMENT INTENT. The Olympic Shares being acquired by the Shareholder hereunder are being acquired for such Shareholder's own account and not with a view to, or for resale in connection with, any distribution other than resales made in compliance with the registration and prospectus delivery requirements of Securities Act of 1933, as amended (the "Act"). The Shareholder understands that the Olympic Shares have not been registered under the Act by reason of available exemptions from the registration and prospectus delivery requirements of the Act that such Olympic Shares must be held indefinitely unless such Olympic Shares are registered under the Act or until any transfer is exempt from registration, and that reliance of Olympic upon these exemptions is predicated in part upon these representations and warranties by the Shareholder. 14 3.4 QUALIFICATION AS AN INVESTOR. 3.4.1 The Shareholder hereby represents and warrants that such Shareholder has. the requisite knowledge and experience in financial and business matters to assess the relative merits and risks of investment in the Olympic Shares. 3.4.2 The Shareholder has received certain information concerning Olympic and has had the opportunity to obtain additional information as desired in order to evaluate the merits and risks of holding the Olympic Shares, and is able to bear the economic risk and lack of liquidity inherent in holding the Olympic Shares. Furthermore, the Shareholder has had the full opportunity to discuss with Olympic all material aspects of an investment in the Olympic Shares, including the opportunity to ask, and to receive answers to such Shareholder's full satisfaction, regarding such questions as such Shareholder has deemed necessary to evaluate such Shareholder's opportunity to invest. 3.4.3 The Shareholder has had full opportunity to seek advice of' independent counsel respecting this investment and the tax risks and implications of the Exchange and all transactions consummated in connection therewith. ARTICLE IV REPRESENTATIONS OF OLYMPIC Olympic hereby represents and warrants to LHF and the Shareholders that: 4.1 EXISTENCE AND GOOD STANDING. Olympic is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Olympic has the full corporate power and authority to own its property and to carry on its business all as and in the places where such properties are now owned or operated or such business is now being conducted. Except in those states in which Olympic is qualified to do business as a foreign corporation, Olympic has not otherwise qualified to do business as a foreign corporation, and neither the character nor location of the properties owned or leased by Olympic, nor the nature of the business conducted by Olympic, requires such additional qualification in any jurisdiction except for such jurisdictions where the failure to so qualify would not have a material adverse effect on the assets, liabilities, business, condition (financial or otherwise), or the results of operation of Olympic. Olympic is in good standing in each jurisdiction in which it is qualified to do business as a foreign corporation. 4.2 OLYMPIC SHARES. The Olympic Shares when delivered to the Shareholders will have been duly authorized and validly issued and be fully paid and non-assessable. 15 4.3 VALID AGREEMENT; NO CONFLICTS. Olympic has full authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly and validly authorized, executed and delivered by Olympic and constitutes a valid and binding agreement of Olympic, enforceable against Olympic in accordance with its terms except as the enforcement hereof may be limited by bankruptcy, reorganization, moratorium, insolvency and other laws of general applicability relating to or affecting creditors' rights or general principles of equity. Execution, delivery and performance of this Agreement and consummation of the transactions contemplated hereby will not violate, conflict with or result in the breach of any of the terms of, or constitute a default under (i) the Certificate of Incorporation or the Bylaws of Olympic, (ii) any material obligation, contract, agreement, or other instrument to which Olympic is a party or by or to which Olympic or its assets may be bound or subject; (iii) any order, writ, judgment, injunction, award or decree of any court, arbitrator or governmental or regulatory body against, or binding upon, Olympic or its assets; or (iv) any statute, law or regulation to which Olympic or any of its assets is subject. 4.4 CONSENTS AND APPROVALS OF GOVERNMENTAL AUTHORITIES. No consent, approval or authorization of, or declaration or registration with, any governmental or regulatory authority is required in connection with the execution and delivery of this Agreement by Olympic or the consummation by Olympic of the transactions contemplated hereby. 4.5 LITIGATION. Except as set forth in SCHEDULE 4.5, there is no action, suit, proceeding at law or in equity by any Person, or any arbitration or administrative or other proceeding by or before any governmental or other instrumentality or agency (including, without limitation, the National Association of Securities Dealers), pending or, to the knowledge of Olympic, threatened against or affecting Olympic or any of its properties or rights, which, if adversely determined would have a material adverse effect on the assets, liabilities, business, condition (financial or otherwise), or the results of operations of Olympic. Olympic is not subject to any judgment order or decree entered in any lawsuit or proceeding. 4.6 CAPITALIZATION. The authorized capital of Olympic consists of 10,000,000 shares of Olympic Common Stock, of which 876,051 shares are issued and outstanding as of the date of this Agreement and 2,000,000 shares of preferred stock, none of which are outstanding as of the date of this Agreement. All of the outstanding shares of Olympic Common Stock have been duly authorized and validly issued and are fully paid and non-assessable. Except as set forth in SCHEDULE 4.6, there are no outstanding options, warrants, fights, calls, commitments, conversion rights, rights of exchange, plans or other agreements of any character providing for the purchase, issuance or sale of any shares of the capital stock of Olympic. 16 4.7 FINANCIAL STATEMENTS. Olympic has or will deliver to the Shareholders copies of the audited balance sheets of National Securities (the predecessor to Olympic) as of September 29, 1995 and as of September 27, 1996 and the related statements of income, changes in shareholders' equity and cash flows for the years then ended, and the unaudited balance sheet of National Securities as at December 31, 1996 and the related statements of income, changes in shareholders' equity and cash flows for the three-month period then ended (collectively, the "Olympic Financials"). The Olympic Financials were prepared in accordance with generally accepted accounting principles consistently applied and fairly present the financial position of Olympic as of the dates thereof and the results of operations and changes in financial position of Olympic as of the dates thereof and the results of operations and changes in financial position for the periods then ended. Since December 31, 1996, there has not been any material adverse change in the assets, liabilities, business, condition (financial or otherwise), or the results of operations of Olympic. 4.8 CONTRACTS. Every contract that is material to the business of Olympic, taken as a whole, is in full force and effect, and there exists no material default or any event of default by Olympic or to the knowledge of Olympic, by any other party. 4.9 COMPLIANCE WITH LAWS. Olympic is in compliance in all material respects with all Requirements of Law. Olympic (i) has not been charged with, (ii) is not under any investigation with respect to, and (iii) has not been threatened with, any charge concerning any violation of any Requirements of Law. Without limiting the generality of the foregoing, there is no investigation of, complaint against or inquiry regarding Olympic pending before the National Association of Securities Dealers. 4.10 SEC MATTERS. The Olympic Common Stock has been registered pursuant to Section 12(g) of the Securities Exchange Act of 1934. Since January 1, 1995, Olympic and National Securities have timely filed and, as required by Section 13 of the Securities Exchange Act of 1934, will continue to timely file, all the required forms, reports and other documents with the Securities and Exchange Commission ("SEC"). As of the date hereof, and at the Closing Date, all reports, forms and other documents so filed (including, without limitation, Olympic's Registration Statement on Form S-4, SEC File No. 333-12907, declared effected by the SEC on February 3, 1997) complied in all material respects with all of the statutes, rules and regulations enforced or promulgated by the SEC, and do not, and will not, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 17 4.11 BROKER-DEALER REGISTRATION. National Securities is a Broker-Dealer having duly registered with the SEC pursuant to Section 15 of the 1934 Act. 4.12 NO THREATENED SEC PROCEEDINGS. National Securities' registration as a Broker-Dealer is in good standing and, there is not currently pending or to the knowledge of Olympic, threatened any inquiry, investigation, administrative proceeding, or civil action undertaken or initiated by the SEC concerning National Securities or its officers, directors, or registered representatives. 4.13 NET CAPITAL. National Securities is not in violation of the applicable net capital provisions of the 1934 Act and the general rules and regulations thereunder. 4.14 NASD MEMBERSHIP. National Securities is a member in good standing with the NASD and there has not been for the most recent three years, nor is there currently pending or to the knowledge of Olympic, threatened, any material inquiry investigation or disciplinary proceeding undertaken by the NASD concerning National Securities or any of its officers, directors, registered principals, or registered representatives. 4.15 NASD RESTRICTIONS. There are no special restrictions or limitations imposed by the NASD relating to the conduct by National Securities of the business of a Broker-Dealer which have a material adverse effect on the business or operations of' National Securities as currently conducted. 4.16 STATE BROKER-DEALER REG2ISTRATIONS. National Securities is registered as a Broker-Dealer in all the states and jurisdictions in which the nature of the business conducted by National Securities requires such registration, all of such registrations are current, and National Securities is in good standing as a registered Broker-Dealer in each such state or jurisdiction. 4.17 NO STATE INQUIRIES. National Securities' state Broker-Dealer registrations are in good standing and for the most recent three year period, there has not been, nor is there currently pending, or to Olympic's knowledge, threatened, any inquiry, investigation, administrative proceeding, or civil action undertaken or initiated by such state or jurisdictions concerning National Securities or its officers, directors, registered principals or registered representatives. 4.18 STATE NET CAPITAL COMPLIANCE. National Securities is not in violation of the net capital provisions required to be maintained by each state or jurisdiction in which National Securities is registered as a Broker-Dealer. 4.19 SIPC REGISTRATION. National Securities is duly registered with SIPC. 18 4.20 DISCLOSURE 4.20.1 None of this Agreement, the Olympic Financials, or any schedule hereto, or any certificate, document or statement in writing to be delivered as required under this Agreement by or on behalf of Olympic, contains, or will contain, any untrue statement of a material fact, or omits, or will omit, any statement of a material fact required to be stated or necessary in order to make statements contained herein or therein not misleading. 4.20.2 Notwithstanding specific cross references in the Schedules, any disclosure under any Schedule shall be deemed to be a disclosure applicable to all representations and warranties of Olympic under this Agreement and under all other Schedules. To the extent that the Schedules contain exceptions to the representations and warranties set forth in Article IV of this Agreement, the inclusion of an item in any Schedule shall not be deemed an admission by Olympic that such item is material to Olympic or that it will have a material adverse effect on the assets, liabilities, . business, condition (financial or otherwise), or the results of operations of Olympic. 4.21 REPRESENTATIONS TRUE AT CLOSING. All representations by Olympic in this Article IV or in any document delivered pursuant hereto in connection with the transactions contemplated hereby shall be true and accurate in all material respects as of the date when made and shall be deemed to be made again at the Closing and shall then be true and accurate in all material respects except as affected by the transactions contemplated by this Agreement. ARTICLE V CONDUCT OF BUSINESS; REVIEW 5.1 CONDUCT OF BUSINESS OF LHF. From the date hereof through the Closing, each of Olympic and LHF shall (i) conduct its business in the ordinary course and in such a manner so that the representations and warranties contained herein shall continue to be true and correct as of the Closing as if made at and as of the Closing and (ii) not enter into any transaction or incur any liability except in the ordinary course of business. 5.2 REVIEW OF LHF. Prior to the Closing, Olympic shall be entitled, through its employees and representatives, to make such investigations and examination of the books, records and financial condition of LHF as Olympic may request. LHF shall furnish Olympic and its representatives during such period with all such information concerning the affairs of LHF as Olympic or its representatives may request and cause LHF's officers, employees, consultants, agents, accountants and attorneys to cooperate fully with Olympic or its representatives in connection with 19 such review and examination. Any such investigations and examinations shall be conducted at reasonable times and under reasonable circumstances. 5.3 REVIEW OF OLYMPIC. Prior to the Closing, LHF shall be entitled, through its employees and representatives, to make such investigations and examination of the books, records and financial condition of Olympic as LHF may request. Olympic shall furnish LHF and its representatives during such period with all such information concerning the affairs of Olympic as LHF or its representatives may request and cause Olympic's officers, employees, consultants, agents, accountants and attorneys to cooperate fully with LHF or its representatives in connection with such review and examination. Any such investigations and examinations shall be conducted at reasonable times and under reasonable circumstances. 5.4 COOPERATION: CONSENTS. Prior to the Closing Date, each party shall cooperate with the other party to the end that the parties shall (i) in a timely manner make all necessary filings with, and conduct negotiations with, all governmental ' authorities and other Persons the consent or approval of which, or a license or permit from which, is required for the consummation of the transactions contemplated by this Agreement and (ii) provide to each other party such information as the other party may reasonably request in order to enable it to prepare such filings and to conduct such negotiations. The parties shall also use their respective best efforts to expedite the review process and to obtain all such necessary consents, approvals, licenses and permits as promptly as practicable. 5.5 LITIGATION. From the date hereof through the Closing, each party hereto shall promptly notify the other parties of any lawsuits, claims, proceedings or investigations which after the date hereof are threatened or commenced against such party or any of its affiliates or any officer, director, employee, consultant, agent or shareholder thereof, in their capacities as such, which, if decided adversely, could reasonably be expected to have a material adverse effect upon the assets, liabilities, business, condition (financial or otherwise), or the results of operations of such party. 5.6 NOTICE OF DEFAULT. From the date hereof through the Closing, each party hereto shall give to the other parties prompt written notice of the occurrence or existence of any event, condition or circumstance occurring which would constitute a violation or breach of this Agreement by such party or which would render inaccurate in any material respect any of the other party's representations or warranties contained herein. 5.7 NO SHOP. LHF agrees that for a period from the date hereof through the earliest of (a) April 30, 1997, (b) the consummation of the transactions contemplated hereby, or (c) the termination of this Agreement pursuant to the terms hereof, LHF will not, directly or indirectly: (i) initiate contact with any person or 20 entity in an effort to solicit any Alternative Proposal (as defined below), (ii) cooperate with, or furnish or cause to be furnished any non-public information concerning the financial condition, results of operations, businesses, properties, assets, liability or future prospects of LHF, to any person or entity in connection with any Alternative Proposal, (iii) negotiate with any Person with respect to any Alternative Proposal, or (iv) enter into any agreement or understanding with the intent to effect an Alternative Proposal. LHF shall immediately give written notice to Olympic of the details of any Alternative Proposal of which it becomes aware. As used herein, "Alternative Proposal" shall mean any proposal, other than as contemplated by this Agreement, for a merger, consolidation, reorganization, other business combination or recapitalization involving LHF or for the acquisition of a substantial portion of its assets other than in the ordinary course of its business, the effect of which may be to prohibit, restrict or delay the consummation of the Exchange or impair the contemplated benefits to Olympic of the Exchange. Olympic agrees to give written notice to LHF of any transaction which is submitted to its stockholders prior to the Closing. 5.8 REGULATORY FILINGS. LHF and Olympic each agree to prepare and file all required documents, submissions, notices, amended applications or similar filings with federal, state, and local regulatory authorities and the NASD to effect and give evidence of the Exchange and to secure the approval of the Exchange and to obtain the necessary state "blue sky" clearances, if any are required with respect to the issuance of the Olympic Shares to the Shareholders. ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO CLOSE The obligation of Olympic, LHF and the Shareholders to consummate the transactions contemplated herein shall be subject to the-fulfillment, at or prior to the Closing, of all of the conditions set forth below in this Article VI. Olympic, on the one hand, and LHF and the Shareholders, on the other hand, may, by written notice, waive any or all of these conditions in whole or in part without prior notice, provided, however, that no such waiver shall constitute a waiver by Olympic or LHF and the Shareholders of any other right or remedy if Olympic or LHF and the Shareholders shall be in default of any of its or their representations, warranties or covenants under this Agreement. 6.1 THIRD PARTY APPROVALS. Any and all permits and approvals from any governmental authority or other Person necessary to permit the consummation of the transactions contemplated herein, including, without limitation, approval of the NASD, shall have been obtained. 21 6.2 INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement in the form attached hereto as Exhibit A (the "Investor Rights Agreement"), shall have been duly executed by Olympic and each of the Shareholders. 6.3 EMPLOYMENT AGREEMENTS. Employment Agreements, in the form of Exhibit B (the "Employment Agreements"), shall have been duly executed by LHF, Olympic and each of the following senior executive officers of LHF: Larry H. Friend, Gregory E. Presson and Carl Frankson, Jr. 6.4 UPDATED FOCUS REPORTS. LHF shall have delivered to Olympic and National Securities shall have delivered to LHF copies of all focus reports filed by it with the SEC. ARTICLE VII CONDITIONS TO OLYMPIC'S OBLIG TIONS The obligation of Olympic to consummate the transactions contemplated herein shall be subject to the fulfillment, at or prior to the Closing, of all of the conditions set forth below in this Article VII. Olympic may, by written notice, waive any or all of these conditions in whole or in part without prior notice, provided, however, that no such waiver shall constitute a waiver by Olympic of any other right or remedy if LHF or the Shareholders shall be in default of any of its or their representations, warranties or covenants under this Agreement 7.1 GOOD STANDING AND TAX CERTIFICATES. LHF or the Shareholders shall have delivered to Olympic: (a) a copy of LHF's Articles of incorporation, including all amendments, certified by the Secretary of State of the State of California; (b) a certificate from the Secretary of State of the State of California and each state in which LRF is qualified as a foreign corporation to do business, to the effect that such corporation is in good standing in such state; and (c) a certificate as to the tax status of LHF in the State of California and each state in which it is qualified as a foreign corporation to do business. 7.2 NO MATERIAL ADVERSE CHANGE. Between the date hereof and the Closing Date, there shall be, except as provided for in this Agreement, no material adverse change in the as-sets, liabilities, business, condition (financial or otherwise), or the results of operations of LHF, and LHF shall have delivered to Olympic a certificate, dated the Closing Date, to such effect. 7.3 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of LHF and the Shareholders contained in this Agreement or in any schedule delivered pursuant hereto shall be true and correct in all material respects on 22 and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date, and LHF and the Shareholders shall have delivered to Olympic a certificate, dated the Closing Date, to such effect. 7.4 PERFORMANCE OF AGREEMENTS. Each and all of the agreements of LHF and the Shareholders to be performed pursuant to the terms hereof on or before the Closing Date shall have been duly performed in all material respects, and LHF and the Shareholders shall have each delivered to Olympic a certificate, dated the Closing Date, to such effect. 7.5 VOTING AGREEMENT. Olympic shall have received a copy of the Voting Agreement (the "Voting Agreement"), in the form of Exhibit C, duly executed by each of the Shareholders. 7.6 OPINION. Olympic shall have received an opinion from Loeb & Loeb LLP, in form and substance satisfactory to Olympic's counsel. 7.7 RESOLUTIONS. Olympic shall have received a copy of the resolutions of the Board of Directors of LHF and the Shareholders approving the transactions contemplated by this Agreement, certified by the Secretary of LHF. 7.8 LIABILITIES. Either (a) the Shareholders shall have assumed all of the liabilities of LHF existing immediately prior to the Deemed Closing Date, other than the Remaining Liabilities (as defined below), jointly, in accordance with their percentage ownership of the LHF Shares, or (b) the Shareholders shall have agreed to indemnify LHF, jointly, in accordance with their percentage ownership of the LHF Shares, for all payments made by LHF after the Closing on account of any liabilities of LHF existing immediately prior to the Closing, other than the Remaining Liabilities. As used herein, "Remaining Liabilities" means the LHF Transaction Costs (as defined in Section 10.1), PLUS all liabilities and obligations relating to and arising from the Remaining Assets (as defined in Section 8.9), from and after the Deemed Closing Date. Without limiting the generality of the foregoing, LHF shall have paid in full all subordinated debt. 7.9 LOAN. Certain of the Shareholders shall have funded a loan (the "Loan") to Olympic in the principal amount of $800,000, which Loan shall have been funded (a) in cash, (b) in the form of marketable securities (the marketability of which shall be determined by mutual agreement) with a fair market value (based upon the mid-point between the closing bid price and the closing ask price on the prior trading day) of the amount of the Loan, or (c) any combination of cash and marketable securities, the sum of such cash and the fair market value of such marketable securities is equal to $800,000. 23 7.10 CERTIFICATE OF NON-FOREIGN STATUS. Each Shareholder shall deliver to Olympic a certificate pursuant to Section 1445(b)(2) of the Code which states, under penalty of perjury, the Shareholder's taxpayer identification number and address as well as a statement that the Shareholder is not a "foreign person" within the meaning of Section 1445(f)(3) of the Code. 7.11 NO LITIGATION THREATENED. No action or proceedings shall have been instituted or, to the knowledge of LHF, shall have been threatened, before a court or other governmental body or by any public authority to restrain or prohibit LHF from consummating any of the transactions contemplated hereby, and a duly authorized officer of LHIP shall have delivered to Olympic a certificate, dated the Closing Date, to such effect. 7.12 AUDITED FINANCIAL STATEMENTS. LHF shall have delivered to Olympic the final version of the audited statement of financial condition of LHF as at December 31, 1996 and the related statements of income, changes in shareholders' equity, changes in liabilities subordinated to the claims of general creditors, and cash flows for the year ended December 31, 1996, which shall not be materially different from the draft referenced in Section 2.5.1. 7.13 GELLER & FRIEND AGREEMENT. LHF and Geller & Friend Capital Partners Inc., a California corporation ("G&F") shall have entered into an agreement in form acceptable to Olympic, pursuant to which G&F shall provide (i) for the reimbursement by G&F of its portion of the expenses of LHF's Century City office arising from G&F's occupation of space in that office, and (ii) that G&F, to the extent reasonably practicable, shall offer to Affiliates of Olympic the opportunity to pursue business opportunities relevant to the business of a Broker-Dealer, prior to offering such opportunities to other Broker-Dealers, subject to the capacity and reasonable business judgment of G&F and reasonable compensation to G&F. ARTICLE VIII CONDITIONS TO THE SHAREHOLDERS' OBLIGATIONS The obligation of LHF and the Shareholders to consummate the transactions contemplated herein shall be subject to the fulfillment, at or prior to the Closing, of all of the conditions set forth below in this Article VIII. LHF and the Shareholders may, by written notice, waive any or all of these conditions in whole or in part without prior notice, provided, however, that no such waiver shall constitute a waiver by LHF or the Shareholders of any other right or remedy if Olympic shall be in default of any of its representations, warranties or covenants under this Agreement. 24 8.1 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of Olympic contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date, and a duly authorized officer of Olympic shall have delivered to the Shareholders a certificate, dated the Closing Date, to such effect. 8.2 PERFORMANCE OF AGREEMENTS. Each and all of the agreements of Olympic to be performed on or before Closing Date pursuant to the terms hereof shall have been duly performed in all material respects, and a duly authorized officer of Olympic shall have delivered to the Shareholders a certificate, dated the Closing Date, to such effect. 8.3 NO LITIGATION THREATENED. No action or proceedings shall have been instituted or, to the knowledge of Olympic, shall have been threatened, before a court or other governmental body or by any public authority to restrain or prohibit Olympic from consummating any of the transactions contemplated hereby, and a duly authorized officer of Olympic shall have delivered to the Shareholders a certificate, dated the Closing Date, to such effect. 8.4 GOOD STANDING AND TAX CERTIFICATES. Olympic shall have delivered to the Shareholders: (a) a copy of Olympic's Certificate of Incorporation, including all amendments, certified by the Secretary of State of the State of Delaware; (b) a certificate from the Secretary of State of the State of Delaware and each state in which Olympic is qualified as a foreign corporation to do business, to the effect that Olympic is in good standing in such state, and (c) a certificate as to the tax status of Olympic in the State of Delaware and each state in which it is qualified as a foreign corporation to do business. 8.5 NO MATERIAL ADVERSE CHANGE. Between the date hereof and the Closing Date, there shall be, except as provided for in this Agreement, no material adverse change in the assets, liabilities, business, condition (financial or otherwise), or the results of operations of Olympic, and a duly authorized officer of Olympic shall have delivered to the Shareholders a certificate dated the Closing Date, to such effect. 8.6 PROMISSORY NOTE. The Shareholders of LHF shall have received a copy of the Senior Subordinated Promissory Note, reflecting the Loan, in the form of Exhibit D (the "Promissory Note"), duly executed by Olympic. 8.7 OPINION. The Shareholders shall have received an opinion from Camhy Karlinsky & Stein LLP, in form and substance satisfactory to LHF's counsel. 25 8.8 RESOLUTIONS. The Shareholders shall have received a copy of the resolutions of the Board of Directors of Olympic approving the transactions contemplated by this Agreement, certified by the Secretary of Olympic. 8.9 TRANSFER OF ASSETS. LHF shall have transferred to a limited liability company wholly-owned by the Shareholders, all of the assets of LHF other than (a) furniture, fixtures and equipment, (b) work in progress, including, but not limited to, all agreements with clients, including, but not limited to, those set forth on SCHEDULE 8.9(a) (but excluding those which appear on SCHEDULE 8.9(b)), (c) equipment and real property leases and the other agreements set forth on SCHEDULE 8.9(a), and (d) the name of LHF, the service mark described on SCHEDULE 2.15 and the pending application for registration described therein, and all goodwill relating thereto (collectively, the "Remaining Assets"). Remaining Assets shall not include the property listed on SCHEDULE 8.9(b). 8.10 CAPITAL CONTRIBUTION. Olympic shall have contributed to the capital of LHF (a) an amount of no less than $200,000, PLUS (b) all of the proceeds of the Loan. 8.11 BONUS PLAN. LRF shall have adopted the Key Executive Bonus Plan in the form of EXHIBIT E (the "Bonus Plan'). 8.12 DEIFICATION OF PROMISSORY NOTE. The issuance of the Promissory Note shall have been qualified pursuant to the California Corporate Securities Law of 1968. ARTICLE IX SURVIVAL OF REPRESENTATIONS; INDEMNITY AND OTHER POST-CLOSING COVENANTS 9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF LHF AND THE SHAREHOLDERS. All representations, warranties, covenants and agreements of LHF and the Shareholders contained in this Agreement shall survive the execution and delivery of this Agreement and the Closing hereunder, and shall thereafter terminate and expire and any claim based thereon shall be brought one year from the Closing Date, except as to matters as to which an Indemnitee (as defined in Section 9.5.1) has made a claim for indemnification or made a Claims Notice, pursuant to Section 9.5 hereafter, on or prior to such date, in which case the rights to indemnification shall survive until such claim is finally resolved and any obligations with respect thereto are fully satisfied, and except for the representations and warranties set forth in Sections 2.1, 2.3, 2.12 and 3.1, which shall survive until the third anniversary of the date of the Closing. 26 9.2 OBLIGATION OF THE SHAREHOLDERS TO INDEMNIFY 9.2.1 Subject to Section 9.2.3, the Shareholders (other than Marjorie E. Goddard and Kenneth L. Fader) agree jointly and severally, and Marjorie E. Goddard and Kenneth L. Fader agree jointly in accordance with their percentage ownership of the LHF Shares, to indemnify, defend and hold hurtles s Olympic, its respective Affiliates, officers, directors, employees, agents, attorneys and representatives, and any of its successors and assigns from, and against any and all losses, liabilities, damages, deficiencies, demands, claims, actions, judgments or causes of action, assessments, costs or expenses (including, without limitation, interest, penalties and reasonable attorneys' fees and disbursements) ("Losses"), based upon, .raising out of or otherwise in respect of (i) any inaccuracy in or any breach of any representation, warranty, covenant or agreement of LHF and/or the Shareholders contained in this Agreement, any schedule hereof or any other document executed pursuant to the terms hereof, and (ii) the operation of LHF prior to the Closing. 9.2.2 Notwithstanding Section 9.2.1 above, the obligation of the Shareholders to indemnify Olympic under Section 9.2 shall apply (i) only if the cumulative aggregate amount of Losses thereunder exceeds $40,000 (the "Minimum") and (ii) only to the amounts in excess of such total; PROVIDED, HOWEVER, that the Minimum shall not apply either to the breach by LHF of the representations and warranties set forth in Section 2.13 or the breach by the Shareholders of any agreement entered into in satisfaction of the condition to Closing set forth in Section 7.8. 9.2.3 Any claim of indemnification made by Olympic pursuant to this Section 9.2 with respect to a breach by any Shareholder of such Shareholder's representations, warranties or agreements contained in Article III shall be made only against the breaching Shareholder, and Olympic shall not be entitled to make a claim against or otherwise pursue any other Shareholder. 9.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES OF OLYMPIC. All representations, warranties, covenants and agreements of Olympic contained in this Agreement shall survive the execution and delivery of this Agreement and the Closing hereunder, and shall thereafter terminate and expire, except for Olympic's covenants in Sections 9.8, 9.10 and 9.12, and any claim based thereon shall be brought one year from the Closing Date, except as to matters as to which an Indemnitee (as defined in Section 9.5. 1) has made a claim for indemnification or given a Claims Notice under Section 9.5 hereafter on or prior to such date, in which case the rights to indemnification shall survive until such claim is finally resolved and any obligations with respect thereto are fully satisfied, and except for the representations and warranties set forth in Sections 4.2 and 4.6 which shall survive until the third 27 anniversary of the date of the Closing and the covenants set forth in Sections 9.14 and 10.8 which shall survive until the second anniversary of the date of the Closing. 9.4 OBLIGATION OF OLYMPIC TO INDEMNIFY. Olympic agrees to indemnify, defend and hold harmless the Shareholders, their Affiliates, employees, agents, attorneys and representatives and their successors and assigns from and against any and all Losses based upon, arising out of or otherwise in respect of (i) any inaccuracy in or any breach of any representation, warranty, covenant or agreement of Olympic contained in this Agreement or in any other document executed pursuant to the terms hereof, and (ii) the operation of LHF after the Closing. 9.5 NOTICE AND OPPORTUNITY TO DEFEND. 9.5.1 NOTICE OF ASSERTED LIABILITY. Promptly after receipt by any party hereto (the "Indemnitee") of notice of any demand, claim or circumstances which, with the lapse of time, would or might give rise to a claim or the commencement (or threatened commencement) of any action, proceeding or investigation (an "Asserted Liability") that may result in any Losses, the Indemnitee, shall promptly give notice thereof (a "Claims Notice") to any other party obligated to provide indemnification pursuant to the terms of this Agreement (the "Indemnifying Party"). The Claims Notice shall describe the Asserted Liability in reasonable detail, and shall indicate the amount (estimated, if necessary and to the extent feasible) of the Losses that have been or may be suffered by the Indemnitee. 9.5.2 OPPORTUNITY TO DEFEND. The Indemnifying Party may elect to compromise or defend, at its own expense and by its own counsel, any Asserted Liability. If the Indemnifying Party elects to compromise or defend such Asserted Liability, it shall within thirty (30) days (or sooner, if the nature of the Asserted Liability so requires) notify the Indemnitee of its intent to so, and the Indemnitee shall cooperate, at the expense of Indemnifying Party, in the compromise of, or defense against, the Asserted Liability. If the Indemnifying Party elects not to compromise or defend the Asserted Liability, fails to notify Indemnitee of its election as herein provided, or contests its ' obligation to indemnify under this Agreement the Indemnitee may pay, compromise or defend such Asserted Liability at the expense of the Indemnifying Party. Subject to the limitations contained in Section 9.6 on the obligations of the Indemnifying Party in respect of proposed settlements, the Indemnitee shall have the fight to employ its own counsel with respect to any Asserted Liability, but the fees and expenses of such counsel shall be at the expense of such Indemnitee unless (a) the employment of such counsel shall have been authorized in writing by the Indemnifying Party in connection with the defense of such action, or (b) such Indemnifying Party shall not have, as provided above, promptly employed counsel reasonably satisfactory to such Indemnitee to take charge of the defense of such action, or (c) such Indemnitee shall have reasonably concluded based on an 28 opinion of counsel that there may be one or more legal defenses available to it which are different from or additional to those available to such Indemnifying Party, in any of which events such reasonable fees and expenses shall be borne by the Indemnifying Party and the Indemnifying Party shall not have the right to direct the defense of such action on behalf of the Indemnitee in respect of such different or additional defenses. If the Indemnifying Party chooses to defend any claim, the Indemnitee shall make available to the Indemnifying Party any books, records or other documents within its control that are necessary or appropriate for such defense. 9.6 SETTLEMENT. Notwithstanding the provisions of Section 9.5.2, neither the Indemnifying Party nor the Indemnitee may settle or compromise any claim for which indemnification has been sought and is available hereunder, over the objection of the other; provided, however, that consent to settlement or compromise shall not be unreasonably withheld or delayed. If, however, the Indemnitee refuses to consent to a bona fide offer of settlement which the Indemnifying Party wishes to accept, the Indemnitee may continue to pursue such matter, free of any participation by Indemnifying Party, at the sole expense of the Indemnitee. In such event, the obligation of the Indemnifying Party to the Indemnitee shall be equal to the lesser of (i) the amount of the offer of settlement which the Indemnitee refused to accept plus the costs and expenses of the Indemnitee prior to the date the Indemnifying Party notified the Indemnitee of the offer of settlement and (ii) the actual out-of-pocket amount the Indemnitee is obligated to pay as a result of the Indemnitee continuing to pursue such matter. 9.7 COMPUTATION OF LOSSES. For purposes of calculating any Losses suffered by an indemnified party pursuant to this Article IX, the amount of the Losses suffered by the indemnified party shall be the net amount of damage so suffered after giving effect to any insurance proceeds and tax benefit received with respect to such matter. 9.8 ACCOUNTS RECEIVABLE. Following the Closing, LHF shall act as agent for the Shareholders with respect to the collection of LHF's accounts receivable and all other claims owing to LHF of any nature whatsoever, in existence as of the Deemed Closing Date, including, without limitation, the accounts receivable set forth on Schedule 9.8 to be delivered by LHF to Olympic at the Closing, and shall use best efforts to collect the same. All such payments received by LHF following the Closing shall be held by LHF in trust for the benefit of the Shareholders, and LHF shall promptly remit the same to LHFCO, LLC, a California limited liability company, after receipt thereof. 9.9 LISTING. Olympic shall use its best efforts to list the Olympic Shares and any other shares of Olympic's common stock issued to the Shareholders pursuant to the Promissory Note on any national securities exchange on which the common 29 stock of Olympic is listed, or if not listed on a national securities exchange, to qualify such shares for inclusion on The NASDAQ Small Cap Market. 9.10 CONDUCT OF BUSINESS. Until the later of the payment and performance in full of the Promissory Note or the termination of the Bonus Plan, Olympic shall cause LHF to conduct its business in the ordinary course, substantially consistent with past practices. Without limiting the generality of the foregoing, until the later of the payment and performance in full of the Promissory Note or the termination of the Bonus Plan, Olympic shall not permit LHF to change its name. 9.11 OLYMPIC BOARD MEETINGS. Until payment and performance in full of the Promissory Note, Olympic shall permit any one of Larry Friend, Gregory Presson or Carl Frankson to attend any meetings of Olympic's Board of Directors. 9.12 BONUS PLAN. Olympic shall cause the Bonus Plan to remain in full force and effect so long as any two (2) of the following remain employees of LHF: Larry H. Friend, Gregory E. Presson and Carl Frankson, Jr. 9.13 TAXES FOR SHORT YEAR. The parties understand that the year in which the Closing occurs will be treated as an S termination year within the meaning of Section 1362(e)(4) of the Code. The portion of the S termination year ending at the close of the day prior to the termination shall be treated as a short taxable year for which LHF is an S corporation (the "S short year"). LHF shall close its books as of the close of the day prior to the Deemed Closing Date. Olympic will afford to the Shareholders access, upon reasonable prior notice, to the books and records of LHF for purposes of preparing the S short year federal income tax return for LHF, and the Shareholders shall prepare an S short year federal income tax return for LHF, as well as any other Tax Returns of or with respect to LHF, for the S short year, in an orderly manner, and shall provide a copy of such Tax Returns to Olympic. The Shareholders will report all income allocable to them in accordance with such Tax Returns, and will pay (or reimburse Olympic or LHF for) any and all Taxes relating to the S short year. 9.14 401(k) PLAN. For the balance of the calendar year following the Closing Date and for one additional calendar year thereafter, Olympic shall not cause or permit without the prior written consent of Larry H. Friend and Gregory E. Presson, LHF's 401(k) Plan which exists as of the date hereof (the "401(k) Plan"), to be modified in any manner whatsoever, terminated or merged into another 401(k) Plan, except as may be required by law. Additionally, during such period, Olympic shall permit the 401(k) Plan to be administered by an Advisory Committee, as provided in the 401(k) Plan, composed of Larry H. Friend, Gregory E. Presson and Kenneth L. Fader; PROVIDED, that in the event that any of the foregoing three individuals ceases to be employed by LHF, the remaining individuals may appoint a replacement, and in the 30 event that all three cease to be employed by LHF, Olympic may appoint the members of the Advisory Committee. ARTICLE X MISCELLANEOUS 10.1 EXPENSES. Except as otherwise provided herein and except for the legal fees of LHF from Loeb & Loeb LLP incurred solely in connection with and directly related to the transactions contemplated by this Agreement which are to be shared equally by LHF, on the one hand, and the Shareholders, on the other, the parties hereto shall pay all of their own expenses relating to the transactions contemplated by this Agreement, including, without limitation, the fees and expenses of their respective counsel and financial advisers (the 'LHF Transaction Costs"). 10.2 GOVERNING LAW. The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of California without reference to any conflict of laws provisions. 10.3 CERTAIN DEFINITIONS. 10.3.1 "AFFILIATE" shall mean any Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with such Person. 10.3.2 "KNOWLEDGE" shall mean in the case of a Person which is not an individual, the knowledge of all executive officers and directors of such Person after due inquiry, and in the case of an individual, the actual knowledge of such individual. 10.3.3 "PERSON" shall mean and include an individual, a partnership, a joint venture, a corporation, a limited liability company, a trust, an unincorporated organization and a government or other department or agency thereof. 10.3.4 "TRANSACTION DOCUMENTS" shall mean this Agreement, the Investor Rights Agreement the Employment Agreements, the Voting Agreement and the Promissory Note. 10.4 JURISDICTION. Any judicial proceeding brought against any of the parties to this Agreement on any dispute arising out of this Agreement or any matter related hereto shall be brought in the courts of the State of California in Los Angeles County or in United States District Court located in Los Angeles, California, and by execution and delivery of this Agreement, each of the parties to this Agreement accepts for itself or himself the jurisdiction of the aforesaid courts, irrevocably consents to the service 31 of any and all process in any action or proceeding by the mailing of copies of such process to such party at its or his address as set forth in Section 10.6, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. Each party hereto irrevocably waives to fullest extent permitted by law any objection that it or he may now or hereafter have to the laying of the venue of any judicial proceeding brought in such courts and any claim that any such judicial proceeding has been brought in an inconvenient forum. the foregoing consent to jurisdiction shall not constitute general consent to service of process in the State of California for any purpose except as provided above and shall not be deemed to confer rights on any Person other than the respective parties to this Agreement. 10.5 CAPTIONS. The article and section captions used herein are for reference purposes only, and shall not in any way affect the meaning, or interpretation of this Agreement. 10.6 NOTICES. Any notice or other communications required or permitted hereunder shall be in writing and shall be deemed effective (a) upon personal delivery, if delivered by hand, (b) three days after the date of deposit in the mails, if mailed by certified or registered mail (return receipt requested), or (c) on the next business day, if mailed by an overnight mail service to the parties or sent by facsimile transmission, and in each case, postage prepaid, addressed to a party at its or his address set forth on the signature page hereof, or such other address as shall be furnished in writing by like notice by any such party. A copy of each notice sent to either LHF or any Shareholder should also be sent to David L. Ficksman, Esq., Loeb & Loeb LLP, 1000 Wilshire Boulevard, Suite 1800, Los Angeles, California 90017, and a copy of each notice sent to Olympic should also be sent to Alan 1. Annex, Esq., Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th Floor, New York, New York 10019. 10.7 TERMINATION. This Agreement may be terminated at any time prior to the Closing Date: 10.7.1 By mutual agreement of Olympic and the Shareholders holding a majority of the LHF Shares; 10.7.2 Olympic if (i) there has been a material misrepresentation, breach of warranty or breach of covenant by any Shareholder under this Agreement or (ii) any of the conditions precedent to the Closing set forth in Articles VI or VII have not been satisfied on the Closing Date, and, in each case, Olympic is not then in default of its obligations hereunder; and' 10.7.3 By the Shareholders if (i) there has been a material misrepresentation, breach of warranty or breach of covenant by Olympic under this Agreement or (ii) any of the conditions precedent to the Closing set forth in 32 Articles VI or VIII have not been satisfied on the Closing Date, and, in each case, the Shareholders are not in default of their obligations hereunder. In the event of termination of this Agreement as provided in Section 10.7.1., this Agreement shall become void and there shall be no liability hereunder on the part of any party hereto. In the event of termination of this Agreement as provided in Section 10.7.2, such termination shall be without prejudice to any of the rights that Olympic may have against the Shareholders or any other Person under the terms of this Agreement or otherwise. In the event of termination of this Agreement as provided in Section 10.7.3, such termination shall be without prejudice to any of the rights that the Shareholders may have against Olympic or any other Person under the terms of this Agreement or otherwise. 10.8 TAX RETURNS. Each of Olympic and each Shareholder agrees to report the Exchange in a manner consistent with a reorganization as described in Section 368(a)(1)(B) of the Code, in all income tax returns and other filings which describe the Exchange; PROVIDED, HOWEVER, that Olympic makes no representation or warranty that the Exchange will qualify as a reorganization described in Section 368(a)(1)(B)of the Code. Olympic shall not, and shall not permit LHF after the Closing, to take any action (other than as contemplated by this Agreement) which would jeopardize treatment of the Exchange in a manner consistent with a reorganization as described in Section 368(a)(1)(B) of the Code, including, without the limitation, the liquidation of or the sale of all or substantially all of the assets of LHF. 10.9 ASSIGNMENTS. This Agreement may not be transferred, assigned, pledged or hypothecated by any party hereto, other than by operation of law. No assignment or transfer shall be effective unless the assignee agrees in writing to assume such assignor's obligations under the Agreement. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns. 10.10 PRESS RELEASES AND ANNOUNCEMENTS. No party to this Agreement shall issue any press release or public announcement relating to the subject matter of this Agreement without the prior approval of the other parties to this Agreement; provided, however, that any party to this Agreement may make any public disclosure it believes in good faith is required by law or regulation, including any state or federal securities laws (in which case the disclosing party will advise the other parties prior to making the disclosure). 10.11 FURTHER ASSURANCES. The parties hereby agree from time to time to execute and deliver such further documents and to do all matters and things which may be convenient or necessary to more effectively and completely carry out the intentions of this Agreement. 33 10.12 CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by all of the parties hereto to express their mutual intent, 'and no rule of construction shall be specified against any party. 10.13 SEVERABILITY. In the event any provision of this Agreement is found to be void and unenforceable by a court of competent jurisdiction or arbitration panel, the remaining provisions of this Agreement shall nevertheless be binding upon the parties with the same effect as though the void or unenforceable part had been severed and deleted. 10.14 COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which taken together shall constitute one instrument. 10.15 ENTIRE AGREEMENT. This Agreement, including the documents referred to herein which form a part hereof, contains entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 10.16 AMENDMENTS. This Agreement may not be changed orally, but only by an agreement in writing signed by Olympic, LHF and each Shareholder. 10.17 THIRD-PARTY BENEFICIARIES. Each party hereto intends that this Agreement shall not benefit or create any right or cause of action in or on behalf of any Person other than the parties hereto and their respective Affiliates, officers, directors, employees, agents, attorneys, representatives, successors and assigns as permitted under Section 10.9. 10.18 CONFIDENTIALITY. Subject to any obligation to comply with any law, rule or regulation of any governmental authority or any subpoena or other legal process to make information available to the persons entitled thereto, Olympic shall, and shall cause its Affiliates, employees, attorneys, accountants and representatives to keep confidential and Olympic shall not use, or permit its Affiliates, attorneys, accountants and representatives to use, in any manner other than for the purpose of evaluating the transaction contemplated herein any information obtained from LHF or any of the Shareholders, whether or not obtained or acquired pursuant to the terms of this Agreement, unless such information is readily ascertainable from public or published information, from trade sources, or is already known to Olympic. If the transactions contemplated herein fail to close for any reason whatsoever, Olympic shall immediately return or cause to be returned to LHF or the Shareholders, as the case may be, all written data, software, encoded data information, files, records and copies of documents, worksheets and other materials obtained by Olympic in connection with the transactions contemplated herein. 34 IN WITNESS WHEREOF, the parties hereto have executed this Exchange Agreement and Plan of Reorganization as of the date first above written. "OLYMPIC" OLYMPIC CASCADE FINANCIAL CORPORATION, a Delaware corporation By: /s/ Steven A. Rothstein --------------------------------- Steven A. Rothstein Chairman of the Board Address: 1001 Fourth Avenue, Suite 2200 Seattle, Washington 98154 Attention: General Counsel Fax: (206) 343-6132 "LHF" L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC., a California corporation By: ----------------------------------- Larry H. Friend Chairman of the Board and Chief Executive Officer Address: 3333 Michelson Drive, Suite 650 Irvine, California 92612-1686 Fax: (714) 852-0430 S-1 IN WITNESS WHEREOF, the parties hereto have executed this Exchange Agreement and Plan of Reorganization as of the date first above written. "OLYMPIC" OLYMPIC CASCADE FINANCIAL CORPORATION, a Delaware corporation By: --------------------------------- Steven A. Rothstein Chairman of the Board Address: 1001 Fourth Avenue, Suite 2200 Seattle, Washington 98154 Attention: General Counsel Fax: (206) 343-6132 "LHF" L.H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC., a California corporation By: /s/ Larry H. Friend ----------------------------------- Larry H. Friend Chairman of the Board and Chief Executive Officer Address: 3333 Michelson Drive, Suite 650 Irvine, California 92612-1686 Fax: (714) 852-0430 S-1 "SHAREHOLDERS" /s/ Larry H. Friend ------------------------------ Larry H. Friend Address: 3333 Michelson Drive, Suite 650 Irvine, California 92612-1686 Fax: (714) 852-0430 /s/ Darren Friend ------------------------------ Darren Friend Address: 3333 Michelson Drive, Suite 650 Irvine, California 92612-1686 Fax: (714) 852-0430 ------------------------------ Marshall S. Geller Address: 1875 Century Park East, Suite 2200 Los Angeles, California 90067 Fax: (310) 553-0257 S-2 "SHAREHOLDERS" ------------------------------ Larry H. Friend Address: 3333 Michelson Drive, Suite 650 Irvine, California 92612-1686 Fax: (714) 852-0430 ------------------------------ Darren Friend Address: 3333 Michelson Drive, Suite 650 Irvine, California 92612-1686 Fax: (714) 852-0430 /s/ Marshall S. Geller ------------------------------ Marshall S. Geller Address: 1875 Century Park East, Suite 2200 Los Angeles, California 90067 Fax: (310) 553-0257 S-2 /s/ Stephen D. Weinress ------------------------------ Stephen D. Weinress, Trustee of the Weinress Family Living Trust dated March 26, 1996 Address: 1875 Century Park East, Suite 2200 Los Angeles, California 90067 Fax: (310) 229-3740 /s/ Catherine M. Weinress ------------------------------ Catherine M. Weinress, Trustee of the Weinress Family Living Trust dated March 26, 1996 Address: 1875 Century Park East, Suite 2200 Los Angeles, California 90067 Fax: (310) 229-3740 ------------------------------ Carl Frankson, Jr. Address: 333 Michelson Drive, Suite 650 Irvine, California 92612-1686 Fax: (714) 852-0430 S-3 ------------------------------ Stephen D. Weinress, Trustee of the Weinress Family Living Trust dated March 26, 1996 Address: 1875 Century Park East, Suite 2200 Los Angeles, California 90067 Fax: (310) 229-3740 ------------------------------ Catherine M. Weinress, Trustee of the Weinress Family Living Trust dated March 26, 1996 Address: 1875 Century Park East, Suite 2200 Los Angeles, California 90067 Fax: (310) 229-3740 /s/ Carl Frankson, Jr. ------------------------------ Carl Frankson, Jr. Address: 333 Michelson Drive, Suite 650 Irvine, California 92612-1686 Fax: (714) 852-0430 S-3 /s/ Gregory E. Presson ------------------------------ Gregory E. Presson Address: 3333 Michelson Drive, Suite 650 Irvine, California 92612-1686 Fax: (714) 852-0430 ------------------------------ Marjorie E. Goddard Address: 1875 Century Park East, Suite 2200 Los Angeles, California 90067 Fax: (310) 229-3740 ------------------------------ Kenneth L. Fader Address: 3333 Michelson Drive, Suite 650 Irvine, California 92612-1686 Fax: (714) 842-0430 S-4 ------------------------------ Gregory E. Presson Address: 3333 Michelson Drive, Suite 650 Irvine, California 92612-1686 Fax: (714) 852-0430 /s/ Marjorie E. Goddard ------------------------------ Marjorie E. Goddard Address: 1875 Century Park East, Suite 2200 Los Angeles, California 90067 Fax: (310) 229-3740 ------------------------------ Kenneth L. Fader Address: 3333 Michelson Drive, Suite 650 Irvine, California 92612-1686 Fax: (714) 842-0430 S-4 ------------------------------ Gregory E. Presson Address: 3333 Michelson Drive, Suite 650 Irvine, California 92612-1686 Fax: (714) 852-0430 ------------------------------ Marjorie E. Goddard Address: 1875 Century Park East, Suite 2200 Los Angeles, California 90067 Fax: (310) 229-3740 /s/ Kenneth L. Fader ------------------------------ Kenneth L. Fader Address: 3333 Michelson Drive, Suite 650 Irvine, California 92612-1686 Fax: (714) 842-0430 S-4 EX-10.31 3 EXHIBIT 10.31 STOCK PURCHASE AGREEMENT BETWEEN OLYMPIC CASCADE FINANCIAL CORPORATION AND WESTAMERICA CORPORATION RELATING TO ALL OF THE ISSUANCE AND OUTSTANDING CAPITAL STOCK OF WESTAMERICA INVESTMENT GROUP, INC. MAY 28, 1997 TABLE OF CONTENTS I. PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.1 TERMS OF PURCHASE AND SALE . . . . . . . . . . . . . . . 2 Section 1.2 CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.3 OTHER TRANSACTIONS AT CLOSING. . . . . . . . . . . . . . 2 II. REPRESENTATIONS AND WARRANTIES OF THE SELLER. . . . . . . . . . . . . . 3 Section 2.1 ORGANIZATION AND QUALIFICATION . . . . . . . . . . . . . 3 Section 2.2 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . 4 Section 2.3 FINANCIAL CONDITION. . . . . . . . . . . . . . . . . . . 5 Section 2.4 TAX AND OTHER LIABILITIES. . . . . . . . . . . . . . . . 6 Section 2.5 LITIGATION AND CLAIMS. . . . . . . . . . . . . . . . . . 9 Section 2.6 PROPERTIES OF WAIG . . . . . . . . . . . . . . . . . . . 9 Section 2.7 CONTRACTS AND OTHER INSTRUMENTS. . . . . . . . . . . . . 11 Section 2.8 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 2.9 PATENTS, TRADEMARKS, ET CETERA . . . . . . . . . . . . . 14 Section 2.10 QUESTIONABLE PAYMENTS. . . . . . . . . . . . . . . . . . 14 Section 2.11 BROKER-DEALER REGISTRATION.. . . . . . . . . . . . . . . 15 Section 2.12 NO THREATENED SEC PROCEEDINGS. . . . . . . . . . . . . . 15 Section 2.13 NET CAPITAL. . . . . . . . . . . . . . . . . . . . . . . 15 Section 2.14 NASD MEMBERSHIP. . . . . . . . . . . . . . . . . . . . . 16 Section 2.15 FEES AND ASSESSMENTS.. . . . . . . . . . . . . . . . . . 16 Section 2.16 NASD RESTRICTIONS. . . . . . . . . . . . . . . . . . . . 16 Section 2.17 CRD REGISTRATION.. . . . . . . . . . . . . . . . . . . . 16 Section 2.18 STATE BROKER-DEALER REGISTRATIONS. . . . . . . . . . . . 16 Section 2.19 NO STATE INQUIRIES. . . . . . . . . . . . . . . . . . . 17 Section 2.20 REGISTERED REPRESENTATIVES.. . . . . . . . . . . . . . . 17 Section 2.21 BROKERS BOND.. . . . . . . . . . . . . . . . . . . . . . 17 Section 2.22 SIPC REGISTRATION. . . . . . . . . . . . . . . . . . . 17 Section 2.23 CLEARING AGREEMENT.. . . . . . . . . . . . . . . . . . . 18 III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . 18 Section 3.1 ORGANIZATION AND QUALIFICATION.. . . . . . . . . . . . . 18 Section 3.2 AUTHORITY TO BUY . . . . . . . . . . . . . . . . . . . . 18 Section 3.3 DISCLOSURE OF INFORMATION. . . . . . . . . . . . . . . . 19 IV. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. . . . . . . . . . . . . . . 19 Section 4.1 ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH CONDITIONS . . . . . . . . . . . . . . . 19 Section 4.2 OPINION OF COUNSEL . . . . . . . . . . . . . . . . . . . 20 Section 4.3 THIRD PARTY APPROVALS. . . . . . . . . . . . . . . . . . 20 Section 4.4 UPDATED FOCUS REPORTS. . . . . . . . . . . . . . . . . . 20 Section 4.5 OTHER CLOSING DOCUMENTS. . . . . . . . . . . . . . . . . 20 -i- Page ---- Section 4.6 LEGAL ACTION . . . . . . . . . . . . . . . . . . . . . . 20 Section 4.7 NO GOVERNMENTAL ACTION . . . . . . . . . . . . . . . . . 21 Section 4.8 CONTRACTUAL CONSENTS NEEDED. . . . . . . . . . . . . . . 21 Section 4.9 MATERIAL ADVERSE CHANGE. . . . . . . . . . . . . . . . . 22 V. CONDITIONS TO OBLIGATIONS OF SELLER.. . . . . . . . . . . . . . . . . . 22 Section 5.1 ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH CONDITIONS. . . . . . . . . . . . . . . . . . . . . 22 Section 5.2 LEGAL ACTION . . . . . . . . . . . . . . . . . . . . . . 22 Section 5.3 CONTRACTUAL CONSENTS . . . . . . . . . . . . . . . . . . 22 VI. COVENANTS OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 6.1 ACCESS . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 6.2 CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . . 23 Section 6.3 ADVICE OF CHANGES. . . . . . . . . . . . . . . . . . . . 24 Section 6.4 PUBLIC STATEMENTS. . . . . . . . . . . . . . . . . . . . 24 Section 6.5 OTHER PROPOSALS. . . . . . . . . . . . . . . . . . . . . 25 Section 6.6 VOTING BY STOCKHOLDERS . . . . . . . . . . . . . . . . . 25 VII. COVENANTS OF PURCHASER. . . . . . . . . . . . . . . . . . . . . . . . . 26 Section 7.1 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . 26 VIII. INDEMNIFICATION; SURVIVAL; LIMITATIONS ON LIABILITY. . . . . . . . 27 Section 8.1 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . 27 Section 8.2 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . 28 IX. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 9.1 BROKERAGE FEES . . . . . . . . . . . . . . . . . . . . . 29 Section 9.2 REGULATORY FILINGS . . . . . . . . . . . . . . . . . . . 29 Section 9.3 FURTHER ACTIONS. . . . . . . . . . . . . . . . . . . . . 29 Section 9.4 SUBMISSION TO JURISDICTION . . . . . . . . . . . . . . . 29 Section 9.5 MERGER; MODIFICATION . . . . . . . . . . . . . . . . . . 30 Section 9.6 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 9.7 WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 9.8 BINDING EFFECT . . . . . . . . . . . . . . . . . . . . . 31 Section 9.9 NO THIRD-PARTY BENEFICIARIES . . . . . . . . . . . . . . 31 Section 9.10 SEPARABILITY . . . . . . . . . . . . . . . . . . . . . . 32 Section 9.11 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 9.12 COUNTERPARTS; GOVERNING LAW. . . . . . . . . . . . . . . 32 -ii- STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement"), is being made this 28th day of May, 1997, by and between OLYMPIC CASCADE FINANCIAL CORPORATION, a Delaware corporation (the "Purchaser" or "Olympic"), with offices at 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154-1100; and WESTAMERICA CORPORATION, an Oklahoma corporation with offices at 4141 N. Scottsdale Road, Suite 100, Scottsdale, Arizona 85251 (the "Seller"). W I T N E S S E T H : WHEREAS, the Seller owns beneficially and of record all of the issued and outstanding capital stock (the "Acquired Securities") of West America Investment Group, Inc., an Arizona corporation ("WAIG"), which capital stock consists of 467,257.20 shares of common stock, par value $0.7795 per share (the "WAIG Common Stock"). WHEREAS, WAIG is a broker-dealer duly registered with the Securities and Exchange Commission (the "SEC") and is a member in good standing with the National Association of Securities Dealers, Inc. (the "NASD") engaged in the general securities business. WHEREAS, the Purchaser desires to acquire the Acquired Securities from the Seller and the Seller desires to sell the Acquired Securities to the Purchaser, subject to the terms and conditions set forth below. NOW, THEREFORE, in consideration of the premises, representations, warranties, and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: I. PURCHASE AND SALE. Section 1.1 TERMS OF PURCHASE AND SALE. (a) At the Closing (as defined in Section 1.4 below), the Seller shall sell, assign, transfer, and convey to the Purchaser the Acquired Securities. The Seller shall deliver to the Purchaser at the Closing certificates representing the Acquired Securities, duly endorsed in blank or accompanied by stock powers duly endorsed in blank, in each case in proper form for transfer, with signatures guaranteed, and, if applicable, with all stock transfer and any other required documentary stamps affixed thereto. (b) In consideration for the Acquired Securities, the Purchaser shall deliver to the Seller, at the Closing, by bank check, certified check, or wire transfer, the sum of Four Hundred and Forty Three Thousand Dollars ($443,000). Section 1.2 CLOSING. The Closing (the "Closing") of the transactions contemplated by this Agreement shall take place at the offices of WAIG on the third (3rd) business day following the receipt of all applicable regulatory approvals (the "Closing Date") or such other time or date as the parties may mutually agree, but in no event later than June 15, 1997. Section 1.3 OTHER TRANSACTIONS AT CLOSING. In addition to the transactions referred to in this Sections 1.1, 1.2, and 1.3 above, at the Closing, the Seller shall deliver to the Purchaser the following: -2- (a) The minute books, stock certificate books, stock transfer ledgers, and corporate seals of WAIG and of West America Investment Company, a California corporation d/b/a WestAmerica Investment Group, a wholly-owned subsidiary of WAIG ("WAIC"); (b) Resignations of all officers and directors of the WAIG and WAIC, except as mutually agreed; (c) The Written Consent of any applicable regulatory authority. (d) Certificates of Good Standing as to WAIG issued by the appropriate governmental authorities of the State of Arizona and each state in which the WAIG is qualified to do business; (e) Certified copy of the Certificate of Incorporation of WAIG and WAIC, and all amendments thereto, certified by the Secretary of State of the State of Arizona; and (f) A copy of by-laws of WAIG and WAIC, certified by the secretary or assistant secretary thereof as being true, complete, and correct. II. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller represents and warrants to the Purchaser as follows: Section 2.1 ORGANIZATION AND QUALIFICATION. WAIG does not own any capital stock of any corporation or any interest in any joint venture, partnership, association, trust, or other entity except that WAIG owns all of the issued and outstanding capital stock of WAIC. Schedule 2.1 correctly sets forth as to WAIG and WAIC its place of incorporation, principal place of business, and jurisdictions in which it is qualified to do business. -3- Each of WAIG and WAIC is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation, will all requisite power and authority, and all necessary consents, authorizations, approvals, orders, licenses, certificates, and permits of and from, and declarations and filings with, all federal, state, local, and other governmental authorities, and all courts and other tribunals, to own, lease, license, and use its properties and assets and to carry on the business in which it is now engaged and the business in which it contemplates engaging. Each of WAIG and WAIC is duly qualified to transact the business in which it is now engaged and is in good standing as a foreign corporation in every jurisdiction where the failure to so qualify would have material adverse effect upon the businesses assets, properties, prospectus, or financial condition of WAIG. Section 2.2 CAPITALIZATION. The authorized capital stock of WAIG consists of 1,000,000 shares of common stock, par value $0.7795 per share, of which 467,257.20 shares are outstanding. The authorized capital stock of WAIC consists of 1,000,000 shares of common stock, par value $0.7795 per share (the "WAIC Common Stock"), of which 531,512.68 shares are outstanding. Each of such outstanding shares of WAIG Common Stock and WAIC Common Stock is validly authorized, validly issued, fully paid, and nonassessable, has not been issued and is not owned or held in violation of any preemptive right of stockholders, and is owned of record and beneficially by the Seller, in the case of WAIG and by WAIG in the case of WAIC. The Acquired Securities are owned by the Seller and the WAIC Common Stock is owned by WAIG free and clear of all liens, security interests, pledges, charges, encumbrances, stockholders' agreements, and voting trusts. There is no outstanding security or other instrument convertible into or exchangeable for capital stock of WAIG or WAIC nor is there any commitment, plan, or arrangement to issue, and no outstanding option, warrant, or other right calling for the issuance of, -4- any share of capital stock of WAIG or WAIC or any security or other instrument convertible into, exercisable for, or exchangeable for capital stock of WAIG or WAIC. Section 2.3 FINANCIAL CONDITION. The Seller has delivered to the Purchaser true and correct copies of the following: the unaudited balance sheet of WAIG as of March 31, 1997, the audited balance sheet of WAIG as of March 31, 1996 and December 31, 1994, the unaudited statements of income, statements of retained earnings, and statements of cash flows of WAIG for the year ended March 31, 1997, and the audited statements of income, statements of retained earnings and statements of cash flows for the fifteen (15) months ended March 31, 1996, and the year ended December 31, 1994. Each such balance sheet presents fairly the financial conditions, assets, liabilities, and stockholders' equity of WAIG as of its date; each such statement of income and statement of retained earnings presents fairly the results of operations of WAIG for the period indicated and their retained earnings as of the date indicated; and each such statement of cash flows presents fairly the information purported to be shown therein. The financial statements referred to in this Section 2.3 have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved and are in accordance with the books and records of WAIG. Since March 31, 1997: (a) There has at no time been a material adverse change in the financial condition, results of operations, business, properties, assets, liabilities, or, to the Seller's knowledge, the future prospects of WAIG. -5- (b) WAIG has not authorized, declared, paid, or effected any dividend or liquidating or other distribution in respect of its capital stock or any direct or indirect redemption, purchase, or other acquisition of any stock of WAIG. (c) The operations and business of the WAIG have been conducted in all respects only in the ordinary course. (d) WAIG has not suffered an extraordinary loss (whether or not covered by insurance) or waived any right of substantial value. (e) WAIG has not paid any expense resulting from the preparation of, or the transactions contemplated by, this Agreement, it being understood that the Seller shall have paid or will pay all such expenses (including, without limitation, its legal expenses resulting from this Agreement or the transactions contemplated hereby). There is no fact known to the Seller, which materially and adversely affects or in the future (as far as the Seller can reasonably foresee) may materially and adversely affect the financial condition, results of operations, business, properties, assets, liabilities, or future prospects of WAIG; PROVIDED, HOWEVER, that the Seller express no opinion as to political or economic matters of general applicability. Section 2.4 TAX AND OTHER LIABILITIES. (a) WAIG has no liability of any nature, accrued or contingent, including without limitation liabilities for Taxes (as defined in Section 2.4(f)) and liabilities to customers or suppliers, other than the following: -6- (b) Liabilities for which full provision has been made on the balance sheet (the "Last Balance Sheet") as of March 31, 1997 (the "Last Balance Sheet Date"); and (c) Other liabilities arising since the Last Balance Sheet Date and prior to the Closing in the ordinary course of business which are not inconsistent with the representations and warranties of any Seller or any other provision of this Agreement. (d) Without limiting the generality of Section 2.4(a): (i) WAIG and any combined, consolidated, unitary or affiliated group of which WAIG is or has been a member prior to the Closing Date: (i) has paid all Taxes required to be paid on or prior to the Closing Date (including, without limitation, payments of estimated Taxes) for which WAIG could be held liable, except for Taxes which are being contested in good faith and by appropriate proceedings; and (ii) has accurately and timely filed (or filed an extension for), all federal, state, local, and foreign tax returns, reports, and forms with respect to such taxes required to be filed by them on or before the Closing Date. (ii) The amount set up as provisions for Taxes on the Last Balance Sheet are sufficient for all accrued and unpaid Taxes of WAIG, whether or not due and payable and whether or not in dispute, under tax laws as in effect on the Last Balance Sheet Date or now in effect, for the period ended on such date and for all periods prior thereto. -7- (e) There is no material dispute or claim concerning any liability for Taxes of WAIG either (i) claimed or raised by any authority in writing, or (ii) as to which WAIG has knowledge based upon personal contact with any agent of such authority. (f) Schedule 2.4 sets forth all federal, state, local and foreign income tax returns filed with respect to WAIG for taxable periods on or after January 1, 1994 ("Tax Returns"), indicates those Tax Returns that currently are subject to audit. WAIG has delivered or made available to Purchaser complete and correct copies of all Tax Returns, examination reports, and statements of deficiencies assessed against, or agreed to by WAIG since January 1, 1994. WAIG has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to any Tax assessment or deficiency. (g) WAIG has not filed a consent under Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"). Neither WAIG has made any payments, is obligated to make any payments, or is a party to any agreement that under certain circumstances could obligate it to make any payment that will not be deductible under Section 280G of the Code. WAIG will not have any liability on or after the Closing Date pursuant to any tax sharing or tax allocation agreement. Neither WAIG has any liability for the Taxes of any other person under Treasury Regulation 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise. (h) For purposes of this Agreement, "Taxes" shall mean all federal, state, local or foreign taxes, assessments, duties which are payable or remittable by WAIG or levied upon WAIG or any property of WAIG, or levied with respect to either of their assets, franchises, income, receipts, including, without limitation, import duties, excise, franchise, gross receipts, utility, real property, -8- capital, personal property, withholding, FICA, unemployment compensation, sales or use, withholding, governmental charges (whether or not requiring the filing of a return), and all additions to tax, penalties and interest relating thereto. Section 2.5 LITIGATION AND CLAIMS. To the knowledge of Seller there is no litigation, arbitration, claim, governmental or other proceeding (formal or informal), or investigation pending, threatened, or in prospect (or any basis therefor known to the Seller) with respect to the WAIG, or any of their respective businesses, properties, or assets. WAIG is not affected by any present or threatened strike or other labor disturbance nor to the knowledge of Seller is any union attempting to represent any employee of WAIG as collective bargaining agent. WAIG is not in violation of, or in default with respect to, any law, rule, regulation, order, judgment, or decree; nor is the Company required to take any action in order to avoid such violation or default which would have a material adverse effect upon the businesses, assets, properties, prospects or financial condition of WAIG. Section 2.6 PROPERTIES OF WAIG. (a) Set forth on Schedule 2.6(a) is a list of all real property owned or leased by WAIG. With respect to real property that is owned by WAIG, WAIG has good and marketable title to all such property and such property is clear of all liens, mortgages, security interests, or encumbrances, except as otherwise disclosed on Schedule 2.6(a). (b) Set forth in Schedule 2.6(b) is a true and complete list of all personal properties and assets (other than real property) owned by WAIG or leased or licensed by WAIG from or to a third party. All such properties and assets owned by WAIG are reflected on the Last Balance Sheet (except -9- for acquisitions subsequent to the Last Balance Sheet Date which are noted on Schedule 2.6(b)). All such properties and assets owned, leased, or licensed by WAIG are in good and usable condition (reasonable wear and tear which is not such as to affect adversely the operation of the business of WAIG excepted). (c) All accounts and notes receivable reflected on the Last Balance Sheet, or arising since the Last Balance Sheet Date, have been collected in the ordinary course of WAIG's customary practices, or are and will be good and collectible, without right or recourse, defense, deduction, return of goods, counterclaim, offsets, or set-off. (d) No real property owned, leased, or licensed by WAIG lies in an area which is, or to the knowledge of Seller will be, subject to zoning, use, or building code restrictions that would prohibit the continued effective ownership, leasing, licensing, or use of such real property in the business which the WAIG is now engaged. (e) WAIG has not to its knowledge caused or permitted its respective businesses, properties, or assets to be used to generate, manufacture, refine, transport, treat, store, handle, dispose of, transfer, produce, or process any Hazardous Substance (as such term is defined in this Section 2.6(e)) except in compliance with all applicable laws, rules, regulations, orders, judgments, and decrees, and has not caused or permitted the Release (as such term is defined in this Section 2.6(e)) of any Hazardous Substance on or off the site of any property of WAIG. The term "Hazardous Substance" shall mean any hazardous waste, as defined by 42 U.S.C. Section 6903(5), any hazardous substance, as defined by 42 U.S.C. Section 9601(14), any pollutant or contaminant, as defined by 42 U.S.C. Section 9601(33), and all toxic substances, hazardous materials, or other chemical substances regulated by any other law, rule, or regulation. The term "Release" shall have the meaning set forth in 42 U.S.C. Section 9601(22). -10- Section 2.7 CONTRACTS AND OTHER INSTRUMENTS. Schedule 2.7 accurately and completely sets forth a list of all material contracts, agreements, loan agreements, instruments, leases, licenses, arrangements, or understandings with respect to WAIG. The Seller has furnished to the Purchaser, the certificate of incorporation (or other charter document) and by-laws of WAIG and all amendments thereto, as presently in effect, certified by the Secretary of such corporation. Each such contract, agreement, loan agreement, instrument, lease, or license is in full force and is the legal, valid, and binding obligation of WAIG, and (subject to applicable bankruptcy, insolvency, and other laws affecting the enforceability of creditors' rights generally) is enforceable as to it in accordance with its terms. WAIG, is not in violation, in breach of, or in default with respect to any material terms of any such contract, agreement, loan agreement, instrument, lease, or license. Except for employment agreements and as disclosed in Schedule 2.7, WAIG is not a party to any contract, agreement, loan agreement, instrument, lease, license, arrangement, or understanding with, any Seller or any director, officer, or employee of WAIG, or any relative or affiliate of any Seller or of any such director, officer, or employee. The stock ledgers and stock transfer books and the minute book records of WAIG relating to all issuances and transfers of the stockholders of the Board of Directors and committees thereof of WAIG since its incorporation made available to the Purchaser are the original stock ledgers and stock transfer books and minute book records of WAIG or exact copies thereof. Section 2.8 ERISA. (a) The name of each plan, program, arrangement, agreement or commitment sponsored or maintained by or on behalf of WAIG or any ERISA Affiliate (as defined below) or to which WAIG or any ERISA Affiliate makes or is obligated to make contributions or to which WAIG or any ERISA Affiliate made or was obligated to make contributions during the five (5) year period ending on -11- the date hereof, which is a pension, profit sharing, savings, thrift or other retirement plan, deferred compensation, stock purchase, stock option, performance share, bonus or other incentive plan, severance pay plan, policy or procedure, life, health, disability or accident insurance plan, (including, without limitation, each "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or vacation or other employee benefit plan, program, arrangement, agreement or commitment, whether or not written) (all of the foregoing being hereinafter referred to individually as a "Plan" and collectively as the "Plans") is set forth on Schedule 2.8 hereto. WAIG has substantially complied with all of the provisions of each Plan and all applicable provisions of ERISA and the Code, has administered each such Plan (including the payment of benefits thereunder) in all material respects in accordance with the provisions of each such Plan and all applicable provisions of ERISA and the Code, and no penalties under ERISA or any other applicable law or regulation are and at the Deemed Closing Date will be owed to any Plan participant and/or beneficiary and/or any governmental body with respect to the failure to file any reports or other information required under ERISA or any other applicable law or regulation or to distribute or make available any such reports or other information. WAIG has and at the Deemed Closing Date will have timely made all required contributions to each such Plan. (b) No such Plan is a "defined benefit plan" within the meaning of Section 3(35) of ERISA nor a "multi-employer plan" within the meaning of Section 3(37) of ERISA. (c) As of the date hereof and as of the Deemed Closing Date, WAIG is entitled to cease its participation in each Plan referred to in this Section 2.8 and each such Plan, by its provisions, permits WAIG to amend to terminate, in whole or in part, such Plan without default, penalty, premium or any additional cost to WAIG. -12- (d) The transactions contemplated by this Agreement will not result in any payment or series of payments by Olympic or WAIG of a "parachute payment" within the meaning of Section 280G of the Code. (e) With respect to each Plan maintained or sponsored by WAIG which is an "employee welfare benefit plan" within the meaning of Section 3(1) of ERISA (a "Welfare Plan"): (i) the applicable requirements of Part III of Subchapter 8B of Chapter 1 of the Code are satisfied if benefits under such Welfare Plan are intended to qualify for tax-favored treatment; (ii) there is no disqualified benefit which would subject Olympic to tax under Section 4976(a) of the Code; and (iii) each such Welfare Plan which is a group health plan within the meaning of Section 4980B of the Code is and has at all times been in compliance in all material respects with the applicable requirements of Sections 601 through 608 of ERISA, and WAIG is not now and has never been liable for any tax under Section 4980B of the Code. (f) None of the Plans is and, at the Deemed Closing Date, none will be under investigation or audit by either the United States Department of Labor or the Internal revenue Service. (g) None of the Plans provides benefits including, without limitation, death or medical benefits (whether or not insured) with respect to any current or former employee of WAIG beyond their retirement or other termination of service other than (i) coverage mandated by applicable law, (ii) disability benefits under any "employee welfare benefit plan" (as defined in Section 3(1) of ERISA) that have been fully provided for by insurance or otherwise, (ii) deferred compensation benefits accrued as liabilities on the books of WAIG or (iv) benefits in the nature of severance pay. -13- (h) For purposes of this Section 2.8, the term "ERISA Affiliate" shall mean all members of a controlled group of corporations and all trades and businesses (whether or not incorporated) under common control and all other entities which, together with WAIG are treated as a single employer under any or all of sections 414(b), (c), (m), (n) or (o) of the code at any time during the period of five (5) years ended on March 31, 1997. Section 2.9 PATENTS, TRADEMARKS, ET CETERA. Except as disclosed on Schedule 2.9, WAIG does not own or has pending, or is licensed under, any patent, patent application, trademark, trademark application, trade name, service mark, copyright, franchise, or other intangible property or asset (all of the foregoing being herein called "Intangibles"). Those Intangibles listed on Schedule 2.9 are in good standing and uncontested. Neither any Seller, any director, officer, or employee of WAIG, nor any relative or affiliate of any Seller or of any such director, officer, or employee, possesses any Intangible which relates to the business of WAIG. "WestAmerica" is a trademark used by the WAIG to identify its products, and such trademark is protected by registration in the name of WAIG on the principal register in the United States Patent Office. There is no right under any Intangible necessary to the business of WAIG as presently conducted, except such as are so designated in Schedule 2.9. WAIG has not infringed, is infringing, or has received notice of infringement with asserted Intangibles of others. To the knowledge of the Seller, there is no infringement by others of Intangibles of WAIG. Section 2.10 QUESTIONABLE PAYMENTS. No WAIG director, officer, agent, employee, or other person associated with or acting on behalf of the WAIG has, directly, or indirectly: used any corporate funds for unlawful contributions, gifts, entertainment, or other unlawful expenses relating to political activity; made any unlawful payment -14- to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; established or maintained any unlawful or unrecorded fund of corporate monies or other assets; made any false or fictitious entry on the books or records of the WAIG; or made any bribe, kickback, or other payment of a similar or comparable nature, whether lawful or not, to any person or entity, private or public, regardless of form, whether in money, property, or services, to obtain favorable treatment in securing business or to obtain special concessions, or to pay for favorable treatment for business secured or for special concessions already obtained. Section 2.11 BROKER-DEALER REGISTRATION. WAIG is a Broker-Dealer duly registered with the SEC pursuant to Section 15 of the Securities Exchange Act of 1934 as amended, ("the 1934 Act"). Attached hereto as Schedule 2.21 is a full and complete copy of WAIG's Form BD as amended through March 31, 1997 (the "Form BD"). To the knowledge of Seller, neither the Form BD nor the application for registration nor any amendment thereto contains any untrue statement of a material fact or omits to state a material fact required to be stated or necessary in order to make the statements contained therein not misleading. Section 2.12 NO THREATENED SEC PROCEEDINGS. To the knowledge of Seller, there is not currently pending or to the knowledge of the shareholders, threatened any inquiry, investigation, administrative proceeding, or civil action undertaken or initiated by the SEC concerning WAIG or its officers, directors, or registered representatives. Section 2.13 NET CAPITAL. WAIG is not in violation of the applicable net capital provisions of the 1934 Act and the general rules and regulations thereunder. -15- Section 2.14 NASD MEMBERSHIP. WAIG is a member in good standing the with NASD, and, to the knowledge of Seller, there has not been for the most recent three years, nor is there currently pending or to the shareholders knowledge threatened, any inquiry investigation or disciplinary proceeding undertaken by the NASD concerning WAIG or any of its officers, directors, registered principals, or registered representatives. Section 2.15 FEES AND ASSESSMENTS. As of March 31, 1997 there are no fees or assessments owed to the NASD or SIPIC for which bills have been received by WAIG, other than as set forth in Section 2.3. Section 2.16 NASD RESTRICTIONS. There are no special restrictions or limitations imposed by the NASD relating to the conduct by WAIG of the business of a Broker-Dealer, except as set forth on Schedule 2.16 or the Form BD. Section 2.17 CRD REGISTRATION. WAIG is registered with the Central Registration Depository under CRD Number 6626. Section 2.18 STATE BROKER-DEALER REGISTRATIONS. WAIG is registered as a Broker-Dealer in the states and jurisdictions enumerated in Form BD, and all of such registrations are current, and except as set forth on Schedule 2.18, WAIG is in good standing as a registered Broker-Dealer in each such state or jurisdiction where such registration or qualification is required. As of March 31, 1997, no renewal or registration fee for which bills have been received is due or owing to any state othere than as set forth in Section 2.3. Also set forth on the Form -16- BD are all states and jurisdictions in which applications for registration of WAIG as a Broker-Dealer are currently pending. Section 2.19 NO STATE INQUIRIES. WAIG's state Broker-Dealer registrations have not been terminated and to the knowledge of Seller there has not been, nor is there currently pending to or WAIG's knowledge threatened, any inquiry, investigation, administrative proceeding, or civil action undertaking or initiated by such states or jurisdictions concerning WAIG or its officers, directors, registered principals or registered representatives. Section 2.20 REGISTERED REPRESENTATIVES. Attached hereto as Schedule 2.20 is a list of all registered representatives of WAIG and each state or jurisdiction in which each individual is registered. Section 2.21 BROKERS BOND. WAIG currently has in effect a blanket Broker-Dealer fidelity bond as summarized in Schedule 2.21. Section 2.22 SIPC REGISTRATION. WAIG is duly registered with the Security Investors Protection Corporation ("SIPC"). WAIG has paid or has made adequate provision for the payment of all SIPC assessments as of December 31, 1996. -17- Section 2.23 CLEARING AGREEMENT. WAIG presently has a clearing agreement, as amended and to be effective on and after the closing, with Correspondent Services Corporation ("CSC"), a true copy of which has been provided to Olympic. As of March 31, 1997, except as shown on Schedule 2.23 and except for unsecured debit balances of less than $1,000.00 for which WAIG has made adequate provision on its financials dated March 31, 1997, there will be no amount due and owing to CSC, nor will there by any unsecured debts of customers for which WAIG may be or become responsible. III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and warrants to Seller as follows: Section 3.1 ORGANIZATION AND QUALIFICATION. The Purchaser is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation, with all requisite power and authority to own, lease, license, and use its properties and assets and to carry on the business in which it is now engaged and in which it contemplates engaging. Section 3.2 AUTHORITY TO BUY. The Purchaser has all requisite power and authority to execute, deliver, and perform this Agreement. All necessary corporate proceedings of the Purchaser have been duly taken to authorize the execution, delivery, and performance of this Agreement by the Purchaser. This Agreement has been duly authorized, executed and delivered by the Purchaser, is the legal, valid, and binding obligation of the Purchaser. -18- Section 3.3 DISCLOSURE OF INFORMATION. The Purchaser has received all the information it considers necessary or appropriate for deciding whether to purchase the Acquired Securities. The Purchaser further represents that it has had the opportunity to ask questions and receive answers from the Seller and WAIG regarding the Acquired Securities and the businesses, assets, properties, prospects and financial condition of WAIG. The foregoing, however, does not limit or modify the representations and warranties of the Seller in Section 2 of this Agreement and the right of Purchaser to rely thereon, and is enforceable as to it in accordance with its terms. IV. CONDITIONS TO OBLIGATIONS OF THE PURCHASER. The obligations of the Purchaser under this Agreement are subject, at the option of the Purchaser, to the following conditions: Section 4.1 ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH CONDITIONS. All representations and warranties of the Seller contained in this Agreement shall be accurate as of the Closing as though such representations and warranties were then made in exactly the same language by Seller and regardless of knowledge or lack thereof on the part of Seller or changes beyond its or his control; as of the Closing, the Seller shall have performed and complied with all covenants and agreements and satisfied all conditions required to be performed and complied with by any of them at or before such time by this Agreement; and the Purchaser shall have received a certificate executed by each of the Seller, dated the date of the Closing, to that effect. -19- Section 4.2 OPINION OF COUNSEL. The Seller have delivered to the Purchaser on the date of the Closing the opinion of counsel to WAIG and the Seller, dated as of the Closing Date, in form and substance satisfactory to counsel for the Purchaser. Section 4.3 THIRD PARTY APPROVALS. Any and all permits and approvals from any governmental authority or other person necessary to permit the consummation of the transactions contemplated herein, including, without limitation, approval of the NASD, shall have been obtained. Section 4.4 UPDATED FOCUS REPORTS. WAIG shall have delivered to Olympic copies of all 1997 focus reports filed by it. Section 4.5 OTHER CLOSING DOCUMENTS. The Seller shall have delivered to the Purchaser at or prior to the Closing such other documents as the Purchaser may reasonably request in order to enable the Purchaser to determine whether the conditions to its obligations under this Agreement have been met and otherwise to carry out the provisions of this Agreement. Section 4.6 LEGAL ACTION. There shall not have been instituted or threatened any legal proceeding relating to, or seeking to prohibit or otherwise challenge the consummation of, the transactions contemplated by this Agreement, or to obtain substantial damages with respect thereto. -20- Section 4.7 NO GOVERNMENTAL ACTION. There shall not have been any action taken, or any law, rule, regulation, order, judgment, or decree proposed, promulgated, enacted, entered, enforced, or deemed applicable to the transactions contemplated by this Agreement by any federal, state, local, or other governmental authority or by any court or other tribunal, including the entry of a preliminary or permanent injunction, which, in the sole judgment of the Purchaser, (a) makes any of the transactions contemplated by this Agreement, illegal, (b) results in a delay in the ability of the Purchaser to consummate any of the transactions contemplated by this Agreement, (c) requires the divestiture by the Purchaser of any of the shares of the Common Stock to be sold pursuant to this Agreement or of a material portion of the business of either the Purchaser and its subsidiaries taken as a whole, or of the Company (d) imposes material limitations on the ability of the Purchaser effectively to exercise full rights of ownership of such shares or (e) otherwise prohibits, restricts, or delays consummation of any of the transactions contemplated by this Agreement or impairs the contemplated benefits to the Purchaser of any of the transactions contemplated by this Agreement. Section 4.8 CONTRACTUAL CONSENTS NEEDED. The parties to this Agreement shall have obtained at or prior to the Closing all consents required for the consummation of the transactions contemplated by this Agreement from any party to any contract, agreement, instrument, lease, license, arrangement, or understanding to which any of them is a party, or to which any of them or any of their respective businesses, properties, or assets are subject. -21- Section 4.9 MATERIAL ADVERSE CHANGE. Since March 31, 1997 there has been no event or development or combinations of changes or developments, individually or in the aggregate, that could be reasonably expected to have a material adverse effect on the business, operations, or future prospects of WAIG. V. CONDITIONS TO OBLIGATIONS OF SELLER. Section 5.1 ACCURACY OF REPRESENTATIONS AND COMPLIANCE WITH CONDITIONS. All representations and warranties of the Purchaser contained in this Agreement shall be accurate when made and, in addition, shall be accurate as of the Closing as though such representations and warranties were then made in exactly the same language by the Purchaser and regardless of the knowledge or lack thereof on the part of the Purchaser or changes beyond its control; as of the Closing, the Purchaser shall have performed and complied with all conditions required to be performed and complied with by it at or before such time by this Agreement, and the Seller shall have received a certificate executed an executive officer of the Purchaser, dated the date of the Closing, to that effect. Section 5.2 LEGAL ACTION. There shall not have been instituted or threatened any legal proceeding relating to, or seeking to prohibit or otherwise challenge the consummation of, the transactions contemplated by this Agreement, or to obtain substantial damages with respect thereto. Section 5.3 CONTRACTUAL CONSENTS. The parties to this Agreement shall have obtained at or prior to the Closing all consents required for the consummation of the transactions contemplated by this Agreement from any party to any -22- contract, agreement, instrument, lease, license, arrangement, or understanding to which any of them is a party, or to which any of them or any of their respective businesses, properties, or assets are subject. VI. COVENANTS OF SELLER. The Seller covenants and agrees as follows: Section 6.1 ACCESS. Until the earlier of the Closing or the termination of this Agreement on June 15, 1997 for the failure to obtain applicable regulatory approval (the "Release Time"), the Seller will cause WAIG to afford the officers, employees, counsel, agents, investment bankers, accountants, and other representatives of the Purchaser free and full access to the plants, properties, books, and records of WAIG, will permit them to make extracts from the copies of such books and records, and will from time to time furnish the Purchaser with such additional financial and operating data and other information as to the financial condition, results of operations, businesses, properties, assets, liabilities, or future prospects of WAIG as the Purchaser from time to time may reasonably request. Section 6.2 CONDUCT OF BUSINESS. Until the Release Time, the Seller will cause WAIG to conduct its affairs so that at the Closing no representation or warranty of the Seller will be inaccurate, no covenant or agreement of the Seller will be breached, and no condition in this Agreement will remain unfulfilled by reason of the actions or omissions of WAIG. Except as otherwise requested by the Purchaser in writing, until the Release Time, the Seller will cause WAIG to use its best efforts to preserve its business operations intact, to keep available the services of its present personnel, to preserve in full force and effect the contracts, agreements, instruments, leases, licenses, arrangements, and understandings of WAIG, and to preserve -23- the good will of its customers, and others having business relations with any of them. Until the Release Time, the Seller will cause WAIG to conduct its business and operations in all respects only in the ordinary course. Section 6.3 ADVICE OF CHANGES. Until the Release Time, the Seller will immediately advise the Purchaser in a detailed written notice of any fact or occurrence or any pending or threatened occurrence of which any of them obtains knowledge and which (if existing and known at the date of the execution of this Agreement) would have been required to be set forth or disclosed in this Agreement or a Schedule hereto, which (if existing and known at any time prior to or at the Closing) would make the performance by any party of a covenant contained in this Agreement impossible or make such performance materially more difficult than in the absence of such fact or occurrence, or which (if existing and known at the time of the Closing) would cause a condition to any party's obligations under this Agreement not to be fully satisfied. Section 6.4 PUBLIC STATEMENTS. Neither the Seller nor WAIG shall disseminate any information to the public regarding this Agreement or the transactions contemplated hereby, without the prior written consent of the Purchaser, unless either Seller or WAIG are advised by counsel that such disclosure is required and it is not possible to timely obtain the Purchaser's consent. Notwithstanding the foregoing, nothing contained herein shall prevent the Seller from releasing any information to any governmental authority if required to do so by law. -24- Section 6.5 OTHER PROPOSALS. Until the Release Time, the Seller shall not, and shall neither authorize nor permit any officer, director, employee, counsel, agent, investment banker, accountant, or other representative of any of them directly or indirectly, to: (i) initiate contact with any person or entity in an effort to solicit any Takeover Proposal (as such term is defined in this Section 6.5); (ii) cooperate with, or furnish or cause to be furnished any non-public information relating to the financial conditions, results of operations, business, properties, assets, liabilities, or future prospects of WAIG to, any person or entity in connection with any Takeover Proposal; (iii) negotiate with any person or entity with respect to any Takeover Proposal; or (iv) enter into any agreement or understanding with the intent to effect a Takeover Proposal of which any of them becomes aware. As used in this Section 6.5, "Takeover Proposal" shall mean any proposal, other than as contemplated by this Agreement, (x) for a merger, consolidation, reorganization, other business combination, or recapitalization involving the WAIG, for the acquisition of a five (5%) percent or greater interest in the equity or in any class or series of capital stock of the WAIG, for the acquisition of the right to cast five (5%) percent or more of the votes on any matter with respect to WAIG, or for the acquisition of a substantial portion of any of its assets other than in the ordinary course of its businesses or (y) the effect of which may be to prohibit, restrict, or delay the consummation of any of the transactions contemplated by this Agreement or impair the contemplated benefits to the Purchaser or of any of the transactions contemplated by this Agreement. Section 6.6 VOTING BY STOCKHOLDERS. The Seller agrees that until the Release Time, it will vote all securities of WAIG which it is entitled to vote against (a) any merger, consolidation, reorganization, other business combination, or capitalization WAIG, (b) any sale of assets of WAIG, (c) any stock split, stock dividend, or reverse -25- stock split relating to any class or series of WAIG, (d) any issuance of any shares of capital stock of WAIG, any option, warrant, or other right calling for the issuance of any such share of capital stock, or any security convertible into or exchangeable for any such share of capital stock, (e) any authorization of any other class or series of stock of WAIG, (f) the amendment of the certificate of incorporation (or other charter document) or the by-laws of WAIG, or (g) any other proposition the effect of which may be to prohibit, restrict, or delay the consummation of any of the transactions contemplated by this Agreement or to impair materially the contemplated benefits to the Purchaser of the transactions contemplated by this Agreement. VII. COVENANTS OF PURCHASER. The Purchaser covenants and agrees as follows: Section 7.1 CONFIDENTIALITY. The Purchaser shall insure that all confidential information which the Purchaser, any of its respective officers, directors, employees, counsel, agents, investment bankers, or accountants, may now possess or may hereafter create or obtain relating to the financial condition, results of operations, business, properties, assets, liabilities, or future prospects of WAIG shall not be published, disclosed, or made accessible by any of them to any other person or entity at any time or used by any of them without the prior written consent of WAIG, as the case may be, provided, however, that the restrictions of this sentence shall not apply (a) as may otherwise be required by law, (b) as may be necessary or appropriate in connection with the enforcement of this Agreement, or (c) to the extent the information shall have otherwise become publicly available. This Section 7.1 shall survive termination of this Agreement. -26- VIII. INDEMNIFICATION; SURVIVAL; LIMITATIONS ON LIABILITY. Section 8.1 INDEMNIFICATION. (a) Subject to the terms and conditions set forth in Section 8.2, the Seller agrees to indemnify and hold harmless the Purchaser, its officers, directors, employees, counsel, and agents, (collectively, the "Indemnitees"), against and in respect of any and all claims, suits, actions, proceedings (formal or informal), investigations, judgments, deficiencies, damages, settlements, liabilities, and reasonable legal and other expenses related thereto (collectively, "Claims"), as and when incurred, arising out of or based upon any breach of any covenant or agreement of the Seller contained in this Agreement or any document or instrument delivered in connection with this Agreement or any misrepresentation in or omission from any of the representations or warranties of the Seller in this Agreement. (b) Each Indemnitee shall give the Seller prompt notice of any claim asserted or threatened against such Indemnitee on the basis of which such Indemnitee intends to seek indemnification (but the obligations of the Seller shall not be conditions upon receipt of such notice, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice). The Seller shall promptly assume the defense of any Indemnitee, with counsel reasonably satisfactory to such Indemnitee, and the fees and expenses of such counsel shall be at the sole cost and expense of the Seller. Notwithstanding the foregoing, any Indemnitee shall be entitled, at his or its expense, to employ counsel separate from counsel for the Seller and from any other party in such action, proceeding, or investigation. No Indemnitee may agree to a settlement of a claim without the prior written approval of the Seller, which approval shall not be unreasonably withheld. (c) Notwithstanding the above, if the claim for indemnification arises of a breach of the representations set forth in Section 2.4, Purchaser, at its option, shall have the sole right to represent -27- WAIG in any federal, state, local or foreign tax matter, including any audit or administrative or judicial proceeding or the filing of an amended return. Seller agrees that it will cooperate fully with Purchaser and its counsel in the defense or compromise of any such tax matter. (d) The Seller shall not have any obligation to indemnify any Indemnitee from and against any loss or claim under this Section 8.1 until the Indemnitees shall have collectively suffered losses in excess of $5,000. (e) The Seller shall have no obligation to indemnify any Indemnitee for any Loss under this Section 8.1 or any other Section of this Agreement at any time after Seller shall have indemnified Indemnitees in an amount equal to $650,000. Section 8.2 SURVIVAL. (a) Subject to the provisions of Section 8.2(b), the covenants, agreements, representations, and warranties contained in or made pursuant to this Agreement shall survive the Closing and the delivery of the purchase price by the Purchaser, irrespective of any investigation made by or on behalf of any party. (b) The liabilities and obligations of the Seller under this Agreement shall be subject to the following limitations. The Seller shall have no liability or obligation with respect to any claim for a breach of a representation or warranty under this Agreement made after eighteen (18) months from the Closing Date except for claims arising out of a breach of the representations as to tax liabilities under Section 2.4, with respect to which the Seller shall remain liable until ninety (90) days after the expiration of the applicable statute of limitations relating to such tax liabilities. -28- IX. MISCELLANEOUS. Section 9.1 BROKERAGE FEES. If any person shall assert a claim to a fee, commission, or other compensation on account of alleged employment as a broker or finder, in connection with or as a result of any of the transactions contemplated by this Agreement, the Seller shall (subject to the next sentence) indemnify and hold harmless the Indemnitees against any and all Claims (as defined in Section 8.1), as and when incurred, arising out of, based upon, or in connection with such Claim by such person, except to the extent that it is determined in any suit, action, or proceeding that the Purchaser or any Indemnitee had engaged such broker or finder. Section 9.2 REGULATORY FILINGS. WAIG and Olympic each agree to prepare and file all required documents, submissions, notices, amended applications or similar filings with federal, state, and local regulatory authorities and the NASD to effect and given evidence of the transaction contemplated by this Agreement. Section 9.3 FURTHER ACTIONS. At any time and from time to time, each party agrees, as its or his expense, to take such actions and to execute and deliver such documents as may be reasonably necessary to effectuate the purposes of this Agreement. Section 9.4 SUBMISSION TO JURISDICTION. Each of the parties hereto irrevocably submits to the jurisdiction of the courts of the State of Washington, and of any federal court located in the State of Washington, in connection with any action -29- or proceeding arising out of or relating to, or a breach of, this Agreement, or of any document or instrument delivered pursuant to, in connection with, or simultaneously with this Agreement. Section 9.5 MERGER; MODIFICATION. This Agreement and the Schedules and Exhibits attached hereto set forth the entire understanding of the parties with respect to the subject matter hereof, supersede all existing agreements among them concerning such subject matter, and may be modified only by a written instrument duly executed by each party to be charged. Section 9.6 NOTICES. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested (or by the most nearly comparable method if mailed from or to a location outside of the United States) or by Federal Express, Express Mail, or similar overnight delivery or courier service or delivered (in person or by telecopy, or similar telecommunications equipment) against receipt to the party to whom it is to be given at the address of such party set forth in the preamble to this Agreement (or to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 9.6). Any notice given to the Purchaser shall be addressed to the attention of Mark Roth, Esq., and a copy of such notice (which copy shall not constitute notice) shall also be sent to Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th Floor, New York, New York 10019-4315 Attention: Alan I. Annex, Esq. Any notice given to the Seller shall be addressed to the attention of Edward R. Foraker, West America Corporation, P.O. Box 40, Dewey, Oklahoma 74029. Notice to the estate of any party shall be sufficient if addressed to the party as provided in this Section 9.6. Any notice or other communication given by certified mail (or by such comparable method) shall be deemed given at the time of certification thereof (or comparable act) except -30- for a notice changing a party's address which will be deemed given at the time of receipt thereof. Any notice given by other means permitted by this Section 9.5 shall be deemed given at the time of receipt thereof. Section 9.7 WAIVER. Any waiver by any party of a breach of any terms of this Agreement shall not operate as or be construed to be a waiver of any other breach of that term or of any breach of any other term of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions will not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing. Section 9.8 BINDING EFFECT. The provisions of this Agreement shall be binding upon and inure to the benefit of the Purchaser, and its successors and assigns and each Seller and his respective assigns, heirs, and personal representatives, and shall inure to the benefit of each Indemnitee and its successors and assigns (if not a natural person) and his assigns, heirs, and personal representatives (if a natural person). Section 9.9 NO THIRD-PARTY BENEFICIARIES. This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Agreement (except as provided in 9.7). -31- Section 9.10 SEPARABILITY. If any provision of this Agreement is invalid, illegal, or unenforceable, the balance of this Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. Section 9.11 HEADINGS. The headings in this Agreement are solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. Section 9.12 COUNTERPARTS; GOVERNING LAW. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. It shall be governed by, and construed in accordance with, the laws of the State of Washington, without giving effect to the rules governing the conflict of laws. -32- IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first written above. WESTAMERICA CORPORATION By: /s/ Edward R. Foraker ----------------------------------- Name: Edward R. Foraker Title: Chairman OLYMPIC CASCADE FINANCIAL CORPORATION By: /s/ Steven A. Rothstein ------------------------------------ Name: Steven A. Rothstein Title: Chairman -33- EX-10.32 4 EXHIBIT 10.32 STOCK PURCHASE AGREEMENT AMONG OLYMPIC CASCADE FINANCIAL CORPORATION, ELLIOT R. TRAVIS AND SCOTT A. GUTTING RELATING TO ALL OF THE ISSUANCE AND OUTSTANDING CAPITAL STOCK OF TRAVIS CAPITAL, INC. JULY 10, 1997 TABLE OF CONTENTS I. PURCHASE AND SALE. . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.1 TERMS OF PURCHASE AND SALE. . . . . . . . . . . . . . . 2 Section 1.2 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . 2 Section 1.3 OTHER TRANSACTIONS AT CLOSING . . . . . . . . . . . . . 2 II. REPRESENTATIONS AND WARRANTIES OF THE SELLER . . . . . . . . . . . . . 3 Section 2.1 ORGANIZATION AND QUALIFICATION. . . . . . . . . . . . . 4 Section 2.2 CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . 4 Section 2.3 FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . 5 Section 2.4 TAX AND OTHER LIABILITIES . . . . . . . . . . . . . . . 6 Section 2.5 LITIGATION AND CLAIMS . . . . . . . . . . . . . . . . . 9 Section 2.6 PROPERTIES OF TRAVIS CAPITAL. . . . . . . . . . . . . . 9 Section 2.7 CONTRACTS AND OTHER INSTRUMENTS . . . . . . . . . . . . 11 Section 2.8 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 2.9 PATENTS, TRADEMARKS, ET CETERA. . . . . . . . . . . . . 14 Section 2.10 QUESTIONABLE PAYMENTS.. . . . . . . . . . . . . . . . . 15 Section 2.11 BROKER-DEALER REGISTRATION. . . . . . . . . . . . . . . 15 Section 2.12 NO THREATENED SEC PROCEEDINGS.. . . . . . . . . . . . . 16 Section 2.13 NET CAPITAL.. . . . . . . . . . . . . . . . . . . . . . 16 Section 2.14 NASD MEMBERSHIP. . . . . . . . . . . . . . . . . . . . 16 Section 2.15 FEES AND ASSESSMENTS. . . . . . . . . . . . . . . . . . 16 Section 2.16 NASD RESTRICTIONS.. . . . . . . . . . . . . . . . . . . 17 Section 2.17 CRD REGISTRATION. . . . . . . . . . . . . . . . . . . . 17 Section 2.18 STATE BROKER-DEALER REGISTRATIONS.. . . . . . . . . . . 17 Section 2.19 NO STATE INQUIRIES. . . . . . . . . . . . . . . . . . 17 Section 2.20 REGISTERED REPRESENTATIVES. . . . . . . . . . . . . . . 18 Section 2.21 BROKERS BOND. . . . . . . . . . . . . . . . . . . . . . 18 Section 2.22 SIPC REGISTRATION. . . . . . . . . . . . . . . . . . . 18 III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. . . . . . . . . . . . 18 Section 3.1 ORGANIZATION AND QUALIFICATION. . . . . . . . . . . . . 18 Section 3.2 AUTHORITY TO BUY. . . . . . . . . . . . . . . . . . . . 18 Section 3.3 DISCLOSURE OF INFORMATION . . . . . . . . . . . . . . . 19 IV. CONDUCT OF THE BUSINESS OF TRAVIS CAPITAL FOLLOWING STOCK PURCHASE . . 19 Section 4.1 LETTER AGREEMENT. . . . . . . . . . . . . . . . . . . . 19 V. INDEMNIFICATION; SURVIVAL; LIMITATIONS ON LIABILITY. . . . . . . . . . 20 Section 5.1 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . 20 Section 5.2 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . 21 -i- VI. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 6.1 BROKERAGE FEES. . . . . . . . . . . . . . . . . . . . . 21 Section 6.2 REGULATORY FILINGS. . . . . . . . . . . . . . . . . . . 22 Section 6.3 FURTHER ACTIONS . . . . . . . . . . . . . . . . . . . . 22 Section 6.4 SUBMISSION TO JURISDICTION. . . . . . . . . . . . . . . 22 Section 6.5 MERGER; MODIFICATION. . . . . . . . . . . . . . . . . . 22 Section 6.6 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 6.7 WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 6.8 BINDING EFFECT. . . . . . . . . . . . . . . . . . . . . 24 Section 6.9 NO THIRD-PARTY BENEFICIARIES. . . . . . . . . . . . . . 24 Section 6.10 SEPARABILITY. . . . . . . . . . . . . . . . . . . . . . 24 Section 6.11 HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . 24 Section 6.12 COUNTERPARTS; GOVERNING LAW . . . . . . . . . . . . . . 25 -ii- STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement"), is being made this 10th day of July, 1997, effective June 30, 1997, by and among OLYMPIC CASCADE FINANCIAL CORPORATION, a Delaware corporation (the "Purchaser" or "Olympic"), with offices at 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154-1100; ELLIOT R. TRAVIS, an individual with an address of 987 Millstream Way, Bountiful, Utah 84101 , and SCOTT A. GUTTING, an individual with an address of 4258 Mount Olympic Way, Salt Lake City, Utah 74134 (each a "Seller" and collectively, the "Sellers"). W I T N E S S E T H : WHEREAS, the Sellers own beneficially and of record all of the issued and outstanding capital stock (the "Acquired Securities") of Travis Capital, Inc. ("TRAVIS CAPITAL"), a Utah corporation with offices at 30 Market Street, Suite 200, Salt Lake City, Utah 84101, which capital stock consists of 4,475 shares of common stock, par value $0.00 per share (the "TRAVIS CAPITAL Common Stock"). WHEREAS, TRAVIS CAPITAL is a broker-dealer duly registered with the Securities and Exchange Commission (the "SEC") and is a member in good standing with the National Association of Securities Dealers, Inc. (the "NASD") engaged in the general securities business. WHEREAS, the Purchaser desires to acquire the Acquired Securities from the Sellers and the Sellers desire to sell the Acquired Securities to the Purchaser, subject to the terms and conditions set forth below. NOW, THEREFORE, in consideration of the premises, representations, warranties, and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: I. PURCHASE AND SALE. Section 1.1 TERMS OF PURCHASE AND SALE. (a) At the Closing (as defined in Section 1.2 below), the Sellers shall sell, assign, transfer, and convey to the Purchaser the Acquired Securities. The Sellers shall deliver to the Purchaser at the Closing certificates representing the Acquired Securities, duly endorsed in blank or accompanied by stock powers duly endorsed in blank, in each case in proper form for transfer, with signatures guaranteed, and, if applicable, with all stock transfer and any other required documentary stamps affixed thereto. (b) In consideration for the Acquired Securities, the Purchaser shall deliver to the Seller, at the Closing, Twenty Thousand (20,000) shares of Common Stock of Olympic). Section 1.2 CLOSING. The Closing (the "Closing") of the transactions contemplated by this Agreement shall take place at the offices of L.H. Friend, Weinress, Frankson & Presson, Inc., 1875 Century Park East, Century City, California, or at such other location mutually agreed upon by the parties, on the third (3rd) business day following the receipt of all applicable regulatory approvals (the "Closing Date") or such other time or date as the parties may mutually agree, but in no event later than August 31, 1997. Section 1.3 OTHER TRANSACTIONS AT CLOSING. -2- In addition to the transactions referred to in this Sections 1.1 and 1.2 above, at the Closing, the Sellers shall deliver to the Purchaser the following: (a) The minute books, stock certificate books, stock transfer ledgers, and corporate seals of TRAVIS CAPITAL; (b) Resignations of all officers and directors of the TRAVIS CAPITAL, except as mutually agreed; (c) The Written Consent of any applicable regulatory authority. (d) Certificates of Good Standing as to TRAVIS CAPITAL issued by the appropriate governmental authorities of the State of Utah and each state in which the TRAVIS CAPITAL is qualified to do business; (e) Certified copy of the Certificate of Incorporation of TRAVIS CAPITAL, and all amendments thereto, certified by the Secretary of State of the State of Utah; and (f) A copy of by-laws of TRAVIS CAPITAL, certified by the secretary or assistant secretary thereof as being true, complete, and correct. II. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Sellers represents and warrants to the Purchaser as follows: -3- Section 2.1 ORGANIZATION AND QUALIFICATION. TRAVIS CAPITAL does not own any capital stock of any corporation or any interest in any joint venture, partnership, association, trust, or other entity. Schedule 2.1 correctly sets forth as to TRAVIS CAPITAL its place of incorporation, principal place of business, and jurisdictions in which it is qualified to do business. TRAVIS CAPITAL is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation, with all requisite power and authority, and all necessary consents, authorizations, approvals, orders, licenses, certificates, and permits of and from, and declarations and filings with, all federal, state, local, and other governmental authorities, and all courts and other tribunals, to own, lease, license, and use its properties and assets and to carry on the business in which it is now engaged and the business in which it contemplates engaging. TRAVIS CAPITAL is duly qualified to transact the business in which it is now engaged and is in good standing as a foreign corporation in every jurisdiction where the failure to so qualify would have material adverse effect upon the businesses assets, properties, prospectus, or financial condition of TRAVIS CAPITAL. Section 2.2 CAPITALIZATION. The authorized capital stock of TRAVIS CAPITAL consists of 100,000 shares of common stock, par value $000 per share, of which 4,475 shares are outstanding. Each of such outstanding shares of TRAVIS CAPITAL Common Stock is validly authorized, validly issued, fully paid, and nonassessable, has not been issued and is not owned or held in violation of any preemptive right of stockholders, and is owned of record and beneficially by the Sellers. The Acquired Securities are owned by the Sellers free and clear of all liens, security interests, pledges, charges, encumbrances, stockholders' agreements, and voting trusts. There is no outstanding security or other instrument convertible into or exchangeable for capital stock of TRAVIS CAPITAL nor is there any commitment, plan, or arrangement -4- to issue, and no outstanding option, warrant, or other right calling for the issuance of, any share of capital stock of TRAVIS CAPITAL or any security or other instrument convertible into, exercisable for, or exchangeable for capital stock of TRAVIS CAPITAL. Section 2.3 FINANCIAL CONDITION. The Sellers have delivered to the Purchaser true and correct copies of the following: the unaudited balance sheet of TRAVIS CAPITAL as of [June 30, 1997], the audited balance sheet of TRAVIS CAPITAL as of [January 31, 1997], the audited statements of income, statements of retained earnings, and statements of cash flows of TRAVIS CAPITAL for the year ended [January 31, 1997], and the audited statements of income, statements of retained earnings and statements of cash flows for the years ended [January 31, 1996 and 1995]. Each such balance sheet presents fairly the financial conditions, assets, liabilities, and stockholders' equity of TRAVIS CAPITAL as of its date; each such statement of income and statement of retained earnings presents fairly the results of operations of TRAVIS CAPITAL for the period indicated and their retained earnings as of the date indicated; and each such statement of cash flows presents fairly the information purported to be shown therein. The financial statements referred to in this Section 2.3 have been prepared in accordance with generally accepted accounting principles consistently applied throughout the periods involved and are in accordance with the books and records of TRAVIS CAPITAL. Since June 30, 1997: (a) There has at no time been a material adverse change in the financial condition, results of operations, business, properties, assets, liabilities, or, to the Sellers' knowledge, the future prospects of TRAVIS CAPITAL. -5- (b) TRAVIS CAPITAL has not authorized, declared, paid, or effected any dividend or liquidating or other distribution in respect of its capital stock or any direct or indirect redemption, purchase, or other acquisition of any stock of TRAVIS CAPITAL. (c) The operations and business of the TRAVIS CAPITAL have been conducted in all respects only in the ordinary course. (d) TRAVIS CAPITAL has not suffered an extraordinary loss (whether or not covered by insurance) or waived any right of substantial value. (e) TRAVIS CAPITAL has not paid any expense resulting from the preparation of, or the transactions contemplated by, this Agreement, it being understood that the Sellers shall have paid or will pay all such expenses (including, without limitation, its legal expenses resulting from this Agreement or the transactions contemplated hereby). There is no fact known to the Sellers, which materially and adversely affects or in the future (as far as the Sellers can reasonably foresee) may materially and adversely affect the financial condition, results of operations, business, properties, assets, liabilities, or future prospects of TRAVIS CAPITAL; PROVIDED, HOWEVER, that the Sellers express no opinion as to political or economic matters of general applicability. Section 2.4 TAX AND OTHER LIABILITIES. (a) TRAVIS CAPITAL has no liability of any nature, accrued or contingent, including without limitation liabilities for Taxes (as defined in Section 2.4(f)) and liabilities to customers or suppliers, other than the following: -6- (b) Liabilities for which full provision has been made on the balance sheet (the "Last Balance Sheet") as of [June 30, 1997] (the "Last Balance Sheet Date"); and (c) Other liabilities arising since the Last Balance Sheet Date and prior to the Closing in the ordinary course of business which are not inconsistent with the representations and warranties of any Seller or any other provision of this Agreement. (d) Without limiting the generality of Section 2.4(a): (i) TRAVIS CAPITAL and any combined, consolidated, unitary or affiliated group of which TRAVIS CAPITAL is or has been a member prior to the Closing Date: (i) has paid all Taxes required to be paid on or prior to the Closing Date (including, without limitation, payments of estimated Taxes) for which TRAVIS CAPITAL could be held liable, except for Taxes which are being contested in good faith and by appropriate proceedings; and (ii) has accurately and timely filed (or filed an extension for), all federal, state, local, and foreign tax returns, reports, and forms with respect to such taxes required to be filed by them on or before the Closing Date. (ii) The amount set up as provisions for Taxes on the Last Balance Sheet are sufficient for all accrued and unpaid Taxes of TRAVIS CAPITAL, whether or not due and payable and whether or not in dispute, under tax laws as in effect on the Last Balance Sheet Date or now in effect, for the period ended on such date and for all periods prior thereto. -7- (e) There is no material dispute or claim concerning any liability for Taxes of TRAVIS CAPITAL either (i) claimed or raised by any authority in writing, or (ii) as to which TRAVIS CAPITAL has knowledge based upon personal contact with any agent of such authority. (f) Schedule 2.4 sets forth all federal, state, local and foreign income tax returns filed with respect to TRAVIS CAPITAL for taxable periods on or after January 1, 1994 ("Tax Returns"), indicates those Tax Returns that currently are subject to audit. TRAVIS CAPITAL has delivered or made available to Purchaser complete and correct copies of all Tax Returns, examination reports, and statements of deficiencies assessed against, or agreed to by TRAVIS CAPITAL since January 1, 1994. TRAVIS CAPITAL has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to any Tax assessment or deficiency. (g) TRAVIS CAPITAL has not filed a consent under Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"). TRAVIS CAPITAL has not made any payments, is not obligated to make any payments, nor is a party to any agreement that under certain circumstances could obligate it to make any payment that will not be deductible under Section 280G of the Code. TRAVIS CAPITAL will not have any liability on or after the Closing Date pursuant to any tax sharing or tax allocation agreement. TRAVIS CAPITAL has no liability for the Taxes of any other person under Treasury Regulation 1.1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract, or otherwise. (h) For purposes of this Agreement, "Taxes" shall mean all federal, state, local or foreign taxes, assessments, duties which are payable or remittable by TRAVIS CAPITAL or levied upon TRAVIS CAPITAL or any property of TRAVIS CAPITAL, or levied with respect to either of their -8- assets, franchises, income, receipts, including, without limitation, import duties, excise, franchise, gross receipts, utility, real property, capital, personal property, withholding, FICA, unemployment compensation, sales or use, withholding, governmental charges (whether or not requiring the filing of a return), and all additions to tax, penalties and interest relating thereto. Section 2.5 LITIGATION AND CLAIMS. To the knowledge of Sellers there is no litigation, arbitration, claim, governmental or other proceeding (formal or informal), or investigation pending, threatened, or in prospect (or any basis therefor known to the Seller) with respect to the TRAVIS CAPITAL, or any of their respective businesses, properties, or assets. TRAVIS CAPITAL is not affected by any present or threatened strike or other labor disturbance nor to the knowledge of Sellers is any union attempting to represent any employee of TRAVIS CAPITAL as collective bargaining agent. TRAVIS CAPITAL is not in violation of, or in default with respect to, any law, rule, regulation, order, judgment, or decree; nor is the Company required to take any action in order to avoid such violation or default which would have a material adverse effect upon the businesses, assets, properties, prospects or financial condition of TRAVIS CAPITAL. Section 2.6 PROPERTIES OF TRAVIS CAPITAL. (a) Set forth on Schedule 2.6(a) is a list of all real property owned or leased by TRAVIS CAPITAL. With respect to real property that is owned by TRAVIS CAPITAL, TRAVIS CAPITAL has good and marketable title to all such property and such property is clear of all liens, mortgages, security interests, or encumbrances, except as otherwise disclosed on Schedule 2.6(a). -9- (b) Set forth in Schedule 2.6(b) is a true and complete list of all personal properties and assets (other than real property) owned by TRAVIS CAPITAL or leased or licensed by TRAVIS CAPITAL from or to a third party. All such properties and assets owned by TRAVIS CAPITAL are reflected on the Last Balance Sheet (except for acquisitions subsequent to the Last Balance Sheet Date which are noted on Schedule 2.6(b)). All such properties and assets owned, leased, or licensed by TRAVIS CAPITAL are in good and usable condition (reasonable wear and tear which is not such as to affect adversely the operation of the business of TRAVIS CAPITAL excepted). (c) All accounts and notes receivable reflected on the Last Balance Sheet, or arising since the Last Balance Sheet Date, have been collected in the ordinary course of TRAVIS CAPITAL's customary practices, or are and will be good and collectible, without right or recourse, defense, deduction, return of goods, counterclaim, offsets, or set-off. (d) No real property owned, leased, or licensed by TRAVIS CAPITAL lies in an area which is, or to the knowledge of Sellers will be, subject to zoning, use, or building code restrictions that would prohibit the continued effective ownership, leasing, licensing, or use of such real property in the business which the TRAVIS CAPITAL is now engaged. (e) TRAVIS CAPITAL has not to its knowledge caused or permitted its respective businesses, properties, or assets to be used to generate, manufacture, refine, transport, treat, store, handle, dispose of, transfer, produce, or process any Hazardous Substance (as such term is defined in this Section 2.6(e)) except in compliance with all applicable laws, rules, regulations, orders, judgments, and decrees, and has not caused or permitted the Release (as such term is defined in this Section 2.6(e)) of any Hazardous Substance on or off the site of any property of TRAVIS CAPITAL. The term -10- "Hazardous Substance" shall mean any hazardous waste, as defined by 42 U.S.C. Section 6903(5), any hazardous substance, as defined by 42 U.S.C. Section 9601(14), any pollutant or contaminant, as defined by 42 U.S.C. Section 9601(33), and all toxic substances, hazardous materials, or other chemical substances regulated by any other law, rule, or regulation. The term "Release" shall have the meaning set forth in 42 U.S.C. Section 9601(22). Section 2.7 CONTRACTS AND OTHER INSTRUMENTS. Schedule 2.7 accurately and completely sets forth a list of all material contracts, agreements, loan agreements, instruments, leases, licenses, arrangements, or understandings with respect to TRAVIS CAPITAL. The Sellers have furnished to the Purchaser, the certificate of incorporation (or other charter document) and By-Laws of TRAVIS CAPITAL and all amendments thereto, as presently in effect, certified by the Secretary of such corporation. Each such contract, agreement, loan agreement, instrument, lease, or license is in full force and is the legal, valid, and binding obligation of TRAVIS CAPITAL, and (subject to applicable bankruptcy, insolvency, and other laws affecting the enforceability of creditors' rights generally) is enforceable as to it in accordance with its terms. TRAVIS CAPITAL, is not in violation, in breach of, or in default with respect to any material terms of any such contract, agreement, loan agreement, instrument, lease, or license. Except for employment agreements and as disclosed in Schedule 2.7, TRAVIS CAPITAL is not a party to any contract, agreement, loan agreement, instrument, lease, license, arrangement, or understanding with any Seller or any director, officer, or employee of TRAVIS CAPITAL, or any relative or affiliate of any Seller or of any such director, officer, or employee. The stock ledgers and stock transfer books and the minute book records of TRAVIS CAPITAL relating to all issuances and transfers of the stockholders, of the Board of Directors and committees thereof of TRAVIS CAPITAL since its incorporation made available to the Purchaser are the -11- original stock ledgers and stock transfer books and minute book records of TRAVIS CAPITAL or exact copies thereof. Section 2.8 ERISA. (a) The name of each plan, program, arrangement, agreement or commitment sponsored or maintained by or on behalf of TRAVIS CAPITAL or any ERISA Affiliate (as defined below) or to which TRAVIS CAPITAL or any ERISA Affiliate makes or is obligated to make contributions or to which TRAVIS CAPITAL or any ERISA Affiliate made or was obligated to make contributions during the five (5) year period ending on the date hereof, which is a pension, profit sharing, savings, thrift or other retirement plan, deferred compensation, stock purchase, stock option, performance share, bonus or other incentive plan, severance pay plan, policy or procedure, life, health, disability or accident insurance plan, (including, without limitation, each "employee benefit plan" as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or vacation or other employee benefit plan, program, arrangement, agreement or commitment, whether or not written) (all of the foregoing being hereinafter referred to individually as a "Plan" and collectively as the "Plans") is set forth on Schedule 2.8 hereto. TRAVIS CAPITAL has substantially complied with all of the provisions of each Plan and all applicable provisions of ERISA and the Code, has administered each such Plan (including the payment of benefits thereunder) in all material respects in accordance with the provisions of each such Plan and all applicable provisions of ERISA and the Code, and no penalties under ERISA or any other applicable law or regulation are and at the Closing Date will be owed to any Plan participant and/or beneficiary and/or any governmental body with respect to the failure to file any reports or other information required under ERISA or any other applicable law or regulation or to distribute or -12- make available any such reports or other information. TRAVIS CAPITAL has and at the Closing Date will have timely made all required contributions to each such Plan. (b) No such Plan is a "defined benefit plan" within the meaning of Section 3(35) of ERISA nor a "multi-employer plan" within the meaning of Section 3(37) of ERISA. (c) As of the date hereof and as of the Closing Date, TRAVIS CAPITAL is entitled to cease its participation in each Plan referred to in this Section 2.8 and each such Plan, by its provisions, permits TRAVIS CAPITAL to amend to terminate, in whole or in part, such Plan without default, penalty, premium or any additional cost to TRAVIS CAPITAL. (d) The transactions contemplated by this Agreement will not result in any payment or series of payments by Olympic or TRAVIS CAPITAL of a "parachute payment" within the meaning of Section 280G of the Code. (e) With respect to each Plan maintained or sponsored by TRAVIS CAPITAL which is an "employee welfare benefit plan" within the meaning of Section 3(1) of ERISA (a "Welfare Plan"): (i) the applicable requirements of Part III of Subchapter 8B of Chapter 1 of the Code are satisfied if benefits under such Welfare Plan are intended to qualify for tax-favored treatment; (ii) there is no disqualified benefit which would subject Olympic to tax under Section 4976(a) of the Code; and (iii) each such Welfare Plan which is a group health plan within the meaning of Section 4980B of the Code is and has at all times been in compliance in all material respects with the applicable requirements of Sections 601 through 608 of ERISA, and TRAVIS CAPITAL is not now and has never been liable for any tax under Section 4980B of the Code. -13- (f) None of the Plans is and, at the Closing Date, none will be under investigation or audit by either the United States Department of Labor or the Internal revenue Service. (g) None of the Plans provides benefits including, without limitation, death or medical benefits (whether or not insured) with respect to any current or former employee of TRAVIS CAPITAL beyond their retirement or other termination of service other than (i) coverage mandated by applicable law, (ii) disability benefits under any "employee welfare benefit plan" (as defined in Section 3(1) of ERISA) that have been fully provided for by insurance or otherwise, (ii) deferred compensation benefits accrued as liabilities on the books of TRAVIS CAPITAL or (iv) benefits in the nature of severance pay. (h) For purposes of this Section 2.8, the term "ERISA Affiliate" shall mean all members of a controlled group of corporations and all trades and businesses (whether or not incorporated) under common control and all other entities which, together with TRAVIS CAPITAL are treated as a single employer under any or all of sections 414(b), (c), (m), (n) or (o) of the code at any time during the period of five (5) years ended on March 31, 1997. Section 2.9 PATENTS, TRADEMARKS, ET CETERA. Except as disclosed on Schedule 2.9, TRAVIS CAPITAL does not own or has pending, or is licensed under, any patent, patent application, trademark, trademark application, trade name, service mark, copyright, franchise, or other intangible property or asset (all of the foregoing being herein called "Intangibles"). Those Intangibles listed on Schedule 2.9 are in good standing and uncontested. Neither any Seller, any director, officer, or employee of TRAVIS CAPITAL, nor any relative or affiliate of any Seller or of any such director, officer, or employee, possesses any Intangible which relates to the business of TRAVIS CAPITAL. There is no right under any Intangible necessary to the business of TRAVIS -14- CAPITAL as presently conducted, except such as are so designated in Schedule 2.9. TRAVIS CAPITAL has not infringed, is infringing, or has received notice of infringement with asserted Intangibles of others. To the knowledge of the Sellers, there is no infringement by others of Intangibles of TRAVIS CAPITAL. Section 2.10 QUESTIONABLE PAYMENTS. No TRAVIS CAPITAL director, officer, agent, employee, or other person associated with or acting on behalf of the TRAVIS CAPITAL has, directly, or indirectly: used any corporate funds for unlawful contributions, gifts, entertainment, or other unlawful expenses relating to political activity; made any unlawful payment to foreign or domestic government officials or employees or to foreign or domestic political parties or campaigns from corporate funds; established or maintained any unlawful or unrecorded fund of corporate monies or other assets; made any false or fictitious entry on the books or records of the TRAVIS CAPITAL; or made any bribe, kickback, or other payment of a similar or comparable nature, whether lawful or not, to any person or entity, private or public, regardless of form, whether in money, property, or services, to obtain favorable treatment in securing business or to obtain special concessions, or to pay for favorable treatment for business secured or for special concessions already obtained. Section 2.11 BROKER-DEALER REGISTRATION. TRAVIS CAPITAL is a Broker-Dealer duly registered with the SEC pursuant to Section 15 of the Securities Exchange Act of 1934 as amended, ("the 1934 Act"). Attached hereto as Schedule 2.11 is a full and complete copy of TRAVIS CAPITAL's Form BD as amended through June 30, 1997 (the "Form BD"). To the knowledge of Seller, neither the Form BD nor the application for registration -15- nor any amendment thereto contains any untrue statement of a material fact or omits to state a material fact required to be stated or necessary in order to make the statements contained therein not misleading. Section 2.12 NO THREATENED SEC PROCEEDINGS. To the knowledge of Seller, there is not currently pending or to the knowledge of the shareholders, threatened any inquiry, investigation, administrative proceeding, or civil action undertaken or initiated by the SEC concerning TRAVIS CAPITAL or its officers, directors, or registered representatives. Section 2.13 NET CAPITAL. TRAVIS CAPITAL is not in violation of the applicable net capital provisions of the 1934 Act and the general rules and regulations thereunder. Section 2.14 NASD MEMBERSHIP. TRAVIS CAPITAL is a member in good standing the with NASD, and, to the knowledge of Seller, there has not been for the most recent three years, nor is there currently pending or to the shareholders knowledge threatened, any inquiry investigation or disciplinary proceeding undertaken by the NASD concerning TRAVIS CAPITAL or any of its officers, directors, registered principals, or registered representatives. Section 2.15 FEES AND ASSESSMENTS. As of June 30, 1997 there are no fees or assessments owed to the NASD or SIPC (as defined in Section 2.22) for which bills have been received by TRAVIS CAPITAL, other than as set forth in Section 2.3. -16- Section 2.16 NASD RESTRICTIONS. There are no special restrictions or limitations imposed by the NASD relating to the conduct by TRAVIS CAPITAL of the business of a Broker-Dealer, except as set forth on Schedule 2.16 or noted on Schedule 2.16 and listed in the Form BD. Section 2.17 CRD REGISTRATION. TRAVIS CAPITAL is registered with the Central Registration Depository under CRD Number 18186. Section 2.18 STATE BROKER-DEALER REGISTRATIONS. TRAVIS CAPITAL is registered as a Broker-Dealer in the states and jurisdictions enumerated in Form BD, and all of such registrations are current, and except as set forth on Schedule 2.18, TRAVIS CAPITAL is in good standing as a registered Broker-Dealer in each such state or jurisdiction where such registration or qualification is required. As of June 30, 1997, no renewal or registration fee for which bills have been received is due or owing to any state other than as set forth in Section 2.3. Also set forth on the Form BD are all states and jurisdictions in which applications for registration of TRAVIS CAPITAL as a Broker-Dealer are currently pending. Section 2.19 NO STATE INQUIRIES. TRAVIS CAPITAL's state Broker-Dealer registrations have not been terminated and to the knowledge of Sellers there has not been, nor is there currently pending to or TRAVIS CAPITAL's knowledge threatened, any inquiry, investigation, administrative proceeding, or civil action undertaking or initiated by such states or jurisdictions concerning TRAVIS CAPITAL or its officers, directors, registered principals or registered representatives. -17- Section 2.20 REGISTERED REPRESENTATIVES. Attached hereto as Schedule 2.20 is a list of all registered representatives of TRAVIS CAPITAL and each state or jurisdiction in which each individual is registered. Section 2.21 BROKERS BOND. TRAVIS CAPITAL currently has in effect a blanket Broker-Dealer fidelity bond as summarized in Schedule 2.21. Section 2.22 SIPC REGISTRATION. TRAVIS CAPITAL is duly registered with the Security Investors Protection Corporation ("SIPC"). TRAVIS CAPITAL has paid or has made adequate provision for the payment of all SIPC assessments as of December 31, 1996. III. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. The Purchaser represents and warrants to Sellers as follows: Section 3.1 ORGANIZATION AND QUALIFICATION. The Purchaser is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation, with all requisite power and authority to own, lease, license, and use its properties and assets and to carry on the business in which it is now engaged and in which it contemplates engaging. Section 3.2 AUTHORITY TO BUY. The Purchaser has all requisite power and authority to execute, deliver, and perform this Agreement. All necessary corporate proceedings of the Purchaser have been duly taken to authorize the -18- execution, delivery, and performance of this Agreement by the Purchaser. This Agreement has been duly authorized, executed and delivered by the Purchaser, is the legal, valid, and binding obligation of the Purchaser. Section 3.3 DISCLOSURE OF INFORMATION. The Purchaser has received all the information it considers necessary or appropriate for deciding whether to purchase the Acquired Securities. The Purchaser further represents that it has had the opportunity to ask questions and receive answers from the Sellers and TRAVIS CAPITAL regarding the Acquired Securities and the businesses, assets, properties, prospects and financial condition of TRAVIS CAPITAL. The foregoing, however, does not limit or modify the representations and warranties of the Sellers in Section 2 of this Agreement and the right of Purchaser to rely thereon, and is enforceable as to it in accordance with its terms. IV. CONDUCT OF THE BUSINESS OF TRAVIS CAPITAL FOLLOWING STOCK PURCHASE. Section 4.1 LETTER AGREEMENT. Following the stock purchase contemplated by this Agreement, the business of TRAVIS CAPITAL shall be conducted subject to certain covenants detailed in the paragraphs numbered 5 through 17 of the letter of intent for this stock purchase between TRAVIS CAPITAL and OLYMPIC, dated June 16, 1997 (the "June 16 Letter"), as amended by the letter between the same parties, dated June 30, 1997 (the "June 30 Letter"). The June 16 Letter is attached hereto as Exhibit A. The June 30 Letter is attached hereto as Exhibit B. The paragraphs numbered 5 through 17 of the June 16 Letter and the corresponding amendments in the June 30 Letter are hereby incorporated by reference to this document as if such paragraphs were set out here in there entirety. -19- V. INDEMNIFICATION; SURVIVAL; LIMITATIONS ON LIABILITY. Section 5.1 INDEMNIFICATION. (a) Subject to the terms and conditions set forth in Section 5.2, the Sellers agree to indemnify and hold harmless the Purchaser, its officers, directors, employees, counsel, and agents, (collectively, the "Indemnitees"), against and in respect of any and all claims, suits, actions, proceedings (formal or informal), investigations, judgments, deficiencies, damages, settlements, liabilities, and reasonable legal and other expenses related thereto (collectively, "Claims"), as and when incurred, arising out of or based upon any breach of any covenant or agreement of the Sellers contained in this Agreement or any document or instrument delivered in connection with this Agreement or any misrepresentation in or omission from any of the representations or warranties of the Sellers in this Agreement as of the date of this Agreement. (b) Each Indemnitee shall give the Sellers prompt notice of any claim asserted or threatened against such Indemnitee on the basis of which such Indemnitee intends to seek indemnification (but the obligations of the Sellers shall not be conditioned upon receipt of such notice, except to the extent that the indemnifying party is actually prejudiced by such failure to give notice). The Sellers shall promptly assume the defense of any Indemnitee, with counsel reasonably satisfactory to such Indemnitee, and the fees and expenses of such counsel shall be at the sole cost and expense of the Seller. Notwithstanding the foregoing, any Indemnitee shall be entitled, at his or its expense, to employ counsel separate from counsel for the Sellers and from any other party in such action, proceeding, or investigation. No Indemnitee may agree to a settlement of a claim without the prior written approval of the Seller, which approval shall not be unreasonably withheld. (c) Notwithstanding the above, if the claim for indemnification arises of a breach of the representations set forth in Section 2.4, Purchaser, at its option, shall have the sole right to represent -20- TRAVIS CAPITAL in any federal, state, local or foreign tax matter, including any audit or administrative or judicial proceeding or the filing of an amended return. Sellers agree that it will cooperate fully with Purchaser and its counsel in the defense or compromise of any such tax matter. (d) The Sellers shall not have any obligation to indemnify any Indemnitee from and against any loss or claim under this Section 5.1 until the Indemnitees shall have collectively suffered losses in excess of $5,000. Section 5.2 SURVIVAL. (a) Subject to the provisions of Section 5.2(b), the covenants, agreements, representations, and warranties contained in or made pursuant to this Agreement and the incorporated paragraphs of the June 16 Letter and the June 30 Letter shall survive the Closing and the delivery of the purchase price by the Purchaser, irrespective of any investigation made by or on behalf of any party. (b) The liabilities and obligations of the Sellers under this Agreement shall be subject to the following limitations. The Sellers shall have no liability or obligation with respect to any claim for a breach of a representation or warranty under this Agreement made after eighteen (18) months from the Closing Date except for claims arising out of a breach of the representations as to tax liabilities under Section 2.4, with respect to which the Sellers shall remain liable until ninety (90) days after the expiration of the applicable statute of limitations relating to such tax liabilities. VI. MISCELLANEOUS. Section 6.1 BROKERAGE FEES. If any person shall assert a claim to a fee, commission, or other compensation on account of alleged employment as a broker or finder, in connection with or as a result of any of the transactions -21- contemplated by this Agreement, the Sellers shall (subject to the next sentence) indemnify and hold harmless the Indemnitees against any and all Claims (as defined in Section 5.1), as and when incurred, arising out of, based upon, or in connection with such Claim by such person, except to the extent that it is determined in any suit, action, or proceeding that the Purchaser or any Indemnitee had engaged such broker or finder. Section 6.2 REGULATORY FILINGS. TRAVIS CAPITAL and Olympic each agree to prepare and file all required documents, submissions, notices, amended applications or similar filings with federal, state, and local regulatory authorities and the NASD to effect and given evidence of the transaction contemplated by this Agreement. Section 6.3 FURTHER ACTIONS. At any time and from time to time, each party agrees, as its or his expense, to take such actions and to execute and deliver such documents as may be reasonably necessary to effectuate the purposes of this Agreement. Section 6.4 SUBMISSION TO JURISDICTION. Each of the parties hereto irrevocably submits to the jurisdiction of the courts of the State of Washington, and of any federal court located in the State of Washington, in connection with any action or proceeding arising out of or relating to, or a breach of, this Agreement, or of any document or instrument delivered pursuant to, in connection with, or simultaneously with this Agreement. Section 6.5 MERGER; MODIFICATION. This Agreement and the Schedules and Exhibits attached hereto set forth the entire understanding of the parties with respect to the subject matter hereof, supersede all existing agreements -22- among them concerning such subject matter, and may be modified only by a written instrument duly executed by each party to be charged. Section 6.6 NOTICES. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested (or by the most nearly comparable method if mailed from or to a location outside of the United States) or by Federal Express, Express Mail, or similar overnight delivery or courier service or delivered (in person or by telecopy, or similar telecommunications equipment) against receipt to the party to whom it is to be given at the address of such party set forth in the preamble to this Agreement (or to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 6.6). Any notice given to the Purchaser shall be addressed to the attention of Mark Roth, Esq., and a copy of such notice (which copy shall not constitute notice) shall also be sent to Camhy Karlinsky & Stein LLP, 1740 Broadway, 16th Floor, New York, New York 10019-4315 Attention: Alan I. Annex, Esq. Any notice given to the Sellers shall be addressed to the attention of Elliot R. Travis, c/o Travis Capital, 30 Market Street, Suite 200, Salt Lake City, Utah 84101. Notice to the estate of any party shall be sufficient if addressed to the party as provided in this Section 6.6. Any notice or other communication given by certified mail (or by such comparable method) shall be deemed given at the time of certification thereof (or comparable act) except for a notice changing a party's address which will be deemed given at the time of receipt thereof. Any notice given by other means permitted by this Section 6.5 shall be deemed given at the time of receipt thereof. Section 6.7 WAIVER. -23- Any waiver by any party of a breach of any terms of this Agreement shall not operate as or be construed to be a waiver of any other breach of that term or of any breach of any other term of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions will not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing. Section 6.8 BINDING EFFECT. The provisions of this Agreement shall be binding upon and inure to the benefit of the Purchaser, and its successors and assigns and each Seller and his respective assigns, heirs, and personal representatives, and shall inure to the benefit of each Indemnitee and its successors and assigns (if not a natural person) and his assigns, heirs, and personal representatives (if a natural person). Section 6.9 NO THIRD-PARTY BENEFICIARIES. This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Agreement (except as provided in 6.8). Section 6.10 SEPARABILITY. If any provision of this Agreement is invalid, illegal, or unenforceable, the balance of this Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances. Section 6.11 HEADINGS. The headings in this Agreement are solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. -24- Section 6.12 COUNTERPARTS; GOVERNING LAW. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. It shall be governed by, and construed in accordance with, the laws of the State of Washington, without giving effect to the rules governing the conflict of laws. -25- IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first written above. /s/ Elliot R. Travis ------------------------------------- Elliot R. Travis /s/ Scott A. Gutting ------------------------------------- Scott A. Gutting OLYMPIC CASCADE FINANCIAL CORPORATION By: /s/ Gary A. Rosenberg --------------------------------- Name: Gary A. Rosenberg Title: Vice Chairman -26- EX-10.33 5 EXHIBIT 10.33 EXHIBIT 10.33 SEAFIRST BANK Member FDIC BUSINESS LOAN AGREEMENT THIS BUSINESS LOAN AGREEMENT ("AGREEMENT") IS MADE BETWEEN BANK OF AMERICA NT&SA DBA SEAFIRST BANK ("BANK") AND OLYMPIC CASCADE FINANCIAL CORPORATION ("BORROWER") WITH RESPECT TO THE FOLLOWING: PART A I. TERM LOAN: Subject to the terms of this Agreement, Bank agrees to lend to Borrower as follows: (a) AMOUNT: $900,000- (b) This loan matures on October 1, 1998 (c) INTEREST RATE: The Bank's Fixed Rate Index plus 300 basis points. The interest rate shall be fixed for the term of the loan. (d) INTEREST RATE BASIS: All interest will be calculated at the per annum interest rate based on a 360-day year and applied to the actual number of days elapsed. (e) REPAYMENT: At the times and in amounts as set forth in note(s) required under Part B Article 1 of this Agreement. Loan is subject to an economic prepayment penalty. (f) LOAN FEE: $2,000 payable when loan is funded. Loan fee is fully earned and non-refundable upon execution of this Agreement. (g) OTHER FEE(s) (IDENTIFY): None (h) COLLATERAL: None EXHIBIT 10.33 BUSINESS LOAN AGREEMENT PART B 1. PROMISSORY NOTE(s). All loans shall be evidenced by promissory notes in a form and substance satisfactory to Bank. 2. CONDITIONS TO AVAILABILITY OF LOAN/LINE OF CREDIT. Before Bank is obligated to disburse/make any advance, or at any time thereafter which Bank deems necessary and appropriate, Bank must receive all of the following, each of which must be in form and substance satisfactory to Bank ("loan documents"): 2.1 Original, executed promissory note(s); 2.2 Original executed security agreement(s) and/or deed(s) of trust covering the collateral described in Part A; 2.3 All collateral described in Part A in which Bank wishes to have a possessory security interest; 2.4 Financing statement(s) executed by Borrower; 2.5 Such evidence that Bank may deem appropriate that the security interests and liens in favor of Bank are valid, enforceable, and prior to the rights and interests of others except those consented to in writing by Bank; + 2.6 The following guaranty(ies) in favor of the Bank: None + 2.7 Subordination agreement(s) in favor of Bank executed by: None 2.8 Evidence that the execution, delivery, and performance by Borrower of this Agreement and the execution, delivery, and performance by Borrower and any corporate guarantor or corporate subordinating creditor of any instrument or agreement required under this Agreement, as appropriate, have been duly authorized; 2.9 Any other document which is deemed by the Bank to be required from time to time to evidence loans or to effect the provisions of this Agreement; 2.10 If requested by Bank, a written legal opinion expressed to Bank, of counsel for Borrower as to the matters set forth in sections 3.1 and 3.2, and to the best of such counsel's knowledge after reasonable investigation, the matters set forth in sections 3.3, 3.5, 3.6, 3.7, 3.8 and such other matters as the Bank may reasonably request; 2.11 Pay or reimburse Bank for any out-of-pocket expenses expended in making or administering the loans made hereunder including without limitation attorney's fees (including allocated costs of in-house counsel); EXHIBIT 10.33 COMPANY NAME Business Loan Agreements - Part B Page 2 3. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Bank, except as Borrower has disclosed to Bank in writing, as of the date of this Agreement and hereafter so long as credit granted under this Agreement is available and until full and final payment of all sums outstanding under this Agreement and promissory notes that: +3.1 Borrower is duly organized and existing under the laws of the state of its organization as a: General Limited Sole X Corporation Partnership Partnership Proprietorship dba --- --- --- --- ---- Borrower is properly licensed and in good standing in each state in which Borrower is doing business and Borrower has qualified under, and complied with, where required, the fictitious or trade name statutes of each state in which Borrower is doing business, and Borrower has obtained all necessary government approvals for its business activities; the execution, delivery, and performance of this Agreement and such notes and other instruments required herein are within Borrower's powers, have been duly authorized, and, as to Borrower and any guarantor, are not in conflict with the terms of any charter, bylaw, or other organization papers of Borrower, and this Agreement, such notes and the loan documents are valid and enforceable according to their terms; 3.2 The execution, delivery, and performance of this Agreement, the loan documents and any other instruments are not in conflict with any law or any indenture, agreement or undertaking to which Borrower is a party or by which Borrower is bound or affected; 3.3 Borrower has title to each of the properties and assets as reflected in its financial statements (except such assets which have been sold or otherwise disposed of in the ordinary course of business), and no assets or revenues of the Borrower are subject to any lien except as required or permitted by this Agreement, disclosed in its financial statements or otherwise previously disclosed to Bank in writing; 3.4 All financial information, statements as to ownership of Borrower and all other statements submitted by Borrower to Bank, whether previously or in the future, are and will be true and correct in all material respects upon submission and are and will be complete upon submission insofar as may be necessary to give Bank a true and accurate knowledge of the subject matter thereof; 3.5 Borrower has filed all tax returns and reports as required by law to be filed and has paid all taxes and assessments applicable to Borrower or to its properties which are presently due and payable, except those being contested in good faith; 3.6 There are no proceedings, litigation or claims (including unpaid taxes) against Borrower pending or, to the knowledge of the Borrower, threatened, before any court or government agency, and no other event has occurred which may have a material adverse effect on Borrower's financial condition; EXHIBIT 10.33 COMPANY NAME Business Loan Agreements - Part B Page 3 3.7 There is no event which is, or with notice or lapse of time, or both, would be, an Event of Default (as defined in Section 7) under this Agreement; 3.8 Borrower has exercised due diligence in inspecting Borrower's properties for hazardous wastes and hazardous substances. Except as otherwise previously disclosed and acknowledged to Bank in writing: (a) during the period of Borrower's ownership of Borrower's properties, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or hazardous substance by any person in, on, under or about any of Borrower's properties; (b) Borrower has no actual or constructive knowledge that there has been any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or hazardous substance by any person in, on, under or about any of Borrower's properties by any prior owner or occupant of any of Borrower's properties; and (c) Borrower has no actual or constructive notice of any actual or threatened litigation or claims of any kind by any person relating to such matters. The terms "hazardous waste(s)," hazardous substance(s)," "disposal," "release," and "threatened release" as used in this Agreement shall have the same meanings as set forth in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq., the Superfund Amendments and Reauthorization Act of 1986, as amended Pub. L. No. 99-499, the Hazardous Materials Transportation Act, as amended, 49 U.S. C. Section 1801, et seq., the Resource Conservation and Recovery Act, as amended, 49 U.S.C. Section 6901, et seq., or other applicable state or federal laws, rules or regulations adopted pursuant to any of the foregoing. 4. AFFIRMATIVE COVENANTS. So long as credit granted under this Agreement is available and until full and final payment of all sums outstanding under this Agreement and promissory note(s) Borrower will: 4.1 Use the proceeds of the loans covered by this Agreement only in connection with Borrower's business activities and exclusively for the following purposes: repay a loan made to Borrower by FAI Overseas LTD on May 29, 1997. 4.2 Promptly give written notice to Bank of. (a) all litigation and claims made or threatened affecting Borrower where the amount is $500,000 or more; (b) any substantial dispute which may exist between Borrower and any governmental regulatory body or law enforcement authority; (c) any Event of Default under this Agreement or any other agreement with Bank or any other creditor or any event which become an Event of Default; and (d) any other matter which has resulted or might result in a material adverse change in Borrower's financial condition or operations; EXHIBIT 10.33 COMPANY NAME Business Loan Agreements - Part B Page 4 4.3 Borrower shall as soon as available, but in any event within 120 days following the end of Borrower's fiscal years and within 45 days following the end of each quarter provide to Bank, in a form satisfactory to Bank (including audited statements if required at any time by Bank), such financial statements and other information respecting the financial condition and operations of Borrower as Bank may reasonably request; 4.4 Borrower will maintain in effect insurance with responsible insurance companies in such amounts and against such risks as is customarily maintained by persons engaged in businesses similar to that of Borrower and all policies covering property given as security for the loans shall have loss payable clauses in favor of Bank. Borrower agrees to deliver to Bank such evidence of insurance as Bank may reasonably require and, within thirty (30) days after notice from Bank, to obtain such additional insurance with an insurer satisfactory to the Bank; 4.5 Borrower will pay all indebtedness taxes and other obligations for which the Borrower is liable or to which its income or property is subject before they shall become delinquent, except any which is being contested by the Borrower in good faith; 4.6 Borrower will continue to conduct its business as presently constituted, and will maintain and preserve all rights, privileges and franchises now enjoyed, conduct Borrower's business in an orderly, efficient and customary manner, keep all Borrower's properties in good working order and condition, and from time to time make all needed repairs, renewals or replacements so that the efficiency of Borrower's properties shall be fully maintained and preserved; 4.7 Brrower will maintain adequate books, accounts and records and prepare all financial statements required hereunder in accordance with generally accepted accounting principles and practices consistently applied, and in compliance with the regulations of any governmental regulatory body having jurisdiction over Borrower or Borrower's business; 4.8 Brrower will permit representatives of Bank to examine and make copies of the books and records of Borrower and to examine the collateral of the Borrower at reasonable times; 4.9 Borrower will perform, on request of Bank, such acts as may be necessary or advisable to perfect any lien or security interest provided for herein or otherwise carry out the intent of this Agreement; 4.10 Borrower will comply with all applicable federal, state and municipal laws, ordinances, rules and regulations relating to its properties, charters, businesses and operations, including compliance with all minimum funding and other requirements related to any of Borrower's employee benefit plans; EXHIBIT 10.33 COMPANY NAME Business Loan Agreements - Part B Page 5 4.11 Borrower will permit representatives of Bank to enter onto Borrower's properties to inspect and test Borrower's properties as Bank, in its sole discretion, may deem appropriate to determine Borrower's compliance with section 5.8 of this Agreement; provided however, that any such inspections and tests shall be for Bank's sole benefit and shall not be construed to create any responsibility or liability on the part of Bank to Borrower or to any third party. 5. NEGATIVE COVENANTS. So long as credit granted under this Agreement is available and until full and final payment of all sums outstanding under this Agreement and promissory note(s): 5.1 Borrower will not, during any fiscal year, expend or incur more than $250,000 for any single fixed asset whether or not payable that fiscal year or later under any purchase agreement or lease; 5.2 Borrower will not, without the prior written consent of Bank, purchase or lease under an agreement for acquisition, incur any other indebtedness for borrowed money, mortgage, assign, or otherwise encumber any of Borrower's assets, nor sell, transfer or otherwise hypothecate any such assets except in the ordinary course of business. Borrower shall not guaranty, endorse, co-sign, or otherwise become liable upon the obligations of others, except by the endorsement of negotiable instruments for deposit or collection in the ordinary course of business. For purposes of this paragraph, the sale or assignment of accounts receivable, or the granting of a security interest therein, shall be deemed the incurring of indebtedness for borrowed money; 5.3 Borrower will not, without Bank's prior written consent, declare any dividends on shares of its capital stock, or apply any of its assets to the purchase, redemption or other retirement of such shares, or otherwise amend its capital structure; 5.4 Borrower will not make any loan or advance to any person(s) or purchase or otherwise acquire the capital stock, assets or obligations of, or any interest in, any person, except: (a) commercial bank time deposits maturing within one year, (b) marketable general obligations of the United States or a State, or marketable obligations fully guarantied by the United States, (c) short-term commercial paper with the highest rating of a generally recognized rating service, (d) other investments related to the Borrower's business. See Exhibit A. 5.5 Borrower will not liquidate or dissolve or enter into any consolidation, merger, pool, joint venture, syndicate or other combination, or sell, lease, or dispose of Borrower's business assets as a whole or such as in the opinion of Bank constitute a substantial portion of Borrower's business or assets; 5.6 Borrower will not engage in any business activities or operations substantially different from or unrelated to present business activities or operations; and EXHIBIT 10.33 COMPANY NAME Business Loan Agreements - Part B Page 6 5.7 Borrower, and Borrower's tenants, contractors, agents or other parties authorized to use any of Borrower's properties, will not use, generate, manufacture, store, treat, dispose of, or release any hazardous substance or hazardous waste in, on, under or about any of Borrower's properties, except as previously disclosed to Bank in writing as provided in section 3.8; and any such activity shall be conducted in compliance with all applicable federal, state and local laws, regulations and ordinances, including without limitation those described in section 3.8. 6. WAIVER, RELEASE AND INDEMNIFICATION. Borrower hereby: (a) releases and waives any claims against Bank for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any of the applicable federal, state or local laws, regulations or ordinances, including without limitation those described in section 3.8, and (b) agrees to indemnify and hold Bank harmless from and against any and all claims, losses, liabilities, damages, penalties and expenses which Bank may directly or indirectly sustain or suffer resulting from a breach of (i) any of Borrower's representations and warranties with respect to hazardous wastes and hazardous substances contained in section 3.8, or (ii) section 5.8. The provisions of this section 6 shall survive the full and final payment of all sums outstanding under this Agreement and promissory notes and shall not be affected by Bank's acquisition of any interest in any of the Borrower's properties, whether by foreclosure or otherwise. 7. EVENTS OF DEFAULT. The occurrence of any of the following events ("Events of Default") shall terminate any and all obligations on the part of Bank to make or continue the loan and/or line of credit and, at the option of Bank, shall make all sums of interest and principal outstanding under the loan and/or line of credit immediately due and payable, without notice of default, presentment or demand for payment, protest or notice of non payment or dishonor, or other notices or demands of any kind or character, all of which are waived by Borrower, and Bank may proceed with collection of such obligations and enforcement and realization upon all security which it may hold and to the enforcement of all rights hereunder or at law: 7.1 The Borrower shall fail to pay when due any amount payable by it hereunder on any loans or notes executed in connection herewith; 7.2 Borrower shall fail to comply with the provisions of any other covenant, obligation or term of this Agreement for a period of fifteen (15) days after the earlier of written notice thereof shall have been given to the Borrower by Bank or Borrower or any Guarantor has knowledge of an Event of Default or an event that can become an Event of Default; 7.3 Borrower shall fail to pay when due any other obligation for borrowed money, or to perform any term or covenant on its part to be performed under any agreement relating to such obligation or any such other debt shall be declared to be due and payable and such failure shall continue after the applicable grace period; EXHIBIT 10.33 COMPANY NAME Business Loan Agreements - Part B Page 7 7.4 Any representation or warranty made by Borrower in this Agreement or in any other statement to Bank shall prove to have been false or misleading in any material respect when made; 7.5 Borrower makes an assignment for the benefit of creditors, files a petition in bankruptcy, is adjudicated insolvent or bankrupt, petitions to any court for a receiver or trustee for Borrower or any substantial part of its property, commences any proceeding relating to the arrangement, readjustment, reorganization or liquidation under any bankruptcy or similar laws, or if there is commenced against Borrower any such proceedings which remain undismissed for a period of thirty (30) days or, if Borrower by any act indicates its consent or acquiescence in any such proceeding or the appointment of any such trustee or receiver; 7.6 Any judgment attaches against Borrower or any of its properties for an amount in excess of $500,000 which remains unpaid, unstayed on appeal, unbonded, or undismissed for a period of thirty (30) days; 7.7 Loss of any required government approvals, and/or any governmental regulatory authority takes or institutes action which, in the opinion of Bank, will adversely affect Borrower's condition, operations or ability to repay the loan and/or line of credit; 7.8 Failure of Bank to have a legal, valid and binding first lien on, or a valid and enforceable prior perfected security interest in, any property covered by any deed of trust or security agreement required under this Agreement; 7.9 Borrower dies, becomes incompetent, or ceases to exist as a going concern; 7.10 Occurrence of an extraordinary situation which gives Bank reasonable grounds to believe that Borrower may not, or will be unable to, perform its obligations under this or any other agreement between Bank and Borrower; or 7.11 Any of the preceding events occur with respect to any guarantor of credit under this Agreement, or such guarantor dies or becomes incompetent, unless the obligations arising under the guaranty and related agreements have been unconditionally assumed by the guarantor's estate in a manner satisfactory to Bank. 8. SUCCESSORS; WAIVERS. Notwithstanding the Events of Default above, this Agreement shall be binding upon and inure to the benefit of Borrower and Bank, their respective successors and assigns, except that Borrower may not assign its rights hereunder. No consent or waiver under this Agreement shall be effective unless in writing and signed by the Bank and shall not waive or affect any other default, whether prior or subsequent thereto, and whether of the same or different type. No delay or omission on the part of the Bank in exercising any right shall operate as a waiver of such right or any other right. 9. ARBITRATION. EXHIBIT 10.33 COMPANY NAME Business Loan Agreements - Part B Page 8 9.1 At the request of either Bank or Borrower any controversy or claim between the Bank and Borrower, arising from or relating to this Agreement or any Loan Document executed in connection with this Agreement or arising from any alleged tort shall be settled by arbitration in King County Washington. The United States Arbitration Act will apply to the arbitration proceedings which will be administered by the American Arbitration Association under its commercial rules of arbitration except that unless the amount of the claim(s) being arbitrated exceeds $5,000,000 there shall be only one arbitrator. Any controversy over whether an issue is arbitrable shall be determined by the arbitrator(s). Judgement upon the arbitration award may be entered in any court having jurisdiction. The institution and maintenance of any action for judicial relief or pursuit of a provisional or ancillary remedy shall not constitute a waiver of the right of either party, including plaintiff, to submit the controversy or claim to arbitration if such action for judicial relief is contested. For purposes of the application of the statute of limitations the filing of an arbitration as provided herein is the equivalent of filing a lawsuit and the arbitrator(s) will have the authority to decide whether any claim or controversy is barred by the statute of limitations, and if so, to dismiss the arbitration on that basis. The parties consent to the joinder in the arbitration proceedings of any guarantor, hypothecator or other party having an interest related to the claim or controversy being arbitrated. 9.2 Notwithstanding the provisions of Section 9.1, no controversy or claim shall be submitted to arbitration without the consent of all parties if at the time of the proposed submission, such controversy or claim arises from or relates to an obligation secured by real property; 9.3 No provision of this Section 9 shall limit the right of the Borrower or the Bank to exercise self-help remedies such as setoff, foreclosure or sale of any collateral, or obtaining any ancillary provisional or interim remedies from a court of competent jurisdiction before, after or during the pendency of any arbitration proceeding. The exercise of any such remedy does not waive the right of either party to request arbitration. At Bank's option foreclosure under any deed of trust may be accomplished by exercise of the power of sale under the deed of trust or judicial foreclosure as a mortgage. 10. COLLECTION ACTIVITIES, LAWSUITS AND GOVERNING LAW. Borrower agrees to pay Bank all costs and expenses (including reasonable attorney's fees and the allocated cost for in-house legal services incurred by Bank), to enforce this Agreement, any notes or any Loan Documents pursuant to this Agreement, whether or not suit is instituted. If suit is instituted by Bank to enforce this Agreement or any of these documents, Borrower consents to the personal jurisdiction of the Courts of the State of Washington and Federal Courts located in the State of Washington. Borrower further consents to the venue of this suit, being laid in King County, Washington. This Agreement and any notes and security agreements entered into pursuant to this Agreement shall be construed in accordance with the laws of the State of Washington. EXHIBIT 10.33 COMPANY NAME Business Loan Agreements - Part B Page 9 11. ADDITIONAL PROVISIONS. Borrower agrees to the additional provisions set forth immediately following this Section 11 or on any "Exhibit A" attached to and hereby incorporated into Agreement. This Agreement supersedes all oral negotiations or agreements between Bank and Borrower with respect to the subject matter hereof and constitutes the entire understanding and Agreement of the matters set forth in this Agreement. 11.1 If any provision of this Agreement is held to be invalid or unenforceable, then (a) such provision shall be deemed modified if possible, or if not possible, such provision shall be deemed stricken, and (b) all other provisions shall remain in full force and effect. 11.2 If the imposition of or any change in any law, rule, or regulation guideline or the interpretation or application of any thereof by any court of administrative or governmental authority (including any request or policy whether or not having the force of law) shall impose or modify any taxes (except U.S. federal, state or local income or franchise taxes imposed on Bank), reserve requirements, capital adequacy requirements or other obligations which would: (a) increase the cost to Bank for extending or maintaining any loans and/or line of credit to which this Agreement relates, (b) reduce the amounts payable to Bank under this Agreement, such notes and other instruments, or (c) reduce the rate of return on Bank's capital as a consequence of Bank's obligations with respect to any loan and/or line of credit to which this Agreement relates, then Borrower agrees to pay Bank such additional amounts as will compensate Bank therefor, within five (5) days after Bank's written demand for such payment, which demand shall be accompanied by an explanation of such imposition or charge and a calculation in reasonable detail of the additional amounts payable by Borrower, which explanation and calculations shall be conclusive, absent manifest error. 10.3 Bank may sell participations in or assign this loan in whole or in part without notice to Borrower and Bank may provide information regarding the Borrower and this Agreement to any prospective participant or assignee. If a participation is sold or the loan is assigned the purchaser will have the right of set off against the Borrower and may enforce its interest in the Loan irrespective of any claims or defenses the Borrower may have against the Bank. 12. NOTICES. Any notices shall be given in writing to the opposite party's signature below or as that party may otherwise specify in writing. 13. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. EXHIBIT 10.33 COMPANY NAME Business Loan Agreements - Part B Page 10 This Business Loan Agreement (Parts A and B) executed by the parties on September 16, 1997. Borrower acknowledges having read all of the provisions of this Agreement and Borrower agrees to its terms. SEAFIRST BANK OLYMPIC CASCADE FINANCIAL CORPORATION Metropolitan Wholesale Banking Team 5 By:__________________________ By:________________________________ G. Paul Grohe Steven A. Rothstein, Chairman Title: Vice President Address: 1001 Fourth Avenue, 4th Floor Address: 1001 - 4th Avenue, Seattle, WA 98154 Suite 2200 Seattle, WA 98154 Phone: (206) 358-0098 Phone: (206) 622-7200 Fax: (206) 358-0019 Fax: (206) 343-6244
EXHIBIT 10.33 EXHIBIT A Loan Agreement Olympic Cascade Financial Corporation September 16, 1997 Additional Terms, Agreements and Conditions: 1. Borrower agrees that its subsidiaries, now owned or hereafter acquired, will at all times maintain sufficient net capital per NASD rules 15c3-1 and IM-3130 to permit the advancing of cash, upstreaming of dividends, or otherwise providing funds to the Borrower in an amount sufficient to repay the loan. 2. Borrower pledges that its subsidiaries will own and maintain, in aggregate, an inventory of marketable securities whose market value, as recorded in their monthly FOCUS and quarterly 10-QSB reports, will not fall below 120% of the outstanding loan balance, and that it will notify the Bank if the value falls below 120% at any time during the life of the loan. 3. Borrower will obtain prior approval from Bank for any subsidiary acquisitions not to be funded with Borrower's common stock. Olympic Cascade Financial Corporation By: - ----------------------------------- Steven A. Rothstein, Chairman EXHIBIT 10.33 BORROWING AGREEMENT LOAN. By accepting this agreement from OLYMPIC CASCADE FINANCIAL CORPORATION, a Delaware corporation ("Borrower"), the chief executive office of which is located at 1001 FOURTH AVE, SUITE 2200 SEATTLE, WA. 98154. BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION DOING BUSINESS AS SEAFIRST BANK (including its successors and/or assigns "Bank") promises to lend to Borrower the principal amount of $900,000.00 (the "Loan") in a single advance to be disbursed to Borrower. PAYMENT. In return, Borrower promises to pay to the order of Bank the principal amount of $900,000.00, plus interest at a fixed rate of 8.950% per year, calculated on the basis of actual number of days elapsed over a year of 360 days (together the "Obligations"), to be paid as follows: in level principal payments of $150,000.00 dollars each on the 1st day of each month, beginning the 1st day of May, 1998; accrued interest is to be paid on the 1st day of each month, beginning the 1st day of October, 1997 with all outstanding principal and accrued interest to be paid in full on OCTOBER 1, 1998. Bank is authorized to automatically debit each required installment of principal and/or interest from Borrower's checking account number 10559409 at Bank, or such other deposit account at Bank as Borrower may authorize in the future. If a payment is 10 days or more late, Borrower, at Bank's option, will be charged 5.000% of the regularly scheduled payment or $20.00, whichever is greater. Borrower shall pay to Bank a loan fee of $2,000.00 upon execution of this agreement. COLLATERAL. Unsecured. CONDITIONS. Bank shall have no obligation to advance funds to Borrower until: * Borrower and every other party whose signature is required on this agreement has signed this agreement. * Bank has received proof satisfactory to Bank that all insurance required under this agreement is in effect. COVENANTS. Borrower shall deliver to Bank: * Such other financial information as Bank may reasonably request from time to time. Borrower shall also: * Maintain replacement value insurance on all tangible Collateral against all risks, casualties, and losses through extended coverage or otherwise, with such policy or policies naming Bank as loss payee, as its interests may appear. * Give Bank prompt written notice of any material adverse change in Borrowers financial condition. * Keep accurate and complete books, accounts, and records, and during normal business hours, as often as Bank may reasonably request, permit Bank's authorized agents or employees to have access to Borrower's premises and financial records, and to make copies or abstracts of such records. REMEDIES. If Borrower violates any promise of this agreement; or if any guarantor of any of the Obligations shall violate any of its promises to Bank; or Borrower defaults under any other agreement with Bank; or if anything should happen which significantly impairs Borrower's financial condition, the value of the Collateral, or Bank's prospects for repayment of the Obligations, Bank may refuse to make any further advances of funds to Borrower, may immediately demand payment in full of all Obligations (which, at Bank's option, shall bear interest from the date of such demand at a rate of 4% in excess of the rate otherwise applicable under this agreement), and may use any one or more of its remedies given under this agreement or by the laws of Washington State. Borrower shall, if demanded by Bank, pay all of Bank's costs, expenses, and attorneys' fees (including the cost of in-house counsel) incurred in collecting the Obligations, or arising out of the transaction reflected by this agreement, which is governed by the laws of Washington. If neither party elects or has the right to elect arbitration under the following paragraph, any lawsuit relating to this agreement may be brought in a court located in King County, Washington, or at Bank's option where necessary to obtain jurisdiction over any Borrower, guarantor, or Collateral. ARBITRATION. Any dispute relating to this agreement (in contract or tort) shall be settled by arbitration if requested by Bank, Borrower, or any other party to the dispute (such as guarantor); PROVIDED, however, that both Bank and Borrower must consent to a request for arbitration relating to an obligation secured by real property or a marine vessel. The arbitration proceedings shall be held in Seattle, Washington by the American Arbitration Association under its commercial rules of arbitration, by a single arbitrator. The United States Arbitration Act will apply. Judgment upon the arbitration award may be entered in any court having jurisdiction. Commencement of a lawsuit shall not constitute a waiver of the right of any party to request arbitration if the lawsuit is contested. Likewise, any party may exercise self-help remedies such as setoff, foreclosure, repossession, or sale of any collateral before, after, or during arbitration without waiving the right to request arbitration. At Bank's option, foreclosure under a deed of trust may be made judicially (as a mortgage) or nonjudicially (by power of sale). DEFINITIONS. For purposes of this agreement, terms defined in the Washington version of the Uniform Commercial Code, R.C.W. 62A.9-101, ET SEQ. ("UCC"), and not otherwise defined in this agreement, shall have the meaning given in the UCC; and an accounting term not otherwise defined in this agreement shall have the meaning assigned to it under generally accepted accounting principles. AMENDMENTS. This agreement can only be amended in writing, signed by the party to be bound by such amendment. If Borrower shall enter into, or has entered into, other borrowing agreements with Bank, each such agreement shall supplement the other, and Borrower must comply with each such agreement independently, unless otherwise agreed in writing by Bank. ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, TO EXTEND CREDIT, OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW. This agreement is dated September 16, 1997 Bank: SEAFIRST BANK By: -------------------------------- Name: ------------------------------ Title: ----------------------------- Borrower: OLYMPIC CASCADE FINANCIAL CORPORATION Signature: ------------------------- By: STEVEN A. ROTHSTEIN -------------------------------- Title: CHAIRMAN & CEO ----------------------------- EX-10.34 6 EXHIBIT 10.34 PROMISSORY NOTE $425,000 Seattle, Washington November 17, 1997 FOR VALUE RECEIVED, the undersigned, Olympic Cascade Financial Corporation, a Delaware corporation having an address at 1001 Fourth Avenue, Suite 2200, Seattle, Washington, 98154, ("Maker"), promises to pay to the order of James S. Tisch ("Payee") at 667 Madison Avenue, New York, New York 10021, or at such other place as Payee may from time to time designate by written notice to Maker, in lawful money of the United States, the sum of Four Hundred Twenty- Five Thousand Dollars ($425,000), plus interest from the date of this Note on the unpaid balance. All principal and interest is to be paid as set forth below. Maker further agrees as follows: SECTION 1. INTEREST RATE. (a) Interest shall accrue at a rate equal to eight percent (8%) per annum. (b) Interest shall be computed on the basis of a year of 360 days for the actual number of days elapsed. After maturity (whether by acceleration or otherwise, and before as well as after judgment), all unpaid principal and interest shall bear interest until it is paid at five percent (5%) in excess of the rate otherwise applicable to the unpaid balance under this Note. up to the maximum amount allowable by law. SECTION 2. PAYMENTS. (a) Principal shall be due and payable in twenty-four equal installments (each a "Principal Payment") commencing on December 31, 2000 and continuing on the last day of each month (each a "Principal Payment Date") through November 30, 2002 ("Maturity") unless Maker makes demand as set forth pursuant to Section 2(c) below. (b) During the first three years of this Note accrued interest shall be payable in arrears on a quarterly calendar basis commencing March 30, 1998. Thereafter, accrued interest shall be paid on each Principal Payment Date. (c) If Maker completes one or more public offerings or private placements of debt or equity securities, having gross proceeds in the aggregate of at least $5,000,000 (a "Financing") Maker shall give notice to Payee within five (5) days of the closing of such Financing. Payee shall have twenty-five (25) days from receipt of such notice to demand that the principal and all accrued interest under this Note be then due and payable. (d) Maker shall have the right to prepay this Note in full or in part at any time without penalty. SECTION 3. DEFAULT. It shall be an event of default ("Event of Default"), and the entire unpaid principal of this Note, together with accrued interest, shall become immediately due and payable, at the election of Payee, upon the occurrence of any of the following events: (a) any failure on the part of Maker to make any payment when due, whether by acceleration or otherwise, and the continuation of such failure for a period of five (5) business days thereafter; (b) any failure on the part of Maker to keep or perform any of the material provisions (other than payment) of this Note or any amendment thereof, which failure is not cured within ten (10) days; -2- (c) any failure on the part of Maker to pay any material debt within sixty (60) days of its due date (except where contested in good faith); (d) Maker shall commence (or take any action for the purpose of commencing) any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, moratorium or similar law or statute; (e) a proceeding shall be commenced against Maker under any bankruptcy, reorganization, arrangement, readjustment of debt, moratorium or similar law or statute and relief is ordered against it, or the proceeding is controverted but is not dismissed within sixty (60) days after the commencement thereof; (f) Maker consents to or suffers the appointment of a receiver, trustee or custodian to any substantial part of its assets that is not vacated within thirty (30) days; (g) Maker consents to or suffers an attachment, garnishment, execution or other legal process against any of its assets that is not released within thirty (30) days; SECTION 4. SUBORDINATION. This note shall be subordinated to Maker's loan agreement with Seafirst Bank, dated September 16, 1997, in the principal amount of $900,000 (the "Seafirst Loan"); provided, however, that Maker may make all payments of interest and principal hereunder if no event of default under the Seafirst Loan has occurred and is continuing at the time of such payments. Maker shall not incur any other indebtedness which is senior to this Note without the prior written consent of the Payee. -3- SECTION 5. JURISDICTION. Maker irrevocably submits to the exclusive jurisdiction of the courts of the State of Washington, and of any federal court located in the State of Washington, in connection with any action or proceeding arising out of or relating to, or a breach of, this Note. Maker agrees that such court may award reasonable legal fees and expenses to the prevailing party. SECTION 6. WAIVERS. (a) Maker waives demand, presentment, protest, notice of protest, notice of dishonor, and all other notices or demands of any kind or nature with respect to this Note. (b) Maker agrees that a waiver of rights under this Note shall not be deemed to be made by Payee unless such waiver shall be in writing, duly signed by Payee, and each such waiver, if any, shall apply only with respect to the specific instance involved and shall in no way impair the rights of Payee or the obligations of Maker in any other respect at any other time. (c) Maker agrees that in the event Payee demands or accepts partial payment of this Note, such demand or acceptance shall not be deemed to constitute a waiver of any right to demand the entire unpaid balance of this Note at any time in accordance with the terms of this Note. (d) Maker agrees and acknowledges that Payee may disclose to any other Obligor confidential information relating to this Note, and waives, to the full extent permitted -4- by law, any right to privacy or similar right under federal or state laws which Maker may have with respect to such disclosures. (e) In any action or proceeding arising out of or relating to this Note, Maker waives (to the full extent permitted by law) all right to a trial by jury or to plead as a defense any statute of limitations or any other similar law or equitable doctrine. SECTION 7. COLLECTION COSTS. Maker will upon demand pay to Payee the amount of any and all reasonable costs and expenses, including, without limitation, the reasonable fees and disbursements of its counsel (whether or not suit is instituted) and of any experts and agents, which Payee may incur in connection with the following: (i) the enforcement of this Note; and (ii) the enforcement of payment of all obligations of Maker by any action or participation in, or in connection with, a case or proceeding under Chapters 7, 11, or 13 of the Bankruptcy Code, or any successor statute thereto. SECTION 8. ASSIGNMENT OF NOTE. Maker may not assign or transfer this Note or any of its obligations under this Note in any manner whatsoever (including, without limitation, by the consolidation or merger of Maker, if a corporation, with or into another corporation) without the prior written consent of Payee. The Note may be assigned at any time by Payee. Maker agrees not to assert against any assignee of this Note any claim or defense which Maker may have against any assignor of this Note. -5- SECTION 9. MISCELLANEOUS. (a) This Note may be altered only by prior written agreement signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought. This Note may not be modified by an oral agreement, even if supported by new consideration. (b) This Note shall be governed by, and construed in accordance with, the laws of the State of Washington, without giving effect to such jurisdiction's principles of conflict of laws. (c) Subject to Section 8, the covenants, terms, and conditions contained in this Note apply to and bind the heirs, successors, executors, administrators and assigns of the parties. (d) This Note constitutes a final written expression of all the terms of the agreement between the parties regarding the subject matter hereof, are a complete and exclusive statement of those terms, and supersede all prior and contemporaneous agreements, understandings, and representations between the parties. If any provision or any word, term, clause, or other part of any provision of this Note shall be invalid for any reason, the same shall be ineffective, but the remainder of this Note shall not be affected and shall remain in full force and effect. (e) The singular includes the plural. If more than one Maker executes this Note, the term "Maker" shall be deemed to refer to each of the undersigned Makers as well as to all of them, and their obligations and agreements under this Note shall be joint and several. The term "Obligor" shall be deemed to refer to each Maker, endorser, guarantor, or surety of -6- this Note as well as to all of them. The term "Payee" shall include the initial party to whom payment is designated to be made and, in the event of an assignment of this Note, the successor assignee or assignees, and, as to each successive additional assignment, such successor assignee or assignees. (f) All notices, consents, or other communications provided for in this Note or otherwise required by law shall be in writing and may be given to or made upon the respective parties at the addresses set forth in the preamble hereof. In addition, a copy of all notices to the Payee (which shall not constitute notice to the Payee) shall also be mailed to Barry L. Bloom at c/o Tisch Financial Management, 655 Madison Avenue, New York, New York 10021. Such addresses may be changed by notice given as provided in this subsection. Notices shall be effective upon the date of receipt; provided, however, that a notice (other than a notice of a changed address) sent by certified or registered U.S. mail, with postage prepaid, shall be presumed received not later than three (3) business days following the date of sending. (g) Time is of the essence under this Note. -7- IN WITNESS WHEREOF, Maker has executed this Note effective as of the date first set forth above. OLYMPIC CASCADE FINANCIAL CORPORATION By: /s/ Steven A. Rothstein ----------------------------------------- Steven A. Rothstein Chairman -8- THIS WARRANT AND ANY SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER ANY STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS. THE TRANSFER OF THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF IS RESTRICTED AS DESCRIBED HEREIN. OLYMPIC CASCADE FINANCIAL CORPORATION Warrant for the purchase of shares of Common Stock, $.02 par value per share No. 1 THIS CERTIFIES that, for $25,000 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Merryl H. Tisch as custodian for Jessica S. Tisch (the "Holder"), is entitled to subscribe for and purchase from Olympic Cascade Financial Corporation, a Delaware corporation (the "Company"), upon the terms and conditions set forth herein, at any time or from time to time, during the period commencing on the date hereof (November 17, 1997) and expiring at 5:00 p.m. on November 31, 2002 (the "Exercise Period"), 25,000 shares of the Company's common stock, $.02 par value per share ("the Common Stock"), at a price (the "Exercise Price") per share of Common Stock equal to $5.625. As used herein, the term "this Warrant" shall mean and include this Warrant and any Warrant or Warrants hereafter issued as a consequence of the exercise or transfer of this Warrant in whole or in part. This Warrant is one of a series of warrants issued to the original Holder in connection with the exercise of certain warrants by the original Holder. As used herein, the term "Holder" shall include any transferee to whom this Warrant has been transferred in accordance with the terms hereof. The number of shares of Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") may be adjusted from time to time as hereinafter set forth. 1. Subject to the provisions of Section 2, this Warrant may be exercised during the Exercise Period, as to the whole or any lesser number of whole Warrant Shares, by transmission by telecopy of the Election to Exercise, followed within three (3) business days by the surrender of this Warrant (with the Election to Exercise attached hereto duly executed) to the Company at its office at 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154, or at such other place as is designated in writing by the Company, together with a certified or bank cashier's check payable to the order of the Company in an amount equal to the product of the Exercise Price and the number of Warrant Shares for which this Warrant is being exercised (the "Aggregate Exercise Price"). Alternatively, this Warrant may be exercised in the manner set forth in the preceding sentence by surrendering this Warrant in exchange for the number of Warrant Shares equal to the product of (x) the number of shares of Common Stock as to which this Warrant is being exercised, multiplied by (y) a fraction, the numerator of which is the Market Price (as defined below) of the shares of Common Stock minus the Exercise Price of the shares of Common Stock and the denominator of which is the Market Price per share of Common Stock. Solely for the purposes of this Section 1 Market Price shall be calculated either (i) on the date on which the form of election attached hereto is deemed to have been sent to the Company pursuant to this Section 1 ("Notice Date") or (ii) as the average of the Market Price for each of the five trading days immediately preceding the Notice Date, whichever of (i) or (ii) results in a greater Market Price. As used herein, the phrase "Market Price" at any date shall be deemed to be the last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three (3) trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading, or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the average closing sale price as furnished by the NASD through The Nasdaq Stock Market, Inc. ("Nasdaq") or similar organization if Nasdaq is no longer reporting such information, or if the Common Stock is not quoted on Nasdaq, as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it. 2. Upon each exercise of the Holder's rights to purchase Warrant Shares, the Holder shall be deemed to be the holder of record of the Warrant Shares issuable upon such exercise, notwithstanding that the transfer books of the Company shall then be closed or certificates representing such Warrant Shares shall not then have been actually delivered to the Holder. Within five (5) business days after each such exercise of this Warrant and receipt by -2- the Company of this Warrant, the Election to Exercise and the Aggregate Exercise Price, the Company shall issue and deliver to the Holder a certificate or certificates for the Warrant Shares issuable upon such exercise, registered in the name of the Holder or its designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right of the Holder to purchase the balance of the Warrant Shares (or portions thereof) subject to purchase hereunder. 3. Any Warrants issued upon the transfer or exercise in part of this Warrant shall be numbered and shall be registered in a warrant register (the "Warrant Register") as they are issued. The Company shall be entitled to treat the registered holder of any Warrant on the Warrant Register as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other person, and shall not be liable for any registration of transfer of Warrants which are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge of the general counsel of the Company that a fiduciary or nominee is committing a breach of trust in requesting such registration of transfer. In all cases of transfer by an attorney, executor, administrator, guardian, or other legal representative, duly authenticated evidence of his or its authority shall be produced. Upon any registration of transfer, the Company shall deliver a new Warrant or Warrants to the person entitled thereto. This Warrant may be exchanged, at the option of the Holder thereof, for another Warrant, or other Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of Warrant Shares (or portions thereof), upon surrender to the Company or its duly authorized agent. Notwithstanding anything contained herein to the contrary, the Company shall have no obligation to cause Warrants to be transferred on its books to any person if, in the opinion of counsel to the Company, such transfer does not comply with the provisions of the Act and the rules and regulations thereunder. 4. The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of providing for the exercise of the rights to purchase all Warrant Shares granted pursuant to the Warrants, such number of shares of Common Stock as shall, from time to time, be sufficient therefor. The Company covenants that all shares of Common Stock issuable upon exercise of this Warrant, upon receipt by the Company of the full Exercise Price therefor, shall be validly issued, fully paid, nonassessable, and free of preemptive rights. 5. (a) The Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events as follows: (b) In case the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Common Stock, in each case, in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number -3- of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur. (c) Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 5, the number of Warrant Shares issuable upon the exercise at the adjusted Exercise Price of each Warrant shall be adjusted to the nearest number of whole shares of Common Stock by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. (d) For the purpose of this Warrant, the term "Common Stock" shall mean (i) the class of stock designated as Common Stock in the Articles of Incorporation of the Company as amended as of the date hereof, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. (e) In case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental warrant agreement providing that the Holder of this Warrant shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or merger by a holder of the number of shares of Common Stock for which such Warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in this Section 5. The above provision of this subsection shall similarly apply to successive consolidations or mergers. (f) No adjustment in the number of Warrant Shares shall be required if such adjustment is less than one; PROVIDED, HOWEVER, that any adjustments which by reason of this Section 5(f) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 5 shall be made to the nearest one-thousandth of a share. -4- (g) In any case in which this Section 5 shall require that an adjustment in the number of Warrant Shares be made effective as of a record date for a specified event, the Company may elect to defer, until the occurrence of such event, issuing to the Holder, if the Holder exercised this Warrant after the record date, the Warrant Shares, if any, issuable upon such exercise over and above the Warrant Shares, if any, issuable upon such exercise prior to such adjustment; PROVIDED, HOWEVER, that the Company shall deliver to the Holder a due bill or other appropriate instrument evidencing the Holder's right to receive such additional Warrant Shares upon the occurrence of the event requiring such adjustment. (h) Whenever there shall be an adjustment as provided in this Section 5, the Company shall promptly cause written notice thereof to be sent by certified mail, postage prepaid, to the Holder, at its address as it shall appear in the Warrant Register, which notice shall be accompanied by an officer's certificate setting forth the number of Warrant Shares issuable upon the exercise of this Warrant if such Warrant were exercisable on the date of such notice, and setting forth a brief statement of the facts requiring such adjustment and the computation thereof, which officer's certificate shall be conclusive evidence of the correctness of any such adjustment absent manifest error. 6. In case at any time the Company shall propose (a) to pay any dividend or make any distribution on shares of Common Stock in shares of Common Stock or make any other distribution (other than regularly scheduled cash dividends which are not in a greater amount per share than the most recent such cash dividend) to all holders of Common Stock; or (b) to issue any rights, warrants, or other securities to all holders of Common Stock entitling them to purchase any additional shares of Common Stock or any other rights, warrants, or other securities; or (c) to effect any reclassification or change of outstanding shares of Common Stock, or any consolidation or merger, described in Section 7; or (d) to effect any liquidation, dissolution, or winding-up of the Company, then, and in any one or more of such cases, the Company shall give written notice thereof, by registered mail, postage prepaid, to the Holder at the Holder's address as it shall appear in the Warrant Register, mailed at least 15 days prior to (i) the date as of which the holders of record of shares of Common Stock to be entitled to receive any such dividend, distribution, rights, warrants, or other securities are to be determined, or (ii) the date on which any such reclassification, change of outstanding shares of Common Stock, consolidation, merger, liquidation, dissolution, or winding-up is expected to become effective, and the date as of which it is -5- expected that holders of record of shares of Common Stock shall be entitled to exchange their shares for securities or other property, if any, deliverable upon such reclassification, change of outstanding shares, consolidation, merger, sale, lease, conveyance of property, liquidation, dissolution, or winding-up. 7. The issuance of any shares or other securities upon the exercise of this Warrant, and the delivery of certificates or other instruments representing such shares or other securities, shall be made without charge to the Holder for any tax or other charge in respect of such issuance, other than applicable transfer taxes. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 8. If, at any time during the Exercise Period, the Company proposes to register any of its securities under the Act (other than on a Form S-4 or a Form S-8 or successor form thereto) it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Holders of this Warrant or the Warrant Shares of its intention to do so. If any of the Holders of this Warrant or the Warrant Shares notify the Company within twenty (20) days after mailing of any such notice of its or their desire to include any such securities in such proposed registration statement, the Company shall afford such Holders the opportunity to have any such Warrant Shares registered under such registration statement. In the event that the managing underwriter for said offering advises the Company in writing that in its opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without causing a diminution in the offering price or otherwise adversely affecting the offering, the Company will include in such registration (a) FIRST, the securities the Company proposes to sell, (b) SECOND, the securities held by entities that made have demand registration rights, (c) THIRD, the Warrant Shares requested to be included in such registration which in the opinion of such underwriter can be sold, PRO RATA among those persons having registration rights similar those set forth in this Section 8 who requested such registration, and (d) FOURTH, other securities requested to be included in such registration. Notwithstanding the provisions of this Section 8, the Company shall have the right at any time after it shall have given written notice pursuant to this SECTION 9.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement or to withdraw the same after the filing but prior to the effective date thereof. 9. Unless registered as contemplated by Section 8 hereof, the Warrant Shares issued upon exercise of the Warrants shall be subject to a stop transfer order and the certificate or certificates evidencing such Warrant Shares shall bear the following legend: -6- "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. SUCH SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER CONTAINED IN A WARRANT, DATED NOVEMBER 17, 1997, A COPY OF WHICH ARE ON FILE WITH THE SECRETARY OF THE COMPANY." 10. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant (and upon surrender of any Warrant if mutilated), and upon reimbursement of the Company's reasonable incidental expenses and, if reasonably requested, an indemnity reasonably acceptable to the Company, the Company shall execute and deliver to the Holder thereof a new Warrant of like date, tenor, and denomination. 11. The Holder of any Warrant shall not have, solely on account of such status, any rights of a stockholder of the Company, either at law or in equity, or to any notice of meetings of stockholders or of any other proceedings of the Company, except as provided in this Warrant. -7- 12. This Warrant shall be construed in accordance with the laws of the State of Delaware applicable to contracts made and performed within such State, without regard to principles of conflicts of law. Dated: November 17, 1997 OLYMPIC CASCADE FINANCIAL CORPORATION By: /s/ Steven A. Rothstein --------------------------------------- Name: Steven A. Rothstein Title: Chairman FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the attached Warrant.) FOR VALUE RECEIVED, ______________________________hereby sells, assigns, and transfers unto ________________ a Warrant to purchase _________ shares of Common Stock, $.02 par value per share, of Olympic Cascade Financial Corporation (the "Company"), together with all right, title, and interest therein, and does hereby irrevocably constitute and appoint _____________________attorney to transfer such Warrant on the books of the Company, with full power of substitution. Dated: ----------------------- Signature ---------------------------------- Signature Guaranteed: NOTICE The signature on the foregoing Assignment must correspond to the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever. To: Olympic Cascade Financial Corporation 1001 Fourth Avenue Suite 2200 Seattle, Washington 98154 ELECTION TO EXERCISE The undersigned hereby exercises his or its rights to purchase _______ Warrant Shares covered by the within Warrant and tenders payment herewith [in the amount of $_________] [in the form of ________ number of Warrant Shares] in accordance with the terms thereof, certifies that he owns this Warrant free and clear of any and all claims, liens and/or encumbrances and requests that certificates for such securities be issued in the name of, and delivered to: ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ (Print Name, Address and Social Security or Tax Identification Number) and, if such number of Warrant Shares shall not be all the Warrant Shares covered by the within Warrant, that a new Warrant for the balance of the Warrant Shares covered by the within Warrant be registered in the name of, and delivered to, the undersigned at the address stated below. Dated: Name -------------------- ------------------------------- (Print) Address: --------------------------------------------------------------- -------------------------------------- (Signature) THIS WARRANT AND ANY SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER ANY STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS. THE TRANSFER OF THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF IS RESTRICTED AS DESCRIBED HEREIN. OLYMPIC CASCADE FINANCIAL CORPORATION Warrant for the purchase of shares of Common Stock, $.02 par value per share No. 2 THIS CERTIFIES that, for $25,000 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Merryl H. Tisch as custodian for Benjamin J. Tisch (the "Holder"), is entitled to subscribe for and purchase from Olympic Cascade Financial Corporation, a Delaware corporation (the "Company"), upon the terms and conditions set forth herein, at any time or from time to time, during the period commencing on the date hereof (November 17, 1997) and expiring at 5:00 p.m. on November 31, 2002 (the "Exercise Period"), 25,000 shares of the Company's common stock, $.02 par value per share ("the Common Stock"), at a price (the "Exercise Price") per share of Common Stock equal to $5.625. As used herein, the term "this Warrant" shall mean and include this Warrant and any Warrant or Warrants hereafter issued as a consequence of the exercise or transfer of this Warrant in whole or in part. This Warrant is one of a series of warrants issued to the original Holder in connection with the exercise of certain warrants by the original Holder. As used herein, the term "Holder" shall include any transferee to whom this Warrant has been transferred in accordance with the terms hereof. The number of shares of Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") may be adjusted from time to time as hereinafter set forth. 1. Subject to the provisions of Section 2, this Warrant may be exercised during the Exercise Period, as to the whole or any lesser number of whole Warrant Shares, by transmission by telecopy of the Election to Exercise, followed within three (3) business days by the surrender of this Warrant (with the Election to Exercise attached hereto duly executed) to the Company at its office at 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154, or at such other place as is designated in writing by the Company, together with a certified or bank cashier's check payable to the order of the Company in an amount equal to the product of the Exercise Price and the number of Warrant Shares for which this Warrant is being exercised (the "Aggregate Exercise Price"). Alternatively, this Warrant may be exercised in the manner set forth in the preceding sentence by surrendering this Warrant in exchange for the number of Warrant Shares equal to the product of (x) the number of shares of Common Stock as to which this Warrant is being exercised, multiplied by (y) a fraction, the numerator of which is the Market Price (as defined below) of the shares of Common Stock minus the Exercise Price of the shares of Common Stock and the denominator of which is the Market Price per share of Common Stock. Solely for the purposes of this Section 1 Market Price shall be calculated either (i) on the date on which the form of election attached hereto is deemed to have been sent to the Company pursuant to this Section 1 ("Notice Date") or (ii) as the average of the Market Price for each of the five trading days immediately preceding the Notice Date, whichever of (i) or (ii) results in a greater Market Price. As used herein, the phrase "Market Price" at any date shall be deemed to be the last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three (3) trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading, or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the average closing sale price as furnished by the NASD through The Nasdaq Stock Market, Inc. ("Nasdaq") or similar organization if Nasdaq is no longer reporting such information, or if the Common Stock is not quoted on Nasdaq, as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it. 2. Upon each exercise of the Holder's rights to purchase Warrant Shares, the Holder shall be deemed to be the holder of record of the Warrant Shares issuable upon such exercise, notwithstanding that the transfer books of the Company shall then be closed or certificates representing such Warrant Shares shall not then have been actually delivered to the Holder. Within five (5) business days after each such exercise of this Warrant and receipt by the Company of this Warrant, the Election to Exercise and the Aggregate Exercise Price, the Company shall issue and deliver to the Holder a certificate or certificates for the Warrant Shares issuable upon such exercise, registered in the name of the Holder or its designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right of the Holder to purchase the balance of the Warrant Shares (or portions thereof) subject to purchase hereunder. 3. Any Warrants issued upon the transfer or exercise in part of this Warrant shall be numbered and shall be registered in a warrant register (the "Warrant Register") as they are issued. The Company shall be entitled to treat the registered holder of any Warrant on the Warrant Register as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other person, and shall not be liable for any registration of transfer of Warrants which are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge of the general counsel of the Company that a fiduciary or nominee is committing a breach of trust in requesting such registration of transfer. In all cases of transfer by an attorney, executor, administrator, guardian, or other legal representative, duly authenticated evidence of his or its authority shall be produced. Upon any registration of transfer, the Company shall deliver a new Warrant or Warrants to the person entitled thereto. This Warrant may be exchanged, at the option of the Holder thereof, for another Warrant, or other Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of Warrant Shares (or portions thereof), upon surrender to the Company or its duly authorized agent. Notwithstanding anything contained herein to the contrary, the Company shall have no obligation to cause Warrants to be transferred on its books to any person if, in the opinion of counsel to the Company, such transfer does not comply with the provisions of the Act and the rules and regulations thereunder. 4. The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of providing for the exercise of the rights to purchase all Warrant Shares granted pursuant to the Warrants, such number of shares of Common Stock as shall, from time to time, be sufficient therefor. The Company covenants that all shares of Common Stock issuable upon exercise of this Warrant, upon receipt by the Company of the full Exercise Price therefor, shall be validly issued, fully paid, nonassessable, and free of preemptive rights. 5. (a) The Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events as follows: (b) In case the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Common Stock, in each case, in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur. (c) Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 5, the number of Warrant Shares issuable upon the exercise at the adjusted Exercise Price of each Warrant shall be adjusted to the nearest number of whole shares of Common Stock by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. (d) For the purpose of this Warrant, the term "Common Stock" shall mean (i) the class of stock designated as Common Stock in the Articles of Incorporation of the Company as amended as of the date hereof, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. (e) In case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental warrant agreement providing that the Holder of this Warrant shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or merger by a holder of the number of shares of Common Stock for which such Warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in this Section 5. The above provision of this subsection shall similarly apply to successive consolidations or mergers. (f) No adjustment in the number of Warrant Shares shall be required if such adjustment is less than one; PROVIDED, HOWEVER, that any adjustments which by reason of this Section 5(f) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 5 shall be made to the nearest one-thousandth of a share. (g) In any case in which this Section 5 shall require that an adjustment in the number of Warrant Shares be made effective as of a record date for a specified event, the Company may elect to defer, until the occurrence of such event, issuing to the Holder, if the Holder exercised this Warrant after the record date, the Warrant Shares, if any, issuable upon such exercise over and above the Warrant Shares, if any, issuable upon such exercise prior to such adjustment; PROVIDED, HOWEVER, that the Company shall deliver to the Holder a due bill or other appropriate instrument evidencing the Holder's right to receive such additional Warrant Shares upon the occurrence of the event requiring such adjustment. (h) Whenever there shall be an adjustment as provided in this Section 5, the Company shall promptly cause written notice thereof to be sent by certified mail, postage prepaid, to the Holder, at its address as it shall appear in the Warrant Register, which notice shall be accompanied by an officer's certificate setting forth the number of Warrant Shares issuable upon the exercise of this Warrant if such Warrant were exercisable on the date of such notice, and setting forth a brief statement of the facts requiring such adjustment and the computation thereof, which officer's certificate shall be conclusive evidence of the correctness of any such adjustment absent manifest error. 6. In case at any time the Company shall propose (a) to pay any dividend or make any distribution on shares of Common Stock in shares of Common Stock or make any other distribution (other than regularly scheduled cash dividends which are not in a greater amount per share than the most recent such cash dividend) to all holders of Common Stock; or (b) to issue any rights, warrants, or other securities to all holders of Common Stock entitling them to purchase any additional shares of Common Stock or any other rights, warrants, or other securities; or (c) to effect any reclassification or change of outstanding shares of Common Stock, or any consolidation or merger, described in Section 7; or (d) to effect any liquidation, dissolution, or winding-up of the Company, then, and in any one or more of such cases, the Company shall give written notice thereof, by registered mail, postage prepaid, to the Holder at the Holder's address as it shall appear in the Warrant Register, mailed at least 15 days prior to (i) the date as of which the holders of record of shares of Common Stock to be entitled to receive any such dividend, distribution, rights, warrants, or other securities are to be determined, or (ii) the date on which any such reclassification, change of outstanding shares of Common Stock, consolidation, merger, liquidation, dissolution, or winding-up is expected to become effective, and the date as of which it is expected that holders of record of shares of Common Stock shall be entitled to exchange their shares for securities or other property, if any, deliverable upon such reclassification, change of outstanding shares, consolidation, merger, sale, lease, conveyance of property, liquidation, dissolution, or winding-up. 7. The issuance of any shares or other securities upon the exercise of this Warrant, and the delivery of certificates or other instruments representing such shares or other securities, shall be made without charge to the Holder for any tax or other charge in respect of such issuance, other than applicable transfer taxes. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 8. If, at any time during the Exercise Period, the Company proposes to register any of its securities under the Act (other than on a Form S-4 or a Form S-8 or successor form thereto) it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Holders of this Warrant or the Warrant Shares of its intention to do so. If any of the Holders of this Warrant or the Warrant Shares notify the Company within twenty (20) days after mailing of any such notice of its or their desire to include any such securities in such proposed registration statement, the Company shall afford such Holders the opportunity to have any such Warrant Shares registered under such registration statement. In the event that the managing underwriter for said offering advises the Company in writing that in its opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without causing a diminution in the offering price or otherwise adversely affecting the offering, the Company will include in such registration (a) FIRST, the securities the Company proposes to sell, (b) SECOND, the securities held by entities that made have demand registration rights, (c) THIRD, the Warrant Shares requested to be included in such registration which in the opinion of such underwriter can be sold, PRO RATA among those persons having registration rights similar those set forth in this Section 8 who requested such registration, and (d) FOURTH, other securities requested to be included in such registration. Notwithstanding the provisions of this Section 8, the Company shall have the right at any time after it shall have given written notice pursuant to this SECTION 9.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement or to withdraw the same after the filing but prior to the effective date thereof. 9. Unless registered as contemplated by Section 8 hereof, the Warrant Shares issued upon exercise of the Warrants shall be subject to a stop transfer order and the certificate or certificates evidencing such Warrant Shares shall bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. SUCH SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER CONTAINED IN A WARRANT, DATED NOVEMBER 17, 1997, A COPY OF WHICH ARE ON FILE WITH THE SECRETARY OF THE COMPANY." 10. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant (and upon surrender of any Warrant if mutilated), and upon reimbursement of the Company's reasonable incidental expenses and, if reasonably requested, an indemnity reasonably acceptable to the Company, the Company shall execute and deliver to the Holder thereof a new Warrant of like date, tenor, and denomination. 11. The Holder of any Warrant shall not have, solely on account of such status, any rights of a stockholder of the Company, either at law or in equity, or to any notice of meetings of stockholders or of any other proceedings of the Company, except as provided in this Warrant. 12. This Warrant shall be construed in accordance with the laws of the State of Delaware applicable to contracts made and performed within such State, without regard to principles of conflicts of law. Dated: November 17, 1997 OLYMPIC CASCADE FINANCIAL CORPORATION By: /s/ Steven A. Rothstein ------------------------------------------ Name: Steven A. Rothstein Title: Chairman FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the attached Warrant.) FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and transfers unto _____________ a Warrant to purchase _________ shares of Common Stock, $.02 par value per share, of Olympic Cascade Financial Corporation (the "Company"), together with all right, title, and interest therein, and does hereby irrevocably constitute and appoint ___________________ attorney to transfer such Warrant on the books of the Company, with full power of substitution. Dated: -------------------------- Signature --------------------------------------- Signature Guaranteed: NOTICE The signature on the foregoing Assignment must correspond to the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever. To: Olympic Cascade Financial Corporation 1001 Fourth Avenue Suite 2200 Seattle, Washington 98154 ELECTION TO EXERCISE The undersigned hereby exercises his or its rights to purchase _______ Warrant Shares covered by the within Warrant and tenders payment herewith [in the amount of $_________] [in the form of ________ number of Warrant Shares] in accordance with the terms thereof, certifies that he owns this Warrant free and clear of any and all claims, liens and/or encumbrances and requests that certificates for such securities be issued in the name of, and delivered to: ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ (Print Name, Address and Social Security or Tax Identification Number) and, if such number of Warrant Shares shall not be all the Warrant Shares covered by the within Warrant, that a new Warrant for the balance of the Warrant Shares covered by the within Warrant be registered in the name of, and delivered to, the undersigned at the address stated below. Dated: Name ---------------------- ---------------------------- (Print) Address: ------------------------------------------------------------ ------------------------------------------- (Signature) THIS WARRANT AND ANY SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER ANY STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS. THE TRANSFER OF THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF IS RESTRICTED AS DESCRIBED HEREIN. OLYMPIC CASCADE FINANCIAL CORPORATION Warrant for the purchase of shares of Common Stock, $.02 par value per share No. 3 THIS CERTIFIES that, for $25,000 and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Merryl H. Tisch as custodian for Samuel A. Tisch (the "Holder"), is entitled to subscribe for and purchase from Olympic Cascade Financial Corporation, a Delaware corporation (the "Company"), upon the terms and conditions set forth herein, at any time or from time to time, during the period commencing on the date hereof (November 17, 1997) and expiring at 5:00 p.m. on November 31, 2002 (the "Exercise Period"), 25,000 shares of the Company's common stock, $.02 par value per share ("the Common Stock"), at a price (the "Exercise Price") per share of Common Stock equal to $5.625. As used herein, the term "this Warrant" shall mean and include this Warrant and any Warrant or Warrants hereafter issued as a consequence of the exercise or transfer of this Warrant in whole or in part. This Warrant is one of a series of warrants issued to the original Holder in connection with the exercise of certain warrants by the original Holder. As used herein, the term "Holder" shall include any transferee to whom this Warrant has been transferred in accordance with the terms hereof. The number of shares of Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") may be adjusted from time to time as hereinafter set forth. 1. Subject to the provisions of Section 2, this Warrant may be exercised during the Exercise Period, as to the whole or any lesser number of whole Warrant Shares, by transmission by telecopy of the Election to Exercise, followed within three (3) business days by the surrender of this Warrant (with the Election to Exercise attached hereto duly executed) to the Company at its office at 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154, or at such other place as is designated in writing by the Company, together with a certified or bank cashier's check payable to the order of the Company in an amount equal to the product of the Exercise Price and the number of Warrant Shares for which this Warrant is being exercised (the "Aggregate Exercise Price"). Alternatively, this Warrant may be exercised in the manner set forth in the preceding sentence by surrendering this Warrant in exchange for the number of Warrant Shares equal to the product of (x) the number of shares of Common Stock as to which this Warrant is being exercised, multiplied by (y) a fraction, the numerator of which is the Market Price (as defined below) of the shares of Common Stock minus the Exercise Price of the shares of Common Stock and the denominator of which is the Market Price per share of Common Stock. Solely for the purposes of this Section 1 Market Price shall be calculated either (i) on the date on which the form of election attached hereto is deemed to have been sent to the Company pursuant to this Section 1 ("Notice Date") or (ii) as the average of the Market Price for each of the five trading days immediately preceding the Notice Date, whichever of (i) or (ii) results in a greater Market Price. As used herein, the phrase "Market Price" at any date shall be deemed to be the last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three (3) trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading, or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the average closing sale price as furnished by the NASD through The Nasdaq Stock Market, Inc. ("Nasdaq") or similar organization if Nasdaq is no longer reporting such information, or if the Common Stock is not quoted on Nasdaq, as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it. 2. Upon each exercise of the Holder's rights to purchase Warrant Shares, the Holder shall be deemed to be the holder of record of the Warrant Shares issuable upon such exercise, notwithstanding that the transfer books of the Company shall then be closed or certificates representing such Warrant Shares shall not then have been actually delivered to the Holder. Within five (5) business days after each such exercise of this Warrant and receipt by the Company of this Warrant, the Election to Exercise and the Aggregate Exercise Price, the Company shall issue and deliver to the Holder a certificate or certificates for the Warrant Shares issuable upon such exercise, registered in the name of the Holder or its designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant for cancellation, execute and deliver a new Warrant evidencing the right of the Holder to purchase the balance of the Warrant Shares (or portions thereof) subject to purchase hereunder. 3. Any Warrants issued upon the transfer or exercise in part of this Warrant shall be numbered and shall be registered in a warrant register (the "Warrant Register") as they are issued. The Company shall be entitled to treat the registered holder of any Warrant on the Warrant Register as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other person, and shall not be liable for any registration of transfer of Warrants which are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge of the general counsel of the Company that a fiduciary or nominee is committing a breach of trust in requesting such registration of transfer. In all cases of transfer by an attorney, executor, administrator, guardian, or other legal representative, duly authenticated evidence of his or its authority shall be produced. Upon any registration of transfer, the Company shall deliver a new Warrant or Warrants to the person entitled thereto. This Warrant may be exchanged, at the option of the Holder thereof, for another Warrant, or other Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of Warrant Shares (or portions thereof), upon surrender to the Company or its duly authorized agent. Notwithstanding anything contained herein to the contrary, the Company shall have no obligation to cause Warrants to be transferred on its books to any person if, in the opinion of counsel to the Company, such transfer does not comply with the provisions of the Act and the rules and regulations thereunder. 4. The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of providing for the exercise of the rights to purchase all Warrant Shares granted pursuant to the Warrants, such number of shares of Common Stock as shall, from time to time, be sufficient therefor. The Company covenants that all shares of Common Stock issuable upon exercise of this Warrant, upon receipt by the Company of the full Exercise Price therefor, shall be validly issued, fully paid, nonassessable, and free of preemptive rights. 5. (a) The Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events as follows: (b) In case the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Common Stock, in each case, in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price by a fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur. (c) Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 5, the number of Warrant Shares issuable upon the exercise at the adjusted Exercise Price of each Warrant shall be adjusted to the nearest number of whole shares of Common Stock by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. (d) For the purpose of this Warrant, the term "Common Stock" shall mean (i) the class of stock designated as Common Stock in the Articles of Incorporation of the Company as amended as of the date hereof, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. (e) In case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental warrant agreement providing that the Holder of this Warrant shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or merger by a holder of the number of shares of Common Stock for which such Warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in this Section 5. The above provision of this subsection shall similarly apply to successive consolidations or mergers. (f) No adjustment in the number of Warrant Shares shall be required if such adjustment is less than one; PROVIDED, HOWEVER, that any adjustments which by reason of this Section 5(f) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 5 shall be made to the nearest one-thousandth of a share. (g) In any case in which this Section 5 shall require that an adjustment in the number of Warrant Shares be made effective as of a record date for a specified event, the Company may elect to defer, until the occurrence of such event, issuing to the Holder, if the Holder exercised this Warrant after the record date, the Warrant Shares, if any, issuable upon such exercise over and above the Warrant Shares, if any, issuable upon such exercise prior to such adjustment; PROVIDED, HOWEVER, that the Company shall deliver to the Holder a due bill or other appropriate instrument evidencing the Holder's right to receive such additional Warrant Shares upon the occurrence of the event requiring such adjustment. (h) Whenever there shall be an adjustment as provided in this Section 5, the Company shall promptly cause written notice thereof to be sent by certified mail, postage prepaid, to the Holder, at its address as it shall appear in the Warrant Register, which notice shall be accompanied by an officer's certificate setting forth the number of Warrant Shares issuable upon the exercise of this Warrant if such Warrant were exercisable on the date of such notice, and setting forth a brief statement of the facts requiring such adjustment and the computation thereof, which officer's certificate shall be conclusive evidence of the correctness of any such adjustment absent manifest error. 6. In case at any time the Company shall propose (a) to pay any dividend or make any distribution on shares of Common Stock in shares of Common Stock or make any other distribution (other than regularly scheduled cash dividends which are not in a greater amount per share than the most recent such cash dividend) to all holders of Common Stock; or (b) to issue any rights, warrants, or other securities to all holders of Common Stock entitling them to purchase any additional shares of Common Stock or any other rights, warrants, or other securities; or (c) to effect any reclassification or change of outstanding shares of Common Stock, or any consolidation or merger, described in Section 7; or (d) to effect any liquidation, dissolution, or winding-up of the Company, then, and in any one or more of such cases, the Company shall give written notice thereof, by registered mail, postage prepaid, to the Holder at the Holder's address as it shall appear in the Warrant Register, mailed at least 15 days prior to (i) the date as of which the holders of record of shares of Common Stock to be entitled to receive any such dividend, distribution, rights, warrants, or other securities are to be determined, or (ii) the date on which any such reclassification, change of outstanding shares of Common Stock, consolidation, merger, liquidation, dissolution, or winding-up is expected to become effective, and the date as of which it is expected that holders of record of shares of Common Stock shall be entitled to exchange their shares for securities or other property, if any, deliverable upon such reclassification, change of outstanding shares, consolidation, merger, sale, lease, conveyance of property, liquidation, dissolution, or winding-up. 7. The issuance of any shares or other securities upon the exercise of this Warrant, and the delivery of certificates or other instruments representing such shares or other securities, shall be made without charge to the Holder for any tax or other charge in respect of such issuance, other than applicable transfer taxes. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 8. If, at any time during the Exercise Period, the Company proposes to register any of its securities under the Act (other than on a Form S-4 or a Form S-8 or successor form thereto) it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Holders of this Warrant or the Warrant Shares of its intention to do so. If any of the Holders of this Warrant or the Warrant Shares notify the Company within twenty (20) days after mailing of any such notice of its or their desire to include any such securities in such proposed registration statement, the Company shall afford such Holders the opportunity to have any such Warrant Shares registered under such registration statement. In the event that the managing underwriter for said offering advises the Company in writing that in its opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without causing a diminution in the offering price or otherwise adversely affecting the offering, the Company will include in such registration (a) FIRST, the securities the Company proposes to sell, (b) SECOND, the securities held by entities that made have demand registration rights, (c) THIRD, the Warrant Shares requested to be included in such registration which in the opinion of such underwriter can be sold, PRO RATA among those persons having registration rights similar those set forth in this Section 8 who requested such registration, and (d) FOURTH, other securities requested to be included in such registration. Notwithstanding the provisions of this Section 8, the Company shall have the right at any time after it shall have given written notice pursuant to this SECTION 9.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement or to withdraw the same after the filing but prior to the effective date thereof. 9. Unless registered as contemplated by Section 8 hereof, the Warrant Shares issued upon exercise of the Warrants shall be subject to a stop transfer order and the certificate or certificates evidencing such Warrant Shares shall bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. SUCH SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER CONTAINED IN A WARRANT, DATED NOVEMBER 17, 1997, A COPY OF WHICH ARE ON FILE WITH THE SECRETARY OF THE COMPANY." 10. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant (and upon surrender of any Warrant if mutilated), and upon reimbursement of the Company's reasonable incidental expenses and, if reasonably requested, an indemnity reasonably acceptable to the Company, the Company shall execute and deliver to the Holder thereof a new Warrant of like date, tenor, and denomination. 11. The Holder of any Warrant shall not have, solely on account of such status, any rights of a stockholder of the Company, either at law or in equity, or to any notice of meetings of stockholders or of any other proceedings of the Company, except as provided in this Warrant. 12. This Warrant shall be construed in accordance with the laws of the State of Delaware applicable to contracts made and performed within such State, without regard to principles of conflicts of law. Dated: November 17, 1997 OLYMPIC CASCADE FINANCIAL CORPORATION By: /s/ Steven A. Rothstein ---------------------------------------- Name: Steven A. Rothstein Title: Chairman -8- FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the attached Warrant.) FOR VALUE RECEIVED, ________________ hereby sells, assigns, and transfers unto __________________ a Warrant to purchase __________ shares of Common Stock, $.02 par value per share, of Olympic Cascade Financial Corporation (the "Company"), together with all right, title, and interest therein, and does hereby irrevocably constitute and appoint ___________________________ attorney to transfer such Warrant on the books of the Company, with full power of substitution. Dated: --------------------------- Signature ------------------------------------ Signature Guaranteed: NOTICE The signature on the foregoing Assignment must correspond to the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever. To: Olympic Cascade Financial Corporation 1001 Fourth Avenue Suite 2200 Seattle, Washington 98154 ELECTION TO EXERCISE The undersigned hereby exercises his or its rights to purchase _______ Warrant Shares covered by the within Warrant and tenders payment herewith [in the amount of $_________] [in the form of ________ number of Warrant Shares] in accordance with the terms thereof, certifies that he owns this Warrant free and clear of any and all claims, liens and/or encumbrances and requests that certificates for such securities be issued in the name of, and delivered to: ------------------------------------------------------ ------------------------------------------------------ ------------------------------------------------------ (Print Name, Address and Social Security or Tax Identification Number) and, if such number of Warrant Shares shall not be all the Warrant Shares covered by the within Warrant, that a new Warrant for the balance of the Warrant Shares covered by the within Warrant be registered in the name of, and delivered to, the undersigned at the address stated below. Dated: Name ----------------- ------------------------------------ (Print) Address: --------------------------------------------------------------- -------------------------------------- (Signature) EX-10.35 7 EXHIBIT 10.35 PROMISSORY NOTE $500,000 Seattle, Washington November 17, 1997 FOR VALUE RECEIVED, the undersigned, Olympic Cascade Financial Corporation, a Delaware corporation having an address at 1001 Fourth Avenue, Suite 2200, Seattle, Washington, 98154, ("Maker"), promises to pay to the order of FAI Overseas Investments Pty Limited ("Payee") at Level 12, 185 Macquarie Street, Sydney, New South Wales, Australia, or at such other place as Payee may from time to time designate by written notice to Maker, in lawful money of the United States, the sum of Five Hundred Thousand Dollars ($500,000), plus interest from the date of this Note on the unpaid balance. All principal and interest is to be paid as set forth below. Maker further agrees as follows: SECTION 1. INTEREST RATE. (a) Interest shall accrue at a rate equal to eight percent (8%) per annum. (b) Interest shall be computed on the basis of a year of 360 days for the actual number of days elapsed. After maturity (whether by acceleration or otherwise, and before as well as after judgment), all unpaid principal and interest shall bear interest until it is paid at five percent (5%) in excess of the rate otherwise applicable to the unpaid balance under this Note. up to the maximum amount allowable by law. SECTION 2. PAYMENTS. (a) Principal shall be due and payable in twenty-four equal installments (each a "Principal Payment") commencing on December 31, 2000 and continuing on the last day of each month (each a "Principal Payment Date") through November 30, 2002 ("Maturity") unless Maker makes demand as set forth pursuant to Section 2(c) below. (b) During the first three years of this Note accrued interest shall be payable in arrears on a quarterly calendar basis commencing March 30, 1998. Thereafter, accrued interest shall be paid on each Principal Payment Date. (c) If Maker completes one or more public offerings or private placements of debt or equity securities, having gross proceeds in the aggregate of at least $5,000,000 (a "Financing") Maker shall give notice to Payee within five (5) days of the closing of such Financing. Payee shall have twenty-five (25) days from receipt of such notice to demand that the principal and all accrued interest under this Note be then due and payable. (d) Maker shall have the right to prepay this Note in full or in part at any time without penalty. SECTION 3. DEFAULT. It shall be an event of default ("Event of Default"), and the entire unpaid principal of this Note, together with accrued interest, shall become immediately due and payable, at the election of Payee, upon the occurrence of any of the following events: (a) any failure on the part of Maker to make any payment when due, whether by acceleration or otherwise, and the continuation of such failure for a period of five (5) business days thereafter; (b) any failure on the part of Maker to keep or perform any of the material provisions (other than payment) of this Note or any amendment thereof, which failure is not cured within ten (10) days; -2- (c) any failure on the part of Maker to pay any material debt within sixty (60) days of its due date (except where contested in good faith); (d) Maker shall commence (or take any action for the purpose of commencing) any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, moratorium or similar law or statute; (e) a proceeding shall be commenced against Maker under any bankruptcy, reorganization, arrangement, readjustment of debt, moratorium or similar law or statute and relief is ordered against it, or the proceeding is controverted but is not dismissed within sixty (60) days after the commencement thereof; (f) Maker consents to or suffers the appointment of a receiver, trustee or custodian to any substantial part of its assets that is not vacated within thirty (30) days; (g) Maker consents to or suffers an attachment, garnishment, execution or other legal process against any of its assets that is not released within thirty (30) days; SECTION 4. SUBORDINATION. This note shall be subordinated to Maker's loan agreement with Seafirst Bank, dated September 16, 1997, in the principal amount of $900,000 (the "Seafirst Loan"); provided, however, that Maker may make all payments of interest and principal hereunder if no event of default under the Seafirst Loan has occurred and is continuing at the time of such payments. Maker shall not incur any other indebtedness which is senior to this Note without the prior written consent of the Payee. -3- SECTION 5. JURISDICTION. Maker irrevocably submits to the exclusive jurisdiction of the courts of the State of Washington, and of any federal court located in the State of Washington, in connection with any action or proceeding arising out of or relating to, or a breach of, this Note. Maker agrees that such court may award reasonable legal fees and expenses to the prevailing party. SECTION 6. WAIVERS. (a) Maker waives demand, presentment, protest, notice of protest, notice of dishonor, and all other notices or demands of any kind or nature with respect to this Note. (b) Maker agrees that a waiver of rights under this Note shall not be deemed to be made by Payee unless such waiver shall be in writing, duly signed by Payee, and each such waiver, if any, shall apply only with respect to the specific instance involved and shall in no way impair the rights of Payee or the obligations of Maker in any other respect at any other time. (c) Maker agrees that in the event Payee demands or accepts partial payment of this Note, such demand or acceptance shall not be deemed to constitute a waiver of any right to demand the entire unpaid balance of this Note at any time in accordance with the terms of this Note. (d) Maker agrees and acknowledges that Payee may disclose to any other Obligor confidential information relating to this Note, and waives, to the full extent permitted -4- by law, any right to privacy or similar right under federal or state laws which Maker may have with respect to such disclosures. (e) In any action or proceeding arising out of or relating to this Note, Maker waives (to the full extent permitted by law) all right to a trial by jury or to plead as a defense any statute of limitations or any other similar law or equitable doctrine. SECTION 7. COLLECTION COSTS. Maker will upon demand pay to Payee the amount of any and all reasonable costs and expenses, including, without limitation, the reasonable fees and disbursements of its counsel (whether or not suit is instituted) and of any experts and agents, which Payee may incur in connection with the following: (i) the enforcement of this Note; and (ii) the enforcement of payment of all obligations of Maker by any action or participation in, or in connection with, a case or proceeding under Chapters 7, 11, or 13 of the Bankruptcy Code, or any successor statute thereto. SECTION 8. ASSIGNMENT OF NOTE. Maker may not assign or transfer this Note or any of its obligations under this Note in any manner whatsoever (including, without limitation, by the consolidation or merger of Maker, if a corporation, with or into another corporation) without the prior written consent of Payee. The Note may be assigned at any time by Payee. Maker agrees not to assert against any assignee of this Note any claim or defense which Maker may have against any assignor of this Note. -5- SECTION 9. MISCELLANEOUS. (a) This Note may be altered only by prior written agreement signed by the party against whom enforcement of any waiver, change, modification, or discharge is sought. This Note may not be modified by an oral agreement, even if supported by new consideration. (b) This Note shall be governed by, and construed in accordance with, the laws of the State of Washington, without giving effect to such jurisdiction's principles of conflict of laws. (c) Subject to Section 8, the covenants, terms, and conditions contained in this Note apply to and bind the heirs, successors, executors, administrators and assigns of the parties. (d) This Note constitutes a final written expression of all the terms of the agreement between the parties regarding the subject matter hereof, are a complete and exclusive statement of those terms, and supersede all prior and contemporaneous agreements, understandings, and representations between the parties. If any provision or any word, term, clause, or other part of any provision of this Note shall be invalid for any reason, the same shall be ineffective, but the remainder of this Note shall not be affected and shall remain in full force and effect. (e) The singular includes the plural. If more than one Maker executes this Note, the term "Maker" shall be deemed to refer to each of the undersigned Makers as well as to all of them, and their obligations and agreements under this Note shall be joint and several. The term "Obligor" shall be deemed to refer to each Maker, endorser, guarantor, or surety of -6- this Note as well as to all of them. The term "Payee" shall include the initial party to whom payment is designated to be made and, in the event of an assignment of this Note, the successor assignee or assignees, and, as to each successive additional assignment, such successor assignee or assignees. (f) All notices, consents, or other communications provided for in this Note or otherwise required by law shall be in writing and may be given to or made upon the respective parties at the addresses set forth in the preamble hereof. Such addresses may be changed by notice given as provided in this subsection. Notices shall be effective upon the date of receipt; provided, however, that a notice (other than a notice of a changed address) sent by certified or registered U.S. mail, with postage prepaid, shall be presumed received not later than three (3) business days following the date of sending. (g) Time is of the essence under this Note. -7- IN WITNESS WHEREOF, Maker has executed this Note effective as of the date first set forth above. OLYMPIC CASCADE FINANCIAL CORPORATION By: /s/ Steven A. Rothstein ---------------------------------------- Steven A. Rothstein Chairman -8- THIS WARRANT AND ANY SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER ANY STATE SECURITIES LAW AND SUCH SECURITIES MAY NOT BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR OTHERWISE TRANSFERRED UNTIL (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED, OR TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS. THE TRANSFER OF THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF IS RESTRICTED AS DESCRIBED HEREIN. OLYMPIC CASCADE FINANCIAL CORPORATION WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK, $.02 PAR VALUE PER SHARE No. 5 THIS CERTIFIES that, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, FAI Overseas Investments Pty Limited (the "Holder"), is entitled to subscribe for and purchase from Olympic Cascade Financial Corporation, a Delaware corporation (the "Company"), upon the terms and conditions set forth herein, at any time or from time to time, during the period commencing on the date hereof (November 17, 1997) and expiring at 5:00 p.m. on November 31, 2002 (the "Exercise Period"), 45,000 shares of the Company's common stock, $.02 par value per share ("the Common Stock"), at a price (the "Exercise Price") per share of Common Stock equal to $5.625. As used herein, the term "this Warrant" shall mean and include this Warrant and any Warrant or Warrants hereafter issued as a consequence of the exercise or transfer of this Warrant in whole or in part. As used herein, the term "Holder" shall include any transferee to whom this Warrant has been transferred in accordance with the terms hereof. The number of shares of Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") and the Exercise Price may be adjusted from time to time as hereinafter set forth. 1. Subject to the provisions of Section 2, this Warrant may be exercised during the Exercise Period, as to the whole or any lesser number of whole Warrant Shares, by transmission by telecopy of the Election to Exercise, followed within three (3) business days by the surrender of this Warrant (with the Election to Exercise attached hereto duly executed) to the Company at its office at 1001 Fourth Avenue, Suite 2200, Seattle, Washington 98154, or at such other place as is designated in writing by the Company, together with a certified or bank cashier's check payable to the order of the Company in an amount equal to the product of the Exercise Price and the number of Warrant Shares for which this Warrant is being exercised (the "Aggregate Exercise Price"). Alternatively, this Warrant may be exercised in the manner set forth in the preceding sentence by surrendering this Warrant in exchange for the number of Warrant Shares equal to the product of (x) the number of shares of Common Stock as to which this Warrant is being exercised, multiplied by (y) a fraction, the numerator of which is the Market Price (as defined below) of the shares of Common Stock minus the Exercise Price of the shares of Common Stock and the denominator of which is the Market Price per share of Common Stock. Solely for the purposes of this Section 1 Market Price shall be calculated either (i) on the date on which the form of election attached hereto is deemed to have been sent to the Company pursuant to this Section 1 ("Notice Date") or (ii) as the average of the Market Price for each of the five trading days immediately preceding the Notice Date, whichever of (i) or (ii) results in a greater Market Price. As used herein, the phrase "Market Price" at any date shall be deemed to be the last reported sale price, or, in case no such reported sale takes place on such day, the average of the last reported sale prices for the last three (3) trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading, or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the average closing sale price as furnished by the NASD through The Nasdaq Stock Market, Inc. ("Nasdaq") or similar organization if Nasdaq is no longer reporting such information, or if the Common Stock is not quoted on Nasdaq, as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it. 2. Upon each exercise of the Holder's rights to purchase Warrant Shares, the Holder shall be deemed to be the holder of record of the Warrant Shares issuable upon such exercise, notwithstanding that the transfer books of the Company shall then be closed or certificates representing such Warrant Shares shall not then have been actually delivered to the Holder. Within five (5) business days after each such exercise of this Warrant and receipt by the Company of this Warrant, the Election to Exercise and the Aggregate Exercise Price, the Company shall issue and deliver to the Holder a certificate or certificates for the Warrant Shares issuable upon such exercise, registered in the name of the Holder or its designee. If this Warrant should be exercised in part only, the Company shall, upon surrender of this Warrant -2- for cancellation, execute and deliver a new Warrant evidencing the right of the Holder to purchase the balance of the Warrant Shares (or portions thereof) subject to purchase hereunder. 3. Any Warrants issued upon the transfer or exercise in part of this Warrant shall be numbered and shall be registered in a warrant register (the "Warrant Register") as they are issued. The Company shall be entitled to treat the registered holder of any Warrant on the Warrant Register as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other person, and shall not be liable for any registration of transfer of Warrants which are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge of the general counsel of the Company that a fiduciary or nominee is committing a breach of trust in requesting such registration of transfer. In all cases of transfer by an attorney, executor, administrator, guardian, or other legal representative, duly authenticated evidence of his or its authority shall be produced. Upon any registration of transfer, the Company shall deliver a new Warrant or Warrants to the person entitled thereto. This Warrant may be exchanged, at the option of the Holder thereof, for another Warrant, or other Warrants of different denominations, of like tenor and representing in the aggregate the right to purchase a like number of Warrant Shares (or portions thereof), upon surrender to the Company or its duly authorized agent. Notwithstanding anything contained herein to the contrary, the Company shall have no obligation to cause Warrants to be transferred on its books to any person if, in the opinion of counsel to the Company, such transfer does not comply with the provisions of the Act and the rules and regulations thereunder. 4. The Company shall at all times reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of providing for the exercise of the rights to purchase all Warrant Shares granted pursuant to the Warrants, such number of shares of Common Stock as shall, from time to time, be sufficient therefor. The Company covenants that all shares of Common Stock issuable upon exercise of this Warrant, upon receipt by the Company of the full Exercise Price therefor, shall be validly issued, fully paid, nonassessable, and free of preemptive rights. 5. The Exercise Price in effect at any time and the number and kind of securities purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the happening of certain events as follows: (a) In case the Company shall (i) declare a dividend or make a distribution on its outstanding shares of Common Stock, in each case, in shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into a greater number of shares, or (iii) combine or reclassify its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect at the time of the record date for such dividend or distribution or of the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price by a -3- fraction, the denominator of which shall be the number of shares of Common Stock outstanding after giving effect to such action, and the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such action. Such adjustment shall be made successively whenever any event listed above shall occur. (b) In the event that the Company shall sell or issue at any time after the date of issuance of this Warrant and prior to its termination, shares of Common Stock at a consideration per share less than the Exercise Price, then the Exercise Price shall be adjusted to a new Exercise Price (calculated to the nearest cent) determined by dividing: (i) an amount equal to (A) the total number of shares of Common Stock outstanding on the date of issuance of this Warrant multiplied by the Exercise Price in effect on the date of issuance of this Warrant (subject, however, to adjustment in the manner set forth in this Section 5), plus (B) the aggregate of the amount of all consideration, if any, received by the Company for the issuance or sale of shares of Common Stock since the date of issuance of this Warrant, by (ii) the total number of shares of Common Stock outstanding immediately after such issuance or sale. In no event shall any such adjustment be made pursuant to this Section 5(b) if it would increase the Exercise Price in effect immediately prior to such adjustment. Upon each adjustment of the Exercise Price pursuant to this Section 5(b), the holder of this Warrant shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of Warrant Shares obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Exercise Price resulting from such adjustment. In addition, in no event shall the issuance of shares of Common Stock pursuant to options and/or warrants which are outstanding as of the date of the issuance of this Warrant trigger the dilution provisions of this Section 5(b). (c) Upon each adjustment of the Exercise Price pursuant to the provisions of this Section 5, the number of Warrant Shares issuable upon the exercise at the adjusted Exercise Price of each Warrant shall be adjusted to the nearest number of whole shares of Common Stock by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. -4- (d) For the purpose of this Warrant, the term "Common Stock" shall mean (i) the class of stock designated as Common Stock in the Articles of Incorporation of the Company as amended as of the date hereof, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. (e) In case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger which does not result in any reclassification or change of the outstanding Common Stock), the corporation formed by such consolidation or merger shall execute and deliver to the Holder a supplemental warrant agreement providing that the Holder of this Warrant shall have the right thereafter (until the expiration of such Warrant) to receive, upon exercise of such Warrant, the kind and amount of shares of stock and other securities and property receivable upon such consolidation or merger by a holder of the number of shares of Common Stock for which such Warrant might have been exercised immediately prior to such consolidation, merger, sale or transfer. Such supplemental warrant agreement shall provide for adjustments which shall be identical to the adjustments provided in this Section 5. The above provision of this subsection shall similarly apply to successive consolidations or mergers. (f) No adjustment in the number of Warrant Shares shall be required if such adjustment is less than one; PROVIDED, HOWEVER, that any adjustments which by reason of this Section 5(f) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 5 shall be made to the nearest one-thousandth of a share. (g) In any case in which this Section 5 shall require that an adjustment in the number of Warrant Shares be made effective as of a record date for a specified event, the Company may elect to defer, until the occurrence of such event, issuing to the Holder, if the Holder exercised this Warrant after the record date, the Warrant Shares, if any, issuable upon such exercise over and above the Warrant Shares, if any, issuable upon such exercise prior to such adjustment; PROVIDED, HOWEVER, that the Company shall deliver to the Holder a due bill or other appropriate instrument evidencing the Holder's right to receive such additional Warrant Shares upon the occurrence of the event requiring such adjustment. (h) Whenever there shall be an adjustment as provided in this Section 5, the Company shall promptly cause written notice thereof to be sent by certified mail, postage prepaid, to the Holder, at its address as it shall appear in the Warrant Register, which notice shall be accompanied by an officer's certificate setting forth the number of Warrant Shares issuable upon the exercise of this Warrant if such Warrant were exercisable on the date of such notice, and setting forth a brief statement of the facts requiring such adjustment and the computation thereof, which officer's certificate shall be conclusive evidence of the correctness of any such adjustment absent manifest error. -5- 6. In case at any time the Company shall propose (a) to pay any dividend or make any distribution on shares of Common Stock in shares of Common Stock or make any other distribution (other than regularly scheduled cash dividends which are not in a greater amount per share than the most recent such cash dividend) to all holders of Common Stock; or (b) to issue any rights, warrants, or other securities to all holders of Common Stock entitling them to purchase any additional shares of Common Stock or any other rights, warrants, or other securities; or (c) to effect any reclassification or change of outstanding shares of Common Stock, or any consolidation or merger, described in Section 7; or (d) to effect any liquidation, dissolution, or winding-up of the Company, then, and in any one or more of such cases, the Company shall give written notice thereof, by registered mail, postage prepaid, to the Holder at the Holder's address as it shall appear in the Warrant Register, mailed at least 15 days prior to (i) the date as of which the holders of record of shares of Common Stock to be entitled to receive any such dividend, distribution, rights, warrants, or other securities are to be determined, or (ii) the date on which any such reclassification, change of outstanding shares of Common Stock, consolidation, merger, liquidation, dissolution, or winding-up is expected to become effective, and the date as of which it is expected that holders of record of shares of Common Stock shall be entitled to exchange their shares for securities or other property, if any, deliverable upon such reclassification, change of outstanding shares, consolidation, merger, sale, lease, conveyance of property, liquidation, dissolution, or winding-up. 7. The issuance of any shares or other securities upon the exercise of this Warrant, and the delivery of certificates or other instruments representing such shares or other securities, shall be made without charge to the Holder for any tax or other charge in respect of such issuance, other than applicable transfer taxes. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. 8. (a) If, at any time during the Exercise Period, the Company proposes to register any of its securities under the Act (other than on a Form S-4 or a Form S-8 or successor form thereto) it will give written notice by registered mail, at least thirty (30) days prior to the -6- filing of each such registration statement, to the Holders of this Warrant or the Warrant Shares of its intention to do so. If any of the Holders of this Warrant or the Warrant Shares notify the Company within twenty (20) days after mailing of any such notice of its or their desire to include any such securities in such proposed registration statement, the Company shall afford such Holders the opportunity to have any such Warrant Shares registered under such registration statement. In the event that the managing underwriter for said offering advises the Company in writing that in its opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without causing a diminution in the offering price or otherwise adversely affecting the offering, the Company will include in such registration (a) FIRST, the securities the Company proposes to sell, (b) SECOND, the securities held by entities that made have demand registration rights, (c) THIRD, the Warrant Shares requested to be included in such registration which in the opinion of such underwriter can be sold, PRO RATA among those persons having registration rights similar those set forth in this Section 8 who requested such registration, and (d) FOURTH, other securities requested to be included in such registration. Notwithstanding the provisions of this Section 8, the Company shall have the right at any time after it shall have given written notice pursuant to this SECTION 9.2 (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement or to withdraw the same after the filing but prior to the effective date thereof. (b) At any time during the one (1) year period commencing on the date of the issuance of this Warrant, the Holder shall have the right, exercisable by written notice to the Company, to have the Company prepare and file with the Securities and Exchange Commission, on one occasion, a registration statement and such other documents, including a prospectus, as may be necessary in the opinion of both counsel for the Company and counsel for the Holder, in order to comply with the provisions of the Act, so as to permit a public offering and sale by the Holder. The Company shall use its commercially reasonable efforts to have such registration statement filed with and declared effective by the Commission within one hundred twenty (120) days of receipt of the notice from the Holder. 9. Unless registered as contemplated by Section 8 hereof, the Warrant Shares issued upon exercise of the Warrants shall be subject to a stop transfer order and the certificate or certificates evidencing such Warrant Shares shall bear the following legend: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN NOT REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT. SUCH SHARES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER CONTAINED IN -7- A WARRANT, DATED NOVEMBER 17, 1997, A COPY OF WHICH ARE ON FILE WITH THE SECRETARY OF THE COMPANY." 10. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction, or mutilation of any Warrant (and upon surrender of any Warrant if mutilated), and upon reimbursement of the Company's reasonable incidental expenses and, if reasonably requested, an indemnity reasonably acceptable to the Company, the Company shall execute and deliver to the Holder thereof a new Warrant of like date, tenor, and denomination. 11. The Holder of any Warrant shall not have, solely on account of such status, any rights of a stockholder of the Company, either at law or in equity, or to any notice of meetings of stockholders or of any other proceedings of the Company, except as provided in this Warrant. -8- 12. This Warrant shall be construed in accordance with the laws of the State of Delaware applicable to contracts made and performed within such State, without regard to principles of conflicts of law. Dated: November 17, 1997 OLYMPIC CASCADE FINANCIAL CORPORATION By: --------------------------------------------- Name: Steven A. Rothstein Title: Chairman -9- FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the attached Warrant.) FOR VALUE RECEIVED, _______________________________________________ hereby sells, assigns, and transfers unto __________________ a Warrant to purchase __________ shares of Common Stock, $.02 par value per share, of Olympic Cascade Financial Corporation (the "Company"), together with all right, title, and interest therein, and does hereby irrevocably constitute and appoint ________________________________ attorney to transfer such Warrant on the books of the Company, with full power of substitution. Dated: ------------------ Signature ---------------------------------- Signature Guaranteed: NOTICE The signature on the foregoing Assignment must correspond to the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever. To: Olympic Cascade Financial Corporation 1001 Fourth Avenue Suite 2200 Seattle, Washington 98154 ELECTION TO EXERCISE The undersigned hereby exercises his or its rights to purchase _______ Warrant Shares covered by the within Warrant and tenders payment herewith [in the amount of $_________] [in the form of ________ number of Warrant Shares] in accordance with the terms thereof, certifies that he owns this Warrant free and clear of any and all claims, liens and/or encumbrances and requests that certificates for such securities be issued in the name of, and delivered to: ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ (Print Name, Address and Social Security or Tax Identification Number) and, if such number of Warrant Shares shall not be all the Warrant Shares covered by the within Warrant, that a new Warrant for the balance of the Warrant Shares covered by the within Warrant be registered in the name of, and delivered to, the undersigned at the address stated below. Dated: Name ------------------------- ----------------------------- (Print) Address: ---------------------------------------------------------------- ---------------------------------- (Signature) EX-11 8 EXHIBIT 11 EXHIBIT 11 OLYMPIC CASCADE FINANCIAL CORPORATION COMPUTATION OF EARNINGS PER SHARE
PRIMARY SEPTEMBER 26, September 27, September 29, 1997 1996 1995 ------------- ------------- ------------- Net income for primary earnings per share $ 101,000 $ 1,735,000 $ 257,000 ------------- ------------- ------------- ------------- ------------- ------------- Weighted average number of common shares outstanding during the year 1,138,479 888,637 769,182 Add common equivalent shares upon exercise of stock options 218,779 109,297 42,669 ------------- ------------- ------------- Weighted average number of shares used in calculation of primary earnings per share 1,357,258 997,934 811,851 ------------- ------------- ------------- ------------- ------------- ------------- Primary earnings per share $ .07 $ 1.74 $ .32 ------------- ------------- ------------- ------------- ------------- ------------- FULLY DILUTED Weighted average number of shares used in calculating primary earnings per share 1,357,258 997,934 811,851 Add additional shares issuable upon exercise of stock options * 199,224 * ------------- ------------- ------------- Weighted average number of shares used in calculation of fully diluted earnings per share 1,357,258 1,197,158 811,851 ------------- ------------- ------------- ------------- ------------- ------------- Fully diluted earnings per share $ .07 $ 1.45 $ .32 ------------- ------------- ------------- ------------- ------------- -------------
* No effect given to common stock equivalents, as their effect would increase the income per share. -54- EX-21 9 EXHIBIT 21 EXHIBIT 21 OLYMPIC CASCADE FINANCIAL CORPORATION Subsidiaries of the Registrant September 26, 1997 Percentage of Voting State of Securities Subsidiary Name Incorporation Owned - --------------- ------------- ----- National Securities Corporation Washington 100% L. H. Friend, Weinress, Frankson & Presson, Inc. California 100% WestAmerica Investment Group California 100% Travis Capital, Inc. Utah 100% -55- EX-27 10 EXHIBIT 27 FDS
BD 1,000 12-MOS SEP-26-1997 SEP-30-1996 SEP-26-1997 985 24,284 2,066 588 30,928 1,528 63,774 909 54,214 0 0 1,047 0 0 0 29 7,575 63,774 4,782 3,775 17,496 12,837 0 2,265 6,364 194 194 0 0 101 .07 .07
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