-----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, QkMEYwGw03uOgZu8eUlIzDtOUeWdTJOGFx0hEFWIKDxYVFpb1euksSTnLw/fhVuo 1nNNpd8fKLmoPNAi5u2sPQ== 0001047469-98-013208.txt : 19980402 0001047469-98-013208.hdr.sgml : 19980402 ACCESSION NUMBER: 0001047469-98-013208 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WADE COOK FINANCIAL CORP CENTRAL INDEX KEY: 0000894417 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 911772094 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-29342 FILM NUMBER: 98584398 BUSINESS ADDRESS: STREET 1: 14675 INTERURBAN AVE S CITY: SEATTLE STATE: WA ZIP: 98168 BUSINESS PHONE: 2069013000 MAIL ADDRESS: STREET 1: 14675 INTERURBAN AVENUE SOUTH CITY: SEATTLE STATE: WA ZIP: 98168-4664 10-K 1 10-K Bountiful Investment Group, Inc. has made an offer to purchase the St. George Sleep Inn. If the sale goes through, BIG would own a 100 percent interest in the hotel. The purchase price is $1,200,000, plus BIG would have a commitment to make approximately $130,000 in renovations. The Sleep Inn has 68 rooms and is located at 1481 South Sunland Drive in St. George, Utah SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended: December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to ___________ Commission file number: 000-29342 WADE COOK FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) NEVADA 91-1772094 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 14675 INTERURBAN AVENUE SOUTH SEATTLE, WASHINGTON 98168-4664 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (206) 901-3000 Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - -------------------- ------------------------------------------ NONE NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ X ] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this Form 10-K, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] 1 The aggregate market value of the voting stock of the registrant held by non-affiliates of the registrant on March 13, 1998 based on the closing price on the OTC BB System of such stock on such date was $70,373,778. Registrant's Common Stock outstanding at March 13, 1998 was 64,223,685 shares. DOCUMENTS INCORPORATED BY REFERENCE None. 2 WADE COOK FINANCIAL CORPORATION INDEX TO ANNUAL REPORT ON FORM 10-K
CAPTION PAGE - ------------- -------- PART I Item 1. - BUSINESS ........................................................ x Item 2. - PROPERTIES ...................................................... xx Item 3. - LEGAL PROCEEDINGS ............................................... xx Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............. xx PART II Item 5. - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ................................. xx Item 6. - SELECTED FINANCIAL DATA ......................................... xx Item 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ................... xx Item 8. - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA ...................... xx Item 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ........................................ xx PART III Item 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ............. xx Item 11. - EXECUTIVE COMPENSATION ......................................... xx Item 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ................................................. xx Item 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................. xx PART IV Item 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ............................................ xx
3 NOTE REGARDING FORWARD LOOKING INFORMATION This Form 10-K contains forward looking statements identified by the use of "believes", "expects", "anticipates", and similar expressions. Such statements are subject to risk and uncertainties that could cause actual results to differ from those contemplated by the forward looking statement. Such risks and uncertainties include any change in the market acceptance of the Company's products and services, the risk of the Company being able to finance its business operations, and other similar business and market risks. Readers are cautioned not to place undue reliance on such forward looking statements. PART I ITEM 1. - BUSINESS GENERAL Wade Cook Financial Corporation (OTC BB:WADE) is a Nevada corporation which serves as a holding company for the common stock and other ownership interests of a group of business entities collectively referred to in this Form 10-K as "WCFC" or the "COMPANY." The most significant asset of the Company is its wholly owned subsidiary Wade Cook Seminars, Inc. ("WCSI") through which the Company conducts its educational seminar business. Prior to May 1995, the Company's educational seminar business was conducted by United Support Association, Inc. ("USAI"), a Nevada corporation founded in 1989 by Wade B. Cook. Profit Financial Corporation, a publicly traded shell, was formed in 1979 as a Utah corporation under the name Profiteer Corporation ("Profit"). In May 1995, USAI engaged in a transaction with Profit effectively constituting a reverse merger. Profit was the legal acquirer and USAI was the accounting acquirer. As a result of the transaction, Profit became the holding company and parent of USAI which was renamed Wade Cook Seminars, Inc. in February 1997. Another corporation owned or controlled by Wade B. Cook named USA/Wade Cook Seminars, Inc. was renamed Money Chef, Inc. ("Money Chef") which corporation is an affiliate of the Company. See "Certain Relationships and Related Transactions." Profit Financial Corporation changed its name to Wade Cook Financial Corporation in September 1997 which change of name was ratified by the shareholders of the Company at the annual meeting of shareholders held in December 1997 (the "Annual Meeting"). The shareholders of the Company also authorized at the Annual Meeting, among other things, the reincorporation of the Company from the State of Utah to the State of Nevada. On December 19, 1997, WCFC filed the Articles of Merger, Agreement and Plan of Merger, Certificate of Correction, Articles of Incorporation, and Articles of Amendment to Articles of Incorporation of WCFC in Nevada. On December 22, 1997, the Articles of Merger and Agreement and Plan of Merger were filed in the State of Utah. These filings changed the state of incorporation for WCFC from the State of Utah to the State of Nevada and increased the total authorized number of the common stock of the Company (the "Common Stock") from 60,000,000 shares to 140,000,000 shares. The designation of the common stock of the Utah corporation as "Class A" was not carried forward to the new Nevada corporation but the par value of $.01 remained unchanged. The Company's headquarters address is 14675 Interurban Avenue South, Seattle, Washington 98168-4664 and its telephone number is (206) 901-3000. Subsidiary Companies The Company's wholly-owned subsidiaries are: 4
Corporation Name Abbreviation State of Incorporation ---------------- ------------ ---------------------- Wade Cook Seminars, Inc. WCSI NV Lighthouse Publishing Group, Inc. Lighthouse NV Left Coast Advertising, Inc. Left Coast NV Bountiful Investment Group, Inc. BIG NV Entity Planners, Inc. EPI NV Ideal Travel Concepts, Inc. Ideal NV Origin Book Sales, Inc. Origin UT Worldwide Publishers, Inc. Worldwide UT Gold Leaf Press, Inc. Gold Leaf NV Get Ahead Bookstores, Inc. Get Ahead NV Quantum Marketing, Inc. Quantum NV Information Quest, Inc. IQI NV American Newsletter Co., Inc. ANC NV Unlimited Potential, Inc. Unlimited NV Hotel Associates Management #1, Inc. Hotel Associates NV Entity Planners International, Inc. EPI NV
Of the subsidiaries listed above, only Unlimited, Hotel Associates and EPI do not carry on a trade or business and therefore are not further described in this Form 10-K. Not listed above is Evergreen Lodging, L.P., a limited partnership in which WCSI owns a 65% limited partnership interest and an affiliate of Wade B. Cook is the general partner. Evergreen Lodging, L.P. is consolidated in the consolidated financial statements of the Company presented elsewhere in this Form 10-K. Wade Cook Seminars, Inc. Wade Cook Seminars, Inc., ("WCSI"), creates, designs, produces, owns, markets and sells a variety of seminars and workshops focused on investment strategies, financial planning and personal wealth management. WCSI also produces and sells audio tapes, videotapes, books and other written materials designed to teach various investment strategies and financial planning techniques. In addition, WCSI hosts a web site on the Internet at http://www.wadecook.com as an additional tool to recruit students and market its programs, products and services. WCSI accounted for approximately 91% of the Company's net sales for the fiscal year ended December 31, 1997, approximately 97% of the Company's net sales for the fiscal year ended December 31, 1996, and approximately 100% of net sales for the fiscal year ended December 31, 1995. In 1997, WCSI conducted approximately 3,293 seminars in approximately 379 cities across the United States. Average attendance at the seminars was 123 persons. In 1996, WCSI conducted approximately 437 seminars in 42 cities with an average attendance of 81 persons. Prior to 1996, the Company did not keep records sufficient to provide the data necessary to determine statistics for prior periods similar to the statistics presented for 1996 and 1997. Seminars Offered by WCSI The Financial Clinic is a three-hour seminar explaining the various financial education products and services offered by WCSI and providing an introduction to investing in the stock market. The Financial Clinic is designed to serve as an introduction to the Wall Street Workshop. This seminar is currently taught nationwide 43 times a week. The price to attend the Financial Clinic is $22 to $33 depending on whether the customer prepays the price of attendance. Occasionally, the Financial Clinic is offered for free to serve the promotional purposes of WCSI. The Wall Street Work Shop ("WSWS") is a two-day seminar teaching investors the investment strategies set forth in Mr. Cook's books, Wall Street Money Machine and Stock Market Miracles. Students are taught basic stock market terminology, how to choose a brokerage firm, stock market strategies, and how to place an order to buy and sell securities ( a "trade"). Students are taught how to practice paper trades in class. The seminar is taught nationwide 7 times a week and is taught in conjunction with the Business Entity Skills Training seminar. The price to attend Wall Street Workshop ranges from $695 for individuals who have attended Cook University to $4,695 depending on the particular options selected by the person or persons attending the seminar and depending on the particular discount or promotion in effect 5 at the time of payment to attend the seminar. The Company also offers the seminar Youth Wall Street for younger individuals. This seminar is taught 2 times per week nationwide. The Youth Wall Street is free to registrants 18 years of age and younger. Fortify Your Income ("FYI") is a half-day seminar reviewing the strategies taught at the Wall Street Workshop. FYI is a refresher course offered to WSWS graduates at no cost. FYI was taught nationwide 30 times during 1997 and 60 times during the first three months of 1998. The Entity Structuring Workshop ("ESW") is a half-day seminar explaining the use of entities to protect assets and reduce taxes. The ESW is designed to serve as an introduction to the Business Entity Skills Training seminar. The workshop was taught nationwide 210 times throughout 1997. The price to attend the workshop ranges from $22 to $33. Business Entity Skills Training ("BEST") is a one-day seminar teaching students personal finance management strategies such as asset protection and tax reduction using corporations, limited partnerships, qualified pensions, and living trusts. BEST is taught immediately after the last day of each WSWS, either in the evening or the following day. The price to attend BEST is $995 if no other seminar is also attended. Otherwise, the price of Best is included in the price of attending certain companion seminars. WINSTOCK is a two-day workshop teaching stock market strategies and various related topics in a roundtable forum. WINSTOCK was taught for the first time in 1997 to 620 attendees. The workshop is taught in conjunction with the Super BEST and is priced at $997. The Super BEST is a one-day seminar taught the third day following WINSTOCK. Super BEST teaches students personal finance strategies such as asset protection and tax reduction strategies using corporations, limited partnerships, qualified pensions, and living trusts. The seminar was introduced in and taught once during 1997. The seminar is priced at $997 and includes the WINSTOCK. The Next Step is a two-day seminar for participants who have already attended the WSWS. Advanced stock market investment strategies are taught in a format in which students can actively participate in making investments. Next Step was taught nationwide seven times in 1997 and has been taught three times in the first three months of 1998. The price to attend Next Step ranges from $1,495 to $7,995, depending on whether it is attended separately or with other seminars offered by the Company and depending on the particular discount or promotion in effect at the time of payment to attend the seminar. The Wealth Academy, now known as the Wealth Institute, is a three-day seminar teaching wealth accumulation and asset protection formulas using various business strategies and corporate income tax planning to assist students in better managing their personal finance and business activities. The Wealth Institute is currently taught nationwide ten times a year. The price to attend Wealth Institute ranges from $4,995 to $7,995 depending on whether it is attended separately or with other seminars offered by the Company and depending on the particular discount or promotion in effect at the time of payment to attend the seminar. The Executive Retreat is a two-day workshop designed for participants who own or control Nevada corporations to gain a broader understanding of the mechanics of using a corporation for tax advantages, limited liability and estate planning purposes. The workshop is currently taught four times a year. The price to attend the Executive Retreat ranges from $1,295 to $2,495 depending on whether it is attended separately or with other seminars offered by the Company and depending on the particular discount or promotion in effect at the time of payment to attend the seminar. Cook University is a package of workshops and products promoted by WCSI that are individually tailored to the needs of the student. The package generally sells for $12,345 to $16,345 depending on the combination of seminars and products selected and the discount or promotions in effect at the time of 6 payment to attend the seminars. Building Perpetual Income ("BPI") is a three-hour workshop introduced in 1997, which summarizes cash-flow strategies related to the real estate market. This workshop is intended to serve as an introduction to the Real Estate Workshop. BPI was offered three times in 1997 and has been offered four times to date in 1998. The price to attend the Building Perpetual Income seminar is $22 to $33 depending on whether the student prepays. The Real Estate Workshop is a one-day event introduced in 1997, which teaches students the strategies outlined in Mr. Cook's book the Real Estate Money Machine. Students are taught how to look for real estate investments and how to turn them into cash-flow investments. The Real Estate Workshop was offered once in 1997. The price to attend the Real Estate Workshop ranges from $995 to $1,495 depending on the discounts or promotion in effect at the time of payment to attend the seminar. The Real Estate Bootcamp is a two and one-half day event introduced in 1997 which teaches students the strategies outlined in Mr. Cook's book the Real Estate Money Machine in greater detail. The class often takes a field trip to various parts of the local area in an effort to become more familiar with the types of real estate available. The Real Estate Bootcamp was offered once in 1997. The price to attend the Real Estate Bootcamp ranges from $3495 to $4495 depending on the discounts or promotion in effect at the time of payment to attend the seminar. High Octane Options Performance Seminar ("HOOPS") is a one day seminar created for WCSI and introduced in 1997 by speaker Steve Wirrick. Mr. Wirrick goes into greater detail about investing in options. HOOPS was offered sixteen times in 1997 and has been offered fifteen times during the first three months of 1998. The price to attend HOOPS ranges from $1995 to $3295 depending on the discounts or promotion in effect at the time of payment to attend the seminar. The Options Bootcamp is a two day seminar created for WCSI by speaker Steve Wirrick which was introduced in 1997. Mr. Wirrick expands on his HOOPS workshop in greater detail relating to his option investing. Students take a tour of the Option Exchange in Chicago as a part of the class. The Options Bootcamp was offered five times during 1997 and has been offered three times during the first quarter of 1998. The price to attend the Options Bootcamp ranges from $2995 to $5995 depending on the discounts or promotion in effect at the time of payment. WCSI typically conducts its seminars and workshops in major cities in the United States with populations of over 100,000. The majority of WCSI's seminars are held in Los Angeles, California, Denver, Colorado, Seattle, Washington, Las Vegas, Nevada, Washington, D.C., Orlando, Florida and Dallas, Texas. WCSI derived more than 10% of its revenues in fiscal 1997 from seminars taught in the states of California and Florida. As of March 13, 1998, approximately sixty-nine speakers conducted seminars for the Company throughout the United States, of which the majority were independent contractors. The Company provides training to its speakers, including two-day, bi-monthly workshops with an experienced trainer. Most speakers review training tapes and attend training sessions for six months prior to becoming "technicians" and graduate to becoming "second speakers" on tour. The best of these second speakers eventually rise to the role of primary speaker. Typically, the Company's speakers are required to enter into an agreement not to compete with the Company for a period of generally three years after the termination of their contract with the Company. The seminars provided by WCSI accounted for approximately 70%, 52%, and 53% of the Company's net sales in 1997, 1996, and 1995, respectively. Products and Services marketed by WCSI WCSI's seminars and programs are supplemented by audio tapes, video tapes, books and other printed materials that are licensed to the Company. Sales of these products accounted for 20%, 22% and 20% of the net sales of the Company for 1997, 1996 and 1995, respectively. 7 The books promoted and marketed by WCSI include best-selling books written by Wade B. Cook such as the Wall Street Money Machine, Stock Market Miracles, Bear Market Baloney and Business Buy the Bible. The Company also sells Brilliant Deductions, The Real Estate Money Machine, How to Pick Up Foreclosures, Owner Financing, Cook's Book on Creative Real Estate, 101 Ways to Buy Real Estate without Cash, Cook's Book on Creative Real Estate, Don't Set Goals, How to Build a Real Estate Money Machine, Real Estate for Real People, Unlimited Wealth, Wealth 101, and 555 Clean Jokes. Each of these books was written by Mr. Cook. These books are sold at prices ranging from $12.95 to $26.95 depending on the title and excluding shipping and handling. Other publications licensed from author Wade B. Cook and marketed by WCSI include: 12 Special Reports, The Incorporation Handbook, How to Incorporate in Nevada Special Report, Legal Forms, Owner Financing, Property Analysis Forms, Real Estate Record Keeping System, Real Estate Special Reports, Stock Analysis Forms, The Corporation Kit, and To S or Not to S Special Report. Publications licensed from author Steve Wirrick and marketed by WCSI include: 7 Special Reports, High Octane Reference Charts, High Octane Options Supplemental Charts, Use of Profit and Loss Charts Special Report, The Secret to Pricing Options---Never Pay Too Much Again Special Report, and Owner Financing. These publications are sold at prices ranging from $6.50 to $34.95 depending on the title and excluding shipping and handling. The audio tapes promoted and sold by WCSI and authored by Wade B. Cook include the multi-tape audio seminars Financial Fortress Home Study and Zero to Zillions. In addition, WCSI sells single tapes that generally address the ideas and concepts taught in its seminars. The single audio tapes include: Financial 4x4, Financial Power Pack, Paper Tigers, Unlimited Wealth, High Octane Performance Entities, Retirement Prosperity, Money Mysteries of the Millionaires, The Power of Nevada Corporations, Entity Structuring, Outrageous Returns, Double Your Money Update, Everything You Ever Wanted to Know About: Cook University, Everything You Ever Wanted to Know About: The Wall Street Workshop, Everything You Ever Wanted to Know About: The Real Estate Cash Flow Boot Camp, Everything You Ever Wanted to Know About: Becoming a Travel Agent, Income Formulas, Income Streams, Stock Market Power Strategies, Smarter Money, 100 Fold Return, Are We Headed for a Bear Market, Covered Calls, Financial Jump Start, Living Loving Trusts, Money Machine I, Money Machine II, Red Hot Financial Seminars, Paper Chase, Pension Power, Real Estate Start-up, Sail Through Life, SAIL: Scriptural Applications in Life, Stock Market Power Strategies, Wealth Academy and Wealth, Riches, & Covenants. Mr. Cook is the primary speaker in each of these tapes. These audio tapes are sold at prices ranging from $26.95 to $1,695 depending upon the title of the audio tape or collection of audio tapes. From time to time, WCSI distributes free "Update Tapes" which are recorded by Wade B. Cook in an effort to promote the products of WCSI. The videotapes promoted and sold by the Company include the multi-tape video versions of the Company's seminars Wall Street Workshop and Next Step, as well as single-tape videos on Dynamic Dollars, Entity Structuring, 180 Cash Flow Turnaround Seminar: 180 Degrees in 180 Minutes, Financial 4 x 4, Financial Jump Start, High Octane Performance Entities, Second to None, Seven Strategies to Success, and Winning Ways. Videos are sold at prices ranging from $33 to $2,995. Entity Formation Services In 1997, WCSI provided information, forms packages and assistance to individuals interested in preparing Nevada Corporations, Living Trusts, Pension Plans, Limited Partnerships, Charitable Remainder Trusts, and various business office services. After teaching students about the various entities, the majority of actual entities which were formed were provided by various independent outside vendors for a fee. Prices for the Company's entity formation services range from $895 to $5,995 depending on the nature and the number of the entities purchased The entity formation services of the Company accounted for 6%, 14%, and 20% of the Company's net sales in 1997, 1996 and 1995, respectively. In 1998, the entity formation service activities were separated from WCSI and placed in Entity Planners, Inc., a wholly-owned subsidiary. 8 WIN Subscriptions Wealth Information Network ("WIN") is a subscription service provided by the Company which can be accessed over the Internet 24 hours a day. WIN provides detailed information on the trades made by the Company, it's subsidiaries, and by Mr. Cook personally, using the investment strategies discussed in Wall Street Money Machine and Stock Market Miracles and taught at WCSI seminars. WIN also provides stock information and updates on the Company's programs and products, including a schedule of events and seminars provided by WCSI. The subscription rate for the WIN service ranges from $695 to $3,695 per year, depending on the length of service, promotion offered at the time of sale, and whether a subscriber is also an attendee at a seminar offered by WCSI. Subscription to WIN accounted for 4% 12%, and 7% of the Company's net sales in 1997, 1996 and 1995, respectively. Other Products Marketed by WCSI WCSI has various marketing agreements or arrangements with other companies to market and sell the products of these other companies and share in the revenue generated by such sales. During 1997, WCSI obtained exclusive marketing rights to the IQ Pager from Information Quest, Inc., a Nevada corporation ("IQI"). Revenues generated by WCSI from sales of the IQ Pager were split equally with IQI through December 31, 1997. On March 20, 1998, all of the common stock of IQI was acquired by WCFC effective as of January 1, 1998. As a result of such acquisition, 100% of the revenue generated by WCFC from IQ Pager sales will be retained by WCFC. On September 12, 1997, WCFC entered into a purchase agreement with Applied Voice Recognition, Inc. to purchase wholesale 10,000 units of a private label automated speech recognition system including a self-contained contact manager. WCFC received inventory under the purchase agreement in late 1997 of 2,500 units and will begin marketing the devices in 1998. On January 20, 1997, WCFC entered into a software development agreement with KnowWonder, Inc. ("KnowWonder") for the development of a family finance software package. The software is to be completed for release on or about August, 1998. Under the agreement, WCFC will own the intellectual property for the software and will have non-exclusive rights to distribute the software. KnowWonder will pay a royalty to WCFC for sales of the software. Sales and Marketing The Company creates interest and demand for its programs, products and services through a mix of radio and television advertising, direct mail advertising, Internet marketing and sports promotions. Radio & Television Advertising The Company's primary means of advertising to potential customer is through various commercial radio spots nationwide, including radio infomercials. Generally, the radio advertising contains information relating to a strategy taught by Wade B. Cook and promotes a financial clinic to be offered within the coming few weeks in the local area of the advertising. The customer may call the toll-free number provided in the advertisement and, if he does, will be encouraged to reserve a seat at the upcoming Financial Clinic. During 1997, the Company advertised on a limited basis on television in connection with the Company's sports promotion advertising and in a few other select markets. 9 Direct Mail Marketing and Advertising The Company markets its programs, products and services through direct mailing to its mailing list of over 500,000 individuals, many of whom have previously attended one of the Company's seminars or purchased the Company's products. A centralized marketing department develops the Company's catalogs, brochures and advertisements. Sales Team The Company's sales force consists of approximately 130 people who are responsible for responding to phone, e-mail, Internet and facsimile orders and inquiries received by the Company, as well as for following up with existing clients to promote additional programs, products and services. The Company provides its sales staff daily training aimed at refining their sales skills and providing updates on new products, programs and services being offered by the Company. Internet Marketing The Company maintains an Internet web site at http://www.wadecook.com to market and promote its programs, products and services. The web site has information on the Company's programs, products and services and certain limited information on stock and investment strategies. A WIN subscriber can access WIN through the web site. A web site visitor can purchase a limited number of the Company's products on-line at the web site. In the future, the Company intends to expand products offered at the web site to all of the Company's products. Sports Promotions The Company sponsors a variety of sporting events including several games of the Seattle Seahawks and Seattle Super Sonics. These sponsorships enable the Company to advertise via giveaways which have in the past included packages containing a free book, audio tape, video tape and other promotional publications of the Company. All giveaway packages contain information about the Company's products and the toll free telephone number to call to register for a Financial Clinic or other upcoming seminar. Lighthouse Publishing Group, Inc. Lighthouse is engaged in the business of producing and publishing books, audio and video tapes, and other written materials, mainly in the categories of business, finance, real estate, and self-improvement. Many of the current books are authored by Wade B. Cook including "Real Estate Money Machine", "Business Buy the Bible", "Bear Market Baloney", "Stock Market Miracles", and "Wall Street Money Machine." Lighthouse Publishing contributed approximately 5% of the consolidated revenues of the Company in 1997, 12 % of consolidated revenues of the Company in 1996 and no contribution to consolidated revenue in 1996. Left Coast Advertising, Inc. Left Coast is engaged in the business of producing and placing advertising in various media including radio, television, newspaper, and magazines. Left Coast is a fully licensed advertising agency whose primary client is WCFC and it's subsidiaries. Left Coast contributed less than one per cent of the consolidated revenues of the Company in the year 1997, 1996 and 1995. Bountiful Investment Group, Inc. Bountiful Investment Group, Inc. (formerly Profit Financial Real Estate Management Company) ("BIG") was formed in 1997 to manage and oversee the real estate investment portfolio of the Company, primarily consisting of hotels. 10 BIG contributed less than one per cent of the consolidated revenues of the Company in 1997. Hotel Investment Properties WCSI owns a 25 percent interest in Airport Lodging Associates, L.C. which owns the Airport Ramada Ltd. Suites. WCSI's purchase price for their interest acquired was $250,000. The hotel is a new structure that opened in November 1997. The Ramada Ltd. Suites has 58 rooms and 1 suite, and is located at 315 North Admiral Boulevard in Salt Lake City, Utah. WCSI owns a 12 percent interest in 45th South Hotel Partners, L.C., a limited liability corporation, which owns the Murray Hampton Inn and the Murray Fairfield Inn. The 12 percent interest was purchased for $220,000, which was paid $160,000 in cash and 10,000 shares of Common Stock in the Company. The Hampton Inn is a 65 room hotel located at 606 West 4500 South in Murray, Utah. The Fairfield Inn is a 61 room hotel located at 4500 South in Murray, Utah. WCSI owns a 10 percent interest in Airport Hilton Partners, L.C., which owns the Airport Sheraton Suites. The hotel is located at 307 North Admiral Boulevard in Salt Lake City, Utah. The purchase price for the interest acquired was $250,000. The Sheraton Suites is due to open in April 1998 with 108 suite-style rooms. WCSI purchased a 8 percent interest in Woods Cross Hotel Partners, L.C. which owns the Woods Cross Fairfield Inn. The 8 percent interest was purchased for $119,269 paid in the form of 11,636 shares of Common Stock of the Company at $10.50 a share. The Woods Cross Fairfield Inn has 80 rooms and is located at 2437 south Wildcat Way in Woods Cross, Utah. WCSI owns a 4 percent interest in the Park City Hampton Inn & Suites. WCSI paid $225,002 for its 4% interest which consisted of $200,000 in cash and 4,167 shares of Common Stock in the Company. The hotel has 61 rooms and 20 suites and is located at 6609 North Landmark Drive in Park City, Utah. BIG owns a 100 percent direct ownership interest in the Best Western McCarran House. The total purchase price was $5,250,000 with a commitment to make $1,000,000 in renovations. The payment for renovations is to be made in installments over the course of 1998. The Best Western McCarran House has 220 units and is located at 55 East Nugget in Sparks, Nevada. BIG owns a 50 percent interest in Red Rock Lodging Associates, L.C. an entity which owns the St. George Hilton Inn. The purchase price was $3,850,000 of which BIG has contributed $800,000 in cash. The Hilton Inn has 98 rooms and 2 suites and is located at 1450 South Hilton Drive in St. George, Utah. Rising Tide Limited Partnership had negotiated to purchase a 100 percent ownership interest in the Provo Fairfield Inn for $3,450,000, of which $1,310,000 has been placed in escrow. In order to retain the Marriott franchise, the ownership of the Fairfield Inn is being restructured such that the original franchisee will retain 51 percent ownership interest and the Company will obtain a 49 percent interest. This transaction is scheduled to close in the second quarter of 1998. The Company intends to have its interest in the Provo Fairfield Inn held in Bountiful Investment Group, Inc.. Any funds that have been paid in excess of the 49 percent purchase price will either be returned to the Company or credited towards the acquisition of other hotel properties. The Provo Fairfield Inn has 66 rooms and 6 suites and is located at 1515 South University Avenue in Provo, Utah. BIG has made an offer to purchase the St. George Sleep Inn. If the sale goes through, BIG would own a 100 percent interest in the hotel. The purchase price is $1,200,000. Additionally, BIG would have a commitment to make approximately $130,000 in renovations. The Sleep Inn has 68 rooms and is located at 1481 South Sunland Drive in St. George, Utah Raw Land WCSI owns a 65% percent interest in Evergreen Lodging, L.P.. Evergreen owns a 100% interest in undeveloped property located near the 7200 South off-ramp of the I-15 Interstate near Salt Lake City, Utah. Evergreen purchased the land for $690,000. The land was purchased with the original intent of building a hotel on the property. WCSI owns a 42 percent interest in Lake View Lodging Associates, L.C. which owns the property located at 215 West 1300 South in Orem, Utah. The purchase price for its interest acquired was $560,000. BIG owns a 100 percent interest in an undeveloped lot located in Reno, Nevada. BIG purchased the property for $590,000. Entity Planners, Inc. EPI provides entity planning information and education to WCSI customers attending Business Entity Structuring Skills Training and Entity Structuring Workshop. EPI had no financial activity in 1997. Ideal Travel Concepts, Inc. As of August 13, 1997, the Company acquired Ideal from a director of the Company. In addition to providing travel arrangements for the Company, the Company markets travel agency training kits at its seminars for a price of $495. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" Origin Book Sales, Inc. In August 1997, WCFC acquired all of the issued and outstanding common stock of Origin in exchange for the issuance of 30,269 shares of restricted Common Stock of the Company pursuant to a Share Exchange Agreement effective as of August 15, 1997. Origin, a Utah corporation, is a book distribution company which sells books on consignment. Origin also offers select titles to national bookstore chains. Origin is the exclusive distributor of products for Worldwide Publishers Inc. Worldwide Publishers, Inc. In August 1997, WCFC purchased all of the issued and outstanding common stock of Worldwide for $1.00 pursuant to a Stock Purchase Agrement effective as of August 8, 1997. Additional consideration for the acquisition of Worldwide was the extinguishment of the obligation of Worldwide to repay two promissory notes in the total amount of $275,000. The obligation to repay the amounts loaned to Worldwide are eliminated as intercompany transactions. Worldwide is a Utah corporation doing business under the identifying publishing insignias ("imprints") as Aspen Books and Buckaroo Books. Aspen Books publishes religious books or books with a spiritual emphasis. Buckaroo Books publishes children's books and books of whimsy. Gold Leaf Press, Inc. In August 1997, WCFC acquired all of the outstanding common stock of Gold Leaf in exchange for 7,692 shares of the restricted Common Stock of the Company pursuant to a Stock Exchange Agreement effective as of August 15, 1997. Gold Leaf publishes fiction and non-fiction books. Get Ahead Bookstores, Inc. Effective January 1, 1998, WCFC acquired Get Ahead Bookstores, Inc., a Nevada corporation. Get Ahead is housed within Wade Cook Financial Education Centers in both Seattle and Tacoma. Get Ahead is staffed by Quantum Marketing personnel in an effort to coordinate Quantum sales of WCFC products and services. Get Ahead is a retail outlet for books, audio and video recordings primarily related to finance, education, investments, and business and personal development. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" Quantum Marketing, Inc. Quantum Marketing, Inc., a Nevada corporation, was established in 1997 by Robert Hondel, a member of the Company's Board of Directors, to provide alternative marketing of the Company's products and services. Currently, Quantum maintains its own website on the Internet and provides local marketing through its offices located within Wade Cook Financial Education Centers in Tacoma & Seattle, Washington and Newport Beach, California. Another Quantum office is to open in Santa Ana, California in 1998. Quantum pays WCFC a royalty of 70 percent on all products and services sold by Quantum through WCSI. Quantum provides WCFC with a 30 percent royalty on all products and services sold by Quantum through its Wade Cook Financial Education Centers. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." The first Wade Cook Financial Education Center was established in 1997 in Tacoma, Washington. 11 Each Wade Cook Financial Education Center contains a Winvest Center where WCFC alumni can meet to network and obtain additional financial investment information and information related to other WCFC products and services. Effective January 1, 1998, the Company acquired Quantum as a wholly-owned subsidiary. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." Information Quest, Inc. Information Quest, Inc. was organized in 1997 for the primary purpose of marketing the IQ Pager. The Company acquired IQI effective January 1, 1998 as a wholly-owned subsidiary. IQI is the distributor of the IQ Pager, a one-way receiving paging device. IQI transmits stock market updates and various financial information over the IQ Pager to subscribers. In addition, IQI provides all supplies, packaging, and distribution of the IQ Pager and provides all of the organizational support and maintains all contracts relating to the base paging service. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." American Newsletter Company, Inc. American Newsletter Company, Inc., a Nevada corporation, was incorporated August 28, 1997 as a wholly-owned subsidiary of WCFC. American Newsletter Company designs, produces, and distributes newsletters for commercial purposes. Current products include the Navigator, a bi-monthly, single-sheet, marketing newsletter targeted to bookstores which promotes Lighthouse publications. American Newsletter Company also publishes EXPLANATIONS, a promotional newsletter for WCSI products and services. EXPLANATIONS provides continuing education focusing on cash flow generation and wealth strategies taught by WCSI. EXPLANATIONS is a sixteen page monthly newsletter which is shipped to WCFC customers at a retail subscription rate of $144 per year. NET SALES BY OPERATING SUBSIDIARIES The following table sets forth the Company's net sales by subsidiary: PROFORMA NET SALES BREAKDOWN BY SUBSIDIARY FOR THE YEAR ENDING DECEMBER 31, (unaudited) (Amounts in 000's)
1997 1996 1995 Subsidiary Sales % Sales % Sales % - ---------- ------------------- ------------------- ------------------- WCSI $ 99,616 89.85% $ 39,256 85% $ 7,567 46% Left Coast $ -- 0.00% $ -- 0% $ 0%
12 Lighthouse $ 4,840 4.37% $ 1,469 3% $ 0% Origin $ 1,510 1.36% $ 1 801 4% $ 1 0% Gold Leaf $ 26 0.02% $ 1 462 3% $ 1,330 8% Worldwide $ 555 0.50% $ 971 2% $ 7,209 44% Ideal Travel $ 4,321 3.90% $ 1,023 2% $ 182 1% ---------------------- --------------------- --------------------- $110,868 100.00% $45, 982 100% $ 16,289 100% ---------------------- --------------------- --------------------- ---------------------- --------------------- ---------------------
CORPORATE CONTROL BY WADE B. COOK Wade B. Cook is the founder, majority shareholder, Chairman of the Board of Directors, President, Treasurer, acting Chief Financial Officer and CEO of the Company. Mr. Cook's wife is the Secretary of the Company and is a member of the Board of Directors. Several of Mr. Cook's siblings and relatives are in management positions at the Company. Mr. Cook maintains control of nearly every aspect of the Company including, but not limited to, setting corporate policy, determining strategic direction and determining each acquisition of a company or assets made by the Company and the material terms of such acquisition. Mr. Cook selects and approves every product and seminar sponsored by the Company. Mr. Cook directs most marketing efforts of the Company. Mr. Cook dominates the management of the Company. CONTROL BY MANAGEMENT As of March 13, 1998, senior management of the Company collectively owns approximately 59% of the outstanding shares of Common Stock. Mr. Cook and entities affiliated with Mr. Cook own approximately 56% of the outstanding shares of Common Stock. Consequently, the senior management, and Mr. Cook in particular, will continue to have a significant influence over the policies and procedures of the Company and will be in a position to determine the outcome of corporate actions requiring stockholder approval, including the election of directors, the adoption of amendments to the Company's corporate documents and the approval of mergers and sales of the Company's assets. See "Security Ownership of Certain Beneficial Owners and Management." BUSINESS STRATEGY WCFC's business strategy is to generate revenue and earnings growth through further market penetration of domestic markets for sales of the Company's existing products, and the introduction of new product lines that complement and supplement existing product lines which can be sold through the same channels of distribution. To accomplish its strategic objectives, WCFC has: (i) acquired companies; (ii) increased advertising expenditures; (iii) further expanded into smaller markets; (iv) developed and introduced new and ancillary product categories; (v) continued to acquire licenses from Mr. Cook and to seek out new licenses from new authors; (vi) and entered into relationships with others to develop and market new products. Substantially all of the Company's programs, products and services are based on the financial and investment strategies of Mr. Cook. The Company has the non-exclusive right to promote, produce and sell these programs, products and services pursuant to the terms of a Product Agreement with Mr. Cook dated March 20, 1998. Mr. Cook has based his programs and products on his belief that people need to: (a) increase their wealth by increasing their cash flow; (b) learn how to minimize their federal and state income taxes; (c) use entities, such as Nevada corporations, family limited partnerships, living trusts, qualified pensions and business trusts, to protect their assets; (d) be able to retire with sufficient income from their assets to maintain a good standard of living; and (e) be able to pass on their wealth and assets to their loved ones without the problems of probate. 13 COMPETITION The Company does not generally conduct market research on competitive companies or competitive products and does not therefore have meaningful statistical data on competitors or competitive products. The Company believes that the highly competitive market in which the Company operates is fragmented and decentralized, with low barriers to entry. The Company's competitors include other companies and individuals who promote and conduct seminars and provide products on topics relating to investments, financial planning and personal wealth management. Some of these competitors offer courses and products similar to the Company at lower prices. In addition, many of the Company's competitors sponsor and conduct seminars free of charge as a marketing tool for other business. These competitors include stockbrokers, franchisers of business opportunities and portfolio and tax consultants. LICENSING FROM WADE B. COOK On March 20, 1998, the Company entered into a new Open Ended Product Agreement with Wade B. Cook to be effective July 1, 1997 and expiring June 30, 2000. This agreement amended the previous Product Agreement dated June 25, 1997. Pursuant to this Open Ended Product Agreement, the Company has a non-exclusive license with Mr. Cook which permits the Company to produce, market and sell licensed original products and intellectual property in exchange for a royalty of ten percent of the gross sales of the licensed products. Royalties are paid to Mr. Cook on a quarterly basis under the terms of the agreement, however, Mr. Cook is CEO of the Company and is authorized to set Company policy which allows him to take draws against royalties in amounts which he determines to be reasonable. In such cases, the royalties owing under the license are then reconciled quarterly with the draws Mr. Cook has taken. The license also grants the Company the right to use Mr. Cook's name, likeness, identity, trademarks, and trade symbols. The Agreement is open-ended in that it allows for future products developed by Mr. Cook to be licensed under the same terms and conditions upon the execution of a form "License Order". The Company does not have a contract which gives it the first right to license or otherwise obtain the right to produce, market or sell any future products developed by Mr. Cook. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." 14 RETURNS AND REFUNDS POLICY Due to the nature of the intellectual property contained in the majority of the Company's products and the ease with which the materials could be copied, the Company has an "all sales are final" policy except as otherwise required by state and federal law. The Company does give refunds on a case by case basis as determined by the Refund Manager and/or the General Counsel. During 1997, the average return refund rate was under 2% of sales. INTELLECTUAL PROPERTY The Company regards its seminars, products and other materials as proprietary and relies primarily on a combination of statutory and common laws regarding copyrights, trademarks and trade secrets to protect such rights. Additionally, employee and third-party nondisclosure agreements and other methods to protect said propriety rights are relied on by the Company. The Company is currently attempting to identify and protect the intellectual property of the Company. In general, Wade B. Cook selects the trademarks for all products and the names of all corporate subsidiaries and promotions based on his personal preferences. Mr. Cook has, in the past, generally selected names which have common appeal and which contain descriptive terms and/or descriptive acronyms such as "Business Entity Skills Workshop" or "B.E.S.T." The Company has chosen not to register most existing trademarks currently used by the Company. 15 EMPLOYEES As of December 31, 1997, the Company had 532 full-time employees, including 422 full-time employees, 110 part-time employees and approximately 70 independent contractors. As of March 13, 1998, WCFC had approximately 519 employees of which 114 are part-time. The Company's employees are not covered by collective bargaining agreements. The Company believes its relationship with its employees is good. SEASONALITY The Company's business is not seasonal. ITEM 2. - PROPERTIES Commercial Property The Company's headquarters is a three-story 63,000 square feet building owned by it and located at 14675 Interurban Avenue South, Seattle, Washington 98168. The majority of the Company's operations, such as corporate offices, in-house sales staff, in-house seminar staff, art department, accounting department and legal department are based at this location. In addition, the headquarters has 3 seminar rooms which the Company uses to hold some of its seminars. The Company leases space at 4479 South 134th Place, Seattle, Washington 98168, for its shipping and warehouse operations. The shipping warehouse is approximately 10,000 square feet. The majority of the Company's shipping is conducted at this location. Worldwide leases 2,400 square feet of office space located at 6208 Stratler in Salt Lake City, Utah. Worldwide conducts the majority of its operations out of this facility. Origin leases 7,200 square feet of office space located at 6208 Stratler in Salt Lake City, Utah. Origin conducts the majority of its business out of this facility. 16 ITEM 3. - LEGAL PROCEEDINGS Investigation by the Securities and Exchange Commission 17 The Company is subject to a private investigation by the Securities and Exchange Commission ("SEC") in the Matter of Wade Cook Seminars, Inc. The SEC is investigating the possible violation of Sections 5(a), 5(c) and 17(a) of the Securities Act, Section 1(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 203(a) and 206(1) and (2) of the Investment Advisers Act. The SEC has stated that the investigation should not be construed as an indication by the SEC or its staff that any violations of law have occurred, nor should it be construed as an adverse reflection on the merits of the securities involved or on any person or entity. The Company does not believe it or its executive officers and directors have violated applicable laws, and the Company intends to continue to cooperate with the investigation. The Company does not believe it or its executive officer and directors have violated applicable laws. Investigation by the State of Washington The Assistant Attorney General for the State of Washington's Department of Financial Institutions, Securities Division commenced an investigation of Mr. Cook, WCSI, and the Company in September, 1996. Since that time, the State of Washington's Department of Financial Institutions, Securities Division has issued subpoenas to Mr. Cook, WCSI, the Company, the General Counsel, and the former General Counsel requesting information related to the investigation. The Company has not been informed as to basis for the State of Washington's investigation. The Company does not believe it or its executive officer and directors have violated applicable laws. Wade Cook Seminars, Inc. v. Charles Mellon, Anthony Robbins, Options Management, Inc. and Robbins Research International, Inc. On October 4, 1996, WCSI and Mr. Cook filed a complaint in King County Superior Court, State of Washington against Robbins Research International, Inc, Anthony Robbins, Charles Mellon, and Options Management, Inc. seeking damages and injunctive relief for unfair competition, misappropriation of trade secrets, breach of a non-compete agreement, and inducement to breach the non-compete agreement. On November 26, 1997, WCSI and Mr. Cook's unfair competition and misappropriation of trade secrets claims were dismissed in a hearing on a Motion for Summary Judgment brought by the Defendant. The Company and Mr. Cook are appealing the decision to the Ninth Circuit Court of Appeals. WCSI and Mr. Cook filed for a voluntary dismissal on the non-compete issues and were granted a dismissal without prejudice. Wade B. Cook v. Anthony Robbins, Robbins Research International, Inc. and Charles Mellon On June 18, 1997, Mr. Cook filed a copyright infringement suit in the United States District Court, Western District of Washington, against Anthony Robbins and Robbins Research International, Inc. seeking damages and injunctive relief. Charles Mellon, a former speaker for Wade Cook Seminars, Inc., was added as a defendant on August 5, 1997. Mr. Cook alleges Anthony Robbins copied or caused to be copied significant portions of his best selling book, Wall Street Money Machine. Mr. Cook authored and copyrighted the book which he claims defendants used in creating their new seminar entitled "Financial Power". A trial is scheduled for September 28, 1998. Litigation with ART and ITEX On February 4, 1998, WCFC filed a complaint against Associated Reciprocal Traders, Ltd. ("ART") and its parent corporation, ITEX, in the King County Superior Court, State of Washington in Seattle, Washington. On the same day, Associated Reciprocal Traders, Ltd. filed a complaint against WCFC in the King County Superior Court, State of Washington in Kent, Washington. Both complaints have been consolidated and are related to a dispute over the ownership of 1,800,000 shares of common stock that originally was issued as 100,000 shares of common stock of WCFC on September 10, 1996 in exchange for $500,000 worth of media credits for radio spots to Associated Reciprocal Traders, Ltd. pursuant to an agreement dated December 29, 1995. 18 County of Fresno Investigation On March 5, 1998, the Company received a letter from the County of Fresno, California, Office of District Attorney Business Affairs Unit ("BAU"), informing the Company that the BAU believed that the seminar sales contracts used in California by the Company were not in compliance with sections 1678.20 through 1693 of the California Civil Code which provide for a three-day right of cancellation on seminar sales solicitation contracts. According to the BAU, potential penalties for such actions could include restitution and civil penalties up to $2,500 for each violation. The BAU has afforded the Company the opportunity to negotiate a settlement with the BAU prior to any legal action being taken against the Company and a meeting has been scheduled in April for such purposes. As a precautionary measure, the Company has begun to offer the 3-day right of cancellation language in its California seminar sales contracts until the Company has had an opportunity to more fully review the legal requirements and make a determination whether it has violated the cited provisions of the California Civil Code. ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The 1997 Annual Meeting of Shareholders of the Company ( the "Annual Meeting") was held at the Company's headquarters on December 10, 1997. At the meeting the shareholders of the Company approved the following: (i) the election of management's slate of directors for the forthcoming year (ii) the ratification of the Company's name change from Profit Financial Corporation to Wade Cook Financial Corporation (iii) the authorization of reincorporating the Company in the State of Nevada (iv) the adoption of the 1997 Stock Incentive Plan, and (v) the authorization of an increase in the total number of authorized Common Stock of the Company to 140,000,000 shares from 60,000,000 shares. The directors nominated by management and elected by the shareholders were: Wade B. Cook, John Childers, Sr., Nicholas Dettman, Eric Marler, Robert Hondel, Cheryle Hamilton, Pamela Andersen and Robin Anderson. Dr. Warren Chaney was not nominated to stand for election as a director notwithstanding the fact that his name was included in the Proxy Statement delivered to shareholders prior to the meeting. Voting Results The total number of outstanding shares representing the total possible number of votes that could be cast at the Annual Meeting was 6,715,032. The actual number of votes cast by proxy or in person excluding abstentions and broker non-votes was 4,118,659. The following table sets forth the actual numbers of votes cast for, against and those abstaining on each of the items voted on:
ITEM FOR AGAINST ABSTAIN - ---- --- ------- ------- #1. Election of Directors 4,118,411 248 N/A #2. Name Change 4,118,439 180 40 #3. Reincorporation 4,118,431 188 40 #4. Stock Incentive Plan 4,118,047 408 204 #5. Share Increase 4,117,809 284 566
19 PART II ITEM 5. - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock has been traded in the OTC BB Market under the symbol "WADE" since August 11, 1997. Prior to that time, the Company's Common Stock was quoted under the stock symbol "PFNL" in the over-the-counter market. The following table sets forth the approximate high and low bid quotations for the Company's Common Stock for the calendar periods indicated. The quotations reflect inter-dealer prices which may include retail markups, markdowns or commissions and may not reflect actual transactions.
HIGH BID LOW BID --------- ------- 1997 - -------------------------------------------------------------------------------- Quarter Ended March 31 4.25 2.00 Quarter ended June 30 5.94 2.63 Quarter ended September 30 13.88 4.88 Quarter ended December 31 15.44 7.63 1996 - -------------------------------------------------------------------------------- Quarter Ended March 31 2.12 2.00 Quarter Ended June 30 2.62 2.25 Quarter Ended September 30 3.75 3.50 Quarter Ended December 31 3.12 2.62 1995 - -------------------------------------------------------------------------------- Quarter Ended March 31 1.75 1.50 Quarter Ended June 30 2.37 2.12 Quarter Ended September 30 2.50 2.25 Quarter Ended December 31 2.00 1.87 1994 - -------------------------------------------------------------------------------- Quarter Ended March 31 1.87 1.62 Quarter Ended June 30 1.75 1.50 Quarter Ended September 30 1.75 1.50 Quarter Ended December 31 1.75 1.50
(1) Prices reported reflect a 3 for 1 stock split effective September 15, 1997, a 3 for 1 stock split effective December 23, 1997, and a 2 for 1 stock split effective September 9, 1996. 20 On March 13, 1998, there were approximately 1,373 shareholders of record of the Company's Common Stock and approximately 9,333 beneficial holders. On March 13, 1998, the closing bid price of the Company's Common Stock on the OTC BB Market was $3.03 per share. In February 1998, the Company changed stock transfer agents to American Stock Transfer and Trust Company, New York, New York. The Company has never paid any cash dividends on its Common Stock and does not anticipate that it will pay dividends in the foreseeable future. Instead, the Company intends to retain earnings to expand and develop its business. RECENT SALES OF UNREGISTERED SECURITIES On August 13, 1997, the Company issued 13,491,438 shares of its restricted Common stock for a three for one stock split to all shareholders of record as of September 1, 1997, with an effective date of September 15, 1997. On August 13, 1997, the Company authorized the issuance of 358,333 post split restrited shares of Common Stock for the acquisition of Ideal Travel Concepts Inc., under a Stock Purchase Agreement dated August 1, 1997. On September 12, 1997, the Company issued 500 post split shares of its restricted Class A Common Stock at $5 per share (pre splits) to Kathleen Mikos for payment in full of subscription notes receivables. On September 12, 1997, the Company issued 20,000 shares of its restricted Class A Common Stock at $1.00 per share ($3 per share pre split) to Baker Street Investments, L.P. under the stock options available to Board members. On October 13, 1997, the Company issued 5,000 shares of its restricted Class A Common Stock at $5.00 per share to Paul Christensen for a finder's fee in the purchase of the Fairfield Inn in Provo, Utah. On October 13, 1997, the Company issued 5,000 shares of its restricted Class A Common Stock at $5.00 per share to Rex Griffiths for the acquisition of the Hampton Inn & Suites in Park City, Utah. On November 17, 1997, the Company issued 11,538 post split shares of its restricted Class A Common Stock to Stan Zenk in exchange for 12,500 shares of Common Stock in Gold Leaf Press, Inc. for the acquisition of Gold Leaf Press, Inc. On November 17, 1997, the Company issued 11,538 post split shares of its restricted Class A Common to Curtis Taylor in exchange for 12,500 shares of Common Stock in Gold Leaf Press, Inc. for the acquisition of Gold Leaf Press, Inc. On December 10, 1997, the Company issued______________shares of its restricted Class A Common Stock for a three for one stock split to all shareholders of record as of December 19, 1997, with an effective date of December 23, 1997. On December 19, 1997, the Company issued 3,637 shares of its restricted Class A Common Stock at $10.50 per share to Rex Griffiths for the purchase of a seven percent interest in Woods Cross Hotel Partners, L.C. On December 19, 1997, the Company issued 6,545 shares of its restricted Class A Common Stock at $10.50 per share to Paul Christensen for the purchase of a seven percent interest in Woods Cross Hotel Partners, L.C. On February 24, 1998, the Company issued a total of 13,650 shares of restricted common stock for the issuance of 25 shares of Common stock to all employees of record on December 22, 1997 as a year-end holiday bonus and the issuance of 50 shares of its Common stock to all management personnel of record on December 22, 1997. On August 15, 1997, the Company issued 30,269 shares of its restricted Common Stock to the following individuals in exchange for all of the issued and authorized shares in Origin Book Salesman: Stan Zenk, Curtis Taylor, Michael Hurst, Clarence Taylor, Delvin Jenks, Lonnie Hester, Stuart Taylor, Mark Mendenhall, Susan Coon, Diane Mower, and Isaac Taylor. On August 12, 1997, the Company issued 20,000 shares of restricted common stock (10,000 pre split) at $3.00 per share to John Childers, Sr. under the stock options available to employees and directors. On December 10, 1997, the Company issued _____________shares of its restricted Class A Common Stock for a three for one stock split to all shareholders of record as of December 19, 1997, with an effective date of December 23, 1997. On August 12, 1997, the Company issued 20,000 shares of restricted Common stock (10,000 pre split at $3.00 per share) to John Childers, Sr. pursuant to September 20, 1995 resolution under the stock option available to Board members. ITEM 6. - SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data should be read in conjunction with the Company's consolidated financial statements and the related notes and with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY" included elsewhere in this Form 10-K. The selected consolidated balance sheet data presented below as of December 31, 1996 and 1997 and of the consolidated statement of operations data presented below for the years ended December 31, 1995, 1996 and 1997 are derived from the consolidated financial statements of the Company included elsewhere in this Form 10-K, which financial statements have been audited by Miller and Company, independent certified public accountants. The selected consolidated balance sheet data presented below as of December 31, 1995 and 1994 and the consolidated 21 statement of operations data for the year ended 1994 are derived from financial statements of the Company not included in this Form 10-K which have been audited by Miller and Company, independent certified public accountants. The selected consolidated balance sheet data and selected consolidated statement of operation data presented below as of December 31, 1993 and for the year ended December 31, 1993 are derived from financial statements of the Company audited by other auditors not included in this Form 10-K. SELECTED CONSOLIDATED FINANCIAL DATA WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES YEAR ENDED DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA)
1993 1994 1995 1996 1997 CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales $ 728 $ 1,973 $ 6,504 $ 40,725 $ 104,908 Cost of sales $ 147 $ 862 $ 2,877 $ 15,683 $ 39,068 ------- --------- --------- ---------- ---------- Gross proft $ 581 $ 1,111 $ 3,627 $ 25,042 $ 65,840 Operating expenses $ 116 $ 1,134 $ 3,333 $ 20,302 $ 50,099 ------- --------- --------- ---------- ---------- Income (loss) from operations $ 465 $ (23) $ 294 $ 4,470 $ 15,741 Other expenses $ 114 $ 181 $ 55 $ 74 $ 706 ------- --------- --------- ---------- ---------- Income (loss) from continuing operations $ 351 $ (204) $ 239 $ 4,666 $ 15,035 ------- --------- --------- ---------- ---------- PRO FORMA INCOME FROM CONTINUING OPERATIONS DATA (1,2): Income (loss) before income taxes, minority interest and acquired operations as reported $ 351 $ (204) $ 239 $ 4,666 $ 15,035 Pro Forma provision (benefit) for income taxes $ -- $ (8) $ 171 $ 1,061 $ 6,063 ---------- Minority interest in loss of subsidiary $ $ $ $ $ 21 - - - - ---------- Pro forma net income (loss) $ 351 $ (196) $ 68 $ 3,065 $ 8,993 ------- --------- --------- ---------- ---------- ------- --------- --------- ---------- ---------- PER SHARE DATA: Pro forma (loss income from continuing operations per share $ 0.04 (.008) .002 0.12 0.14 ------- --------- --------- ---------- ---------- ------- --------- --------- ---------- ---------- Weighted average shares outstanding 24,857,705 25,593,688 25,593,688 26,574,666 63,362,984
22 (IN THOUSANDS) CONSOLIDATED BALANCE SHEET DATA: 1993 1994 1995 1996 1997 Total assets $ 2,787 $ 206 $ 2,283 $ 16,938 $ 41,404 Total debt, including $ 688 $ 134 $ 1,458 $ 12,618 $ 24,649 current portion ------- --------- ---------- ---------- ----------- Stockholders' equity $ 2,099 $ 72 $ 825 $ 4,320 $ 16,755
(1) In the fourth quarter of 1997, the Board of Directors changed the fiscal year of WCSI from a fiscal year ending January 31 to a calendar fiscal year. The effect of the change was to exclude January 1998 from the consolidated financial statements of the Company and shorten the 1997 results of WCSI to an eleven month period. (2) (3) Assumes as outstanding, 3,224,997 shares of Common Stock for 1997 issued by WCFC in the August 1997 Acquisition of Ideal, See Consolidated Statements of Changes in Shareholders' Equity. ITEM 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The following discussion is intended to provide information to facilitate the understanding and assessment of significant changes and trends related to the financial condition of the Company and the results of its operations. This discussion and analysis should be read in conjunction with the Company's audited consolidated financial statements and the notes thereto included elsewhere in this Form 10-K. Overview and Outlook WCFC is a holding company that, through its operating subsidiary WCSI, conducts educational investment seminars and produces and sells audio tapes, videotapes, books and other written materials focused on investment strategies, financial planning and personal wealth management. The Company also invests in marketable securities, real estate, gold, oil and gas venture capital limited partnerships and private companies. WCSI hosts WIN, an Internet web site that allows subscribers to log on for information related to the stock market at http://www.wadecook.com. Two of the Company's operating subsidiaries, Left Coast Advertising, Inc. and Lighthouse Publishing Group, Inc. conduct advertising and publishing services, respectively, for the Company. In 1997 the Company acquired Worldwide, Origin, Gold Leaf and Ideal Travel. The following tables set forth the net sales, total cost of sales and gross profit of each of the operating subsidiaries of WCFC for the years ended December 31, 1995, 1996 and 1997. 23 SELECTED CONSOLIDATED FINANCIAL DATA WADE COOK FINANCIAL CORPORATION SUBSIDIARIES YEARS ENDED DECEMBER 31, (IN THOUSANDS)
1995 - ------------------------------------------------------------------------------------------------------------------------------------ Gold Ideal WCSI Lighthouse Origin Leaf Worldwide Travel Total - ------------------------------------------------------------------------------------------------------------------------------------ NET SALES $ 6,504 $ -- $ -- $-- $-- $ -- $ 6,504 - ------------------------------------------------------------------------------------------------------------------------------------ COST OF GOODS SOLD 2,122 2,122 - ------------------------------------------------------------------------------------------------------------------------------------ LICENSE AND ROYALTY EXPENSE 755 0 755 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL COST OF SALES 2,877 0 0 0 0 0 2,877 - ------------------------------------------------------------------------------------------------------------------------------------ GROSS PROFIT 3,627 -- -- -- -- -- 3,627 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
1996 - ------------------------------------------------------------------------------------------------------------------------------------ Gold Ideal WCSI Lighthouse Origin Leaf Worldwide Travel Total - ------------------------------------------------------------------------------------------------------------------------------------ NET SALES $39,256 $1,469 $ 1,496 $26 $ 48 $3,620 $104,907 - ------------------------------------------------------------------------------------------------------------------------------------ COST OF GOODS SOLD 3,972 349 1,016 -- 17 2,964 28,892 - ------------------------------------------------------------------------------------------------------------------------------------ LICENSE AND ROYALTY EXPENSE 10,950 367 -- 13 39 -- 10,176 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL COST OF SALES 14,922 761 1,016 13 56 2,964 39,068 - ------------------------------------------------------------------------------------------------------------------------------------ GROSS PROFIT 24,334 708 480 13 (8) 656 65,839 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
1997 - ------------------------------------------------------------------------------------------------------------------------------------ Gold Ideal WCSI Lighthouse Origin* Leaf* Worldwide* Travel** Total - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ NET SALES $94,984 $4,733 $ , $-- $-- $ -- $ 40,725 - ------------------------------------------------------------------------------------------------------------------------------------ COST OF GOODS SOLD 23,319 1,576 4,366 - ------------------------------------------------------------------------------------------------------------------------------------ LICENSE AND ROYALTY EXPENSE 8,994 1,130 11,317 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL COST OF SALES 32,313 2,706 0 0 0 0 15,683 - ------------------------------------------------------------------------------------------------------------------------------------ GROSS PROFIT 62,671 2,027 -- -- -- -- 25,042 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
* - Acquired effective August 27, 1997 ** - Acquired effective August 1, 1997 24 Intercompany transactions have been eliminated. Results of Operations Revenues for the year ended December 31, 1997 were $104.9 million as compared to revenues of $40.7 million for the year ended December 31, 1996. These results include the results of WCSI for only eleven months due to a change in WCSI's fiscal year end from January 31 to December 31. Revenues grew significantly due to several factors including a substantial increase in advertising, the fact that several books authored by Wade Cook appeared on the New York Times' Business Best Seller List, resulting in greater recognition for Wade Cook in the investment educational market. Seminar sales grew from $25 million in 1996 to more than $56 million in 1997, an increase of over 120%. Book sales went from $9 million in 1996 to more than $33 million in 1997, a increase of over 267%. WIN subscribers have increased. The increase in overall revenues may also be attributed to the acquisition of related businesses in 1997. Costs of revenues increased from $15.7 million to $39 million, an increase of over 149%. However, the costs of revenues as a percentage of net revenues have decreased from 38.4% in 1996 compared to 37.2% in 1997. The Company believes it is taking advantage of the economies of scale in the distribution, travel, and publishing areas. The increase in costs was primarily attributed to revenue growth. Selling, general and administrative expenses increased by almost $30 million to $50.1 million in 1997 as compared to $20 million in 1996. The increase was attributable to increases in labor and related costs ($7 million in 1996, comapred to $16 million in 1997), advertising ($6 million in 1996 compared to almost $14 million in 1997), and postage and freight ($2.2 million in 1996 compared to $4.2 million in 1997). For the year ended December 31, 1997, the Company's net other income/expense was $706 thousand as compared to $74 thousand in 1996. The increase in expense was due to the costs associated with the purchase of the Company's headquarters building coupled with a net investment loss of over $800 thousand. The net investment loss can be attributed to the losses incurred in the brokerage accounts used by seminar instructors to make demonstration trades as well as a downturn in the stock and securities markets at the end of 1997. The provision for income taxes of $6 million and $1.6 million for the years ended 1997 and 1996, respectively, reflect taxes payable in respect of profitable operations. The Company anticipates that existing cash, together with internally generated funds aided by continuing increase in revenues, will provide the Company with the resources that are needed to satisfy the Company's working capital requirements in 1998. 25 LIQUIDITY AND CAPITAL RESOURCES At December 31, 1997, the Company's cash and cash equivalents and marketable securities totaled $6.7 million dollars. The Company's negative working capital was approximately $11,000,000 in 1997. The Company's negative working capital grew from $763,000 in 1995 to $3.9 million in 1996. The Company expects, therefor, that the negative working capital of the Company will increase in 1998. The primary reason for the increase in negative working capital is the Company's practice of funding long term investments with working capital as opposed to using other forms of financing including the issuance of equity and debt. 26 EFFECTS OF INFLATION The Company's management believes that inflation will not have a significant effect on the Company's results of operations. SEASONALITY The Company's business is not seasonal. ITEM 8. - FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE The Financial Statements of the Company and financial statement schedule filed as part of this report on Form 10-K are listed in Item 14(a). ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Company's Board of Directors is divided into three classes of directors, with the directors in each class elected for three-year staggered terms. Class I consists of three (3) directors whose term expires at the annual shareholders meeting in 2000. Class II consists of three (3) directors whose term expires at the annual shareholders meeting in 1999. Class III consists of four (4) directors whose term expires at the annual shareholders meeting in 1998. Officers serve on the Board of Directors, subject to restrictions set forth in their employment agreements, if any. See "EXECUTIVE COMPENSATION--Employment Agreements." The following table sets forth information with respect to each director and executive officer of the Company:
NAME AGE POSITION CLASS DIRECTOR SINCE - ---- ---- -------- ----- -------------- Wade B. Cook 47 Chairman of the Board* I June, 1995 Laura M. Cook 45 Secretary and Director* I June, 1995 Cheryle Hamilton 46 Director* III June, 1997 Robert T. Hondel 54 Director* III June, 1997 Warren H. Chaney 54 Director (1) August, 1996 John V. Childers 52 Director I Sept., 1995 Nicholas Dettman 49 Director II Sept., 1995 Eric W. Marler 40 Director (3) II December, 1996 Pamela Andersen 46 Director* (2) III August, 1997 Robin Anderson 34 Director* III June, 1997 Christopher M. Carde Director, General Counsel and Interim CEO(4) Andrew T. Rice Comptroller, Treasurer and Chief Financial Officer(5) Caesar Regosa Comptroller and Director(6)
- ----------------- * Indicates members who are presently executive officers or employees of the Company. 27 (1) Did not stand for re-election at the 1997 Annual Shareholders' Meeting. Certain biographical information regarding Mr. Chaney has been omitted below. (2) Resigned from the Board, effective March 17, 1998. (3) Eric W. Marler served as the Chief Financial Officer of the Company from December, 1996 to June, 1997 when he resigned in order to take advantage of another business opportunity. He remains on the Board of Directors and continues to work for a company, Cascade Management Associates, L.P. that provides speaker services to the Company. (4) Christopher M. Carde was terminated by the Company pursuant to a confidential termination agreement dated August 21, 1997. Mr. Carde did not receive any additional severance compensation and agreed to continue to uphold his non-compete agreement. Certain biographical information regarding Mr. Carde has been omitted below. (5) Andrew T. Rice served as Comptroller from June to December 1997. During that time Mr. Rice became Treasurer and CFO of the Company. Mr. Rice resigned as CFO of the Company in December 1997 and left the Company just prior to the year-end. Certain biographical information regarding Mr. Rice has been omitted below. WADE B. COOK is the Chairman of the Board, CEO, President and interim Treasurer and Chief Financial Officer of the Company and has occupied at least one of those positions since June of 1995. Mr. Cook also served as Treasurer and President of WCSI since 1989. Mr. Cook is an author of numerous books on finance, real estate, asset protection and the stock market, a trainer and speaker on these topics, and the developer of educational products on investing and personal wealth management. Mr. Cook is the husband of Laura M. Cook. The State of Arizona commenced an administrative proceeding against Wade B. Cook and his former businesses American Business Alliance and Monarch Funding Corporation in February, 1989. The State of Arizona issued an administrative order, on or about May 1989, concluding that Mr. Cook and his businesses had violated various securities laws, including anti-fraud provisions, and as a result, ordered them to (1) pay over $390,000 in restitution (2) jointly and severally pay a $150,000 administrative penalty, and (3) to cease and desist the allegedly fraudulent conduct. This matter has been concluded and all fines and penalties have been paid. LAURA M. COOK is the Secretary and a member of the Board of Directors of the Company. Mrs. Cook has also served as an officer and operational manager in several subsidiaries of the Company. Mrs. Cook has managed accounting systems for various corporations for 15 years. CHERYLE HAMILTON is the Director of Lighthouse Publishing. From March, 1996 to February, 1997, Ms. Hamilton served as Human Resources Director for the Company. Prior to her involvement with the Company, Ms. Hamilton was Executive Assistant of Sunsportswear, Inc., a clothing manufacturer located in Seattle, Washington. She also provided intellectual property and marketing consulting on a contract basis from 1991 to 1994. ROBERT T. HONDEL is a Director of the Company and is the President and a director of Quantum Marketing, Inc., a wholly-owned subsidiary, and was the General Sales Manager of WCSI until December 1997. Mr. Hondel left retirement to join the Company. Prior to joining the Company, Mr. Hondel spent 18 years as the Director and President of the Knapp College of Business in Tacoma, Washington. Mr. Hondel is the uncle of Robin Anderson. JOHN V. CHILDERS is a Director of the Company. In addition to his duties as Director, Mr. Childers acts as a speaker trainer of the Company. Mr. Childers is the former President of Ideal Travel Concepts, Inc., a travel company with locations in Tennessee and Florida which was recently acquired by the Company. 28 NICHOLAS DETTMAN is a Director of the Company. He is a captain for Delta Airlines, and has been with that company for over 30 years. He is the owner and operator of Kalowai Plantation, an orchid ranch in Kauai, Hawaii. ERIC W. MARLER is a Director of the Company and has been a speaker for the Company since September, 1996. Mr. Marler also served as Chief Financial Officer of the Company from December, 1996 to June, 1997. Mr. Marler is Vice President of Cascade Management Associates, L.P., a firm that provides tax consulting. Prior to his involvement with the Company, Mr. Marler practiced as a Certified Public Accountant giving advice on income tax and profitability planning with Martin/Grambush, P.C., an accounting firm located in Kirkland, Washington. PAMELA S. ANDERSEN was a Director of the Company until March 1998. Ms. Andersen joined WCSI in October, 1994, as a director of Left Coast Advertising, Inc., a subsidiary of the Company. She currently serves as Manager of Real Estate Investments for the Company. Prior to her association with the Company, Ms. Andersen worked with Bromar, Inc., Harris/3M and NEC, and has experience in the fields of sales and real estate. ROBIN ANDERSON is a Director of the Company. Ms. Anderson is the Sales Manager for the Company and has been with the Company since 1994. Ms. Anderson is the niece of Robert T. Hondel. COMPENSATION OF DIRECTORS The Company pays each director a fee of $3,000, payable quarterly, in advance. In addition, the Company reimburses non-employee directors for reasonable travel and out-of-pocket expenses incurred in connection with their activities on behalf of the Company. Directors of the Company are eligible for participation in the Wade Cook Financial Corporation 1997 Stock Incentive Plan. See "The 1997 Stock Incentive Plan". The 1997 Stock Incentive Plan is administered by the Board of Directors. The 1997 Stock Incentive Plan The Company's 1997 Stock Incentive Plan ("Plan") provides for the granting of Stock Options ("Options"), including Incentive Stock Options ("ISOs") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and Non-Qualified Stock Options ("NQSOs"). In addition, Stock Appreciation Rights ("SARs") may be granted under the Plan, either accompanying an Option grant (a "Tandem SAR") or independent of an Option grant (a "Stand-Alone SAR"). The Plan also provides for the granting of shares of Restricted Stock, shares of Phantom Stock, stock bonuses and other stock-based awards. The Plan is administered by the Board. The Board has the right to grant awards to eligible recipients and to determine the terms and conditions of Award Agreements ("Agreements"), including, but not limited to, the vesting schedule and exercise price of such awards, and to make all other determinations deemed necessary or advisable for the administration of the Plan. The persons who will be eligible to receive awards pursuant to the Plan will be such directors, officers, consultants and other employees of the Company as the Board selects ("Participants"). 29 The maximum number of shares of Company stock reserved for issuance under the Plan is 1,000,000 shares (subject to adjustment as provided in this Form 10-K). Such shares may be authorized but unissued Company stock or authorized and issued Company stock held in the Company's treasury. The Board has the authority to make any and all equitable changes or adjustments it deems necessary or appropriate in the event any dividend or other distribution (whether in the form of cash, Company stock, or other property), recapitalization, Company stock split, reverse Company stock split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate transaction or event, affects the Company stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Participants under the Plan. The Board will determine the expiration date of each Option, provided however, that no ISO will be exercisable more than 10 years after the date of grant. The exercisability of Options may be based on a predetermined vesting schedule or may be subject to the attainment by the Company of performance goals pre-established by the Board. The option exercise price per share will be determined by the Board; provided, however, that in the case of an ISO, the option exercise price will in no event be less than the fair market value of a share of Company stock on the date the ISO is granted. The Plan provides that the Board will have the authority to specify, at the time of grant, or with respect to NQSOs, at or after the time of grant, that a Participant shall be granted a new NQSO (a "Reload Option") for a number of shares equal to the number of shares surrendered by the Participant upon exercise of all or a part of an Option, subject to the availability of shares of Company stock under the Plan at the time of such exercise. The Board may grant Common Stock as a bonus. Other forms of awards valued in whole or in part by reference to, or otherwise based on, Company stock may be granted either alone or in addition to other awards under the Plan. The Board will determine the persons to whom and the time or times at which such awards will be granted. The number of shares of Company stock to be granted pursuant to such awards and all other conditions of such awards. The Board may suspend, terminate or amend the Plan at any time, provided however, that stockholder approval will be required if and to the extent the Board determines that such approval is appropriate for purposes of satisfying Section 422 of the Code or Rule 16b-3 as promulgated under the SEC. BOARD MEETINGS AND COMMITTEES During 1997, the Board of Directors held 10 meetings, and as of March 13, 1998, has met two times. Each current member attended at least 100% of the meetings of the Board of Directors for which they were eligible to attend. Board Committees The Executive Committee has the authority to approve the acquisition, financing and disposition of investments for the Company and execute certain contracts and agreements, including those related to borrowing money by the Company, and generally will exercise all other powers of the Board of directors except for those which require action by the Board of Directors under the Articles of Incorporation, By-laws or applicable law. The members of the Executive Committee are Wade B. Cook and Laura M. Cook. The Audit Committee consists of directors who are not employees and who are, in the opinion of the Board of Directors, free from any relationship that would interfere with their exercise of independent judgment as Audit Committee members. The Audit Committee has been established to make recommendations concerning the engagement of independent public accountants, review with the independent public accountants the plans and results of the audit engagement, approve professional services provided by the independent accountants, review the independence of the independent public accountants, consider the range of audit and non-audit fees and review the adequacy of the Company's 30 internal accounting controls. The members of the Audit Committee are Eric W. Marler and Nicholas Dettman. The Audit Committee held three meetings in 1997 and, as of March 13, 1998, has held one meeting in 1998. The Compensation Committee consists of directors who may be employees and non-employees of the Company and has been established to review the Company's general compensation strategy, establish the salaries of, and review the benefit programs for, the Chairman and Chief Executive Officer and set the salaries of, and review the benefit programs for, those persons who report directly to the Chief Executive Officer, and to approve certain employment contracts. The members of the Compensation Committee are John V. Childers, Cheryle Hamilton, and Robert T. Hondel. The Compensation Committee held no meetings in 1997 and, as of March 13, 1998 has held two meetings. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's officers and directors and persons who own more than ten percent (10%) of a registered class of the Company's equity securities to file reports of ownership and changes in ownership on Forms 3,4 and 5 with the Securities and Exchange Commission. Based solely on the Company's review of the copies of such forms it has received and written representations from certain reporting persons that they were not required to file Form 5 for fiscal year 1997, the Company believes that all its officers, directors and greater than ten percent (10%) beneficial owners complied with all filing requirements applicable to them with respect to transactions during 1997. ITEM 11. - EXECUTIVE COMPENSATION SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION The following table sets forth certain compensation information for each of the last three fiscal years for the Chief Executive Officer and each of the next four most highly compensated executive officers whose compensation exceeded $100,000 and two additional persons for whom disclosure would have been required had such persons been executive officers of the Company.
NAME AND POSITION YEAR SALARY OTHER BENEFITS OTHER COMPENSATION - ----------------- ----- ------- -------------- ------------------ Wade B. Cook 1997 $238,240(1) $7,500 $9,996,840(2) Chairman, President 1996 $ 90,628 -- $4,366,183(3) and CEO 1995 $755,550 -- $ 82,923 Robert T. Hondel 1997 $112,231 -- $ 81,403 General Sales 1996 $179,532 -- -- Manager 1995 $ 62,500 -- -- Kim Brydson, 1997 $182,185 -- -- Director of Marketing 1996 $ 63,120 -- $ 17,923 1995 -- -- $ 2,550 Cheryle Hamilton 1997 $120,446 -- -- Director of Lighthouse 1996 $ 34,781 -- -- Publishing 1995 -- -- -- Scott Curry 1997 $124,645 -- -- Sales Representative 1996 $ 21,527 -- -- 1995 -- -- --
31 Certain of the Company's executive officers received personal benefits in addition to salary and cash bonuses, including car allowances or the use of a car owned by the Company. The aggregate amount of such personal benefits however, does not exceed the lesser of $50,000 or 10% of the total of the annual salary and bonus reported for the named executive officers. - ------------------------ (1) Represents payment of the annual premium for a Life Insurance Policy on Wade B. Cook with Laura M. Cook as beneficiary. (2) Represents amounts paid by WCSI to Mr. Cook or his affiliates pursuant to a Product Agreement. See "Certain Relationships and Related Transactions." (3) EMPLOYMENT AND TERMINATION AGREEMENTS Pursuant to an Employment Agreement, dated as of June 25, 1997 and effective as of July 1, 1997, Mr. Cook is employed as Chief Executive Officer and President of the Company. The Employment Agreement provides for a three-year term in which Mr. Cook will receive an annual base salary of $240,000 in Year 1, $265,000 in Year 2 and $290,000 in Year 3. According to the Employment Agreement, Mr. Cook may receive additional bonuses for work as approved by the Board of Directors of the Company. To date, no such bonuses have been requested or approved. In addition, Mr. Cook is entitled to reimbursement for reasonable travel and business entertainment expenses authorized by the Company, as well as certain fringe benefits. Christopher Carde was terminated by the Company pursuant to a confidential termination agreement dated August 21, 1997. Mr. Carde did not receive any additional severance compensation and agreed to continue to uphold his non-compete agreement. OPTION GRANTS IN LAST FISCAL YEAR Shown below is information concerning grants of options during fiscal 1997 to the Named Officers. Option Grants in the Last Fiscal Year Individual Grants(l)
Securities % of Securities Potential Realizable Value at Assumed Underlying Underlying Actual Rates of Stock Price Appreciation Options Options Granted for Option Term (2) Granted to Employees in Exercise Price Expiration --------------------------------------- Name (#) (1) Fiscal Year ($/Share) Date(s) 5% ($) 10% ($) - ------------------------------------------------------------------------------------------------------------------------------------
(1) Under the terms of the Stock Option and Stock Award Plan all options to purchase the Company's Common Stock granted have ten-year terms. The per share exercise price in each case is equal to or greater than the closing price of the Company's Common Stock on the date of grant as reported on the OTC BB. The purchase price of Common Stock acquired by the exercise of options may 32 be paid by the delivery of shares of Common Stock previously acquired by the optionee. The Board has broad discretion and authority to amend outstanding options and reprice such options, whether through an exchange of options or amendments thereto. (2) Potential realizable value is based on an assumption that the stock price of the Common Stock appreciates at the annual rate shown (compounded annually) from the date of grant until the end of the option term. These numbers are calculated based on the requirements of the Securities and Exchange Commission and do not reflect the Company's estimate of future stock price performance. The number of shares acquired upon exercise of options and the value realized from any such exercise, during fiscal year 1997, and the number of shares subject to exercisable and unexercisable options held and their values at December 31, 1997 for each of the Named Officers are set forth in the following table. AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES Shown below is information with respect to the unexercised options to purchase the Company's Common Stock granted in fiscal 1997 under the Company's 1997 Stock Option Plan to the Named Officers. None of the Named Officers exercised any stock options during fiscal 1997. Aggregated Option Exercises in the Last Fiscal Year and FY-End Option Values
Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Options at Options at Shares FY-End (#) FY-End ($) Acquired on Value Exercisable/ Exercisable/ Name Exercise(#)(1) Realized($)(1) Unexercisable Unexercisable (2) Wade B. Cook, Chairman Laura M. Cook, Secretary
(1) No options were exercised during 1997. (2) No options were in-the-money at the time of grant or at fiscal year end. "In-the-money" means that the market price of the underlying shares is higher than the price at which shares can be purchased by exercise of an option. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company has formed a Compensation Committee. No executive officer of the Company has served as a member of the board of directors or compensation committee of any company in which another Board member is an executive officer. 33 COMPENSATION REPORT OF THE BOARD OF DIRECTORS The Board of Directors is responsible for establishing compensation policy and administering the compensation programs of the Company's executive officers. See "Directors and Executive Officers of the Registrant--Board Meetings and Committees." The purpose of this report is to inform shareholders of the Company's compensation policies for executive officers and rationale for the compensation paid to executive officers in fiscal year 1997. The amount of compensation paid by the Company to each of its directors and officers and the terms of employment were determined solely by Wade B. Cook except as otherwise noted below. The Company believes that the compensation paid to its directors and officers, including Wade B. Cook, is competitive with that paid by similar companies. The compensations and benefits for 1997 of the Chief Executive Officer and the other executive officers of the Company are determined by oral employment agreements (except as otherwise noted below). The terms of such agreements were negotiated with Wade B. Cook. Mr. Cook's employment agreement for 1997 to 2000 was negotiated through the Company's General Counsel and was based on a general consideration of the compensation of similarly situated chief executive officers in the Pacific Northwest region of the United States. COMPENSATION OF CHIEF EXECUTIVE OFFICER Wade B. Cook's minimum base salary for 1997 was paid pursuant to his Employment Agreement. COMPENSATION OF ALL EXECUTIVE OFFICERS All executive officers of the Company are compensated based on a performance based system of generating sales and opportunities to and for the Company in exchange for salaries and bonuses. Mr. Cook negotiates all salaries.` The Company believes that the levels of compensation and benefits set for executive officers is within the range of to those set in similar companies for persons performing the same or similar functions. In one instance in 1997 employees, including executive officers, were granted small direct awards of the Company's Common Stock. The Board of Directors believes that the use of direct stock awards is appropriate for employees and in the future intends to use direct stock awards to reward outstanding service to the Company or to attract and retain individuals with exceptional talent and credentials. The use of incentives such as stock options or awards is intended to further align the interests of executive officers and other key employees with those of the Company's shareholders. The Omnibus Budget Reconciliation Act of 1993 as codified in the Internal Revenue Code established certain criteria for the tax deductibility of compensation in excess of $1 million paid to any one of the Company's executive officers. The effect of Section 162(m) of the Internal Revenue Code is that starting with tax years beginning after January 1, 1994, a publicly held corporation may not deduct compensation paid to its chief executive officer and its four other most-highly compensated officers in excess of $1 million per officer during a corporate taxable year except to the extent such amounts in excess of $1 million qualify for an exception to this limitation. To qualify for this exception, such amounts must be determined on the basis of preestablished, objective, nondiscretionary formulae that meet certain shareholder and outside director approval requirements. Submitted by the Board of Directors Wade B. Cook STOCK PERFORMANCE GRAPH 34 The following graph compares the Company's cumulative total shareholder return since the Common Stock became registered under Section 12 of the Securites Exchange Act of 1934 on June 30, 1997 with the Russell 2000 Index and an index of certain companies having the same Standard Industrial Classification Code. The graph assumes that the value of an investment in the Company's Common Stock at June 30, 1997 at the closing price of $1.68 per share and each index was $100.00 on June 30, 1997. ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the ownership of shares of the Common Stock as of March 13, 1998 (except as otherwise noted) by (i) each person known by the Company to beneficially own more than 5% of the outstanding shares of Common Stock, (ii) each director of the Company, (iii) each executive officer of the Company, and (iv) all directors and executive officers of the Company as a group. Except as noted below each person named in the table has sole voting and dispositive power with respect to all shares of Common Stock shown as beneficially owned.
SHARES BENEFICIALLY PERCENT OF BENEFICIAL OWNER (1) OWNED (2) CLASS (3) Officers and Directors: Wade B. Cook 39,789,860(4) 62% Laura M. Cook 39,789,860(4) 62% Cheryle Hamilton 1,310 * Robert T. Hondel 166,310 * John V. Childers 1,148,810 1.8% Nicholas Dettman 0 * Eric W. Marler 23,480 * Pamela Andersen 1,310 *
35 Robin Anderson 18,050 * All executive officers and directors of the Company as a group (9 persons) 41,149,130 64% Non-management 5% Shareholders -- --
- ------------------------ * Represents beneficial ownership of less than 1% of the outstanding shares of the Common Stock (1) Unless otherwise indicated, the address of the beneficial owner is c/o Wade Cook Financial Corporation, 14675 Interurban Avenue South, Seattle, Washington 98168-4664. (2) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of Common Stock subject to stock options and warrants currently exercisable or exercisable within 60 days are deemed to be outstanding for calculating the percentage ownership of the person holding such options and the percentage ownership of any group of which the holder is a member, but are not deemed outstanding for calculating the percentage of any other person. Except as indicated by footnote, and except for voting or investment power held jointly with a person's spouse, the persons named in the table have sole voting and investment power with respect to all shares of capital stock shown beneficially owned by them. (3) Percentage is calculated based upon 64,223,685 shares of Common Stock outstanding on March 13, 1998 and takes into account a 3-1 stock split approved by the Board of Directors effective September 15, 1997 and a 3-1 stock split approved by the Board of Directors effective December 23, 1997. (4) Includes (a) 7,508,345 shares of Common Stock owned of record by Mr. Cook, (b) 3,600,140 shares owned by the Wade Cook Family Trust, a trust established for the benefit of Mr. and Mrs. Cook's family, (c) 7,500 shares of Common Stock held by Money Chef, Inc., and (d) shared voting and investment power over 24,200,000 shares of Common Stock owned by the Wade B. Cook and Laura M. Cook Family Trust, a trust established for the benefit of Mr. & Mrs. Cook's family. Wade B. Cook and Laura M. Cook are husband and wife. All shares held by Mr. Cook are held as community property. Mr. Cook is the trustee of the named trusts. ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On March 20, 1998, Mr. Cook and the Company entered into a new Product Agreement adding additional licensed materials. As with the previous Open Ended Product Agreement the license is nonexclusive, provides Mr. Cook with a 10% royalty rate of all gross sales for the products license, and will remain in effect until June 30, 2002. The Company paid royalties to Mr. Cook or entities controlled by Mr. Cook of $9,996,840 in 1997, $2,199,130 in 1996, and $755,550 in 1995. The Company has licensed the rights to various books authored by Mr. Cook. See Licensing from Wade B. Cook. Under the terms of each Publishing Agreement, Mr. Cook is paid a royalty of ten percent (10%) of the retail price of each book sold. The amount of royalties paid to Mr. Cook and his affiliates under the Publishing Agreements in 1997, 1996, and 1995 is included in the amounts stated above as paid royalties. WCSI has two loans to Paul Cook, Mr. Cook's brother, in the amount of seventy-five thousand dollars ($75,000) and thirteen thousand dollars ($13,000). The first loan in the amount of seventy-five thousand dollars ($75,000) was executed on June 18, 1997 for a two-year term at an interest rate of 11 36 percent (11%) per annum. The second loan for thirteen thousand dollars ($13,000) was executed on January 1, 1998 for a one year term at an interest rate of eleven percent (11%) per annum. Both loans are secured by a deed of trust on Paul Cook's home in Salt Lake City, Utah. The Company contracts with Grand Teton, a company owned or controlled by Paul Cook, to provide speaker services. The Company paid to Paul Cook and Grand Teton $178,700, $46,648 and $3,500 in 1997, 1996 and 1995, respectively. Scott Scheuerman, Mr. Cook's brother-in-law, is president of USA Corporate Services, Inc. (USA), BOSS Services, Inc., (BOSS), and Acorn Services, Inc. and is also secretary and treasurer of Black Inc., all of which are Nevada corporations. Boss and Acorn provide business office support services and registered agent services respectively, and both have corporate offices in Nevada. USA and Black Ink provide incorporation services and corporate documentation. USA and Black Inks's corporate offices are located in WCFC's headquarters in Seattle Washington. USA and Black Inc. leases the office space for their corporate headquarters from Wade Cook Seminars, Inc.. The Company markets the services of USA, BOSS, Acorn, and Black Ink to its seminar attendees. In 1997, the Company paid approximately $1,990 to Acorn, approximately $1,027,501 to USA, and approximately $91,725 to Black Inc. The Company paid $117,866 and $123,242 to these entities in 1996 and 1995, respectively. Eric W. Marler, the former Chief Financial Officer of the Company and a current Director and speaker for the Company, is the owner of 50% of the issued units of Cascade Management Associates, L.P. ("Cascade"). Cascade provides WCSI with the speaking services of Mr. Marler. The Company paid $103,009 to Cascade in 1997 and $35,555 in 1996. There is no record of payment to Cascade in prior years. John V. Childers, a Director of the Company, contracts with WCSI through Speaker Services, Inc. ("Speaker Services"), corporation owned or controlled by Mr. Childers, to develop & direct speaker trainer programs for WCSI. Mr. Childers receives a commission based on the gross sales of Financial Clinic and Wall Street Workshops. The Company paid Speaker Services $254,422 and Seminar Services $166,860 in 1997, $22,710 in 1996, and $3,080 in 1995. The Company paid Mr. Childers $421,282 in 1997 and has no record of direct payment to him in prior years. Additionally, Mr. Childers is the former president and director of Ideal Travel Concepts Inc. ("Ideal"). WCFC executed a stock purchase agreement with Ideal effective August 1, 1997 to purchase Ideal for 358,333 shares of restricted Common Stock of the Company for a total purchase price of $2,150.000.00. Ideal provides travel services to the Company and others and has offices in Tennessee and Florida. Ideal also provides travel agent training kits which are marketed by WCSI. Effective January 1, 1998, the Company acquired Quantum Marketing, Inc. ("Quantum") from Robert Hondel, a Director of the Company in exchange for 45,000 resticted shares of Common Stock in the Company. Quantum provides retail and local marketing of the products of the Company through individual Wade Cook Financial Education Centers. Most centers contain a business bookstore, a sales office, and an alumni center. Mr. Hondel will remain as the President of Quantum. Hondel also assigned all rights and interests in Wade Cook Financial Education Centers, Inc., a Nevada corporation to the Company for $1. On January 9, 1998, WCSI executed a loan to Robert Hondel, a Director and the President of Quantum Marketing, Inc., which is now a wholly-owned subsidiary of the Company. The loan was in the amount of forty-thousand dollars ($40,000) for a term of 4 years at an interest rate of 10% per annum. On July 31, 1997 Robert Hondel executed a promissory note in the principal amount of $300,000 in favor of WCSI. The note is secured by a lien on Mr. Hondel's real property located in Graham, Washington and bears interest at a rate of 10% per year payable in monthly installments of $2,500 plus 50% of all monthly income received by Quantum Marketing and its affiliates in excess of $8,000 per month beginning September 5, 1997 until paid in full Money Chef, Inc., an affiliate of Wade B. Cook has a 50% ownership interest in Newstart Centre, Inc., a Utah corporation ("Newstart") that specializes in automobile sales and leasing to consumers unable to obtain financing from traditional sources. Money Chef, Inc. also purchased the property which is currently leased to Newstart. The Company originally planned to purchase the interest of Newstart, and the land leased by Newstart 37 at the time of the acquisition by Money Chef, Inc., but was not in a position to do so at the time of closing. With the approval of the Board, Mr. Cook, made the acquisition personally through his interest in Money Chef, Inc. which enabled the Company further time to consider the investment. The Board has subsequently agreed to purchase both the land and the 50% interest in Newstart for a $1 above that which Mr. Cook and/or Money Chef has invested to date for said property and 50% interest in Newstart. The Company intends to complete this acquisition in the next quarter. WCSI, Left Coast Advertising, Inc., and Information Quest, Inc. have a total of eight outstanding loans to Newstart. On May 23, June 20, and July 25 of 1997 and January 20, 1998, WCSI executed four loans with Newstart. Each loan was in the amount of one-hundred and twenty-five thousand dollars ($125,000) for a term of 4 years. All of the loans executed in 1997 were at an interest rate of seventeen percent (17%) per year. The loan executed on January 20, 1998 was at an interest rate of fifteen percent (15%) per year. On August 22, and October 9, of 1997, Information Quest executed two loans with Newstart for one-hundred and twenty-five thousand dollars ($125,000.00) each for a term of four (4) years at an interest rate of seventeen percent (17%) per year. Left Coast Advertising executed two separate loans with Newstart, on August 19, and October 9, of 1997. These loans were in the amount of one-hundred and twenty-five thousand dollars ($125,000.00) for a term of four years at an interest rate of 17% per year. All of these loans are secured by titles to automobiles purchased with these funds. Effective January 1, 1998, WCFC acquired all of the stock in Information Quest, Inc., a Nevada corporation ("IQI"), from Thomas and Linnet Cloward in exchange for 45,000 restricted shares of common stock in the Company. Mr. Cloward was the former Chief Information Officer of the Company and will continue as President of IQI. Ms. Cloward is an employee of the Company. Information Quest, Inc. is a provider of subscription paging service related to stock market developments. The Company has also licensed the rights to the IQ Pager, the primary product of IQI, from Mr. Cloward, the inventor, in exchange for a two and one-half percent royalty of gross revenues related to the product. Prior to the acquisition of IQI and the license from Cloward, the Company had a marketing arrangement with IQI wherein the Company split equally the gross income of all IQ Pagers sold by the Company. Effective January 1, 1998, WCFC acquired all of the stock in Get Ahead Bookstores, Inc., a Nevada corporation ("Get Ahead") from Glendon H. Sypher for an Assignment of all of his right, title and interest in and to the for $1. Mr. Sypher was hired to begin Get Ahead operations from funds advanced by the Company. 38 PART IV ITEM 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The following documents are filed as part of this report: PAGE REFERENCE (a)(1) FINANCIAL STATEMENTS. FORM 10-K Independent Auditors' Report ...................................... F-1 Consolidated Balance Sheets as of December 31, 1996 and 1997 ................................................... F-2 Consolidated Statements of Operations for each of the three years in the period ended December 31, 1997 .............................................. F- Consolidated Statements of Stockholders' (Deficiency) Equity for each of the three years in the period ended December 31, 1997 ......................................... F- Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1997 .............. F- Notes to Consolidated Financial Statements ....................... F-
(a)(2) FINANCIAL STATEMENT SCHEDULE. (a)(3) EXHIBITS. 2.1 Final Amended and Restated Agreement and Plan of Merger Articles of Incorporation of Wade Cook Financial Corporation 3.1(a)* Articles of Incorporation of Profiteer Corporation 3.1(b)* Amendment to Articles of Incorporation of Profiteer Corporation dated September 2, 1984 3.1(c)* Amendment to the Articles of Incorporation of Profiteer Corporation dated August 10, 1988 3.1(d)** Amendment to the Articles of Incorporation of Profiteer Corporation dated September 10, 1991 3.1(e) Amendment to the Articles of Incorporation of Profit Financial Corporation dated September 14, 1997 3.2 Bylaws of Wade Cook Financial Corporation 3.2(a)* Bylaws of Profiteer Corporation 4.1*** Form of Profit Financial Corporation's Class A Common Stock Certificate 4.1(a) Specimen Certificate evidencing shares of Wade Cook Financial Corporation Common Stock 4.1(b) 1997 Stock Incentive Plan of Wade Cook Financial Corporation 4.2(c) Notice of Grant of Stock Option of Wade Cook Financial Corporation Certificate of Appointment of American Stock Transfer & Trust Company Form of Indemnification Agreement-Wade Cook Financial Corporation 10.1(a)** Product Agreement, Dated January 3, 1993, between United Support Association, Inc. as the purchaser, and Money Chef, Inc., previously known as USA/Wade Cook Seminars, Inc. as the seller 39 10.1(b)*** Product Agreement, dated June 25, 1997, and effective as of July 1, 1997, among Wade Cook Seminars, Inc., Money Chef and Wade B. Cook 10.2* Agreement dated May 18, 1995, by and among Profit Financial Corporation, Yeaman Enterprises, Inc., Four Star Ranch, Inc., United Support Association, Inc. and Wade B. Cook 10.3(a)* Agreement dated February 1, 1996, between Wade B. Cook and Lighthouse Publishing Group, Inc. (for Wall Street money Machine) 10.3(b)** Amended Agreement, dated June 26, 1997, between Wade B. Cook and Lighthouse Publishing Group, Inc. (for Wall Street Money Machine) 10.4(a)* Agreement Dated January 1, 1997, between Wade B. Cook and Lighthouse Publishing Group, Inc. (for Stock Market Miracles) 10.4(b)** Amended Agreement dated June 26, 1997, between Wade B. Cook and Lighthouse Publishing Group, Inc. (for Stock Market Miracles) 10.5** Agreement dated March 1, 1997, between Wade B. Cook and Lighthouse Publishing Group, Inc. (for Bear Market Baloney) 10.6** Agreement dated May 1, 1997, between Wade B. Cook and Lighthouse Publishing Group, Inc. (for Business Buy The Bible) 10.7** Purchase and Sale Agreement, dated July 4, 1996, between United Support Association and Seller 10.8** Employment Agreement dated June 26, 1997, by and between Wade Cook Seminars, Inc., and Wade B. Cook 10.9** Commercial Lease dated June 25, 1997, by and between Wade Cook Seminars, Inc. and U.S.A. Corporate Services, Inc. 10.10** Agreement dated November 1, 1996, between Wade B. Cook and Lighthouse Publishing Group, Inc. (for Real Estate Money Machine) 10.11*** All Inclusive Trust Deed dated March 8, 1997, for the purchase and assumption of certain real-estate by Rising Tide, LTD from East Bay Lodging Association, LTD 10.12*** Secured Loan Agreement and Promissory Note (Secured) between U.S.A., Wade Cook Seminars, Inc. and Newstart Centre, Inc. 10.13 Amended Open-Ended Product Agreement, dated March 20, 1998, between Wade Cook Financial Corporation and Wade B. Cook 10.14 Product Agreement, dated March 23, 1998, between Planet Cash, Inc., Steven Allyn Wirrick and Wade Cook Financial Corporation 10.15 Stock Assignment Agreement, dated January 1, 1998, between Get Ahead Bookstores, Inc., Glendon H. Sypher and Wade Cook Financial Corporation 10.16 Employment Agreement, dated March 23, 1998, between Wade Cook Financial Corporation and Thomas Cloward 10.17 Product Agreement, dated March 23, 1998, between Wade Cook Financial Corporation, Information Quest, Inc. and Thomas Cloward 10.18 Share Exchange Agreement, dated January 1, 1998, between Wade Cook Financial Corporation and Information Quest, Inc. - --- Stock Purchase Agreement, dated August 8, 1997, between Profit Financial Corporation and Curtis A. Taylor and Stanley J. Zenk - --- Stock Purchase Agreement, dated _________________, between Wade Cook Financial Corporation and John V. Childers, Sr., Brenda Childers, Tracy Allan Childers and John V. Childers, Jr. - --- Statement re: Computation of Per Share Earnings 16.1*** Letter re: Change in Certifying Accountant 21.1* List of Profit Financial Corporation Subsidiaries 23.1 Consent of Miller and Company 27 Financial Data Schedule - -------------------------- * Previously filed as an exhibit to the Company's Form 10-12G filed with the SEC on April 30, 1997 and incorporated in this Form 10-K by reference. 40 ** Previously filed as an exhibit to the Company's Form 10/A-1 filed with the SEC on June 29, 1997 and incorporated in this Form 10-K by reference. *** Previously filed as an exhibit to the Company's Form 10-12G/POS AM filed with the SEC on September 24, 1997 and incorporated in this Form 10-K by reference. (b) REPORTS ON FORM 8-K. In the Company's last fiscal quarter ended December 31, 1997, the Company did not file with the Securities and Exchange Commission a Current Report on Form 8-K. 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Seattle, Washington, on March 30, 1998. WADE COOK FINANCIAL CORPORATION By: /s/ Wade B. Cook ------------------------------------ Wade B. Cook, Chief Executive Officer By: /s/ Wade B. Cook ------------------------------------ Wade B. Cook, Interim Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by Wade B. Cook, pursuant to the Powers of Attorney being filed with this Form 10-K, on behalf of the following persons in the capacities and on the dates indicated. Signature Title Date - ---------- ----- ---- /s/ NICK DETTMAN Director 30 March 98 - ------------------------ Nick Dettman, Principal Board Member /s/ LAURA COOK Director 30 March 98 - ------------------------ Laura Cook, Principal Board Member /s/ JOHN CHILDERS Director 30 March 98 - ------------------------ John Childers, Principal Board Member /s/ ROBERT HONDEL Director 30 March 98 - ------------------------ Robert Hondel, Principal Board Member /s/ CHERYLE HAMILTON Director 30 March 98 - ------------------------ Cheryle Hamilton, Principal Board Member /s/ ROBIN ANDERSON Director 30 March 98 - ------------------------ Robin Anderson, Principal Board Member /s/ ERIC MARLER Director 30 March 98 - ------------------------ Eric Marler, Principal Board Member 42 [INDEPENDENT AUDITORS' REPORT] F-1 [CONSOLIDATED BALANCE SHEETS] [CONSOLIDATED STATEMENTS OF OPERATIONS] 43 REPORT OF INDEPENDENT AUDITORS Board of Directors Wade Cook Financial Corporation and Subsidiaries Seattle, Washington We have audited the accompanying consolidated balance sheets of Wade Cook Financial Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, changes in shareholders' equity,and cash flows for the years ended December 31, 1997 and 1996, and the nine months ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of WadeCook Financial Corporation and subsidiaries as of December 31, 1997 and 1996,and the results of their consolidated operations and their consolidated cashflows for the years ended December 31, 1997 and 1996, and the nine months ended December 31, 1995 in conformity with generally accepted accounting principles. As described in Note-I to the financial statements, the Company changed in 1995, its method of accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of in accordance with the Statement of Financial Accounting Standards No. 121. Certified Public Accountants Santa Monica, California February 26, 1998, except Notes V & W, for which the date is March 26, 1998 F-1 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
CURRENT ASSETS NOTES 1997 1996 - ----------------------------------------------------------------------- ---------- ------------- ------------- Cash and cash equivalents.............................................. A,L,V $ 540,763 $ 635,141 Marketable securities................................................ A,C,G,L 6,162,733 3,801,039 Trade and credit card receivables.................................... 3,283,183 859,660 Inventory............................................................ A 1,312,366 395,743 Due from related parties............................................. E 749,726 -- Notes receivable -- employees, current portion....................... 242,537 329,060 Notes receivable from officers, current portion...................... -- 13,191 Prepaid expenses..................................................... 235,840 93,196 Deferred royalties to related party.................................. -- 48,781 Deferred tax asset................................................... A,N 251,015 783,064 ---------- ------------- ------------- TOTAL CURRENT ASSETS................................................. 12,778,163 6,958,875 ---------- ------------- ------------- PROPERTY AND EQUIPMENT................................................. A,H 10,425,159 7,135,205 ---------- ------------- ------------- GOODWILL............................................................... A,Q 2,637,669 -- ---------- ------------- ------------- OTHER ASSETS Non-marketable investments........................................... I,L 7,330,460 522,600 Other investments.................................................... 246,848 -- Deposits............................................................. U 4,093,334 35,423 Notes receivable -- employees........................................ E 3,293,182 1,385,742 Notes receivable from officers....................................... -- 236,413 Due from related parties............................................. E 599,323 663,401 ---------- ------------- ------------- TOTAL OTHER ASSETS................................................... 15,563,147 2,843,579 ---------- ------------- ------------- TOTAL ASSETS....................................................... $ 41,404,138 $ 16,937,659 ---------- ------------- ------------- ---------- ------------- -------------
The accompanying notes are an integral part of these consolidated financial statements. F-2 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31, ---------------------------- CURRENT LIABILITIES NOTES 1997 1996 - ------------------------------------------------------------------------ --------- ------------- ------------- Current portion of long-term debt..................................... J $ 1,445,000 $ 660,708 Book overdrafts....................................................... U 2,156,305 -- Accounts payable and accrued expenses................................. 6,450,485 976,644 Margin loans in investment accounts................................... L 2,766,824 1,103,936 Payroll and other taxes withheld and accrued.......................... 163,363 807,414 Income taxes payable.................................................. A,N 5,253,700 2,075,872 Deferred revenue...................................................... A 4,764,441 5,160,999 Due to related parties................................................ E 782,752 19,000 Notes payable to officer.............................................. J 45,000 45,000 ------------- ------------- TOTAL CURRENT LIABILITIES............................................. 23,827,870 10,849,573 LONG -TERM DEBT......................................................... J,L 821,182 1,768,762 ------------- ------------- TOTAL LIABILITIES..................................................... 24,649,052 12,618,335 ------------- ------------- COMMITMENTS & CONTINGENCIES............................................. D,M,W MINORITY INTEREST....................................................... 687,945 617,300 ------------- ------------- SHAREHOLDERS' EQUITY Preferred stock, 5,000,000 shares authorized at $10 par value, none issued and outstanding................................................ -- -- Common stock, 140,000,000 shares authorized at $0.01 par value, 64,245,923 shares and 6,680,864 shares outstanding as of December 31, 1997 and 1996, respectively........................................... 642,459 66,807 Paid-in capital......................................................... 3,691,386 894,408 Prepaid advertising..................................................... K,T (500,000) (500,000) Retained earnings....................................................... 12,233,296 3,240,809 ------------- ------------- TOTAL SHAREHOLDERS' EQUITY........................................ 16,067,141 3,702,024 ------------- ------------- TOTAL LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY.......................................... $ 41,404,138 $ 16,937,659 ------------- ------------- ------------- -------------
The accompanying notes are an integral part of these consolidated financial statements. F-3 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
YEARS ENDED NINE MONTHS DECEMBER 31, ENDED ----------------------------- (NOTEV) NOTES 1997 1996 1995 ------------- -------------- ------------- ------------ REVENUES, NET OF RETURNS AND DISCOUNTS.................... $ 104,907,650 $ 40,724,515 $ 6,504,011 COSTS OF REVENUES......................................... O Royalties to related party.............................. 9,996,840 4,366,183 649,172 Speaker fees to related party........................... 166,661 131,337 -- Other costs of revenues................................. 28,904,364 11,185,416 2,227,737 -------------- ------------- ------------ TOTAL COSTS OF REVENUES................................... 39,067,865 15,682,936 2,876,909 -------------- ------------- ------------ GROSS PROFIT............................................ 65,839,785 25,041,579 3,627,102 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.............. 50,099,355 20,301,703 3,233,884 IMPAIRMENT OF LONG-LIVED ASSETS........................... I -- -- 99,000 -------------- ------------- ------------ INCOME FROM OPERATIONS.................................. 15,740,430 4,739,876 294,218 -------------- ------------- ------------ OTHER INCOME (EXPENSE) Dividends and interest.................................. 385,338 60,028 5,548 Gain (loss) on trading securities....................... G (804,493) 92,711 69,297 Other income............................................ 128,171 58,513 742 Loss on investment on non-marketable securities......... (106,099) -- (107,400) Loss on disposition of fixed assets..................... -- (21,960) -- Interest expense........................................ (308,796) (263,285) (23,047) -------------- ------------- ------------ TOTAL OTHER EXPENSES.................................... (705,879) (73,993) (54,860) -------------- ------------- ------------ INCOME BEFORE INCOME TAXES................................ 15,034,551 4,665,883 239,358 PROVISION FOR INCOME TAXES................................ N 6,063,387 1,601,244 171,740 -------------- ------------- ------------ INCOME BEFORE MINORITY INTEREST......................... 8,971,164 3,064,639 67,618 MINORITY INTEREST IN LOSS OF SUBSIDIARY................... 21,323 -- -- -------------- ------------- ------------ NET INCOME.............................................. $ 8,992,487 $ 3,064,639 $ 67,618 -------------- ------------- ------------ -------------- ------------- ------------ EARNINGS PER SHARE........................................ $ 0.14 $ 0.12 -- -------------- ------------- ------------ -------------- ------------- ------------ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING...... 63,362,984 26,574,666 25,593,688 -------------- ------------- ------------ -------------- ------------- ------------
The accompanying notes are an integral part of these consolidated financial statements. F-4 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK --------------------- ADDITIONAL TOTAL PAID-IN RETAINED PREPAID SHAREHOLDERS NOTES SHARES AMOUNT CAPITAL EARNINGS ADVERTISING EQUITY ----- ---------- --------- ---------- ------------ ----------- ------------ Balances--December 31, 1995 as restated, Note...................... V 3,199,211 $ 31,991 $ 320,738 $ 176,170 $ 528,899 Issuance of restricted stock.......... 26,000 260 77,740 78,000 Issuance of restricted stock in exchange prepaid advertising........ 100,000 1,000 499,000 500,000 Prepaid Advertising................... (500,000) (500,000) Effect of 2 for 1 stock split......... 3,325,231 33,252 (33,252) Issuance of restricted stock for additional compensation............. 30,422 304 75,746 76,050 Subscriptions receivable.............. (45,564) (45,564) Net income for year ended December 31, 1996................................ 3,064,639 3,064,639 ---------- --------- ---------- ------------ ----------- ------------ Balances -- December 31, 1996 as restated............................ V 6,680,864 $ 66,807 $ 894,408 $ 3,240,809 $ (500,000) $3,702,024 ---------- --------- ---------- ------------ ----------- ------------ Issuance of restricted stock in exchange for finders' fees relating to purchase of interest in Fairfield Inn, Provo, Utah.................... 10,000 100 33,650 33,750 Issuance of restricted stock.......... 10,660 107 31,874 31,981 Issuance of restricted stock in exchange for finders' fees relating to purchase of interest in Hampton Inn & Suites, Park City,Utah........ 4,167 42 52,046 52,088 Issuance of restricted stock for12% interest in 45th South Hotel Partners, LC........................ 10,000 100 59,900 60,000 Authorized but unissued restricted stock in exchange for stock of Ideal Travel Concepts, Inc., at August 1,1997.............................. 358,333 3,583 2,146,417 2,150,000 Issuance of restricted stock in exchange for the common stock of Origin Book Sales, Inc. at August 27, 1997............................ 30,269 303 196,446 196,749
The accompanying notes are an integral part of these consolidated financial statements. F-5 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
COMMON STOCK ----------------------- ADDITIONAL TOTAL PAID-IN RETAINED PREPAID SHAREHOLDERS NOTES SHARES AMOUNT CAPITAL EARNINGS ADVERTISING EQUITY ----- ------------ --------- ------------ ------------- ----------- ------------- Issuance of restricted stock in exchange for the common stock of Gold Leaf Press,Inc. at August 27, 1997................ 7,692 77 49,921 49,999 Issuance of restricted stock..... 20,500 205 32,295 32,500 Effect of 3 for 1 stock split.... 14,264,970 142,650 (142,649) Issuance of restricted shares in exchange for 8%interest in Wood Cross Hotel Partners, LC....... 11,636 116 119,153 119,269 Issuance of restricted stock..... 2,000 20 7,980 8,000 Effect of 3 for 1 stock split.... 42,821,182 428,212 (428,212) Authorized but unissued restricted stock for employee bonus....... 13,650 137 (137) Return of Stock Sale Profits by Officer........................ B 632,710 632,710 Collection of subscription receivable..................... 5,584 5,584 Net Income for year ended December 31, 1997.............. 8,992,487 8,992,487 ------------ --------- ------------ ------------- ----------- ------------- Balances--December 31, 1997...... 64,245,923 642,459 $ 3,691,386 $ 12,233,296 $ (500,000) $ 16,067,141 ------------ --------- ------------ ------------- ----------- ------------- ------------ --------- ------------ ------------- ----------- -------------
The accompanying notes are an integral part of these consolidated financial statements. F-6 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENTS
YEARS ENDED DECEMBER 31, NINE MONTHS -------------------------------- ENDED CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995 - ----------------------------------------------------------------- ----------------- ------------- ------------ Net income....................................................... $ 8,992,487 $ 3,064,639 $ 67,618 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................. 1,287,153 344,991 38,816 (Gain) loss on trading securities.............................. 804,493 (92,711) (69,297) Loss on disposition of fixed assets............................ -- 21,960 -- Impairment of long-lived assets................................ -- -- 99,000 Loss on investment in non-marketable securities................ 106,099 -- 107,400 Purchases of trading securities................................ (20,805,975) (11,290,111) (1,059,197) Proceeds from sale of trading securities....................... 19,318,577 9,034,925 920,395 Changes in assets and liabilities, net of effects from purchase of companies: Receivables.................................................... (2,423,523) (3,249,764) (133,219) Inventory...................................................... (582,092) (349,604) (4,688) Prepaid expenses............................................... (142,644) (141,381) (6,297) Deferred taxes................................................. 532,149 (775,724) 540 Deposits....................................................... (4,057,911) (303) (29,752) Accounts payable and accrued expenses.......................... 8,535,921 475,084 340,741 Payroll and other taxes withheld and accrued................... (687,968) 693,324 60,191 Income taxes payable........................................... 3,177,728 1,980,672 105,200 Deferred revenue............................................... (396,558) 4,808,674 352,325 Due to related party........................................... (118,273) -- -- Royalties payable.............................................. 171,603 (136,238) 87,139 ----------------- ------------- ------------ TOTAL ADJUSTMENTS................................................ 4,955,325 1,323,794 809,297 ----------------- ------------- ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES........................ 13,947,812 4,388,433 876,915 ----------------- ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Notes receivable from employees and officers..................... (1,571,313) -- -- Capital expenditures............................................. (4,157,082) (4,729,382) (186,098) Purchase of non-marketable investments........................... (6,285,709) -- -- Subsidiary's investment........................................... (769,000) (87,500) (1,113,100) Return of subsidiary's investment................................ -- 800,000 -- Payment for purchase of companies, net of cash acquired.......... (1,748,230) -- -- ----------------- ------------- ------------ NET CASH USED FOR INVESTING ACTIVITIES........................... (14,531,334) (4,016,882) (1,299,198) ----------------- ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of subsidiary's minority interest......... 70,645 321,496 340,904 Short-term borrowings............................................ -- -- 141,175 Repayment on short-term borrowings............................... (292,276) (193,232) (32,956) Issuance of common stock......................................... 72,481 108,486 -- Collection on subscription receivables and return of stock profits by officer............................................. 638,294 -- -- ----------------- ------------- ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES........................ 489,144 236,750 449,123 ----------------- ------------- ------------ NET INCREASE (DECREASE) IN CASH.................................. (94,378) 608,301 26,840 CASH, beginning of year.......................................... 635,141 26,840 -- ----------------- ------------- ------------ CASH, end of year................................................ $ 540,763 $ 635,141 $ 26,840 ----------------- ------------- ------------ ----------------- ------------- ------------
The accompanying notes are an integral part of these consolidated financial statements. F-7 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS Wade Cook Financial Corporation (WCFC), or Company, is the legal successor to Profit Financial Corporation (PFC), is a holding company, whose principal operating subsidiaries are Wade Cook Seminars, Inc. (WCS), formerly known as United Support Association, Inc., Lighthouse Publishing Group, Inc., and Left Coast Advertising, Inc. In 1997, WCFC acquired Origin Book Sales, Inc., Worldwide Publishers, Inc., Gold Leaf Press, Inc., and Ideal Travel Concepts, Inc. WCS conducts educational investment and business seminars and produces video tapes, audio tapes, and written materials designed to teach various investment and cash flow strategies for investing in the stock market, asset protection and asset accumulation techniques or strategies, and business structuring for minimizing federal or state income taxes, deferral of income and estate taxes, development of liability protection, and elimination of the impact of probate on the transition of family owned businesses to the public. WCS also hosts a subscriber internet service, Wealth Information Network (WIN), which allows subscribers to log on for information related to the stock market. In 1997, WCFC began investing heavily in hotel/motel properties and other real estate investments. Lighthouse Publishing Inc. publishes books on investment, financial and motivational topics. Left Coast Advertising, Inc. is an advertising agency. Worldwide Publishers, Inc. and Gold Leaf Press, Inc. are book publishers. Origin Book Sales, Inc. is a book distributor of primarily religious topics. Ideal Travel Concepts, Inc. is a travel agency, also in the business of selling travel agent training kits. The copyrights to most seminars, video and audio tapes, and written materials which were colicensed by Money Chef, Inc., formerly known as USA/Wade Cook Seminars, Inc., a related party, are now fully owned by Wade B. Cook. As used hereafter, "Company" refers to Wade Cook Financial Corporation and its consolidated subsidiaries. REORGANIZATION AND BUSINESS COMBINATION Prior to the acquisition of WCS, PFC had been operating in two different businesses for over five years, namely its farming and ranching operations in Uintah County, Utah, and its investment consulting business. On January 1, 1995, PFC transferred its ranch operations and all related assets and liabilities to Four Star, Inc. (Four Star) in exchange for all of Four Star's outstanding common stock pursuant to a plan of reorganization under the Internal Revenue Code section 368 (a)(1)(d). All of Four Star's stock was then distributed to Yeaman Enterprises, Inc. (Yeaman)in exchange for 1,880,000 shares of the Company's stock as part of there organization. The consolidated financial statements for the periods presented have been restated to exclude the accounts related to the ranch operations. F-8 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The following assets and liabilities were transferred to Four Star from PFC in there organization: Cash............................................................................. $ 5,266 Receivables...................................................................... 277,944 Inventories...................................................................... 113,445 Securities....................................................................... 335,333 Property and equipment........................................................... 1,433,642 Accounts payable................................................................. 1,588 Accrued expenses................................................................. 61,257 Long-term debt................................................................... 380,986
The condensed financial positions of WCFC before and after the transfer are as follows:
DECEMBER 31, 1994 TRANSFER JANUARY 1,1995 ----------------- ------------ -------------- Cash............................................................. $ 5,266 $ 5,266 $ -- Receivables...................................................... 277,944 277,944 -- Inventory........................................................ 113,445 113,445 -- Property and Equipment........................................... 1,433,642 1,433,642 -- Investment in land............................................... 247,500 -- 247,500 Investment in securities......................................... 461,333 335,333 126,000 ----------------- ------------ -------------- TOTAL ASSETS..................................................... $ 2,539,130 $ 2,165,630 $ 373,500 ----------------- ------------ -------------- ----------------- ------------ -------------- Long-term debt................................................... $ 380,986 $ 380,986 $ -- Accounts payable................................................. 13,321 1,588 11,733 Accrued expenses................................................. 72,295 61,257 11,038 ----------------- ------------ -------------- TOTAL LIABILITIES................................................ 446,602 443,831 22,771 ----------------- ------------ -------------- Common Stock..................................................... 31,991 18,800 13,191 Additional paid-in capital....................................... 4,093,794 3,578,056 515,738 Retained earnings................................................ (2,053,257) (1,875,057) (178,200) ----------------- ------------ -------------- TOTAL SHAREHOLDERS' EQUITY....................................... 2,072,528 1,721,799 350,729 ----------------- ------------ -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................... $ 2,539,130 $ 2,165,630 $ 373,500 ----------------- ------------ -------------- ----------------- ------------ --------------
On April 1, 1995, PFC acquired all of the outstanding shares of common stock of WCS for 1,880,000 shares of the commonstock of PFC. The transaction was previously accounted for as a pooling of interest but is restated to be accounted for on the purchase accounting method based on a recharacterization of the transaction as a reverse-acquisition (NoteV). F-9 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ACCOUNTING PRINCIPLES AND CONSOLIDATION POLICY The accompanying consolidated financial statements include the accounts of Wade Cook Financial Corporation and its majority-owned subsidiaries. WCS had a fiscal year end of January 31, and the balances as of January 31, 1997 and 1996 have been used to prepare the consolidated financial statements as of December 31, 1996 and 1995. In 1997, WCS changed its fiscal year end to December 31, and the balances as of December 31, 1997 do not include activity for the month of January 31, 1997 and January 31, 1998. All significant inter-company transactions and balances have been eliminated in the consolidation. During 1997, WCFC acquired Ideal, Origin, Worldwide, and Gold Leaf and used the purchase method of accounting to account for such acquisitions (Note Q). The consolidated financial statements include the activity of each identified acquisition from the effective date of acquisition through December 31, 1997. All significant inter-company transactions and balances have been eliminated in the consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and related notes to financial statements. Changes in such estimates may affect amounts reported in future periods. CASH AND CASH EQUIVALENTS The Company considers highly liquid investments with the original maturity of three months or less to be cash and cash equivalents. Included in these amounts are money market funds of $50,022,and $581,558 as of December 31, 1997 and 1996, respectively. MARKETABLE SECURITIES Brokerage accounts were used by seminar instructors during the seminars to demonstrate how to buy and sell securities using a broker. Marketable securities consist mainly of stocks and options. They have been categorized as trading securities and, as a result, are stated at market value. All changes in trading securities' fair values are reported inearnings as they occur. Realized gains and losses on the sale of securities are determined using the specific-identification method. INVENTORY Inventory, which consists primarily of finished goods, is valued at the lower of cost or market. Cost is determined using the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation is computed using an accelerated method over the estimated useful lives of the related assets for both financial reporting and tax reporting purposes. Leasehold improvements are amortized using F-10 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) the straight-line method over the shorter of the estimated life of the asset or the remaining term of the lease. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations. The Company evaluates impairment of long-lived assets in accordance with the Financial Accounting Standards Board's (FASB) Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets tobe Disposed of SFAS No. 121 requires the Company to assess whether an asset (or group of assets) that will continue to be used is impaired and needs to be adjusted. Other long-lived assets to be disposed of (either by sale or abandonment unrelated to the disposal of a business segment) should be written down to fair value less the cost to sell such assets. INTANGIBLE The 1997 acquisitions (Note Q) resulted in the Company recording $2,851,886 for goodwill, which represents the excess of the cost of the assets purchased over their fair value. Amortization is computed using the straight-line method over the estimated useful life of the intangible asset or 40 years, whichever is shorter. NON-MARKETABLE INVESTMENTS The Company accounts for non-marketable investments, at cost, if the Company owns less than 20% of the investee; and ate quity, if the Company owns 20% to 50% of the investee. REVENUE RECOGNITION Tuition revenues for seminars are recognized when services are rendered. Subscription revenues for WIN (Wealth Information Network) membership generally are received for up to one year in advance and are recorded and presented in the financial statements as deferred revenue until earned. Although a typical subscription binds the subscriber to prepay, the subscription term begins when the customer receives his logon code. The deferred revenues are recognized on a monthly basis over the term of the contract. If a subscriber cancels within the first twelve months of the service period, any remaining unearned subscription revenue will be recognized into income at the time of the cancellation because the subscription is a binding nonrefundable contract. Other revenues are recognized when finished products are shipped to customers or services have been rendered. F-11 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ADVERTISING COSTS Advertising costs are expensed when incurred. Advertising costs amounted to $13,685,893, $6,094,922 and $751,533 for the years ended December 31, 1997, 1996 and 1995, respectively. INCOME TAXES Income taxes are provided for tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. BARTER TRANSACTIONS The Company is accounting for barter credits in accordance with APB Opinion No. 29, Accounting for Non-monetary Transactions, and EITF issue No. 93-11, Accounting for Barter Transactions, involving barter credits which presumes that the fair value of the non-monetary asset exchanged is more clearly evident than the fair value of the barter credit received, and that the barter credit should be reported at the fair value of the non-monetary asset exchanged. The Company purchased radio air time advertising in exchange for common stock. The transaction is discussed in Note K. EARNINGS PER SHARE The Company is accounting for earnings per share in accordance with FASB No. 128. Earnings per share are based on the weighted average number of shares of common stock and common stock equivalents outstanding during each year. RECLASSIFICATION OF FINANCIAL STATEMENT PRESENTATION Certain reclassifications have been made to the 1996 and 1995 financial statements to conform with the 1997 financial statement presentation. Such reclassifications had no effect on net income as previously reported. NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) issued in February 1997, SFAS No. 128, Earnings per Share, which establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. The Company does not have a complex capital structure. The Company has not issued potential common stock, i.e., securities such as options, warrants, convertible securities, or contingent stock agreements. The Company believes that SFAS No. 128 did not have a material effect on its computation of EPS. The FASB issued in February 1997, SFAS No. 129, Disclosure of Information About Capital Structure. SFAS No. 129 requires disclosure of descriptive information about F-12 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) securities, e.g., rights and privileges of the various securities outstanding, the number of shares issued upon conversion, exercise, or satisfaction of required conditions, and the liquidation preference of preferred stock. The Company is authorized to issue preferred stock but none was issued or outstanding. The Company does not have any plans to issue preferred stock. The Company adopted on October 14, 1997 a stock incentive plan and reserved for issuance 1,000,000 of the Company's common stock. The stock incentive plan provides that the Board of Directors may grant restricted stock, stock options, stock appreciation rights or other stock based awards to eligible employees, directors, or consultants. The Board of Directors did not issue any incentive awards from the plan as of December 31, 1997. The Company believes that SFAS No. 129 did not have material effect on its disclosure of information about capital structure. The FASB issued in June 1997, SFAS No.130, Reporting Comprehensive Income. SFAS No. 130 establishes standards for reporting comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general purpose financial statements. SFAS No. 130 requires that the Company a) classify items of other comprehensive income by their nature in a financial statement and b) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. The Company did not have any other comprehensive income in 1997, 1996, or 1995. The FASB issued in June 1997, SFAS No.131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 requires that the Company disclose a) factors used to identify the Company's reportable segments, including the basis of organization, and types of products and services from which each reportable segment derives its revenues, b) information about reportable segment profit or loss, including certain revenues and expenses included in reported segment profit or loss, segment assets, and the basis of measurement, c) reconciliations of the totals of segment revenues, reported profit of loss, assets, and other significant items to corresponding Company amounts, and d) if complete sets of financial statements are provided for more than one period, the information required by SFAS No. 131 shall be reported for each period presented. The Company will implement SFAS No. 131 for the year ending December 31, 1998. NOTE B--SHAREHOLDERS' EQUITY The Company did not declare or pay and dividends for the years shown in these financial statements. On August 13, 1997, and December 10, 1997, the Board of Directors declared three-for-one stock splits on the Company's common stock, effected in the form of a stock dividend to the shareholders of record on September 1, 1997 and December 19, 1997, respectively. The number of shares issued at September 1, 1997 and December 19, 1997, after giving effect to the stock split were 21,397,455 and 64,232,273 common shares, respectively, F-13 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE B--SHAREHOLDERS' EQUITY (CONTINUED) (7,132,485 and 21,411,091 common shares before the split, respectively). On August 6, 1996, the Board of Directors declared a two-for-one stock split on the Company's common stock, effected in the form of a stock dividend to shareholders of record on July 15, 1996. The number of shares issued at September 10, 1996 after giving effect to the split was 6,650,442 common shares (3,325,211 common shares before the split). The effects of the stock splits are accounted for in all share and per share data included in these consolidated financial statements. RETURN OF STOCK SALE PROFITS BY OFFICER In connection with the purchase and sale of stock in 1997, it was determined that certain transactions required the return to the Company of profits made on such transactions. In that regard, $632,710 has been returned to the Company by Wade B. Cook. NOTE C--CONCENTRATION OF RISKS Cash in banks, based on bank balances, exceeded federally insured limits by $186,708 and $574,388 as of December 31, 1997 and 1996, respectively. Receivables from four credit card companies aggregated approximately $487,693 and $376,256 at December 31, 1997 and 1996 respectively. The Company invests the majority of its excess cash in marketable securities. Marketable securities are carried at fair market value, which amounted to $6,162,733 and $3,801,039 as of December 31, 1997, and 1996, and accounted for 15% and 22% of the Company's consolidated assets as of December31, 1997 and 1996 respectively. The following table shows the percentage of revenues:
1997 1996 1995 ----- ----- ----- Seminars................................................................... 70% 52% 46% WIN subcription............................................................ 4% 12% 7% Entity formation services.................................................. 6% 14% 24% Product sales.............................................................. 20% 22% 23%
The following table shows the states from which the Company derived over 10% of its seminar revenues:
1997 1996 1995 ----- ----- ----- California................................................................. 15% 15% 27% Colorado................................................................... 3% 7% 11% Washington................................................................. 9% 13% 13% Florida.................................................................... 10% 8% 7%
NOTE D--ECONOMIC DEPENDENCY AND SIGNIFICANT RISKS AND UNCERTAINTIES The Company derived a majority of its revenues solely through the sponsoring and promoting of products, seminars and services authored by Wade B. Cook. This individual was the named defendant of afraud charge in the State of Arizona. Prior to February, 1997, defense counsel successfully reduced the case from eighteen charges to one remaining charge. In February 1997, the remaining charge was dismissed with prejudice. F-14 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE D--ECONOMIC DEPENDENCY AND SIGNIFICANT RISKS AND UNCERTAINTIES (CONTINUED) In March 1996, the Securities and Exchange Commission (the "Commission") entered an order directing a private investigation of the Company. The Company's legal counsel has responded to the Commission's requests for documents and information on behalf of the corporation. No enforcement action has been taken, and the Commission has advised that the inquiry should not be construed as an adverse reflection on the securities involved or on any person or entity. The Company has also received subpoenas from the State of Washington's Department of Financial Institutions, Securities Division requesting information related to WCFC, WCS and the Company's president. NOTE E--RELATED PARTY TRANSACTIONS The Company entered into a product agreement with Money Chef, Inc. to obtain the rights to promote and sponsor seminars, entity formation services and products owned and controlled by Wade B. Cook and Money Chef, Inc. for royalty payments. Royalty expenses totaled $9,996,840, $4,366,183, and $649,172 for the years-ended December 31, 1997, 1996, and 1995 respectively. No royalties were prepaid or unpaid as of December 31, 1997 and $48,781 of royalties was prepaid as of December 31, 1996. The Company obtained services from seminar speakers provided by companies owned by directors of the Company. Total speaker fees paid to such companies totaled $166,661 and $131,337 for the years ended December 31, 1997 and 1996, and none for year 1995. There were no additional amounts due to such companies as of December 31, 1997 and 1996. Due from related parties in the amounts of $749,726 (current) and $599,323 (non-current) represent advances to the following:
NAME OF RELATED PARTIES RELATIONSHIP CURRENT NON-CURRENT - --------------------------- --------------------------- --------------------------- --------------------------- NewstartCentre, Inc. 50% owned and controlled by President/ CEO of WCFC or his affiliates $43,283 $599,323 Get Ahead Bookstores Majority stockholder is an employee of WCFC 155,989 -- Quantum Marketing Majority stockholder is a director of WCFC 524,854 -- FiveStar Consulting, Inc. General partner is President/CEO of WCFC 25,000 -- Employee's advance Employees of WCFC 600 -- -------- -------- Total $749,726 $599,323 -------- -------- -------- --------
F-15 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE E--RELATED PARTY TRANSACTIONS (CONTINUED) At December 31, 1997, due to related parties totaled $782,752, all of which was current and consists of the following:
NAME OF RELATED PARTIES RELATIONSHIP CURRENT - -------------------------------------------------- -------------------------------------------------- ---------- Information Quest, Inc. Majority stockholder is employee of WCFC $682,576 Board of Directors advance Directors of WCFC 100,176 -------- Total $782,752 -------- --------
In 1995, the Company accepted a single family home, subject to a mortgage balance of $119,825, from an employee in full settlement of a 10.5% note receivable with an outstanding balance of $17,661. The single family home was recorded in the Company's books at $137,486, and no gain or loss was charged to operations. The employee entered into an agreement with the Company to rent the property for a monthly rent of $1,300 through July 2000. Under the agreement, the employee had an option to repurchase the property at specified amounts through July 2000. In 1996, the Company sold the property to another employee for $137,352, after the option was waived and received a note bearing 8% interest per annum as consideration. The Company has various notes receivable from employees and officers. Original maturity dates are from 12 months to 360 months. Annual interest rates range from 5.45% to 12%. The manner of settlement is by salary deduction or payment. The majority of notes receivable are secured by real property or personal property. The Company evaluates notes receivables in accordance with Statement of Financial Accounting Standards No 114, Accounting by Creditors for Impairment of a Loan. Statement No. 114 requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate. Statement No. 118, Income Recognition and Disclosures, amends Statement No. 114to allow a creditor to use existing methods for recognizing interest income onan impaired loan. There were no impaired notes receivable as of December 31,1996. At December 31, 1997, a reduction in the note receivable of $287,264 was recorded to reflect impaired notes. Substantially all of the reduction was from unsecured receivables from employees who are no longer with the company. Future cash flow was not expected, due to the uncertainty of repayment. At December 31, 1997, due from employees amounted to $3,535,719, of which, $242,537 has been classified as current. Amounts due from employees represent loans both secured and unsecured:
LOAN AMOUNT ---------- ------------- Secured............................................ $ 3,097,408 Unsecured.......................................... 438,311 ------------ Total.............................................. $ 3,535,719 ------------ ------------
F-16 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE E--RELATED PARTY TRANSACTIONS (CONTINUED) For the year ended December 31, 1997, interest income resulting from the employee note receivables was $199,663. Interest income was calculated by multiplying the outstanding balance of unimpaired loans with their respective interest rate. Interest income was not calculated on impaired loans. NOTE F--RECEIVABLES Following is a summary of receivables:
DECEMBER 31, -------------------------- 1997 1996 ------------ ------------ Trade and credit card receivables...................................................... $ 3,242,151 $ 848,282 Notes receivable -- employees.......................................................... 3,535,719 1,714,802 Notes receivable from officer.......................................................... -- 249,604 Due from related parties............................................................... 1,471,049 663,401 Other................................................................................. 41,032 11,378 ------------ ------------ Total................................................................................. $ 8,289,951 $ 3,487,467 ------------ ------------ ------------ ------------
In 1996, management estimated that substantially all receivables were collectible. In 1997, an allowance for uncollectible accounts was maintained, and at December 31, 1997 the allowance amounted to $58,163. Amounts reported on the balance sheet are shown net of the allowance. NOTE G--MARKETABLE SECURITIES The net unrealized gain (loss) intrading securities that has been included in earnings during the period amounted to $(755,437), $92,711, and $88,719, for the years ended December 31, 1997, 1996, and 1995 respectively. NOTE H--PROPERTY AND EQUIPMENT The following is a summary of property and equipment:
DECEMBER 31, --------------------------- 1997 1996 ------------- ------------ Land................................................................................. $ 532,000 $ 532,000 Building............................................................................. 6,021,788 4,183,361 Equipment............................................................................ 2,446,895 1,270,583 Automobiles.......................................................................... 1,279,972 828,604 Furniture and fixtures............................................................... 1,774,284 681,425 ------------- ------------ 12,054,939 7,495,973 Less: Accumulated depreciation....................................................... (1,629,780) (360,768) ------------- ------------ Total................................................................................ $ 10,425,159 $ 7,135,205 ------------- ------------ ------------- ------------
Depreciation expense charged to operations was $1,073,224, $344,991 and $38,816 in December 31, 1997, 1996, and1995, respectively. F-17 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE I--NON-MARKETABLE INVESTMENTS AND ACCOUNTING CHANGES Non-marketable investments consist of investments in venture capital partnerships and private companies, primarily comprised of hotel/motel properties and other real estate investments. The estimated non-marketable investments approximated the carrying amount at December 31, 1997 and 1996. The fair values of investments in venture capital partnerships and private companies were estimated based on financial condition and operating results, or other pertinent information. No dividends were received from non-marketable investments during the years shown. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of in 1995. The Company recorded a non-cash pre-tax charge of $99,000 for the year ending December 31, 1995 to write-down the carrying value of the land investment in the county of Atrim, Michigan. The Company considers the sale prices of comparable lots in the recreational development project as indicators of fair value. Non-marketable investments consist of the following:
DECEMBER 31, ------------------------ 1997 1996 ------------ ---------- Cost method: Oil and gas............................................................................. $ 650,000 $ -- Hotels/motels........................................................................... 1,177,350 268,000 Real estate............................................................................. 1,385,780 148,500 Private companies....................................................................... 1,250,000 106,100 Equity method: Hotels/motels........................................................................... 2,562,750 -- Real estate............................................................................. 304,580 -- ------------ ---------- Total................................................................................... $ 7,330,460 $ 522,600 ------------ ---------- ------------ ----------
Private companies in 1997 are comprised of a privately held computer software company ($750,000) and a wireless reseller company ($500,000) which acquired an inactive public company through a reverse acquisition in 1998. Investees are in the development stage. Accumulation deficit during the development stage was not material in 1997 and 1996. F-18 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE J--LONG-TERM DEBT
DECEMBER 31, -------------------------- 1997 1996 ------------ ------------ Note payable due May 2002, has a monthly installment of $418, including interest at 9.75% per annum, secured by an automobile........................................... 16,347 -- Note payable to a credit union assumed by the Company on behalf of an employee, due December 2003, including interest at 9.25% per annum, secured by an automobile...... -- $ 36,178 Note payable due July 2000, has a monthly installment of $514, including interest at 9% per annum, secured by equipment.................................................. 28,298 -- Note payable due June 2001, has a monthly installment of $1,325, including interest at 8.5% per annum, secured by computers................................................ 44,823 -- Unsecured note payable to a related party, originally due October 15, 1996, including interest at 10% per annum, due on demand............................................ -- 19,000 Unsecured note payable to a related party, originally due October 15, 1996; including interest at 10% per annum, due on demand............................................ 45,000 45,000 Note payable to a bank with monthly installments of $300, including interest at 16% per annum, secured by an automobile................................................. 11,413 -- Mortgage payable, secured by land and building, due in monthly installments of principal and interest of $50,000 from September 1, 1996 through August 1, 1997, $100,000 from September 1, 1997 to February 1, 1999 and $555,862 on March 1, 1999, including interest at 9% per annum.................................................. 1,825,302 2,393,292 Real estate contract payable, secured by land and building,payable in monthly installments of $2,157, including interest at 7(6)%, maturity date September 1, 1998................................................................................ 339,999 -- Total Long Term Debt.............................................................. $ 2,311,182 $ 2,493,470 ------------ ------------ Less: Current maturities Others.............................................................................. (1,445,000) (660,708) related parties..................................................................... -- (19,000) officer............................................................................. (45,000) (45,000) ------------ ------------ Net Long Term Debt.................................................................... $ 821,182 $ 1,768,762 ------------ ------------ ------------ ------------
F-19 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE J--LONG-TERM DEBT (CONTINUED) The following are maturities of long-term debt for each of the next five years: 1998............................................................................ $1,490,000 1999............................................................................ 770,393 2000............................................................................ 25,046 2001............................................................................ 18,051 2002............................................................................ 7,692 Thereafter...................................................................... -- --------- Total........................................................................... 2,311,182 --------- ---------
NOTE K--PREPAID ADVERTISING In 1995, the Company entered into an agreement with Associated Reciprocal Traders, Ltd. (ART) to purchase from ART20,000 Investor Relations-Advertising-Infomercial radio air time spots, priced at $25 per ad spot, per station, for a sum total of $500,000. In payment of the foregoing, the Company issued 100,000 shares of common stock to ART on September10, 1996. The prepaid advertising is shown as a reduction of shareholders' equity rather than as an asset (Note T). NOTE L--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS Financial Accounting Standards Board("FASB") has issued Statement of Financial Accounting Standards (SFAS) No.107, Disclosures About Fair Value of Financial Instruments, as part of a continuing process by the FASB to improve information regarding financial instruments. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents--The carrying amount of cash and cash equivalents approximates its fair value. Notes receivables from Employees and Officers--The carrying amount of notes receivable approximates its fair value. Marketable securities--The fair value of marketable securities was estimated based on quotes obtained from brokers for those instruments. Non-Marketable Investments--The fair value of non-marketable investments is determined by financial positions of the investee companies and market conditions. Margin loans in investment accounts--The carrying amount of margin loans approximates its fair value. Long-Term Debt--The fair values of the Company's long-term debt either approximates fair value or estimates using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. F-20 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) Note L--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED) The carrying amounts and fair values of the Company's financial instruments at December 31, 1997 and 1996 are as follows:
1997 1996 ---------------------- ---------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE ---------- ---------- ---------- ---------- Cash and cash equivalents..................................... $ 540,763 $ 540,763 $ 635,141 $ 635,141 Marketable securities......................................... 6,040,733 6,040,733 3,801,039 3,801,039 Receivables from employees and officers....................... 3,535,719 3,535,719 1,964,406 1,964,406 Non-marketable investments.................................... 7,330,460 7,330,460 522,600 522,600 Margin loans in investment accounts........................... 2,766,824 2,766,824 1,103,936 1,103,936 Long-term debt................................................ 821,182 821,182 1,768,762 1,768,762
The carrying amounts in the table are included on the balance sheet under the indicated captions, except for notes receivable which has several components on the balance sheet. NOTE M--LEASE AND OTHER COMMITMENTS Operating lease commitments are primarily for the Company's shipping warehouse and equipment rentals. Rental expense amounted to $135,476, $294,918, and $109,133 for the years ended December 31, 1997, 1996, and 1995 respectively. Future minimum rental commitments are as follows: 1998.............................................................................. $ 61,779 1999.............................................................................. 54,621 2000.............................................................................. 12,760 2001.............................................................................. -- --------- Total............................................................................. $ 129,160 --------- ---------
The Company entered into an employment agreement in June 1997 with Wade Cook, the president and CEO of the Company. The agreement provided for a minimum salary of $240,000 for the first year, $265,000 for the second year, and $290,000 for the final year of the agreement. Cook will be paid in accordance with the Company's standard method of payment for executives. Cook may receive additional bonuses for work as approved by the Board of Directors. The Company is committed to purchase 8,000 additional units from Applied Voice Recognition, Inc. at $60.00 per unit (voice recognition software), but no time limit is provided for in the agreement. There is a minimum purchase requirement of 2,000 units per order and payment is due in advance of shipment (Note U). F-21 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE M--LEASE AND OTHER COMMITMENTS (CONTINUED) The Company is committed to purchase 50,000 units (computer programs) from KnowWonder, Inc. (the computer software company described in Note I) at $10.00 per unit. The $500,000 is payable in eight (8) monthly installments of $62,500 beginning January 1998 on the first of each month thereafter. NOTE N--INCOME TAXES Provisions for income taxes in the consolidated statements of income consist of the following components:
YEARS ENDED DECEMBER 31, -------------------------------------- 1997 1996 1995 ------------ ------------ ---------- Current - ------- Federal................................................................... $ 4,659,610 $ 2,321,968 $ 171,200 State..................................................................... -- -- -- Other States.............................................................. 458,000 55,000 ------------ ------------ ---------- 5,117,610 2,376,968 171,200 ------------ ------------ ---------- Deferred - -------- Federal................................................................... 945,777 (775,724) 540 State..................................................................... -- -- -- 945,777 (775,724) 540 ------------ ------------ ---------- Total income taxes........................................................ $ 6,063,387 $ 1,601,244 $ 171,740 ------------ ------------ ---------- ------------ ------------ ----------
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31, ---------------------- DEFERRED TAX ASSETS: 1997 1996 - ------------------------------------------------------------------------------------------ ---------- ---------- Unrealized loss on trading securities..................................................... $ 254,096 $ 79,192 Deferred revenues......................................................................... -- 806,294 State income tax.......................................................................... 160,300 19,250 ---------- ---------- Total deferred tax assets................................................................. 414,396 904,736 ---------- ---------- Deferred tax liabilities: Accelerated depreciation.................................................................. 69,800 61,691 State income tax.......................................................................... 93,581 59,981 ---------- ---------- Total deferred liabilities................................................................ 163,381 121,672 ---------- ---------- Net deferred tax assets................................................................... $ 251,015 $ 783,064 ---------- ---------- ---------- ----------
F-22 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE N--INCOME TAXES (CONTINUED) The reconciliation of the effective income tax rate to the Federal statutory rate is as follows:
1997 1996 1995 --------- --------- --------- Federal income tax rate..................................................................... 35.0% 35.0% 35.0% Unrealized loss on trading securities....................................................... 6.2 1.7 7.2 Deferred revenues........................................................................... -- 17.3 19.5 Accelerated depreciation.................................................................... (1.3) (1.3) -- Capitalized interest........................................................................ -- (1.3) -- State income tax ........................................................................... .4 0.4 10.0 Effective income tax rate................................................................... 40.3% 51.8% 71.7%
NOTE O--REVENUES AND OTHER COST OF REVENUES
TRAVEL SEMINAR PRODUCT ENTITY WIN RELATED REVENUES SALES FORMATIONS SUBSCRIPTIONS SERVICES TOTAL ------------- ------------- ------------ ------------ ------------ -------------- Year ended December 31, 1997: Revenues, net of returns & discounts..................... $ 66,725,225 $ 25,336,102 $ 5,598,409 $4,049,646 $ 3,198,268 $ 104,907,650 Royalties to related party...... 4,709,067 3,438,418 1,849,355 -- -- 9,996,840 Speaker fees to related party... 153,760 12,901 -- -- -- 166,661 Other cost of revenues: Cost of goods sold.............. -- 9,020,702 -- -- 2,963,579 11,984,281 Credit card fees................ 1,655,339 393,248 120,253 87,312 -- 2,256,152 Cost of meeting rooms........... 3,953,888 -- -- -- -- 3,953,888 Speaker fees.................... 6,502,497 -- 557,357 -- -- 7,059,854 Travel.......................... 3,367,636 -- 282,553 -- -- 3,650,189 ------------- ------------- ------------ ------------ ------------ -------------- Total Cost of Revenues.......... $ 20,342,187 $ 12,865,269 $ 2,809,518 -- $ 2,963,579 $ 39,067,865 ------------- ------------- ------------ ------------ ------------ -------------- Gross Profit.................... $ 46,383,038 $ 12,470,833 $ 2,788,891 $3,962,334 $ 234,689 65,839,785 ------------- ------------- ------------ ------------ ------------ --------------
TRAVEL SEMINAR PRODUCT ENTITY WIN RELATED REVENUES SALES FORMATIONS SUBSCRIPTIONS SERVICES TOTAL ------------- ------------- ------------ ------------ ------------- ------------- Year ended December 31, 1996: Revenues, net of returns & discounts........................... $ 23,817,315 $ 10,608,421 $ 3,716,528 $2,582,251 -- $ 40,724,515 Royalties to related party............ 2,933,688 1,060,842 371,653 -- -- 4,366,183 Speaker fees to related party......... 113,609 -- 17,728 -- -- 131,337 Other cost of revenues: Cost of goods sold.................... -- 5,017,027 -- -- -- 5,017,027 Credit card fees...................... 556,663 247,942 86,864 60,353 -- 951,822 Cost of meeting rooms................. 1,488,212 -- -- -- -- 1,488,212 Speaker fees.......................... 1,373,855 -- 764,312 -- -- 2,138,167 Travel................................ 1,383,464 -- 206,724 -- -- 1,590,188 ------------- ------------- ------------ ------------ ------ ------------- Total Cost of Revenues................ $ 7,849,491 $ 6,325,811 $ 1,447,281 $ 60,353 -- $ 15,682,936 ------------- ------------- ------------ ------------ ------ ------------- Gross Profit.......................... $ 15,967,824 $ 4,282,610 $ 2,269,247 $2,521,898 -- 25,041,579 ------------- ------------- ------------ ------------ ------ -------------
F-23 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE O--REVENUES AND OTHER COST OF REVENUES (CONTINUED)
TRAVEL SEMINAR PRODUCT ENTITY WIN RELATED REVENUES SALES FORMATIONS SUBSCRIPTIONS SERVICES TOTAL ------------ ------------ ------------ ------------ ------------- ------------ Nine Months ended December 31,1995: Revenues, net of returns & discounts...... $ 2,986,036 $ 1,477,200 $ 1,538,459 $ 502,316 -- $ 6,504,011 Royalties to related party................ 326,691 157,964 164,517 -- -- 649,172 Speaker fees to related party............. -- -- -- -- -- -- Other cost of revenues: Cost of goods sold........................ -- 1,121,336 -- -- -- 1,121,336 Credit card fees.......................... 90,359 32,963 34,330 11,209 -- 168,861 Cost of meeting rooms..................... 99,720 -- -- -- -- 99,720 Speaker fees.............................. 158,589 101,937 282,520 -- -- 543,046 Travel.................................... 162,447 -- 132,327 -- -- 294,774 ------------ ------------ ------------ ------------ ------ ------------ Total Cost of Revenues.................... $ 837,806 $ 1,414,200 $ 613,694 $ 11,209 -- $ 2,876,909 ------------ ------------ ------------ ------------ ------ ------------ Gross Profit.............................. $ 2,148,230 $ 63,000 $ 924,765 $ 491,107 -- $ 3,627,102 ------------ ------------ ------------ ------------ ------ ------------
NOTE P--SUPPLEMENTARY DISCLOSURE OF CASHFLOW INFORMATION The Company paid $308,796, $263,285 and $23,047 in interest, and $2,485,111, $100,000 and $78,000 for income taxes, in the years ended December 31, 1997, 1996 and 1995 respectively. The Company purchased a three-story commercial building in July 1996, and relocated in January 1997. The $3,300,000 purchase was financed with a $2,550,000 mortgage with an interest rate of 9% per annum, and a down payment of $750,000. NOTE Q- ACQUISITIONS During 1997, WCFC completed the acquisition of Ideal Travel Concepts, Inc. (Ideal), Worldwide Publishers, Inc.(Worldwide), Origin Book Sales, Inc. (Origin), and Gold Leaf Press, Inc. (GoldLeaf). All of the outstanding stock of Ideal was acquired on August 1, 1997, in exchange for 358,333 shares of Wade Cook Financial Corporation (WCFC) stock to be issued at a latter date (Note T). On that date, the market value of the stock issued was $2,150,000. The acquisition was accounted for as a purchase, resulting in assets of $215,719, goodwill of $2,008,294 less liabilities assumed of $74,013. All of the outstanding stock of Worldwide was acquired on August 27, 1997, for $1. The acquisition was accounted for as a purchase resulting in assets of $315,352, goodwill of $311,976 less liabilities assumed of $627,327. F-24 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE Q- ACQUISITIONS (continued) All of the outstanding stock of Origin was acquired on August 27, 1997, in exchange for 30,269 shares of WCFC stock. On that date, the market value of the stock issued was $196,749. The acquisition was accounted for as a purchase resulting in assets of $809,730,goodwill of $469,496 less liabilities assumed of $1,082,477. All of the outstanding stock of GoldLeaf was acquired on August 27, 1997, in exchange for 7,692 shares of Wade Cook Financial Corporation (WCFC) stock. On that date, the market value of the stock issued was $49,998. The acquisition was accounted for as a purchase resulting in assets of $8,263, goodwill of $62,119 less liabilities assumed of $20,384. Total goodwill is $2,851,885, accumulated amortization is $214,217, creating net goodwill of $2,637,669. NOTE R--PRO-FORMA FINANCIAL STATEMENTS The following unaudited pro-forma information is presented for the years ended December 31, 1997, 1996, and 1995,as if the Ideal, Worldwide, Origin, and Gold Leaf acquisitions had been combined as of the beginning of the period. Ideal, Worldwide, Origin, and Gold Leaf amounts represent historical values without acquisition adjustments as describe in Note Q.
AMOUNTS IN THOUSANDS, EXCEPT EPS FISCAL YEAR ENDED DECEMBER 31, 1997 BALANCE SHEET WCFC IDEAL WORLDWIDE ORIGIN GOLD LEAF TOTAL - ----------------------------------------------------------- --------- --------- ------------- --------- ------------ ------- Assets..................................................... $ 38,982 $ 656 $ 459 $ 1,386 $ -- 41,483 Liabilities................................................ 22,769 417 735 1,621 -- 25,542 Stockholders equity........................................ 16,213 239 (276) (235) -- 15,941 INCOME STATEMENT Revenues................................................... 104,456 4,321 555 1,510 26 110,868 Expenses................................................... 95,469 4,100 519 1,472 14 101,573 --------- --------- ----- --------- --- --------- Net income................................................. $ 8,987 $ 221 $ 36 $ 38 $ 12 $ 9,294 --------- --------- ----- --------- --- --------- EPS........................................................ $ 0.15 --------- --------- ----- --------- --- ---------
AMOUNTS IN THOUSANDS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 BALANCE SHEET WCFC IDEAL WORLDWIDE ORIGIN GOLD LEAF TOTAL - ----------------------------------------------------------- --------- --------- ------------- --------- ----------- --------- Assets..................................................... $ 16,938 $ 237 $ 529 $ 3,902 $ 8,263 $ 29,869 Liabilities................................................ 12,619 277 453 3,834 20,384 37,567 Stockholders equity........................................ 4,319 (40) 76 68 (12,121) (7,698) INCOME STATEMENT Revenues................................................... 40,725 1,023 971 1,801 1,462 45,982 Expenses................................................... 37,660 1,057 935 1,830 1,462 42,944 --------- --------- ----- --------- ----------- --------- Net income (loss).......................................... $ 3,065 $ (34) $ 36 $ (29) $ -- $ 3,038 --------- --------- ----- --------- ----------- --------- EPS........................................................ $ 0.11 --------- --------- ----- --------- ----------- ---------
F-25 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE R--PRO-FORMA FINANCIAL STATEMENTS (CONTINUED)
AMOUNTS IN THOUSANDS FOR THE NINE MONTHS ENDED DECEMBER31, 1995 BALANCE SHEET WCFC IDEAL WORLDWIDE ORIGIN GOLD LEAF TOTAL - ----------------------------------------------------------- --------- ----- ----------- --------- --------- --------- Assets..................................................... $ 2,283 $ 65 $ 994 $ 71 $ 294 $ 3,707 Liabilities................................................ 1,458 80 953 38 284 2,813 Stockholders equity........................................ 825 (15) 41 33 10 894 INCOME STATEMENT Revenues................................................... $ 6,504 182 7,209 1 1,330 $ 15,226 Expenses................................................... 6,436 169 7,196 18 1,333 15,152 --------- --- ----- --- ----- --------- Net income (loss).......................................... $ 68 $ 13 $ 13 $ (17) $ (3) $ 74 --------- --- ----- --- ----- --------- EPS........................................................ -- --------- --- ----- --- ----- ---------
NOTE S--PENDING LITIGATION On September 16, 1996,Wade Cook Seminars, Inc. v. Mellon, Charles E. and Robbins Research International, Inc., et al., was filed, for breach of non-compete contract. The court in a partial summary judgment dismissed this claim on November 26, 1997. Defendants subsequently made a motion for an award of attorney's fees of approximately $71,000, which was denied in January 1998. Both the order of dismissal and the denial of the award of attorney's fees have been appealed. NOTE T--SUBSEQUENT EVENTS On February 5, 1998, a claim was filed by WCFC against Associated Reciprocal Traders, Ltd. (ART) in the King County Superior Court based on a dispute over the ownership of 100,000 restricted shares of WADE stock (now 1,800,000 shares) issued pursuant to a Media for Stock Agreement dated December 29, 1995. On the same day ART filed a complaint against the Company based on substantially the same claims. A motion has been granted to consolidate the two claims. On January 14, 1998, WCFC issued 3,224,997 shares of its common stock in full settlement of the Ideal Travel Concepts, Inc. acquisition. (Note Q) WCFC is negotiating for the acquisition of Get Ahead Bookstores, Inc. (Get Ahead), Information Quest, Inc. (Info Quest),and Quantum Marketing, Inc. (Quantum), all related parties (Note E). In each transaction, substantially all of the outstanding stock of each company, will be purchased by issuing common stock of WCFC. It is anticipated that all of the transactions will be accounted for under the purchase method. Get Ahead is a retail bookstore, selling primarily business related books, periodicals, and related materials. Info Quest sells a pager system that provides the customer with up to the minute stock quotes. Quantum is a marketing company. F-26 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE U- DEPOSITS AND BOOK OVERDRAFTS Deposits as of December 31, 1997 and 1996 amounted to $4,093,334 and $35,423 respectively. Deposits represent the following:
DECEMBER 31, ----------------------- DESCRIPTION 1997 1996 - ----------------------------------------------------------------------------------------- ------------ --------- Held by credit card processor............................................................ $ 2,050,000 -- Held for purchase of hotel............................................................... 1,913,790 -- Purchase of AVRI equipment............................................................... 120,000 -- Held for security on buildings........................................................... 9,544 35,423 ------------ --------- Totals................................................................................... $ 4,093,334 $ 35,423 ------------ --------- ------------ ---------
None of the deposits accrue interest. Book overdrafts amounted to $2,156,305 as of December 31, 1997 and none as of December 31, 1996. Under the Company's cash management system, checks issued but not presented to banks frequently result in overdraft balances for accounting purposes and are classified as "book overdrafts" in the balance sheet. NOTE V- PRIOR PERIOD ADJUSTMENTS The Company has restated its previously issued 1995 and 1994 financial statements to reflect adjustments principally related to the business combination described in Note A. The business combination was previously accounted for as a pooling of interest but has been restated to a reverse-acquisition whereby WCS is deemed to have acquired PFC. The adjustments relate primarily to the three month timing difference in income recognition under the pooling of interest (January 1, 1995 to December 31, 1995) and the purchase method, i.e., a reverse acquisition (April 1, 1995 to December 31, 1995).
AS PREVIOUSLY AS REPORTED RESTATED ------------ ------------ Net income for year ended December 31, 1995........................................... $ 123,798 $ 67,618 Earnings per share.................................................................... $ 0.02 $ 0.01 Additional paid in capital at December 31, 1995....................................... $ 498,938 $ 320,738 Additional paid in capital at December 31, 1996....................................... $ 1,072,608 $ 894,408 Retained earnings (deficit) at December 31, 1995...................................... $ (2,030) $ 176,170 Retained earnings at December 31, 1996................................................ $ 3,062,609 $ 3,240,809
The shareholders' equity has been restated for the 1995 recapitalization under the reverse acquisition and for the difference in income recognition under the pooling of interest and reverse acquisition. F-27 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE V- PRIOR PERIOD ADJUSTMENTS (CONTINUED) Adjustments to Shareholders' equity were calculated as follows:
TOTAL NUMBER OF PAID IN RETAINED SHAREHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY --------- ----------- ------------ ------------- ------------ Prior to acquisition................ 3,199,211 $ 31,991 $ 4,093,794 $ (2,053,257) $2,072,528 Reorganization under section 368(a)(1)(d) of the IRC........... (1,880,000) (18,800) (3,578,056) 1,875,057 (1,721,799) Issuance of Company shares to acquire assets of WCFC............ 1,880,000 18,800 (16,800) 108,552 110,552 Elimination of accumulated deficit of WCFC, as restated.............. -- -- (178,200) 178,200 -- ---------- ----------- ------------ ------------- ---------- Subtotal............................ 3,199,211 $ 31,991 $ 320,738 $ 108,552 $ 461,281 Net income for the period ended December 31, 1995, as restated.... 67,618 67,618 ---------- ----------- ------------ ------------- ---------- Shareholders' equity at December 31, 1995, as restated.... 3,199,211 $ 31,991 $ 320,738 $ 176,170 $ 528,899 ---------- ----------- ------------ ------------- ---------- ---------- ----------- ------------ ------------- ----------
Based upon the term of the business combination, the transaction for financial reporting and accounting purposes has been accounted for as a reverse acquisition whereby, WCS (formerly known as USA)is deemed to have acquired WCFC (formerly known as PFC). However, WCFC is the continuing entity and registrant for both the Securities and Exchange Commission filing purposes and income tax reporting purposes. Consistent with reverse acquisition accounting treatment, WCFC has carried forward the historical basis of the acquired assets and assumed liabilities of WCS and has revalued the basis of its net assets which was at fair value even before the business combination. The following unaudited proforma combined statements of income for the twelve months ended December 31, 1995 and January 31, 1995 are presented as if the combination had occurred as of January1, 1994. The proforma information is not necessarily indicative of the actual results of operation which would have occurred had the transactions occurred on such dates.
TWELVE MONTHS ENDED TWELVE MONTHS ENDED DECEMBER31, 1995 JANUARY 31, 1995 ------------------- ------------------- Revenues............................................................... $ 7,567,335 $ 1,973,145 Cost of revenues........................................................ (3,373,888) (861,734) Other income(loss)..................................................... (4,069,649) (1,307,141) ------------------- ------------------- Net income(loss)....................................................... $ 123,798 $ (195,730) ------------------- ------------------- ------------------- ------------------- Net income (loss)per share............................................. $ 0.02 $ (0.03) ------------------- ------------------- ------------------- -------------------
F-28 WADE COOK FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS (CONTINUED) NOTE W- COUNTY OF FRESNO INVESTIGATION On March 5, 1998, the Company received a letter from the County of Fresno, California, Office of District Attorney Business Affairs Unit ("BAU"), which informed the Company that the BAU believed that the seminar sales contracts used in California by the Company were not in compliance with section 1678.20 through 1693 of the California Civil Code which provide for a three-day right of cancellation on seminar sales solicitation contracts. The Company has not yet determined any impact on its financial statements. No provision for losses have been made. F-29 REPORT OF INDEPENDENT AUDITORS Board of Directors Wade Cook Financial Corporation Seattle, Washington The audits referred to in our report to the Board of Directors of Wade Cook Financial Corporation and subsidiaries dated February 26, 1998, except Notes V and W, for which the date is March 26, 1998, relating to the consolidated financial statements of Wade Cook Financial Corporation and subsidiaries included the audit of schedules listed under Item 14 of Form 10-K for the years ended December 31, 1997 and 1996. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based upon our audit. In our opinion such financial statement schedules present fairly, in all material respects, the information set forth therein. Certified Public Accountants Santa Monica, California February 26, 1998, except Notes V and W, for which the date is March 26, 1998 30 WADE COOK FINANCIAL CORPORATION SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS ASSETS
DECEMBER 31, ------------------------ CURRENT ASSETS 1997 1996 - ---------------------------------------------------------------------------------------- ------------ ---------- Cash.................................................................................... $ 32,500 -- Investment in subsidiaries.............................................................. 2,703,379 $ 110,552 Investment in land...................................................................... 1,245,358 148,500 Investment in non-marketable securities................................................. 4,828,101 18,600 Other receivable........................................................................ -- 1,378 Due from subsidiary..................................................................... -- 48,013 ------------ ---------- TOTAL ASSETS............................................................................ $ 8,809,338 $ 327,043 ------------ ---------- ------------ ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31, ------------------------ CURRENT LIABILITIES 1997 1996 - ---------------------------------------------------------------------------------------- ------------ ---------- Accounts payable and accrued expenses................................................... $ -- $ 22,080 Due to subsidiaries..................................................................... 5,055,870 -- ------------ ---------- TOTAL LIABILITIES....................................................................... 5,055,870 22,080 ------------ ---------- SHAREHOLDERS' EQUITY Preferred stock......................................................................... -- -- Common stock............................................................................ 636,459 66,807 Paid-in capital......................................................................... 3,875,586 894,408 Prepaid advertising..................................................................... (500,000) (500,000) Retained earnings (deficit)............................................................. (258,577) (156,252) ------------ ---------- TOTAL SHAREHOLDERS' EQUITY.............................................................. 3,753,468 304,963 ------------ ---------- TOTAL LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY.......................... $ 8,809,338 $ 327,043 ------------ ---------- ------------ ----------
31 WADE COOK FINANCIAL CORPORATION SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
YEARS ENDED DECEMBER31, ------------------------------------- 1997 1996 1995 ----------- ----------- ----------- INTEREST INCOME............................................................ $ -- $ 2,013 $ -- GENERAL AND ADMINISTRATIVE EXPENSES........................................ (83,725) (41,792) (18,625) LOSS ON NON-MARKETABLE SECURITIES.......................................... (18,600) -- (107,400) IMPAIRMENT OF LONG-LIVED ASSETS............................................ -- -- (99,000) ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES.......................................... (102,325) (39,779) (225,025) PROVISION FOR INCOME TAXES................................................. -- -- -- ----------- ----------- ----------- NET LOSS................................................................... $ (102,325) $ (39,779) $ (225,025) ACCUMULATED DEFICIT, BEGINNING............................................. (156,252) (116,473) (178,200) ISSUANCE OF COMMON STOCK IN EXCHANGE FOR INVESTMENT IN SUBSIDIARY.......... -- -- 286,752 ----------- ----------- ----------- ACCUMULATED DEFICIT, ENDING................................................ $ (258,577) $ (156,252) $ (116,473) ----------- ----------- ----------- ----------- ----------- -----------
32 WADE COOK FINANCIAL CORPORATION SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASHFLOWS
YEARS ENDED DECEMBER 31, ------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996 1995 - --------------------------------------------------------------------------- ----------- ---------- ----------- Net income (loss).......................................................... $ (102,325) $ (39,779) $ (225,025) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment of long-lived assets............................................ -- -- 99,000 Loss on investment in non-marketable securities............................ 18,600 -- 107,400 Changes in assets and liabilities, net of effects from purchase of companies: Receivables................................................................ 1,378 (1,378) -- Due from subsidiaries...................................................... 7,099,341 (48,013) -- Accounts payable and accrued expenses...................................... (22,080) (19,316) 18,625 ----------- ---------- ----------- TOTAL ADJUSTMENTS.......................................................... 7,097,239 (68,707) 225,025 ----------- ---------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES.................................. 6,994,914 (108,486) 225,025 ----------- ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of non-marketable securities...................................... (4,828,101) -- -- Capital expenditures....................................................... (1,096,858) -- -- Payment for purchase of companies, net of cash acquired.................... (1,748,230) -- -- ----------- ---------- ----------- NET CASH USED FOR INVESTING ACTIVITIES..................................... (7,673,189) -- -- ----------- ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock................................................... 72,481 108,486 -- Collection on subscription receivables and return of stock profits by officer.................................................................. 638,294 -- -- ----------- ---------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES.................................. 710,775 -- -- ----------- ---------- ----------- NET INCREASE IN CASH....................................................... 32,500 -- -- CASH, beginning of year.................................................... -- -- -- ----------- ---------- ----------- CASH, end of year.......................................................... $ 32,500 $ -- $ -- ----------- ---------- ----------- ----------- ---------- -----------
33 EX-23.1 2 EXHIBIT 23.1 MILLER AND CO. Letterhead March 26, 1998 Wade Cook Financial Corporation 14675 Interurban Avenue South Seattle, Washington 98168 Dear Wade Cook Financial Corporation: We hereby consent to the inclusion in the Form 10-K for the period ended December 31, 1997, as filed by Wade Cook Financial Corporation, of the financial statements and financial statement schedules audited by Miller and Co. for the fiscal years ending 1997, 1996, and 1995, the notes thereto and our reports and opinions thereon. Very truly yours, MILLER AND CO. /s/ Marlon G. Buno - ------------------------- Marlon G. Buno, Partner EX-24 3 EXHIBIT 24 LIMITED POWER OF ATTORNEY 1. APPOINTMENT OF ATTORNEY-IN-FACT. Now let it be known that I, Nick Dettman, residing in Los Angeles, California, make, constitute, and appoint Wade B. Cook, with original place of business at 14675 Interurban Avenue South, Seattle, WA 98168 to be my lawful Attorney-in-Fact with the authority to exercise the powers as granted and specified herein. 2. ENUMERATION OF ATTORNEY-IN-FACT'S POWERS. The powers granted to my Attorney-in-Fact are: ENDORSEMENT. To endorse the March 1998 SEC 10K Filing for Wade Cook Financial Corporation on my behalf. 3. DURATION. This Power of Attorney will remain in force until revoked. IN WITNESS WHEREOF, I have hereunto set my hand and seal the 30th of March, 1998. /s/ Nick Dettman ------------------------------ Nick Dettman, Principal Board Member WCFC /s/ Wade B. Cook ------------------------------ Wade B. Cook, Attorney-in-Fact STATE OF _________________________) ) ss. COUNTY OF ________________________) On the _____ day of March, 1998 personally appeared before me ________________________________ signer of the above instrument, who duly acknowledged to me that he or she executed the same. My Commission Expires CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT State of CALIFORNIA County of LOS ANGELES On MARCH 30, 1998, before me, S.D. YUNISKIS, NOTARY PUBLIC personally appeared NICK DETTMAN / / personally known to me - OR - /X/ proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s) or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand & official seal [SEAL] /s/ S.D. Yuniskis ------------------------------- Signature of Notary OPTIONAL Though the data below is not required by law, it may prove valuable to persons relying on the document and could prevent fraudulent reattachment of this form. Capacity Claimed by Signer Description of Attached Document ____ Individual(s) ____ Corporate Officer ______________________________ LIMITED POWER OF ATTORNEY Title(s) ---------------------------- Title or Type of Document Partner(s) ____ Limited LIMITED POWER OF ATTORNEY 1. APPOINTMENT OF ATTORNEY-IN-FACT. Now let it be known that I, Luara Cook, residing in Issaquah, Washington, make, constitute, and appoint Wade B. Cook, with original place of business at 14675 Interurban Avenue South, Seattle, WA 98168 to be my lawful Attorney-in-Fact with the authority to exercise the powers as granted and specified herein. 2. ENUMERATION OF ATTORNEY-IN-FACT'S POWERS. The powers granted to my Attorney-in-Fact are: ENDORSEMENT. To endorse the March 1998 SEC 10K Filing for Wade Cook Financial Corporation on my behalf. 3. DURATION. This Power of Attorney will remain in force until revoked. IN WITNESS WHEREOF, I have hereunto set my hand and seal the 28 of March, 1998. /s/ Laura Cook ------------------------------ Laura Cook, Principal Board Member WCFC /s/ Wade B. Cook ------------------------------ Wade B. Cook, Attorney-in-Fact STATE OF WASHINGTON ) )ss. COUNTY OF KING ) On the 28 day of March, 1998 personally appeared before me Laura M. Cook signer of the above instrument, who duly acknowledged to me that he or she executed the same. My Commission Expires /s/ Jodi L. Coval -------------------------- [SEAL] Notary Public May 19, 2000 Name: Jodi L. Coval LIMITED POWER OF ATTORNEY 1. APPOINTMENT OF ATTORNEY-IN-FACT. Now let it be known that I, John Childers, residing in Fulton, MS, make, constitute, and appoint Wade B. Cook, with original place of business at 14675 Interurban Avenue South, Seattle, WA 98168 to be my lawful Attorney-in-Fact with the authority to exercise the powers as granted and specified herein. 2. ENUMERATION OF ATTORNEY-IN-FACT'S POWERS. The powers granted to my Attorney-in-Fact are: ENDORSEMENT. To endorse the March 1998 SEC 10K Filing for Wade Cook Financial Corporation on my behalf. 3. DURATION. This Power of Attorney will remain in force until revoked. IN WITNESS WHEREOF, I have hereunto set my hand and seal the 26th of March, 1998. /s/ John Childers ------------------------------ John Childers, Principal Board Member WCFC /s/ Wade B. Cook ------------------------------ Wade B. Cook, Attorney-in-Fact STATE OF WASHINGTON ) )ss. COUNTY OF KING ) On the 26th day of March, 1998 personally appeared before me John Childers signer of the above instrument, who duly acknowledged to me that he or she executed the same. My Commission Expires /s/ Jodi L. Coval -------------------------- [SEAL] Notary Public 05/19/2000 Name: Jodi L. Coval LIMITED POWER OF ATTORNEY 1. APPOINTMENT OF ATTORNEY-IN-FACT. Now let it be known that I, Robert Hondel, residing in Graham, Washington, make, constitute, and appoint Wade B. Cook, with original place of business at 14675 Interurban Avenue South, Seattle, WA 98168 to be my lawful Attorney-in-Fact with the authority to exercise the powers as granted and specified herein. 2. ENUMERATION OF ATTORNEY-IN-FACT'S POWERS. The powers granted to my Attorney-in-Fact are: ENDORSEMENT. To endorse the March 1998 SEC 10K Filing for Wade Cook Financial Corporation on my behalf. 3. DURATION. This Power of Attorney will remain in force until revoked. IN WITNESS WHEREOF, I have hereunto set my hand and seal the 26th of March, 1998. /s/ Robert Hondel ------------------------------ Robert Hondel, Principal Board Member WCFC /s/ Wade B. Cook ------------------------------ Wade B. Cook, Attorney-in-Fact STATE OF WASHINGTON ) )ss. COUNTY OF KING ) On the 26th day of March, 1998 personally appeared before me Robert Hondel signer of the above instrument, who duly acknowledged to me that he or she executed the same. My Commission Expires /s/ Jodi L. Coval -------------------------- [SEAL] Notary Public May 19, 2000 Name: Jodi L. Coval LIMITED POWER OF ATTORNEY 1. APPOINTMENT OF ATTORNEY-IN-FACT. Now let it be known that I, Cheryle Hamilton, residing in Renton, Washington, make, constitute, and appoint Wade B. Cook, with original place of business at 14675 Interurban Avenue South, Seattle, WA 98168 to be my lawful Attorney-in-Fact with the authority to exercise the powers as granted and specified herein. 2. ENUMERATION OF ATTORNEY-IN-FACT'S POWERS. The powers granted to my Attorney-in-Fact are: ENDORSEMENT. To endorse the March 1998 SEC 10K Filing for Wade Cook Financial Corporation on my behalf. 3. DURATION. This Power of Attorney will remain in force until revoked. IN WITNESS WHEREOF, I have hereunto set my hand and seal the 26th of March, 1998. /s/ Cheryle Hamilton ------------------------------ Cheryle Hamilton, Principal Board Member WCFC /s/ Wade B. Cook ------------------------------ Wade B. Cook, Attorney-in-Fact STATE OF WASHINGTON ) )ss. COUNTY OF KING ) On the 26th day of March, 1998 personally appeared before me Cheryle Hamilton signer of the above instrument, who duly acknowledged to me that he or she executed the same. My Commission Expires /s/ Jodi L. Coval -------------------------- [SEAL] Notary Public May 19, 2000 Name: Jodi L. Coval LIMITED POWER OF ATTORNEY 1. APPOINTMENT OF ATTORNEY-IN-FACT. Now let it be known that I, Robin Anderson, residing in Bonnie Lake, Washington, make, constitute, and appoint Wade B. Cook, with original place of business at 14675 Interurban Avenue South, Seattle, WA 98168 to be my lawful Attorney-in-Fact with the authority to exercise the powers as granted and specified herein. 2. ENUMERATION OF ATTORNEY-IN-FACT'S POWERS. The powers granted to my Attorney-in-Fact are: ENDORSEMENT. To endorse the March 1998 SEC 10K Filing for Wade Cook Financial Corporation on my behalf. 3. DURATION. This Power of Attorney will remain in force until revoked. IN WITNESS WHEREOF, I have hereunto set my hand and seal the 27th of March, 1998. /s/ Robin Anderson ------------------------------ Robin Anderson, Principal Board Member WCFC /s/ Wade B. Cook ------------------------------ Wade B. Cook, Attorney-in-Fact STATE OF WASHINGTON ) )ss. COUNTY OF KING ) On the 27th day of March, 1998 personally appeared before me Robin Anderson signer of the above instrument, who duly acknowledged to me that he or she executed the same. My Commission Expires /s/ Jodi L. Coval -------------------------- [SEAL] Notary Public May 19, 2000 Name: Jodi L. Coval LIMITED POWER OF ATTORNEY 1. APPOINTMENT OF ATTORNEY-IN-FACT. Now let it be known that I, Eric Marler, residing in Laie, Hawaii, make, constitute, and appoint Wade B. Cook, with original place of business at 14675 Interurban Avenue South, Seattle, WA 98168 to be my lawful Attorney-in-Fact with the authority to exercise the powers as granted and specified herein. 2. ENUMERATION OF ATTORNEY-IN-FACT'S POWERS. The powers granted to my Attorney-in-Fact are: ENDORSEMENT. To endorse the March 1998 SEC 10K Filing for Wade Cook Financial Corporation on my behalf. 3. DURATION. This Power of Attorney will remain in force until revoked. IN WITNESS WHEREOF, I have hereunto set my hand and seal the 26th of March, 1998. /s/ Eric Marler ------------------------------ Eric Marler, Principal Board Member WCFC /s/ Wade B. Cook ------------------------------ Wade B. Cook, Attorney-in-Fact STATE OF WASHINGTON ) )ss. COUNTY OF KING ) On the 26th day of March, 1998 personally appeared before me Eric Marler signer of the above instrument, who duly acknowledged to me that he or she executed the same. My Commission Expires /s/ Jodi L. Coval -------------------------- [SEAL] Notary Public May 19, 2000 Name: Jodi L. Coval EX-27 4 FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED BALANCE SHEETS, STATEMENTS OF INCOME CHANGES IN SHAREHOLDERS EQUITY AND CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR YEAR 9-MOS DEC-31-1997 DEC-31-1996 DEC-31-1995 JAN-01-1997 JAN-01-1996 JAN-01-1995 DEC-31-1997 DEC-31-1996 DEC-31-1995 571 635 0 6,163 3,801 0 8,348 3,487 0 58 0 0 1,312 396 0 12,778 6,959 0 12,055 7,496 0 1,630 361 0 41,404 16,938 0 23,828 10,850 0 821 1,769 0 0 0 0 0 0 0 642 67 0 15,425 3,635 0 41,404 16,938 0 33,253 9,548 6,504 104,905 40,724 6,504 12,459 3,716 2,122 39,068 15,683 2,877 50,099 20,302 3,234 0 0 0 309 263 33 15,035 4,666 239 6,063 1,601 171 8,992 3,064 68 0 0 0 0 0 0 0 0 0 8,992 3,064 68 0.14 0.12 .002 0.14 0.12 .002
EX-99.1 5 EXHIBIT-99.1 Exhibit 99.1 SHARE EXCHANGE AGREEMENT THIS AGREEMENT (the "Agreement" and/or the "Share Exchange") is entered into as of September 12, 1997, between Profit Financial Corporation, soon to be Wade Cook Financial Corporation ("WADE"), a Utah corporation and Applied Voice Recognition, Inc. ("AVRI"), a Utah corporation. REPRESENTATION 1. WADE is a publicly traded corporation (ticker symbol "WADE") organized and existing under the laws of the State of Utah. 2. AVRI is a publicly traded corporation (ticker symbol "AVRI") organized and existing under the laws of the State of Utah. AGREEMENT In consideration of the foregoing recitals, the covenants and conditions set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. WADE will acquire 100,000 shares of the authorized but unissued common stock of AVRI in exchange for 14,433 shares of the authorized but unissued common stock of WADE in a dollar-for-dollar exchange based on the closing price of each stock as of the date of this agreement. 2. Each party shall sign an investment letter pursuant to Rule 144 upon receiving the shares. 3. Each of WADE and AVRI shall take, or cause to be taken, all action or do, or cause to be done, all things necessary, proper or advisable under the laws of the State of Utah to consummate and make effective the Share Exchange. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this AGREEMENT as of the date first set forth above. APPLIED VOICE RECOGNITION, INC. PROFIT FINANCIAL CORPORATION __________________________ ___________________________ By: Timothy J. Connolly By: Wade B. Cook Its: Chairman & CEO Its: President Share Exchange Agreement THIS AGREEMENT (the "Agreement" and/or the "Share Exchange") is entered into as of September 2, 1997, between Wade Cook Financial Corporation ("WCFC"), a Nevada corporation, and Thomas Cloward, a resident of Washington ("Cloward"). REPRESENTATION A. WCFC is a corporation organized and existing under the laws of the State of Nevada. B. The authorized capital stock of WCFC consists of One Hundred Forty Million (140,000,000) of which One Hundred Forty Million shares of common stock, par value $0.01, of which approximately Sixty Million Four Hundred Thirty Five Thousand shares are duly issued and outstanding on the date hereof and Five Million shares of preferred stock, par value $10.00, none of which are issued and outstanding. C. PDC is a corporation organized and existing under the laws of the State of Utah whose audited financial statements are attached hereto as Exhibit B and are complete and accurate. D. The authorized capital stock of PDC consists of One Million (1,000,000) shares divided into One Million shares of common stock, par value $1.00, of which approximately Ninety One Thousand Five Hundred shares are duly issued and outstanding on the date hereof and no shares of preferred stock. E. WCFC and PDC enter into this Agreement whereby WCFC will acquire all of the issued and outstanding stock of PDC by issuing 10,000 restricted shares of common stock of WCFC to the shareholders of PDC in exchange for shares of common stock of PDC held by them at an exchange rate of one share of WCFC for each one share of PDC held. WCFC and PDC intend the exchange to qualify as a tax-free reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. AGREEMENT In consideration of the foregoing recitals, the covenants and conditions set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Share Exchange; Effectiveness The shareholders of shares of Common Stock of PDC shall exchange their shares for his or her proportionate share of 10,000 newly issued shares of Common Stock of WCFC in accordance with the terms and conditions of this Agreement. Upon the execution of this Agreement by PDC and WCFC the date for the effectiveness of this Agreement (the "Effective time of the Share Exchange") shall be the date at which PDC shareholders owning 100% of the PDC shares tender their shares to WCFC. 2. Exchange of Shares At the Effective Time of the Share Exchange: (a) Each shareholder of PDC shall be issued his or her proportionate share(s) of fully paid and nonassessable common stock of WCFC as stated in section 1. Each shareholder of PDC shall sign an investment letter pursuant to Rule 144 upon receiving WCFC shares. (b) All shares of capital stock of PDC that are tendered to WCFC shall be retained by WCFC and PDC shall become a wholly owned subsidiary of WCFC. . Implementation Each of WCFC and PDC shall take, or cause to be taken, all action or do, or cause to be done, all things necessary, proper or advisable under the laws of the State of Utah and the State of Nevada to consummate and make effective the Share Exchange. 4. Amendment This Agreement may, to the extent permitted by law, be amended, supplemented or interpreted at any time by action taken by the Board of Directors of both of PDC and WCFC; provided, however, that this Agreement may not be amended or supplemented after having been approved by the shareholders of PDC except by a vote or consent of shareholders in accordance with applicable law. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first set forth above. PUBLISHERS DISTRIBUTION CENTER, INC. _____________________________ By: William Beutler _____________________________ By: Cora Beutler _____________________________ By: Scott Beutler _____________________________ By: Delvin Jenks WADE COOK FINANCIAL CORPORATION _____________________________ By: Wade B. Cook, Chairman and Chief Executive Officer EX-99.3 6 EX-99.3 Exhibit 99.3 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (the "Agreement") for the purchase of the common stock of Worldwide Publishers, Inc., a Utah corporation (the "Corporation") is made as of August 8, 1997, between Profit Financial Corporation, a Utah corporation ("Buyer") and Curtis A. Taylor and Stanley J. Zenk ("Sellers"). RECITALS WHEREAS, Sellers own all of the issued and outstanding shares of capital stock of the Corporation, a Utah corporation, which consists of forty thousand (40,000) shares of common stock with no par value, (the "Common Stock"). WHEREAS, Buyer desires to purchase from Sellers, and Sellers desire to sell to Buyer, all of the Common Stock (the "Stock Purchase"); WHEREAS, the Stock Purchase will completely terminate Seller's interest in the Corporation; WHEREAS, the parties hereto desire to complete the Stock Purchase upon the terms and conditions hereinafter stated; NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter set forth, it is agreed as follows: AGREEMENT 1. Sale of Stock. Sellers hereby agree to sell and deliver to Buyer, and Buyer hereby agrees to purchase from Sellers, all of the issued and outstanding shares of capital stock of the Corporation, comprised of forty thousand (40,000) shares of common stock (the "Common Stock"). 2. Purchase Price and Payment. The purchase price for the Common Stock shall be One Dollar ($1.00). 3. Closing. Unless otherwise agreed by the parties, the closing shall occur on or before September 25, 1997, at 11:00 a.m. (the "Closing"), at the offices of Monahan & Biagi, P.L.L.C., or at such other time and place as the parties may agree upon. At the Closing, Sellers shall deliver, or cause to be delivered, to Buyer the certificates representing the Common Stock, duly endorsed in blank and in good order for transfer, the corporate minute book, seal, and the stock records of the Corporation. At Closing Buyer shall pay the Purchase Price to Sellers. At or upon Closing, the parties shall execute all other documents and take such other actions as are reasonably necessary to carry out the terms of this Agreement and consummate the transactions contemplated hereby. 1 4. Representations and Warranties of Sellers. Sellers jointly and severally represent and warrant to Buyer as follows: a. Authority. Sellers have the authority to enter into this Agreement and to carry out their obligations hereunder. Sellers represent that this Agreement is a valid and binding obligation of Sellers. Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby nor compliance by Sellers with any of the provisions hereof will result in a default (or give rise to any right of termination, cancellation, or acceleration) under any of the terms conditions or provisions of any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which either Seller is a party, or by which they or any of their properties or assets may be bound. b. Clear Title. Sellers are the owners, free and clear of any encumbrances, of all the outstanding shares in the Corporation. c. Financial Statements. Sellers have furnished Buyer a Corporation balance sheet as of August 26, 1997 (the "Balance Sheet"), and the related statements of income and changes in financial position for the periods then ended. Such financial statements are in accordance with generally accepted accounting principles and fairly present the financial position and the results of operations, and changes in financial position of the Corporation for the periods indicated. d. Absence of Undisclosed Liabilities. There is no material liability or other obligation of a type which would be included in a balance sheet prepared in accordance with generally accepted accounting principles except as and to the extent disclosed or reflected in the Balance Sheet. For purposes of this Agreement, liabilities or other obligations in excess of Five Thousand Dollars ($5,000.00) shall be deemed material. If any undisclosed material liability arises, Sellers shall reimburse Buyer and/or the Corporation up to an aggregate maximum of $275,000. e. No Material Change. Since the date of the Balance Sheet, there has been no material adverse change in the working capital, financial condition, property assets, or results of operations of Corporation. f. Tax Matters. Sellers have caused the Corporation to file all federal, state and local tax returns required to be filed or have received extension to file such returns. All taxes shown by such returns to be due and payable have been paid or are being contested in good faith. Any taxes due in excess of those listed on the financial statements shall be treated as an undisclosed liability pursuant to Section 4.d of this Agreement. g. Legal Proceedings and Compliance with Law. Except as set forth in Corporation's financial statements, there is no legal or administrative proceeding or governmental investigation pending or threatened which might result in the aggregate in 2 money damages payable by Corporation in excess of insurance coverage, or which might result in a permanent injunction against Sellers. Corporation has substantially complied with any laws, ordinances, requirements, regulations, or orders applicable to its business, the violation of which might adversely affect its business. h. Accuracy of Statements. Neither this Agreement nor any statement or other information furnished or to be furnished by Sellers to Buyers in connection with this Agreement or any of the transactions contemplated hereby contains or will contain an untrue statement of material fact, or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. 5. Representations and Warranties of Buyer. Buyer represents and warrants to Sellers as Follows: a. Authority. Buyer has the authority to enter into this Agreement and to carry out its obligations hereunder. Buyer represents that this Agreement is a valid and binding obligation of Buyer. b. Accuracy of Statements. Neither this Agreement nor any statement or other information furnished by Buyer to Sellers in connection with this Agreement or any of the transactions contemplated hereby contains or will contain an untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein, not misleading. 6. Covenants of Sellers. Sellers agree that, unless Buyer otherwise agrees in writing, from the date of this Agreement until Closing; a. Preservation of Business. Sellers shall use their best efforts to preserve intact the Corporation's present business organization; preserve and protect the goodwill and advantageous relationships of the Corporation with its customers and other persons having business dealings with the Corporation; preserve and maintain in force all licenses, permits, registrations, trade names, service marks, copyrights, bonds and other similar rights of the Corporation; and cause the Corporation to comply with all laws applicable to the conduct of its business. b. Ordinary Course. Sellers shall cause the Corporation to conduct its business only in the usual, regular and ordinary course, in substantially the same manner as previously, and shall not make any substantial change to their methods of management or operation in respect of the Corporation. c. Books and Records. Sellers shall cause the Corporation to 3 maintain its books, accounts and records in the usual and regular manner, in accordance with generally accepted accounting principles consistently applied and in compliance with all applicable laws. d. Investigation. Sellers shall at all reasonable times permit Buyer access to the Corporation's property, books and records for the purpose of permitting a complete and detailed examination by Buyer, and Sellers shall furnish Buyer, upon request, any information reasonably requested with respect to the Corporation's property, assets, business and affairs. 7. Covenants of Buyer. Buyer agrees, unless Sellers otherwise agree in writing, that Buyer shall obtain prior to Closing all necessary consents and approvals of all necessary persons to the performance by Buyer of the Stock Purchase contemplated by this Agreement. Buyer shall make all filings applications, statements and reports to all federal and state government agencies or entities which are required to be made prior to Closing by or on behalf of Buyer pursuant to any statute, rule or regulation in connection with the transactions contemplated by this Agreement. 8. Seller's Negative Covenants. Sellers hereby covenant and warrant that, from the date of this Agreement until Closing, they will not, without the prior written consent of the Buyer, cause the Corporation to declare or pay and dividend; redeem or otherwise acquire any shares of its capital stock now or hereafter outstanding; issue any new or additional shares, or cancel, sell, transfer or otherwise dispose of the Stock purchased hereunder. Sellers further covenant that they will not cause the Corporation to create any additional obligations to employees that will survive Closing, including, but not limited to, employee benefit plans, bonuses, and other compensation. 9. Conditions Precedent to Obligations of Sellers. The obligations of Sellers under this Agreement are subject to the satisfaction of the following conditions on or before Closing unless waived in writing by Sellers; a. Accuracy of Representations and Warranties. The representations and warranties of buyer set forth in Section 5 hereof shall be true and correct in all material respects as of the date of this Agreement and as of closing as though made on and as of Closing, except as otherwise specified by this Agreement. b. Performance of Obligations of Buyer. Buyer shall have in all material respects performed all obligations and agreements and complied with all covenants and conditions contained in this Agreement to be performed and complied with by them. c. Corporate Action. The Corporation and its shareholders and Board of Directors shall have passed all necessary resolutions and performed all other actions necessary authorizing the transactions contemplated by this Agreement. 10. Conditions Precedent to Obligations of Buyer. The obligations of 4 Buyer to perform under this Agreement are subject to the satisfaction of the following conditions on or before Closing unless waived in writing by Buyer: a. Accuracy of Representation and Warranties. The representations and warranties of Sellers set forth in Section 5 hereof shall be true and correct in all material respects as of the date of this Agreement and as of the closing date as though made on and as of Closing, except as otherwise specified by this Agreement. b. Performance of Obligations of Sellers. Sellers shall have in all material respects performed all obligations and agreements and complied with all covenants and conditions contained in this Agreement required to be performed and complied with by them. c. No Adverse Change. Between the date of this Agreement and Closing, there shall have been no material adverse change in the Corporation's business, assets or results or operation. d. Corporate Action. The Corporation and its shareholders and Board of Directors shall have passed all necessary resolutions and performed all other actions necessary authorizing the transactions contemplated by this Agreement. 11. Cancellation of Notes and Pledge. Sellers currently hold unpaid promissory notes from the Corporation totaling approximately $44,236.85 (the "Notes"). By executing this Agreement, the Sellers hereby waive and relinquish all powers and rights with respect to the Notes or collection thereof. On August 8, 1997, Curtis A. Taylor signed a Pledge of Shares of Stock as security for two Notes held by Buyer. By executing this Agreement, Buyer hereby cancels and terminates the Pledge of Shares of Stock signed by Curtis A. Taylor. 12. Survival of Representations and Warranties. Each party hereto covenants and agrees that its representations and warranties contained in this Agreement, and in any document delivered or to be delivered pursuant to this Agreement in connection with Closing hereunder, shall survive Closing. 13. Successors. This Agreement shall inure to the benefit of and be binding upon the parties hereto, their successors, heirs, personal representatives, and assigns. 14. Notices. All notices, requests, demands, and other communications which are required or may be given under this Agreement shall be in writing, unless otherwise specified in this Agreement, and shall be deemed to have been duly given if delivered personally or sent by certified mail, return receipt requested, postage prepaid, addressed as follows: If to Sellers: Stanley J. Zenk 5 5421 Buck Mountain Road Placerville, CA 95667 With a copy to: David J. Crapo Wood Crapo LLC 60 East South Temple, #500 Salt lake City, UT 84111 If to the Buyer: Kiman Lucas, Esq. General Counsel Profit Financial Corporation 14675 Interurban Avenue South Seattle, WA 98168-4664 With a copy to: Tracy M. Shier Monahan & Biagi, P.L.L.C. 57th Floor, Suite 5701 701 Fifth Avenue Seattle, WA 98104-7010 or to such other addresses any party shall have specified by notice in writing to the other. 15. Applicable Law. This Agreement and the legal relations between the parties hereto shall be governed by and in accordance with the law of the State of Utah. 16. Attorney's Fees. In any action or proceeding brought by any party against the other, the substantially prevailing party shall, in addition to other allowable costs, by entitled to an award of reasonable attorney's fees. 17. Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning and interpretation of this Agreement. 18. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. 6 Sellers: __________________________________________ Curtis Taylor __________________________________________ Stanley J. Zenk Buyer: PROFIT FINANCIAL CORPORATION __________________________________________ Wade B. Cook Its Chairman and Chief Executive Officer 7 8 EX-99.4 7 EX-99.4 EXHIBIT 99.4 STOCK PURCHASE AGREEMENT Effective as of the 1st day of August, 1997, Wade Cook Financial Corporation, or its assignee (the "Buyer"), agrees to acquire from John V. Childers, Sr., Brenda Childers, Tracy Allan Childers and John V. Childers, Jr. (collectively the "Sellers") all of the outstanding capital stock of Ideal Travel Concepts, Inc., a Florida corporation (the "Company") for a purchase price of US $2,150,000, to be paid as set forth as herein. The Buyer and the Sellers are referred to collectively herein as the "Parties". The $2,150,000 purchase price will be payable on the Closing Date (hereinafter defined) subject to the shares of the Company being free and clear of all liens and encumbrances of any kind or nature whatsoever on the Closing Date. Now, therefore, in consideration of the premises and the mutual promises herein made, and in consideration of the representations, warranties, and covenants herein contained, the Parties agree as follows. 1. Definitions. "Adverse Consequences" means all charges, complaints, actions, suits, proceedings, hearings, investigations, claims, demands, judgments, orders, decrees, stipulation, injunctions, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees, including all reasonable attorneys' fees and court costs. "Affiliate" has the meaning set forth in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act of 1934, as amended. "Affiliated Group" has the meaning set forth in Code Sec. 1504(a). "Applicable Rate" means the announced prime rate in effect from time to time at Chase Manhattan Bank, N.A. "Basis" means any past or present fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction that forms or could reasonably be expected to form the basis for any specified consequence. "Buyer" has the meaning set forth in the preface above. "Closing" has the meaning set forth in Paragraph 2.3. below. "Code" means the Internal Revenue Code of 1986, as amended from time to time. 1 "Company" has the meaning set forth in the preface above. "Company Share" means any share of capital stock of the Company, including the Common Stock and the Preferred Stock. "Closing Date" is the date of Closing agreed to by the parties provided it is no later than 30 days after the date of execution of this Stock Purchase Agreement. "Confidential Information" means trade secrets and other information not generally known concerning the Company. "Disclosure Schedule" has the meaning set forth in Paragraph 4 below. "Employee Benefit Plan" means a qualified defined contribution retirement plan or arrangement, which is a Code Section 401(k) Plan, or a Company or Seller provided retirement plan. "Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec. 3(2). "Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec. 3(1). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Extremely Hazardous Substance" has the meaning set forth in Sec. 302 of the Emergency Planning and Community Right-to-Know Act of 1986, as amended. "Fiduciary" has the meaning set forth in ERISA Sec. 3(21). "Financial Statements" has the meaning set forth in Paragraph 4.5 below. "GAAP" means United States generally accepted accounting principles as in effect from time to time. "Indemnified Party" has the meaning set forth in Paragraph 8.3 below. "Indemnifying Party" has the meaning set forth in Paragraph 8.3 below. "Intellectual Property" means all (a) trademarks, service marks, trade dress, logos, trade names, and corporate names and registrations and applications for registration thereof, (b) copyrights and registrations and applications for registration thereof, -C- mask works and registrations and applications for registration thereof, (d) computer software, data, and documentation, (e) trade secrets and confidential business information (including ideas, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, 2 marketing, and business data, pricing and cost information, business and marketing plans, and customer and supplier lists and information), (f) other proprietary rights, and 9g) copies and tangible embodiments thereof (in whatever form or medium). "Knowledge or Known" means knowledge a reasonable person would or should have after reasonable investigation. "Liability" means any liability, Known or unknown at the time of Closing (whether absolute or contingent, whether liquidated or unliquidated, and whether due or to become due), including any liability for Taxes. "Most Recent Balance Sheet Date" has the meaning set forth on Paragraph 4.5 below. "Most Recent Fiscal Year End" has the meaning set forth in Paragraph 4.5 below. "Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37). "Ordinary Course of Business" means the ordinary course of business consistent with past custom and practice (including with respect to quantity and frequency). "Party" or "Parties" means the Buyer and/or the Sellers in this Agreement. "PBGC" means the Pension Benefit Guaranty Corporation. "Prohibited Transaction" has the meaning set forth in ERISA Sec. 406 and Code Sec. 4975. "Purchase price" has the meaning set forth in Paragraph 2.2 below. "Reportable Event" has the meaning set forth in ERISA Sec. 4043. "Securities Act" means the Securities Act of 1933, as amended. "Security Interest" means any mortgage, pledge, security interest, encumbrance, charge, or other lien, other than (a) mechanic's, materialmen's and similar liens arising by operation of law in the ordinary course of business with respect to obligations not yet delinquent, (b) liens for Taxes not yet due and payable, -C- liens arising under worker's compensation, unemployment insurance, social security, retirement, and similar legislation, (d) liens arising in connection with sales of foreign receivables, (e) liens on goods in transit incurred pursuant to documentary letters of credit, (f) purchase money liens and liens securing rental payments under capital lease arrangements, and (g) other liens arising in the Ordinary Course of Business and not incurred in connection with the borrowing of money. 3 "Sellers" has the meaning set forth in the preface above. "Subsidiary" means any corporation with respect to which another specified corporation has the power to vote or direct the voting of sufficient securities to elect a majority of the directors. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, occupation, premium, environmental (including taxes under Code Sec. 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. 2. Purchase and Sale of Company 2.1. Basic Transaction. On and subject to the terms and conditions of this Agreement, the Buyer agrees to purchase from the Sellers, and the Sellers agree to sell to the Buyer, all of the issued and outstanding Shares of the Company for the consideration specified below in this Paragraph 2. 2.2 Purchase Price. The Buyer agrees to issue to the Sellers on the Closing Date a total of 358,333 shares of restricted Class A Common Stock of Buyer (the "Purchase Shares") of which John V. Childers, Sr., Brenda Childers and Tracy Alan Childers each shall be issued 107,500 shares, and John V. Childers, Jr. Shall be issued 35,833 shares, as adjusted for any recapitalizations of Company Shares since the effective date of this Agreement. The price per share of the Purchase Shares is agreed to be $6.00 per share, for a total consideration of $2,150,000. 2.3 The Closing. The closing of the transactions (the "Closing") contemplated by this Agreement which shall be the same day as the Closing Date, shall take place at the offices of Monahan & Biagi, P.L.L.C. in Seattle, Washington commencing at 11:00 a.m. local time on December 30, 1997 or such other date or place as the Buyer and the Seller may mutually determine. 2.4 Deliveries at the Closing. At the Closing, (i) the Sellers will deliver to the Buyer the various certificates, instruments, and documents referred to in Paragraph 7.1 below, (ii) the Buyer will deliver to the Sellers the various certificates, instruments, and documents referred to in Paragraph 7.2 below, 4 (iii) Sellers will deliver to the Buyer stock certificates representing all Company Shares, endorsed in blank or accompanied by duly executed assignment documents, and (iv) the Buyer will instruct its transfer agent to deliver to the Sellers the Purchase Shares. 3. Representations and Warranties Concerning the Transaction. 3.1 Representations and Warranties of the Sellers. The Sellers, jointly and severally, represent and warrant to the Buyer that the statements contained in this Paragraph 3 are correct and complete upon execution of this Agreement except as set forth in the Schedules attached hereto. 3.1.1 Authorization of Transaction. The Sellers have full power and authority to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Sellers, enforceable in accordance with its terms and conditions. The Sellers need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. 3.1.2 Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which the Sellers or the Company are subject or (B) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any material contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other arrangement to which the Sellers or the Company are a party or by which any of themare bound or to which any of their assets are subject. In addition, all governmental and other consents and approvals, if any, necessary to permit the confirmation of the transaction contemplated by this Agreement shall have been received. 3.1.3 Broker's Fees. The Sellers have no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which the Buyer or the Company could become liable or obligated. 5 3.1.4 Company Shares. The Sellers hold of record and own beneficially all of the issued and outstanding Company Shares, free and clear of any restrictions on transfer (other than any restrictions under the Securities Act and state securities laws), claims, Taxes, mortgage, pledge, security interest, encumbrance, charge, other lien, options, warrants, rights, contracts, calls, commitments, equities, and demands. None of the Sellers is a party to any option, warrant, right, contract, call, put, or other agreement or commitment providing for the disposition or acquisition of any capital stock of the Company 9other than this Agreement). None of the Sellers is a party to any voting trust, proxy, or other agreement or understanding with respect to the voting of any capital stock of the Company. 3.1.5 Due Diligence. The Sellers agree to make available to the Buyer and its agents, officers, and representatives, all information as the Buyer may reasonably require to permit the Buyer to complete its Due Diligence review of the Company and this transaction up to and through the Closing Date. 3.1.6 Consent of third parties. The Sellers shall obtain the consent of any third parties which may be necessary as the result of this transaction, including, but not limited to, the transfer of the rights and obligations of the Company under its Agreements with Airlines Reporting Corporation (ARC") and the International Airlines Travel Agent Network ("IATAN"); the consent of such of the Company's lessors as are required to the transaction and the consent of any regulatory authorities or parties to existing contracts between the third party and the Company or the Sellers, provided, however, that with respect to the consent of ARC and IATAN, Sellers shall have up to six months after the Closing Date to obtain such consents. 3.1.7 Seller's Sophistication. The Sellers are persons of adequate financial sophistication and have such knowledge and experience in financial and business matters that Sellers have evaluated the merits and risks of this transaction for Seller's own accounts. 3.1.8 Investment Objective. Sellers are acquiring the Purchase Shares pursuant to this Agreement for investment for their own account and not with a view to the sale or distribution of any part thereof. Sellers have no present intention of selling, granting participation in or otherwise distributing the same. Sellers acknowledge that the Purchased Shares have been offered and transferred pursuant to exemptions from registration under the Securities Act and relevant state securities laws and that the reliance of the Buyer upon such exemptions is predicated on 6 the accuracy of Sellers' representations and warranties herein. Sellers have no current intention with respect to any such future sale. 3.1.9 Restrictions on Purchased Shares. Sellers acknowledge and agree that the Purchased Shares are being issued without registration under the Securities Act or any similar state statute, and will ear the following legend: "The shares represented by this certificate have not been registered under the Securities Act of 1933 (the "Act") or any state securities laws in reliance on applicable exemptions therefrom. Accordingly, the transfer or resale of these shares is restricted and may only be accomplished when accompanied by an opinion of counsel that such transfer or resale is exempt from the registration requirements of the act or state laws." 3.2 Representations and Warranties, of the Buyer. The Buyer represents and warrants to the Sellers that the statements contained in this Paragraph 3.2 are correct upon execution of this Agreement. 3.2.1 Organization of the Buyer. The Buyer is a corporation duly organized, validly existing, and in good standing under the laws of the State of Utah as of the effective date of this Agreement, and duly incorporated under the laws of the State of Nevada as of the Closing Date. 3.2.2 Authorization of Transaction. The Buyer has full power and authority (including full corporate power and authority) to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement constitutes the valid and legally binding obligation of the Buyer, enforceable in accordance with its terms and conditions. The Buyer need not give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental agency in order to consummate the transactions contemplated by this Agreement. 3.2.3 Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (A) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which the Buyer is subject or any provision of its charter or bylaws or (B) to the best of Buyer's knowledge, conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any contract, lease, sublease, license, sublicense, franchise, permit, 7 indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other arrangement to which the Buyer is a party or by which it is bound or to which any of its assets is subject. 3.2.4 Broker's Fees. The Buyer has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by this Agreement for which Sellers could become liable or obligated. 3.2.5 Investment. The Buyer is not acquiring the Company Shares with a view to or for sale in connection with any distribution thereof within the meaning of the Securities Act. Buyer represents and warrants it understands the Company Shares have not been registered under the Securities Act and, therefore, cannot be resold unless subsequently registered under the Securities Act or an exemption from regulation is available. 3.2.6 Purchase Shares. The Purchase Shares, when issued, shall be newly issued shares of Buyer, and shall be delivered free and clear of any restrictions on transfer (other than restrictions under this Agreement, the Pledge Agreement, the Securities Act and state securities laws), claims, taxes, mortgage, pledge, security interest, encumbrance, charge, other lien, options, warrants, rights, contracts, calls, commitments, equities and demands. 4. Representations and Warranties of the Sellers Concerning the Company. The Sellers, jointly and severally, represent and warrant to the Buyer that the statements contained in this Paragraph 4 are correct and complete upon execution of this Agreement, except as set forth in the disclosure schedule delivered by the Sellers to the Buyer on the date hereof and initialed by the Parties (the "Disclosure Schedule" and as contained in Annex I hereto). Nothing in the Disclosure Schedule shall be deemed adequate to disclose an exception to a representation or warranty made herein, however, unless the Disclosure Schedule identifies the material facts of the exception. Without limiting the generality of the foregoing, the mere listing (or inclusion of a copy) in the Disclosure Schedule of a document, or reference to a document, as an exhibit, schedule or otherwise part of this Agreement, may not be deemed adequate to disclose an exception to a representation or warranty made herein (unless the representation or warranty has to do with the existence of the document itself). The Disclosure Schedule will be arranged in paragraphs corresponding to the lettered and numbered paragraphs contained in this Paragraph 4. 4.1 Organization, Qualification and Corporate Power. The Company is a corporation duly organized, validly existing, and in good standing under the laws of the state of Florida. The Company is duly authorized to conduct business and is in good standing under the laws of each jurisdiction in which the 8 nature of its businesses or the ownership or leasing of its properties requires such qualification except where the failure to qualify will not individually or in the aggregate have a material adverse effect on the Company ("no material adverse effect"). The Company has full corporate power and authority to carry on the businesses in which it is engaged and to own and use the properties owned and used by it. Paragraph 4.1 of the Disclosure Schedule lists the directors and officers of the Company. The Sellers have delivered to the Buyer correct and complete copies of the charter and bylaws of the Company (as amended to date). The minute books containing the records of meetings of the stockholders, the board of directors, and any committees of the board of directors, the stock certificate books, and the stock record books of the Company are correct and complete. The Company is not in default under or in violation of any provision of its charter or bylaws. 4.2 Capitalization. The entire authorized capital stock of the Company consists of 1,000 shares of Common Stock, $1.00 par value, of which 1,000 Company Shares are issued. All of the issued Company Shares have been duly authorized, are validly issued, fully paid, and nonassessable, and are held beneficially and of record by the Sellers. There are no outstanding or authorized options, warrants, rights, contracts, calls, puts, rights to subscribe, conversion rights, or other agreements or commitments to which the Company is a party or which are binding upon the Company providing for the issuance, disposition, or acquisition of any of its capital stock. There are no outstanding or authorized stock appreciation, phantom stock, or similar rights with respect to the Company. There are no voting trusts, proxies, or any other agreements or understandings with respect to the voting of the capital stock of the Company. 4.3 Noncontravention. Neither the execution and the delivery of this Agreement, nor the consummation of the transactions contemplated hereby, will (i) violate any statute, regulation, rule, judgment, order, decree, stipulation, injunction, charge, or other restriction of any government, governmental agency, or court to which the Company is subject or any provision of the charter or bylaws of the Company or (ii) conflict with, result in a breach of, constitute a default under, result in the acceleration of, create in any party the right to accelerate, terminate, modify, or cancel, or require any notice under any material contract, lease, sublease, license, sublicense, franchise, permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, Security Interest, or other arrangement to which the Company is a party or by which either is bound or to which any of its assets is subject (or result in the imposition of any Security Interest upon any of its assets). The Company does not need to give any notice to, make any filing with, or obtain any authorization, consent, or approval of any government or governmental 9 agency in order for the Parties to consummate the transactions contemplated by this Agreement. 4.4 Subsidiaries. The company has no Subsidiaries, and owns no interest in any corporation, partnership, joint venture or other entity. 4.5 Financial Statements. Attached hereto as Exhibit B are the following financial statements (collectively the "Financial Statements"): (i) unaudited balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and for the fiscal year ended December 31, 1996 (the "Most Recent Fiscal Year End") as well as for the Fiscal Years ended 1994 and 1995 for the Company; and (ii) unaudited balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and for the nine month period ending September 30, 1997 (the "Most Recent Balance Sheet" or the "Most Recent Balance Sheet Date") for the Company. The Financial Statements have been prepared in accordance with GAAP applied on a consistent basis throughout the periods covered thereby, are correct and complete, and are consistent with the books and records of the Company (which books and records are correct and complete). 4.6 Events Subsequent to Most Recent Balance Sheet Date. Since the Most Recent Balance Sheet Date, there has not been any material adverse change in the assets, liabilities, business, financial condition, operations, results of operations, or to the best of Sellers' knowledge, future prospects of the Company taken as a whole. Without limiting the generality of the foregoing, since that date: 4.6.1 the Company has been managed and operated in its usual and customary manner. 4.6.2 the Company has not sold, leased, transferred, or assigned any material assets, tangible or intangible, in an amount of more than $15,000 other than for a fair consideration or in the Ordinary Course of Business; 4.6.3 the Company has not entered into any contract, lease, sublease, license, or sublicense (or series of related contracts, leases, subleases, licenses, and sublicenses) either involving more than $15,000 or outside the Ordinary Course of Business or involving a contract for a term of more than one year; 10 4.6.4 to the best of Sellers' knowledge, no party (including the Company) has accelerated, terminated, modified, or canceled any contract, lease, sublease, license, or sublicense (or series of related contracts, leases, subleases, licenses, and sublicenses) outside the Ordinary Course of Business involving more than $15,000 to which the Company is a party or by which the Company is bound; 4.6.5 the Company has not granted any Security any Security Interest in any of its assets, tangible or intangible; 4.6.6 the Company has not made any capital expenditure (or series of related capital expenditures) involving more than $15,000 or which is outside the Ordinary Course of Business; 4.6.7 the Company has not made any capital investment in, any loan to, or any acquisition of the securities or assets of any other person (or series of related capital investments, loans, and acquisitions) either involving more than $15,000 or outside the Ordinary Course of Business; 4.6.8 the Company has not created, incurred, assumed, or guaranteed any indebtedness (including capitalized lease obligations) either involving more than $15,000 singly or $15,000 in the aggregate or outside the Ordinary Course of Business; 4.6.9 the Company has not delayed or postponed (beyond its normal practice) the payment of accounts payable and other Liabilities; 4.6.10 the Company has not canceled, compromised, waived, or released any right or claim (or series of related rights and claims) either involving more than $15,000 or outside the Ordinary Course of Business; 4.6.11 the Company has not granted any license or sublicense of any rights under or with respect to any Intellectual Property; 4.6.12 there has been no change made or authorized in the charter or bylaws of the Company; 4.6.13 the Company has not issued, sold, or otherwise disposed of any of its capital stock, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion or exercise) any of its capital stock; 11 4.6.14 the Company has not declared, set aside, or paid, or otherwise distributed to shareholders, any cash or dividends or any other distribution with respect to its capital stock or redeemed, purchased, or otherwise acquired any of its capital stock. Nor shall the Company directly or indirectly redeem, purchase or otherwise acquire any capital, stock, or other equity interest in any corporation, partnership or other business entity without prior written consent of the Buyer (which consent will not be unreasonably withheld); 4.6.15 the Company has not experienced any material damage, destruction, or loss (whether or not covered by insurance) to its property involving an amount in excess of $15,000; 4.6.16 the Company has not made any loan to, or entered into any other transaction with, any of its directors, officers, and employees either involving more than $15,000 or outside the Ordinary Course of Business giving rise to any claim or right on its part against the person or on the part of the person against it; 4.6.17 the Company has not entered into any employment contract or collective bargaining agreement, written or, to the best of Sellers' Knowledge, oral, or, modified the terms of any existing such contract or agreement; 4.6.18 the Company has not granted any increase outside the Ordinary Course of Business in the base compensation of any of its directors, officers, and employees; 4.6.19 the Company has not adopted any (A) bonus, (B) profit-sharing, -C- incentive compensation, (D) pension, (E) retirement, (F) medical, hospitalization, life, or other insurance, (G) severance, or (H) contract, or commitment for any of its directors, officers, or employees, or modified or terminated any existing such plan, contract, or commitment; 4.6.20 the Company has not made any other material change in the management, capital structure, personnel or employment terms for any of its directors, officers, and employees outside the Ordinary Course of Business; 4.6.21 the Company has not made or pledged to make any charitable or other capital contribution outside the Ordinary Course of Business; 12 4.6.22 there has not been any other material occurrence, event, incident, action, failure to act, or transaction outside the Ordinary Course of Business involving the Company; and 4.6.23 the Company has not committed to any of the foregoing in this Paragraph 4.6 except as qualified above. 4.7 Undisclosed Liabilities. The company has no material Liability (and there is no Basis for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand against the Company giving rise to any material Liability, except for (i) Liabilities set forth on the face of the Most Recent Balance Sheet Date (rather than in any notes thereto) and (ii) Liabilities which have arisen after the Most Recent Balance Sheet Date in the Ordinary Course of Business (none of which relates to any breach of contract, breach of warranty, tort, infringement, or violation of law or arose out of any charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand). 4.8 Tax Matters. 4.8.1 The Company has filed all Tax Returns that it was required to file. All such Tax Returns were correct and complete in all material respects. All Taxes owed by the Company (whether or not shown on any Tax Return) have been paid. The Company is currently not the beneficiary of any extension of time within which to file any Tax Return. No claim has been made by any authority in a jurisdiction where the Company does not file Tax Returns that it is or may be subject to taxation by that jurisdiction. There are no Security Interests on any of the assets of the Company that arose in connection with any failure (or alleged failure) to pay any Tax. 4.8.2 The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party. 4.8.3 Neither the Sellers nor any director or officer (or employee responsible for Tax matters) of the Company expects any authority to assess any additional Taxes for any period for which Tax Returns have been filed. There is no dispute or claim concerning any Tax Liability of the Company either (A) claimed or raised by any authority in writing or (B) as to which any of the Sellers and the directors and officers (and employees responsible for Tax matters) of the Company has Knowledge based upon personal contact with any agent of such authority. Since the Company's incorporation, those Tax Returns have not been audited, nor are those Tax Returns currently subject to audit. 13 4.8.4 The Sellers have made available to the Buyer correct and complete copies of all federal income Tax Returns since 1994. 4.8.5 The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. 4.8.6 The Company has not filed a consent under Code Sec. 341(f) concerning collapsible corporations. The Company has not made any payments, is obligated to make any payments, nor is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code Sec. 280G or 162(m). The Company has been a United States real property holding corporation within the meaning of Code Sec. 897-C-(1)(A)(ii). The Company has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code Sec. 6661. The Company is not a party to any Tax allocation or sharing agreement. The Company has never been (or has any Liability for unpaid Taxes because it once was) a member of an Affiliated Group. The Company has never filed a consolidated return with any other affiliated company. 4.8.7 The unpaid Taxes of the Company do not exceed the respected reserve for Tax Liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Most Recent Balance Sheet (rather than in any notes thereto). 4.9 Tangible Assets. The Company owns or leases all tangible assets necessary for the conduct of its businesses as presently conducted and as presently proposed to be conducted. Each such tangible asset is free from Security Interests and defects (patent and latent), has been maintained in accordance with normal industry practice is in good operating condition and repair (subject to normal wear and tear), and, is suitable for the purposes for which it presently is used. 4.10 Owned Real Property. The Company owns no real property. 4.11 Intellectual Property 4.11.1 The Company owns or has the right to use pursuant to license, sublicense, agreement, or permission all Intellectual Property necessary for the operation of the businesses of the Company as presently conducted and as presently proposed to be conducted, a list and description of which is included in Paragraph 4.11 of the Disclosure 14 Schedule. The Company owns no patents and has not applied for any patent application, patent disclosure or patent improvement. Each item of Intellectual Property owned or used by the Company immediately prior to the Closing hereunder will be owned or available for use by the Company on identical terms and conditions immediately subsequent to the Closing hereunder. The Company has taken all reasonably necessary action to protect each item of Intellectual Property that it owns or uses. 4.11.2 The Company has not interfered with, infringed upon, misappropriated, or, otherwise come into conflict with any Intellectual Property rights of third parties, and none of the Sellers and the directors and officers 9and employees with responsibility for Intellectual Property matters) of the Company has never received any charge, complaint, claim, or notice alleging any such interference, infringement, misappropriation, or violation. To the best of Sellers' knowledge, no third party has interfered with, infringed upon, misappropriated, or otherwise come into conflict with any Intellectual Property rights of the Company. 4.11.3 The Sellers have delivered to the Buyer correct and complete copies of all registrations, applications, licenses, agreements, and permissions (as amended to date) and has made available to the Buyer correct and complete copies of all other written documentation evidencing ownership and prosecution (if applicable) of each such item. With respect to each item of Intellectual Property that the Company owns or uses: 4.11.3.1 the identified owner possess all right, title, and interest in and to the item; 4.11.3.2 the item is not subject to any outstanding judgment, order, decree, stipulation, injunction, or charge; 4.11.3.3 no charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand is pending or, is threatened which challenges the legality, validity, enforceability, use, or ownership of the item; and 4.11.3.4 The Company has never agreed to indemnify any person or entity for or against any interference, infringement, misappropriation, or other conflict with respect to the item. 15 4.11.4 Paragraph 4.11 of the Disclosure Schedule also identifies each item of Intellectual Property that any third party owns and that the Company uses pursuant to license, sublicense, agreement, or permission. The Sellers have supplied the Buyer with correct and complete copies of all such licenses, sublicenses, agreements, and permissions (as amended to date). With respect to each such item of used Intellectual Property: 4.11.4.1 the license, sublicense, agreement, or permission covering the item is legal, valid, binding, enforceable, and in full force and effect; 4.11.4.2 the license, sublicense, agreement, or permission will continue to be legal, valid, binding, enforceable, and is and will be in full force and effect on identical terms following the Closing; 4.12 Real Property Leases. Paragraph 4.13 of the Disclosure Schedule lists and describes briefly all real property leased or subleased to the Company. The Sellers have delivered to the Buyer correct and complete copies of the leases and subleases listed in Paragraph 4.13 of the Disclosure Schedule (as amended to date). With respect to each lease and sublease listed in Paragraph 4.13 of the Disclosure Schedule: 4.12.1 the lease or sublease is legal, valid, binding, enforceable, and in full force and effect; 4.12.2 the lease or sublease will continue to be legal, valid, binding, enforceable, and in full force and effect on identical terms following the Closing; 4.12.3 no party to lease or sublease is in breach or default, and no event has occurred which, with notice or lapse of time, would constitute a breach or default or permit termination, modification, or acceleration thereunder; 4.12.4 no party to the lease or sublease has repudiated any provision thereof; 4.12.5 there are no disputes, oral agreements, or forbearance programs in effect as to the lease or sublease; 16 4.12.6 the Company has not assigned, transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in the leasehold or subleasehold; 4.12.7 all premises leased or subleased thereunder have received all approvals of governmental authorities (including licenses and permits) required in connection with the operation thereof and have been operated and maintained in accordance with applicable laws, rules, and regulations; 4.12.8 all premises leased or subleased thereunder are supplied with utilities and other services necessary for the operation of said premises; and 4.12.9 the owner of the premises leased or subleased has good and marketable title to the parcel of real property, free and clear of any Security Interest, easement, covenant, or other restriction, except for (A) installments of special easements not yet delinquent and (B) recorded easements, covenants, and other restrictions which do not impair the current use, occupancy, or value, or the marketability of title, of the property subject thereto. 4.13 Contracts. Paragraph 4.14 of the Disclosure Schedule lists the following contracts, agreements, and other arrangements, written or oral, to which the Company is a party; 4.13.1 any arrangement (or group of related arrangements) for the lease of personal property from or to third parties providing for lease payments in excess of $15,000 per annum; 4.13.2 any arrangement (or group of related arrangements) for the lease of personal property from or to third parties providing for lease payments in excess of $15,000 per annum; 4.13.3 any arrangement concerning a partnership or joint venture; 4.13.4 any arrangement (or group of related arrangements) under which it has created, incurred, assumed, or guaranteed (or may create, incur, assume, or guarantee0 indebtedness (including capitalized lease obligations) involving more than $15,000 or under which it has imposed (or may impost) a Security Interest on any of its assets, tangible or intangible; 17 4.13.5 any arrangement concerning confidentiality or noncompetition; 4.13.6 any arrangement involving the Sellers; 4.13.7 any arrangement with any of its directors, officers, and employees in the nature of a collective bargaining agreement, employment agreement, or severance agreement; 4.13.8 any material arrangement under which the consequences of a default or termination is likely to have a material adverse effect on the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Company; or 4.13.9 any other arrangement (or group of related arrangements) either involving more than $15,000 or not entered into in the ordinary Course of Business. The Sellers have delivered to the Buyer a correct and complete copy of each arrangement listed in Paragraph 4.14 of the Disclosure Schedule. With respect to each arrangement so listed: (A) the arrangement is legal, valid, binding, enforceable, and in full force and effect; (B) the arrangement will continue to be legal, valid, binding, and enforceable and in full force and effect on identical terms following the Closing; (-C-no party is in breach or default, and no event has occurred which with notice or lapse of time would constitute a breach or default or permit termination, modification, or acceleration, under the arrangement; and (D) no party has repudiated any provision of the arrangement. No unfilled customer order or commitment obligating the Company to process, manufacture, or deliver products or perform services will result in a loss to the Company upon completion of performance. No purchase order or commitment of the Company is in excess of normal requirements, nor are prices provided therein in excess of current market prices for the products or services to be provided thereunder. No supplier of the Company has indicated within the past year that it will stop, or decrease the rate of, supplying materials, products, or services to it and no customer of the Company has indicated within the past year that it will stop, or decrease the rate of, buying materials, products, or services from it. 4.14 Notes and Accounts Receivable. All notes and accounts receivable as of the Most Recent Balance Sheet Date are reflected properly on the Company's books and records, are valid receivables subject to no setoffs or counterclaims and are presently current and collectible, subject only to the reserve for bad debts set forth on the face of the Most Recent Balance Sheet. 4.15 Powers of Attorney. There are no outstanding powers of attorney executed on behalf of the Company. 18 4.16 Insurance. Paragraph 4.17 of the Disclosure Schedule sets the forth the following information with respect to each insurance policy (including policies providing property, casualty, liability, and workers' compensation coverage and bond and surety arrangements) to which the Company has been a party, a named insured, or otherwise the beneficiary of coverage at any time within the past 2 years: 4.16.1 the name, address, and telephone number of the agent; 4.16.2 the name of the insurer, the name of the policyholder, and the name of each covered insured; 4.16.3 the policy number and the period of coverage; 4.16.4 the scope (including an indication of whether the coverage was on a claims made, occurrence, or other basis) and amount (including a description of how deductibles and ceilings are calculated and operate) of coverage; and 4.16.5 a description of any retroactive premium adjustments or other loss-sharing arrangements. 4.17 Litigation. The Company is not subject to any unsatisfied judgment, order, decree, stipulation, injunction, or charge and is not a party or, has not been threatened to be made a party to any charge, complaint, action, suit, proceeding, hearing, or investigation of or in any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction or before any arbitrator. 4.18 Employees. None of the directors and officers (and employees with responsibility for employment matters) of the Company, no key employee or group of employees has any plans to terminate employment with the Company, except as otherwise required by Buyer at Closing. The company is not a party to or bound by any collective bargaining agreement, nor has either experienced any strikes, grievances, claims of unfair labor practices, or other collective bargaining disputes. The Company has not committed any unfair labor practice. The Sellers and the directors and officers (and employees with responsibility for employment matters) of the Company have no Knowledge of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees of the Company. There are no outstanding severance obligations of the Company on or before the date of execution of this Agreement. 19 4.19 Employee Benefits. Paragraph 4.20 of the Disclosure Schedule lists each Employee Pension Benefit Plan and Employee Welfare Benefit Plan that the Company maintains or to which the Company contributes for the benefit of any current or former employee of the Company. 4.19.1 Each Employee Pension Benefit Plan and Employee Welfare Benefit Plan (and each related trust or insurance contract) complies in form and in operation in all respects with the applicable requirements of ERISA and the Code. 4.19.2 All required reports and descriptions (including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1's, and summary Plan Descriptions) have been filed or distributed appropriately with respect to each Employee Pension Benefit Plan and Employee Welfare Benefit Plan. The requirements of Part 6 of Subtitle Be of Title I of ERISA and of Code Sec. 4980B have been met with respect to each Employee Welfare Benefit Plan. 4.19.3 All contributions (including all employer contributions and employee salary reduction contributions) which are due have been paid to each Employee Pension Benefit Plan and all contributions for any period ending on or before the Closing Date which are not yet due have been paid to each Employee Pension Benefit Plan or accrued in accordance with the past custom and practice of the Company. All premiums or other payments owed by the employer for all periods ending on or before the Closing Date have been paid with respect to each Employee Welfare Benefit Plan. 4.19.4 Each Employee Pension Benefit Plan meets the requirements of qualified plan" under Code Sec. 401 (a) and a determination letter is being applied for with the IRS. 4.19.5 There have been no Prohibited Transactions with respect to any Employee Pension Benefit Plan and Employee Welfare Benefit Plan. No Fiduciary has any Liability for breach of fiduciary duty or any other failure to act or comply in connection with the administration or investment of the assets of any Employee Pension Benefit Plan and Employee Welfare Benefit Plans. No charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand with respect to the administration or the investment of the assets of any Employee Pension Benefit Plan and Employee Welfare Benefit Plan (other than routine claims for benefits) is pending or, to the knowledge of the Sellers and the directors and officers (and employees with responsibility for 20 employee benefits matters) of the Company, threatened. The Sellers and the directors and officers (and employees with responsibility for employee benefits matters) of the Company have no knowledge of any Basis for any such charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand. 4.19.6 The Sellers have delivered to the Buyer correct and complete copies of the plan documents and summary plan descriptions, Form 5500 Annual Reports, and all related trust agreements, insurance contracts, and other funding agreements which implement each Employee Benefit Plan. The Company does not contribute to, have never contributed to, nor has ever been required to contribute to any Multiemployer Plan or has any Liability (including withdrawal Liability) under any Multiemployer Plan. The Company has not incurred, and the Sellers and the directors and officers (and employees with responsibility for employee benefits matters) of the Company have no reason to expect that the Company will incur, any Liability to the PBGC (other than PBGC prenium payments) or otherwise under Title IV of ERISA (including any withdrawal Liability) or under the Code with respect to any Employee Pension Benefit Plan that the Company (as described in Code Section 414(b)(c) or (m), contributes, has ever contributed, and has never been required to contribute to any Employee Welfare Benefit Plan providing health, accident, or life insurance benefits to former employees, their spouses, or their dependents (other than in accordance with Code Sec. 4980B). 4.20 Guarantees. The Company is not a guarantor and is not otherwise liable for any Liability or obligation (including indebtedness) of any other person. 4.21 Environment, Health, and Safety. 4.21.1 No charge, complaint, action, suit, proceeding, hearing, investigation, claim, demand, or notice has been filed or commenced against the Company alleging any failure to comply with any such law or regulation. The Company has complied with all laws (including rules and regulations thereunder) of federal, state, local, and foreign governments (and all agencies thereof) concerning the environment, public health and safety, and employee health and safety. 4.21.2 The Company has no Liability (and there is no Basis related to the past or present operations, properties, or facilities of the Company for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand against the Company giving rise to any Liability) under the Comprehensive Environment Response, Compensation and Liability Act of 1980, the Resource Conservation and Recovery Act of 1976, the Federal Water Pollution Control Act of 1972, the Clean Air Act of 1970, the Safe drinking Water Act of 1974, the Toxic Substances Control Act of 1976, the Refuse Act of 1986 (each as amended), or any other law (or rule or regulation thereunder) of any federal, state, local, or foreign government (or agency thereof), 21 concerning release or theatened release of hazardous substances, public health and safety, or pollution or protection of the environment. 4.21.3 The Company has no Liability (and the Company has not handled or disposed of any substance, arranged for the disposal of any substance, or owned or operated any property or facility in any manner that could form the Basis for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand (under the common law or pursuant to any statute) against the Company giving rise to any Liability) for damage to any site, location, or body of water (surface or subsurface) or for illness or personal injury. 4.21.4 The Company has no Liability (and there is no Basis for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand against the Company giving rise to any Liability) under the Occupational Safety and Health Act, as amended, or any other law (or rule or regulation thereunder) of any federal, state, local, or foreign government (or agency thereof) concerning employee health and safety. 4.21.5 The Company has no Liability (and the Company has not exposed any employee to any substance or condition that could form the Basis for any present or future charge, complaint, action, suit, proceeding, hearing, investigation, claim, or demand (under the common law or pursuant to statute) against the Company giving rise to any Liability) for any illness of or personal injury to any employee. 4.21.6 The Company has obtained and been in compliance with all of the terms and conditions of all permits, licenses, and other authorizations which are required under, and has complied with all other limitations, restrictions, conditions, standards, prohibitions, requirements, obligations, schedules, and timetables which are contained in, all federal, state, local, and foreign laws (including rules, regulations, codes, plans, judgments, orders, decrees, stipulations, injunctions, and charges thereunder) relating to public health and safety, worker health and safety, and pollution or protection of the environment, including laws relating to emissions, discharges, releases, or threatened releases of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes into ambient air, surface water, ground water, or lands or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials or wastes. 4.21.7 All properties and equipment used in the business the Company have been free of asbestos, PCB's, methylene chloride, trichloroethylene, 1, 2-transdichloroethylene dioxins, dibenzofurans, and Extremely Hazardous Substances. 22 4.21.8 All products labeling of the Company has been in conformity with applicable laws (including rules and regulations thereunder). 4.21.9 No pollutant, contaminant, or chemical, industrial, hazardous, or toxic material or waste ever has been buried, stored, spilled, leaked, discharged, emitted, or released on any real property that the company ever has owned or that the Company leases or ever has leased. 4.22 Legal Compliance. 4.22.1 The Company has complied with all laws (including rules and regulations thereunder) of federal, state, local, and foreign governments (and all agencies thereof), and no charge, compliant, action, suit, proceeding, hearing, investigation, claim, demand, or notice has been filed or commenced against the Company alleging any failure to comply with any such law or regulation. 4.22.2 The Company has complied with all applicable laws (including rules and regulations thereunder) relating to the employment of labor, employee civil rights, and equal employment opportunities. 4.22.3 The Company has not violated in any respect or received a notice or charge asserting any violation of the Sherman Act, the Clayton Act, the Robinson-Patman Act, or the Federal Trade Commission Act, each as amended. 4.22.4 The Company has not; 4.22.4.1 made or agreed to make any contribution, payment, or gift of funds or property to any governmental official, employee, or agent where either the contribution, payment, or gift or the purpose thereof was illegal under the laws of any federal, state, local, or foreign jurisdiction; 4.22.4.2 established or maintained any unrecorded fund or asset for any purpose, or made any false entries on any books or records for any reason; or 4.22.4.3 made or agreed to make any contribution, or reimbursed any political gift or contribution made by any other person, to any candidate for federal, state, local, or foreign public office. 4.22.5 The Company has filed in a timely manner all reasonably required reports, documents, and other materials it was required to file (and the information contained therein was correct and complete in all respects) under all applicable laws (including rules and regulations thereunder) except for reports, documents 23 and other materials, the failure of which to file would not have material Adverse Consequences. 4.22.6 The Company has possession of all material records and documents it was reasonably required to retain under all applicable laws (including rules and regulations thereunder). 4.23 Certain Business Relationships with the Company. The Sellers and their Affiliates do not own any property or right, tangible or intangible, which is used in the business of the Company. 4.24 Broker's Fees. The Company has no Liability or obligation to pay any fees or commissions to any broker, finder, or agent with respect to the transactions contemplated by the Agreement. 4.25 Disclosure. Without limiting the foregoing, subject to the exceptions above, the representations and warranties contained in this Paragraph 4 do not contain any untrue statement of a fact or omit to state any fact necessary in order to make the statements and information contained in this Paragraph 4 not misleading. 5. Pre-closing Covenants. The Parties agree as follows with respect to the period between the execution of this Agreement and the Closing. 5.1 General. Each of the Parties will use its best efforts to take all action and to do all things necessary, proper, or advisable to consummate and make effective the transactions contemplated by this Agreement (including satisfying the closing conditions set forth in Paragraph 7 below). 5.2 Notices and Consents. The Sellers will cause the Company to give any notices to third parties, and will cause the Company to use its best efforts to obtain any third party consents, that the Buyer may request in connection with the matters pertaining to the Company disclosed or required to be disclosed in the Disclosure Schedule. Each of the Parties will take any additional action (and the Seller will cause the Company to take any additional action) that may be necessary, proper, or advisable in connection with any other notices to, filings, with, and authorizations, consents, and approvals of governments, governmental agencies, and third parties that they may be required to give, make, or obtain. 5.3 Operation of Business. The Sellers will not cause or permit the Company to engage in any practice, take any action, embark on any course of inaction, or enter into any transaction outside the Ordinary Course of Business. Without limiting the generality of the foregoing, the Sellers will not cause or permit the Company to engage in any practice, take any action, embark on any course of inaction, or enter into any transaction of the sort described in Paragraph 4.6 above. 24 5.4 Preservation of Business. Sellers will use their best endeavors to ensure that the Company has kept its business and properties substantially intact, including its present operations, physical facilities, working conditions, and relationships with lessors, licensors, licensees, suppliers, customers, and employees. 5.5 Full Access. The Sellers will permit, and the Sellers will cause the Company to permit, representatives of the Buyer to have full access at all reasonable times, and in a manner so as not to interfere with the normal business operations of the Company, to all premises, properties, books, records, contracts, Tax records, and documents of or pertaining to the Company. 5.6 Notice of Developments. The Sellers will give prompt written notice to the Buyer of any material development affecting the assets, Liabilities, business, financial condition, operations, results of operations, or future prospects of the Company taken as a whole. Each Party will give prompt written notice to the others of any material development affecting the ability of the Parties to consummate the transactions contemplated by this Agreement. No disclosure by any Party pursuant to this Paragraph 5.6, however, shall prevent or cure any misrepresentation, breach of warranty, or breach of covenant. However, any such disclosure prior to the Closing Date, will, if so identified by the Sellers, constitute additions to the Disclosure Schedule or the Exception Schedule, for the purpose of updating the representations and warranties made by the Sellers on the Closing Date and shall be deemed part of such Schedule. 5.7 Exclusivity. The Sellers will not (and the Sellers will cause the Company not to) (i) solicit, initiate, or encourage the submission of any proposal or offer from any person relating to any (A) liquidation, dissolution, or recapitalization, (B) acquisition or purchase of securities or assets, or (C) similar transaction or business combination involving the Company or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any person to do or seek any of the foregoing. The Sellers will not be entitled to enter into negotiations with any other third party. 5.8 Earnings Since August 1, 1997. All revenues of the Company since August 1, 1997 have been retained by the Company except for expenditures of the Company in the ordinary course of business. The Company has made no payment nor transferred any property, right or benefit of any kind or nature whatsoever, directly or indirectly, to any of the Sellers or their Affiliates, except for salary to Tracy Childers as a President of the Company. 6. Post-Closing Covenants. The Parties agree as follows with respect to the period following the Closing. 25 6.1 General. In case at any time after the Closing any further action is necessary or desirable to carry out the purposes of this Agreement, each of the Parties will take such further action (including the execution and delivery of such further instruments and documents) as any other Party (unless the requesting Party is entitled to indemnification therefor under Paragraph 8 below). The Sellers acknowledge and agree that from and after the /closing the Buyer will be entitled to possession, upon reasonable request as to time and place, of all documents, books, records, agreements, and financial data relating to the Company. 6.2 Litigation Support. In the event and for so long as any Party actively is contesting or defending against any charge, compliant, action, suit, proceeding, hearing, investigation, claim, or demand in connection with (i) any transaction contemplated under this Agreement or (ii) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Company, each of the other Parties will cooperate with it and its counsel in the contest or defense, make available their personnel, and provide such testimony and access to their books and records as shall be necessary in connection with the contest or defense, all at the sole cost and expense of the contesting or defending Party (unless the contesting or defending party is entitled to indemnification therefor under Paragraph 8 below). 6.3 Transition. The Sellers will not take any action that is designed or intended to have the effect of discouraging any lessor, licensor, licensee, customer, supplier, or other business associate of the Company from maintaining the same business relationships with the Company after closing as they maintained with the Company prior to the Closing. The Sellers will refer all customer inquiries relating to the business of the Company to either the Buyer or the Company from and after the Closing. 6.4 Employees. After the Closing Date, Buyer shall bear all costs and shall be responsible for any claims by Employees, including severance costs in the event of termination or material change in the terms and conditions of employment of any employee. 6.5 Services to Company. Tracy Alan Childers and John V. Childers, Sr. shall continue to make their services available to the Company in order to increase the business of the Company in a manner consistent with their projections; as and to whatever extent requested by Buyer. 6.6 Bonds and Security. The Buyer acknowledges that the Sellers have indemnification obligations under the Company's arrangements with ARC and IATAN (the "Airline Appointments"). Sellers and Buyer shall cooperate to transfer to Buyer the obligations and liabilities under the Company's Airline 26 Appointments as quickly as reasonably possible after the Closing without interruption of the Company's business or operations. 7. Conditions to Obligation to Close 7.1 Conditions to Obligation of the Buyer: The obligation of the Buyer to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction of the following conditions: 7.1.1 the representations and warranties set forth in Paragraph 3.1 and Paragraph 4 above shall be true and correct in all material respects at and as of the Closing Date; and there shall have been, between the Most Recent Balance Sheet Date and the Closing Date, no material adverse change in the condition, financial or otherwise of the Company; the assets, liabilities and income statements being in substantially the same condition as is reflected in the Most Recent Balance Sheet Date and in the event there is an adverse change, at the sole and exclusive option of Buyer, this Agreement shall be null and void. 7.1.2 the Sellers shall have performed and complied with all of their covenants hereunder in all material respects through the Closing Date; 7.1.3 the Company shall have obtained all the necessary third party consents before the closing Date; 7.1.4 no action, suit, or proceeding shall be pending or threatened before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable judgment, order, decree, stipulation, injunction, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement, (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation, or (C) affect either the Company or the right of the Buyer to own, operate, or control the Company shares or the Company (and no such judgment, order, decree, stipulation, injunction, or charge shall be in effect); 7.1.5 the Sellers shall have delivered to the Buyer a certificate to the effect that each of the conditions specified above in Paragraph 7.1, 7.1.1 to 7.1.4 is satisfied in all respects; 7.1.6 the Buyer shall have received from counsel to the Sellers an opinion with respect to the matters set forth in Exhibit D attached hereto, addressed to the Buyer and dated as of the Closing Date; 7.1.7 the Buyer shall have received the resignations, effective as of the closing, of each director and officer of the Company, other than Tracy Alan Childers as President; 27 7.1.8 the Buyer shall have received releases (in form and substance satisfactory to Buyer) executed by the Sellers and each director and officer of the Company releasing any and all claims by such persons against the Company; 7.1.9 the Sellers shall have delivered to the Company assignments (in form and substance reasonably satisfactory to the Buyer) executed by the Sellers assigning any and all rights of the Sellers in Intellectual Property owned or used by the Company; and 7.1.10 the Sellers shall deliver a Disclosure Schedule which Sellers shall represent and warrant sets forth the following information with respect to the Company: (A) the basis of the Company in its assets; and (B) the amount of any net operating loss, net capital loss, unused investment or other credit, unused foreign tax, or excess charitable contribution allocable to the Company. The Buyer may waive any condition specified in this Paragraph 7.1 if it executes a writing so stating at or prior to the Closing. 7.2 Conditions to Obligation of the Sellers. The obligation of the Sellers to consummate the transactions to be performed by it is connection with the Closing is subject to satisfaction of the following conditions: 7.2.1 the representations and warranties set forth in Paragraph 3.2 above shall be true and correct in all material respects at and as of the Closing Date; 7.2.2 the Buyer shall have performed and complied with all of its covenants hereunder in all material respects through the closing; 7.2.3 no action, su8it, or proceeding shall be pending before any court or quasi-judicial or administrative agency of any federal, state, local, or foreign jurisdiction wherein an unfavorable judgment, order, decree, stipulation, injunction, or charge would (A) prevent consummation of any of the transactions contemplated by this Agreement or (B) cause any of the transactions contemplated by this Agreement to be rescinded following consummation (and no such judgment, order, decree, stipulation, injunction, or charge shall be in effect); 7.2.4 all actions to be taken by the Buyer in connection with consummation of the transactions contemplated hereby and all conditions to be satisfied at or prior to the Closing (including the conditions described in Paragraph 6.7), and all certificates, opinions, instruments, and other documents required to effect the transactions contemplated hereby will be satisfactory in form and substance to the Sellers; 28 7.2.5 the buyer shall have delivered to the Sellers a certificate to the effect that each of the conditions specified above in this Paragraph 7.2 is satisfied in all respects; The Sellers may waive any condition specified in this Paragraph 7.2 if it executes a writing so stating at or prior to the Closing. 8. Remedies for Breaches of This Agreement. 8.1 Survival. All of the representations and warranties of the Sellers contained in this Agreement shall survive the Closing hereunder. 8.2 Indemnification Provisions for Benefit of the buyer. The Sellers, jointly and severally, agree to indemnify the Buyer from and against the entirety of any Adverse Consequences the Buyer or the company may suffer through and after the Closing Date for all claims for indemnification arising from (I) any breach of a representation, warranty or covenant of Sellers hereunder; (ii) any Liability of the Company arising on or before the closing Date (including Liabilities disclosed herein), or (iii) any Liability of the Buyer arising as a result of having entered into the transactions contemplated hereby. 8.3 Matters Involving Third Parties. If any third party shall notify any Party (the "Indemnified Party") with respect to any matter which may give rise to a claim for indemnification against any other Party (the "Indemnifying Party") under this Paragraph 8, then the Indemnified party shall notify the Indemnifying Party thereof promptly in writing; provided, however, that no delay on the part of the Indemnified party in notifying the Indemnifying party shall relieve the Indemnifying party from any liability or obligation hereunder unless (and then solely to the extent) the Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, (A) the Indemnifying Party will defend the Indemnified Party against the matter with counsel of its choice reasonably satisfactory to the Indemnified Party, (B) the Indemnified Party may retain separate co-counsel to the extent the Indemnified party reasonably concluded that the counsel the Indemnifying Party has selected has a conflict of interest or the Indemnified Party and the Indemnifying Party have a conflict of interest) (C) the Indemnified party will not consent to the entry of any judgment or enter into any settlement with respect to the matter without the written consent of the Indemnifying Party (not to be withheld - unreasonaly), and (D) the Indemnifying Party will not consent to the entry of any judgment with respect to the matter, or enter into any settlement which does not include a provision whereby the plaintiff or claimant in the matter releases the Indemnified Party from all Liability with respect thereto, without the written consent of the Indemnified Party (not to be withheld unreasonably). In the event no Indemnified Party has given notice of the matter that the Indemnifying Party is assuming the defense thereof, however, the Indemnified Party may 29 defend against, or enter into any settlement with respect to, the matter in any manner it reasonably may deem appropriate. 8.4 Determination of Loss. The Parties shall make appropriate adjustments for the time cost of money (using the Applicable Rate as the discount rate) in determining the amount of loss for purposes of this Paragraph 8. All indemnification payments under this Paragraph 8 shall be deemed adjustments to the Purchase Price, determined based on the value of the Company Shares as of September 1, 1997. 8.5 Other Remedies provisions. Any statutory or common law remedy any Party may have based on fraud or intentional misrepresentation shall survive and be in addition to the Indemnification Provisions noted above. 8.6 Effect of Director and Officer Indemnification on Sellers' Indemnification Obligation. For the purposes of this Paragraph 8, any claim for indemnification asserted by any of Sellers' partners, affiliates, or employees relating to service as a current or former director or officer or employee of the Company against the Company (either based on a contractual right, on the Company 's Articles of Incorporation or Bylaws or on applicable state law) arising out of claims related to acts or omissions occurring on or before Closing shall be indemnified by Sellers. 8.7 Buyer's Rights. 8.7.1 The rights and remedies of the Buyer in respect to a breach of any of the representations and warranties set forth in this Agreement will not be affected by the closing of this transaction; by any investigation made by or on behalf of Buyer into the affairs of the Company; by the giving of any extension of time by Buyer to any person; or by any other cause whatsoever except a specific waiver or release by Buyer in writing and any such waiver or release will not prejudice or affect any remaining rights or remedies of Buyer. 8.7.2 Without restricting the rights of Buyer or the ability of Buyer to claim damages on any basis available to it, in the event that any of the terms, conditions, representations and warranties of this Agreement are breached or found to have been breached, Sellers shall be liable to pay Buyer, on demand, for any loss or damage resulting from any breach of any such representations and warranties, together with all costs and expenses reasonably incurred by Buyer and the Company as a result of such breach, including reasonably incurred by Buyer and the Company as a result of such breach, including reasonable attorney's fees. Any loss shall be reduced by any amounts recoverable by Buyer from any 30 third party. If as a result of any of the aforesaid breaches, Buyer becomes entitled under the terms set forth to demand written payment from Sellers, such payment shall be made within ten (10) days after such written demand. 8.7.3 The rights conferred on Buyer by this Agreement are in addition and without prejudice to any other rights and remedies available to Buyer; and no exercise or failure to exercise a right under this Agreement or otherwise or to invoke a remedy will constitute a waiver of that right or remedy by Buyer. 9. Miscellaneous. 9.1 Press Releases and Announcements. No Party shall issue any press release or announcement relating to the subject matter of this Agreement prior to the Closing without the prior written approval of the Buyer and the Sellers; provided, however, that any party may make any public disclosure it believes in good faith is required by law or regulation (in which case the disclosing Party will advise the other Party prior to making the disclosure). 9.2 No Third Party Beneficiaries. This Agreement shall not confer any rights or remedies upon any person other than the Parties and their respective successors and permitted assigns. 9.3 Entire Agreement. This Agreement (including the documents referred to herein) constitutes the entire agreement among the Parties and superedes any prior understandings, agreements, or representations by or among the Parties, written or oral, that may have related in any way to the subject matter hereof. 9.4 Succession and Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties named herein and their respective successors and permitted assigns. No Party may assign either this Agreement or any of his or its rights, interests, or obligations hereunder without the prior written approval of the other Party; provided, however, that the Buyer may (i) assign any or all of its rights and interests hereunder to one or more of its Affiliates and (ii) designate one or more of its Affiliates to perform its obligations hereunder 9in any or all of which cases the Buyer nonetheless shall remain liable and responsible for the performance of all of its obligations hereunder). 9.5 Counterparts and Facsimile. This Agreement may be executed in one or more counterparts, including facsimile, each of which shall be deemed an original but all of which together will constitute one and the same instrument. 31 9.6 Headings. The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 9.7 Notices. All notices, requests, demands, claims, and other communications hereunder will be in writing. A notice required or permitted to be given by one party to another under this Agreement must be in writing and is treated as being duly given if it is; (a) left at that other party's address; (b) sent by pre-paid mail to that other party's address; (c) transmitted by telex to that other party's address; or (d) transmitted by facsimile to that other party's address. A notice given to a party in accordance with the preceding sub-clause is treated as having been duly given and received: (a) IN THE CASE OF Paragraph (a) when delivered; (b) In the case of Paragraph (b), on the fifth business day after posting; (c) In the case of Paragraph -C-, on the day of transmission (if a business day) or if not a business day, on the next business day provided that party's answer back is received; (d) In the case of Paragraph 9d), on the day of transmission (if a business day), or, if not a business day, on the next business day provided the sender of the facsimile receives a transmission report confirming that the fax has been received by the recipient. Any party may change the address to which notices are to be delivered or sent by giving the other party notice in the manner herein set forth. If to the Buyer: Copy to: Wade Cook Financial Corporation Susan E. Lehr, Esq. 14675 Interurban Avenue South Monahan & Biagi, PLLC Seattle, WA 98168-4664 701 fifth Avenue, suite 5701 Attn: Ms. Kiman Lucas Seattle, Washington 98104-7003 Fax No.: (206) 901-3133 Fax No.: (206) 587-5710 Telephone No.: (206) 901-3000 Telephone No.: (206) 587-5700 32 If to the Sellers: Copy to: Any Party may give any notice, request, demand, claim, or other communication hereunder using any other means (including personal delivery, expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given unless and until it actually is received by the individual for whom it is intended. Any Party may change the address to which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Parties notice in the manner herein set forth. 9.8 Governing Law. This Agreement shall be governed by and construed in accordance with the domestic laws of the State of Washington, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Washington or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Washington. 9.9 Resolution of Disputes. The parties agree that, in the event of a dispute between them, arising from, concerning or in any way related to this Agreement, the Parties shall undertake good faith efforts to negotiate the resolution of the matter amicably between them for a period of no longer than thirty (30) days following written notice of the dispute provided by either Party. If these negotiations prove to be unsuccessful for any reason, either the Buyer or the Sellers may initiate legal proceedings. 9.10 Amendments and Waivers. No amendment of any provision of the Agreement shall be valid unless the same shall be in writing and signed by the Buyer and the Sellers. No waiver by any Party of any default, misrepresentation, or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any prior or subsequent such occurrence. 9.11 Severability. Any term or provision of this Agreement that is invalid or unenforceable in any situation in any jurisdiction shall not affect the validity or enforceability of the remaining terms and provisions hereof or the validity or enforceability of the offending term or provision in any other situation or in any other jurisdiction. If the final judgment of a court of competent jurisdiction declares that any term or provision hereof is invalid or unenforceable, the Parties agree that the court making the determination of invalidity or unenforceability shall have the power to reduce the scope, duration, or area of the term or provision, to delete specific words or phrases, or to replace any invalid or unenforceable term or provision with a term or provision that is valid 33 and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision, and this Agreement shall be enforceable as so modified after the expiration of the time within which the judgment may be appealed. 9.12 Expenses. Each of the Parties and the Company will bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby. The Sellers agree that the Company has not borne and will not bear any of the Sellers' third party costs and expenses (including any of its legal fees and expenses) in connection with this Agreement or any of the transactions contemplated hereby. However, any stamp duty due as a result of this transaction shall be borne by the Buyer. 9.13 Construction. The language used in this Agreement will be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against any Party. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The Parties intend that such representation, warranty, and covenant contained herein shall have independent significance. If any Party has breached any representation, warranty, or covenant contained herein in any respect the fact that there exists another representation, warranty, or covenant reisting to the same subject matter (regardless of the relative levels of specificity) which the Party has not breached shall not detract from or mitigate the fact that the Party is in breach of the first representation, warranty, or covenant. 9.14 Incorporation of Exhibits, Annexes, and Schedules. The Exhibits, Annexes, and Schedules identified in this Agreement are Incorporated herein by reference and made a part hereof. 9.15 Specific Performance. Each of Sellers and Buyer acknowledges and agrees that the other Party would be damaged irreparably in the event any of the provisions of this Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Sellers and Buyer agrees that the other Party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce especially this Agreement and the terms and provisions hereof in any action institute in addition to any other remedy to which they may be entitled at law or in equity, subject to the agreements regarding venue in Paragraph 9.8 above. 9.16 Currency. All dollar amounts used in this Agreement are in United States dollars. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above written. SELLERS: BUYER: WADE COOK FINANCIAL CORPORATION /s/ John V. Childers, Sr. - ------------------------------ John V. Childers, Sr. By /s/ Wade B. Cook -------------------------------- Wade B. Cook /s/ Brenda Childers - ------------------------------ : President Brenda Childers -------------------------------- /s/ Tracy Alan Childers - ------------------------------ Tracy Alan Childers /s/ John V. Childers, Jr. - ------------------------------ John V. Childers, Jr. EX-99.6 8 EX-99.6 Exhibit 99.6 Share Exchange Agreement THIS AGREEMENT (the "Agreement" and/or the "Share Exchange") is entered into on the date signed below ( "Agreement Date") and shall take effect as of January 1, 1998 ("Effective Date"), between Wade Cook Financial Corporation ("WCFC"), a Nevada corporation, and Information Quest, Inc., a Nevada corporation ("IQI"). REPRESENTATION A. WCFC is a corporation organized and existing under the laws of the State of Nevada. B. The authorized capital stock of WCFC consists of One Hundred Forty Million (140,000,000) shares of Common stock, par value $0.01, of which approximately Sixty One Million Two Thousand Five Hundred Eighty Three (61,002,583) shares are duly issued and outstanding as of the Agreement Date, and Five Million shares of preferred stock, par value $10.00, none of which are issued and outstanding. C. IQI is a corporation organized and existing under the laws of the State of Nevada whose Balance Sheets as of December 31, 1997 is attached hereto as Exhibit B and are complete and accurate. D. The authorized capital stock of IQI consists of Twenty Four Million (24,000,000) shares of Common stock, par value $0.001, of which all are issued and outstanding as of the Agreement Date, and One Million (1,000,000) shares Preferred stock, par value $0.001, none of which are issued and outstanding. E. WCFC and IQI enter into this Agreement whereby WCFC will acquire all of the issued and outstanding stock of IQI by issuing 45,000 restricted shares of Common stock of WCFC to the shareholders of IQI in exchange for 50,000 shares of Common stock of IQI. WCFC and IQI intend the exchange to qualify as a tax-free reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. AGREEMENT In consideration of the foregoing recitals, the covenants and conditions set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Share Exchange; Effectiveness The shareholders of shares of Common Stock of IQI shall exchange all of their shares for his or her proportionate share of 45,000 newly issued shares of Common Stock of WCFC in accordance with the terms and conditions of this Agreement. Upon the execution of this Agreement by IQI and WCFC and the receipt by WCFC of all shares issued in IQI the date for the effectiveness of this Agreement (the "Effective time of the Share Exchange") shall revert back to January 1, 1998. 2. Exchange of Shares At the Effective Time of the Share Exchange: (a) Each shareholder of IQI shall be issued his or her proportionate share(s) of fully paid and nonassessable common stock of WCFC as stated in section 1. Each shareholder of IQI shall sign an Investment Letter attached hereto as Exhibit A pursuant to Rule 144 upon receiving WCFC shares. (b) All shares of capital stock of IQI that are tendered to WCFC shall be retained by WCFC and IQI shall become a wholly owned subsidiary of WCFC. 3. Implementation Each of WCFC and IQI shall take, or cause to be taken, all action or do, or cause to be done, all things necessary, proper or advisable under the laws of the State of Nevada to consummate and make effective the Share Exchange. 4. Amendment This Agreement may, to the extent permitted by law, be amended, supplemented or interpreted at any time by action taken by the Board of Directors of both of IQI and WCFC; Provided, however, that this Agreement may not be amended or supplemented after having been approved by the shareholders of IQI except by a vote or consent of shareholders in accordance with applicable law. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement as of the date first set forth above. INFORMATION QUEST, INC. By: /s/ Tom Cloward ---------------------------------- Name: Thomas E. Cloward Its: Secretary and Treasurer Page 1 of 2 Page 2 Robert & Meda Hondel Secured Promissory Note 4th Legal Description: & 7-006 DBLR 85-04-17-0276 THAT POR L 4 S P 83-1-20-0374 IN THE SW OF 17-18-05E NOT TO BE SOLD OR FURTHER SUBD W/O BALANCE OF L 4 LOCATED IN SE 18-18-05E OUT OF 7-002 SEG Y-1 264 Parcel No.: 051817-7-005 5th Legal Description: PLAT NAME COUNTRY DIVISION #1 VOLUME 51 PAGES 21-26 L 16 EASE OF RECORD Parcel No.: 904400-016-0 Address: 8218 266th St. E. Graham, WA 98338 In the event that the monthly payments provided for in this Note have not been paid and actually received by Promisee on or within five (5) days of their due date, a late charge of twenty-five dollars ($25.00) for each delinquency shall be assessed by Promisee to cover the extra expense involved in handling delinquent payments. Promisee shall not be obligated to accept any monthly payment made after its due date, unless that monthly payment shall be accompanied by the full amount of the late charges assessed by Promisee as provided in this Note; however, in the event that a late monthly payment is accepted, that payment shall first be applied to late charges. Any legal holder of this Note may, without notice and without releasing the liability of any maker or guarantor of this Note, grant extensions or renewals of this Note from time to time and for any term or terms. Any legal holder of this Note shall not be liable for or prejudice by failure to collect or for lack of diligence in bringing suit on this Note or any renewal or extension of this Note. Promissor waives presentment for payment, notice of nonpayment, protest and notice of protest. Should this Note be placed in the hands of an attorney for collection, or if action be instituted on it, all parties now or in the future liable for indebtedness evidenced by this Note, jointly and severally agree to pay all costs and expenses of the collection or enforcement action with reasonable attorney fees in addition to the amount found due. /s/ Robert Hondel /s/ Meda Hondel - ------------------------------ -------------------------------- Robert Hondel Meda Hondel 8-8-97 8-8-97 - ------------------------------ -------------------------------- Date Date Employment Agreement 1. Parties: This Agreement is between Wade Cook Financial Corporation, 14675 Interurban Avenue South, Seattle, Washington 98168 ("the Company")and Thomas Cloward, a resident of the State of Washington ("Cloward"). 2. Position: Cloward shall be employed by the Company as President of Information Quest, Inc.. Cloward shall report directly to the Chief Executive Officer of the Company. 3. Employment Term: Cloward shall be employed from April 1, 1998 through December 31, 1998 unless otherwise mutually agreed. 4. Salary: For the remainder of 1998, Cloward shall be paid an annual salary of sixty thousand dollars ($60,000) on a pro rata basis. In the event Company licenses intellectual property from Cloward, said licenses shall fall outside the scope of this Agreement. Cloward's salary shall be reviewed and renegotiated on an annual basis beginning January 1, 1999. 5. Other Compensation: As a full-time employee, Cloward shall also receive the following benefits: A: One percent (1%) of Information Quest, Inc.'s net revenues paid quarterly based on the Company Accounting Department's standard payment schedule. Net revenues shall be gross revenues less costs for inventory, shipping, payroll, returned products, and costs to providers for paging services, pagers, and other services. B: The option to purchase 45,000 restricted shares of Class A Common Stock of WADE at $2.00 per share on September 1, 1998 and the option to purchase 45,000 restricted shares of Class A Common Stock of WADE at $2.33 per share on September 1, 1999. Both options must be exercised within 30 days following the anniversary date. C: Two weeks annual vacation leave; D: Reimbursement of reasonable travel and other business expenses incurred by Cloward in the performance of his executive duties; E: Health insurance for Cloward and his family through the Company's customary provider; F: Any other benefits provided employees of the Company as outlined in the current Personnel Handbook or as directed by the CEO; 6. Termination: This Agreement may be terminated as follows: A. By Death: the Company shall pay to Cloward's beneficiaries or estate, as appropriate, the compensation to which he is entitled pursuant to this Agreement through the end of the month in which the death occurs. Thereafter, the Company's obligation shall terminate. Nothing in this Section shall affect any entitlement of Cloward's heirs to the benefits of any life insurance plan purchased by the Company. B. By Disability: If, in the opinion of the Board of Directors, Cloward shall be prevented from properly performing his duties hereunder by reason of any physical or mental incapacity for a period of more than one hundred and twenty (120) days in the aggregate or sixty (60) consecutive days in any twelve-month period (the "Disability Period"), then, to the extent permitted by law, the Employment Term of this Agreement shall be paid up through the last day of the month of the Disability Period and thereafter the obligations hereunder of the Company shall terminate. C. By the Company for Cause: the Company may terminate, without liability and without prejudice to any other remedy to which the Company may be entitled either by law, in equity or under this Agreement, the Employment Term at any time and without advance notice if: (1) In the reasonable and good faith opinion of the Board, Cloward acts, or fails to act, in bad faith and to the material detriment of the Company or its subsidiaries, parent company or affiliates; (2) Cloward refuses or fails to act in accordance with any lawful direction or order of the Board if such failures or refusals, individually or in the aggregate, are, in the reasonable and in good faith opinion of the Board, material to Cloward's performance; (3) Cloward commits any material act of dishonesty or a felony affecting the Company, its subsidiaries, parent company or affiliates; (4) Cloward has a chemical dependency which interferes with the performance of her executive duties and responsibilities; (5) Cloward commits gross misconduct or neglect, or, in the reasonable and good faith opinion of the Board, demonstrates incompetence in the management of the legal affairs of the Company or its subsidiaries, parent company or affiliates; (6) Cloward is convicted of a felony or any crime involving moral turpitude, fraud or misrepresentation; or (7) Cloward materially breaches any term of this Agreement upon 30 days written notice by the Company. E. By the Company Without Cause: The Employment Period may be terminated without Cause by the Company but only upon written notice. F. By Cloward for Good Reason: Cloward may terminate this Agreement for "Good Reason" upon 30 days written notice if the Company requires Cloward to relocate outside the Seattle area or substantially changes Cloward duties or working conditions. 7. Duties: Cloward shall be responsible for managing all aspects of Information Quest, Inc. and providing service to customers of IQ Pager and any other duties as assigned by the CEO of WCFC. 8. Secrecy: Cloward shall not divulge any proprietary information relating to the Company or its subsidiaries, parent company or affiliates, which Cloward may have acquired during his employment except as necessary in the performance of his duties with the Company. 9. Disputes: Any dispute between the parties arising out of this Agreement which cannot be amicably settled shall be referred to arbitration upon written notice by either party to the other. The arbitration shall be in accordance with the International Chamber of Commerce. Said arbitration to occur in Seattle, Washington. Any award rendered in arbitration shall be binding and conclusive upon the parties and shall not be subject to appeals or retrying by the court. 10. Attorney Fees: In the event this Agreement is placed in the hands of an attorney due to a default in the payment or performance of any of its terms, the defaulting party shall pay, immediately upon demand, the other party's reasonable attorney fees, collection costs, costs of either litigation, mediation, or arbitration (whichever is appropriate), whether or not a suit or action is filed, and any other fees or expenses reasonably incurred by the non-defaulting party. 11. Jurisdiction: This Agreement shall be governed by the laws of Washington. 12. FINAL AGREEMENT: This Agreement is the entire, final and complete agreement of the parties and supersedes all written and oral agreements heretofore made or existing by and between the parties or their representatives. Executed in duplicate this 23rd day of March, 1998. WADE COOK FINANCIAL CORPORATION By: /s/ WADE B. COOK --------------------------------- Name: Wade B. Cook Title: chairman and Chief Executive Officer Date: /s/ THOMAS E. CLOWARD --------------------------------- Name: Thomas E. Cloward Date: March 20, 1998 Product Agreement 1. Parties: This Agreement is between Thomas Cloward, a Washington resident (Cloward), Information Quest, Inc., a Nevada corporation ("IQI") and Wade Cook Financial Corporation, a Nevada corporation ("WCFC"). Whereas, Cloward has previously licensed exclusive, fully paid-up rights to make, use and sell the IQ Pager which was developed by Cloward for a five (5%) percent gross royalty. Whereas, the parties wish to void the previous license arrangement between IQI and Cloward and replace it with this agreement subject to the terms and conditions contained herein. 2. Term: This Agreement shall take effect on April 1, 1998 and remain in effect through the life of WCFC and/or its successors, or as mutually agreed between the parties. 3. License: Cloward hereby licenses rights in the Cloward IP, which Cloward or IQI either owns or controls, to WCFC for the purpose of marketing and selling the IQ Pager developed by Cloward. This license shall extend to any and all marketing materials. This license shall be an exclusive world-wide license. A list of current Products to which WCFC currently has the rights under the terms of this Agreement is attached as "Exhibit A." Additional works owned or controlled by Cloward or IQI shall be licensed to WCFC under the terms of this Agreement by a signed and dated addendum by the licensor of the intellectual property (Cloward) and by the licensee WCFC or its subsidiaries, parent company, or affiliates in order to be effective. The term of each additional license shall be for the remainder of the term of this Agreement unless otherwise specified in writing. 4. Royalties: WCFC shall pay to Cloward a royalty of two and one half percent (2-1/2%) of all WCFC's gross revenue for Products licensed hereunder. Royalties shall be paid quarterly based on WCFC Accounting Departments standard payment schedule. 5. Marketing and Promotion: WCFC shall have the right to promote and advertise Products as it deems appropriate. 6. Author's Warranty Cloward represents and warrants to WCFC that the work is original and that he is the sole proprietor thereof, and has full power to enter into this Agreement. Cloward and IQI warrants that they own all rights in the Products listed in Exhibit A. Cloward and IQI agrees to indemnify and hold harmless WCFC and its subsidiaries, representatives, or agents against any damage or judgment, including court costs and attorney's fees, which may be sustained or recovered against WCFC, its subsidiaries, representatives, or agents by reason of the sale of the Products or arising from anything contained therein. Cloward and IQI also agree to reimburse WCFC and its subsidiaries, representatives, or agents for all expenses, including court costs, attorneys' fees, and amounts paid in settlement, sustained by, or in resisting any claim, demand, suit, action or proceeding asserted or instituted against WCFC, its subsidiaries, representatives, or agents based upon the sale of the Product or by reason of anything contained therein. 7. Right to Use Likeness: IQI hereby consents to the use of its name, trademarks and trade symbols, for the purposes of fulfilling this Agreement and in connection with the promotion, advertising, distribution, financing, marketing and production of the Products or derivatives therefrom, and for general organizational promotional purposes. 8. Examination of Books: WCFC shall make available to Cloward, within 30 days written notice, at its headquarters, the financial books related to payment of royalties hereunder. 9. Disputes: Any dispute between the parties arising out of this Agreement which cannot be amicably settled shall be referred to arbitration upon written notice by either party to the other. The arbitration shall be governed by the laws of the State of Washington. Said arbitration is to be held in Seattle, Washington. Any award rendered in arbitration shall be binding and conclusive upon the parties and shall not be subject to appeals or retrying by the court. 10. Attorney Fees: In the event this Agreement is placed in the hands of an attorney due to a default in the payment or performance of any of its terms, the defaulting party shall pay, immediately upon demand, the other party's reasonable attorney fees, collection costs, costs of either litigation, mediation, or arbitration (whichever is appropriate), whether or not a suit or action is filed, and any other fees or expenses reasonably incurred by the non-defaulting party. 11. Jurisdiction: This Agreement shall be governed by the laws of Washington. 12. FINAL AGREEMENT: This Agreement is the entire, final and complete agreement of the parties and supersedes all written and oral agreements heretofore made or existing by and between the parties or their representatives. Executed in duplicate this 23rd day of March, 1998. WADE COOK FINANCIAL CORPORATION By: /s/ WADE B. COOK --------------------------------- Name: Wade B. Cook Title: chairman and Chief Executive Officer Date: /s/ Tom Cloward --------------------------------- Name: Thomas E. Cloward Date: March 20, 1998 WADE COOK FINANCIAL CORPORATION By: /s/ Wade B. Cook ------------------------------------- Name: Wade B. Cook Its: Chairman and Chief Executive Officer EX-99.7 9 EX-99.7 EXHIBIT 99.7 NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA CUSIP NO. 930128 10 3 11176 WADE COOK FINANCIAL CORPORATION AUTHORIZED COMMON STOCK: 60,000,000 SHARES PAR VALUE: $.01 THIS CERTIFIES THAT SPECIMEN IS THE RECORD HOLDER OF Shares of WADE COOK FINANCIAL CORPORATION Common Stock transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Dated: [SEAL] /s/ Laura M. Cook /s/ Wade B. Cook - ----------------------------- ------------------------------ Secretary President [STAMP] NOTICE: Signature must be guaranteed by a firm which is a member of a registered national stock exchange, or by a bank (other than a saving bank), or a trust company. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations. TEN COM--as tenants in common UNIF GIFT MIN ACT-- Custodian TEN ENT--as tenants by the entireties ------ ------- JT TEN--as joint tenants with right (Cust) (Minor) of survivorship and not as under Uniform Gifts to Minors tenants in common Act -------------------------- (State) Additional abbreviations may also be used though not in the above list For Value Received, hereby sell, assign and transfer unto ---------- PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - --------------------------------------- - --------------------------------------- - ------------------------------------------------------------------------------ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Shares - ------------------------------------------------------------------------ of the capital stock represented by the within certificate, and do hereby irrevocably constitute and appoint Attorney - ---------------------------------------------------------------------- to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated ------------------- -------------------------------------------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. The shares represented by this certificate have not been registered under the Securities Act of 1933. The shares have been acquired for investment and may not be sold, transferred or assigned in the absence of an effective registration statement for these shares under the Securities Act of 1933 or an opinion of the Company's counsel that registration is not required under said Act. EX-99.10 10 EX-99.10 OPEN ENDED PRODUCT AGREEMENT 1. PARTIES: This Agreement is between Wade Cook, Financial Corporation, a Nevada corporation ("WCFC") and/or assigns and Wade B. Cook, a resident of Washington State ("Cook") and/or assigns. 2. BACKGROUND: Cook owns the rights to intellectual property related to investment strategies, financial management, and wealth management created by Wade B. Cook ("Cook IP"). WCFC through its subsidiary Wade Cook Seminars, Inc. ("WCSI") has been sponsoring and promoting certain seminars and materials relating to said Cook IP under the terms of a Product Agreement dated June 26, 1997 between WCSI, Money Chef, and Cook. The parties now wish to replace that Product Agreement. 3. TERM: This Agreement shall take effect July 1, 1997 and remain in effect through June 30, 2002 unless otherwise mutually agreed between the parties. 4. LICENSE: Cook hereby continues to license rights in the Cook IP, which Cook either owns or controls, to WCFC for the purpose of producing, marketing, and selling seminars, audio tapes, videotapes, related books and writings, and other works stemming from the Cook IP on an individual product basis. This license shall be a non-exclusive worldwide license. A list of current Products to which WCFC currently has the rights under the terms of this Agreement is attached as "Exhibit A." Additional works owned or controlled by Cook shall be licensed to WCFC under the terms of this master license Agreement by executing individual "Intellectual Property License Orders" ("IP Order") in the form of "Exhibit B." Specific IP Orders shall be signed and dated by Cook as the licensor of the intellectual property and by the licensee WCFC (or its subsidiaries, affiliates, or assigns) in order to be effective. The Term of each IP Order shall be for the remainder of the term of this Agreement unless otherwise specified in writing. 5. ROYALTIES: WCFC shall pay to Cook as requested by Cook in writing, a royalty of ten percent (10%) of all gross sales for Products licensed hereunder. Royalties shall be paid quarterly on May 1, August 1, November 1, and February 1 for the quarter ending the month prior to the payment. Cook shall be entitled to take draws against royalties as agreed by the chief financial officer of the company. 6. MARKETING AND PROMOTION: WCFC shall have the right to promote and advertise Products as its deems appropriate. 7. AUTHOR'S WARRANTY: Cook represents and warrants to WCFC that the work is original and that he is the sole author and proprietor thereof, and has full power to enter into this Agreement. Cook warrants that he owns all rights in the Products subject to the previous license dated June 26, 1997 with WCSI. Cook agrees to indemnify and hold harmless WCFC against any damage or judgment, including court costs and attorneys' fees, which may be sustained or recovered against WCFC by reason of the publication or sale of any of the Products arising from anything contained therein. Cook also agrees to reimburse WCFC for all expenses, including court costs, attorneys' fees, and amounts paid in settlement, sustained by WCFC in resisting any claim, demand, suit, action or proceeding asserted or instituted against WCFC based upon the sale of the Product or by reason of anything contained therein. 8. RIGHT TO USE LIKENESS: Cook hereby consents to the use of his name, likeness, identity, trademarks, and trade symbols, for the purposes of fulfilling this Agreement and in connection with the promotion, advertising, distribution, financing, marketing, and production of the Products or derivatives therefrom, and for general organizational promotional purposes. 9. EXAMINATION OF BOOKS: WCFC shall make available to Cook, within 10 business days written notice, at its headquarters, the financial books related to payment of royalties hereunder. 10. DISPUTES: Any dispute between the parties arising out of this Agreement which cannot be amicably settled shall be referred to arbitration upon written notice by either party to the other. The arbitration shall be governed by the laws of the State of Nevada. Said arbitration is to be held in Seattle, Washington. Any award rendered in arbitration shall be binding and conclusive upon the parties and shall not be subject to appeals or retrying by the court. 11. ATTORNEY FEES: In the event this Agreement is placed in the hands of an attorney due to a default in the payment or performance of any of its terms, the defaulting party shall pay, immediately upon demand, the other party's reasonable attorney fees, collection costs, costs of either litigation, mediation, or arbitration (whichever is appropriate), whether or not a suit or action is filed, and any other fees or expenses reasonably incurred by the non-defaulting party. 12. JURISDICTION: This Agreement shall be governed by the laws of Nevada. 13. FINAL AGREEMENT: This Agreement is the entire, final and complete agreement of the parties and supersedes all written and oral agreements heretofore made or existing by and between the parties or their representatives. Executed in duplicate this 20th day of March, 1998. WADE COOK FINANCIAL CORPORATION By: /s/ Kiman A. Lucas ------------------ Name: Kiman A. Lucas Title: General Counsel /s/ Wade B. Cook - ---------------------- Name: Wade B. Cook Title: President /s/ Wade B. Cook - --------------------- Wade B. Cook, Licensor EXHIBIT A A list of current products to which WCFC currently has the rights to: BOOKS: 101 WAYS TO BUY REAL ESTATE WITHOUT CASH 555 CLEAN JOKES BEAR MARKET BALONEY BRILLIANT DEDUCTIONS BUSINESS BUY THE BIBLE COOK'S BOOK ON CREATIVE REAL ESTATE DON'T SET GOALS HOW TO BUILD A REAL ESTATE MONEY MACHINE HOW TO PICK UP FORECLOSURES REAL ESTATE FOR REAL PEOPLE STOCK MARKET MIRACLES THE REAL ESTATE MONEY MACHINE UNLIMITED WEALTH WALL STREET MONEY MACHINE WEALTH 101 PUBLICATIONS AND AUDIO AND VIDEO TAPES: 101-Fold Return audio tape 180 degree Cash Flow Turnaround Seminar: 180 Degrees in 180 Minutes video A Day with Wade Cook Are we Headed for a Bear Market? audio tape Behind Closed Doors Cash Flow System Covered Calls audio tape Dynamic Dollars video Entity Structuring video tape Fast Start Financial 4X4 audio tapes and video Financial Fortress Home Study Program Financial Jump Start video and audio tapes Financial Power Pack audio tapes Fortify Your Income High Octane Performance Entities (HOPE) audio tapes, video, and special reports High Performance Business Strategies, formally known as High Octane Business Strategies audio tapes PUBLICATIONS AND AUDIO AND VIDEO TAPES, CONT: - -------------------------------------------- How to Incorporate in Nevada Special Report How to Retire in 2 Months Income Formulas-Cash Flow, Cash Flow, Cash Flow audio tape Income Generation System legal Forms publication Living Loving Trusts audio tape Money Machine I audio tapes Money Machine II-Nups audio tapes Red Hot Financial Seminars audio tapes Money Mysteries of the Millionaires audio tape Next Step Ordinary People do extraordinary things Outrageous Returns audio tape Owner Financing Paper Chase Cassette Seminar Paper Tigers audio tapes and manual Pension Power audio tape Power of Nevada Corporations audio tape Property Analysis Forms Real Estate Record Keeping System Retirement Prosperity audio tapes and manual Sail Through Life audio tape SAIL: Scriptural Application In Life audio tapes Second to None video Seven Strategies to Success video Special Reports publications Special Reports, Real Estate Stock Analysis Forms Stock Market Power Strategies audio tape The Corporation Kit The Incorporation Handbook The Next Step Video Home Study Course videos To S or Not to S Special Report Travel Agent Information Kit Unlimited Wealth: 101 Secrets of the Super Rich audio tapes Wall Street Workshop Video Home Study Course videos Wealth, Riches,and Covenants audio tape Winning Ways video Zero to Zillions SEMINAR CURRICULUM AND MANUALS: - ------------------------------ Build Perpetual Income (BPI) Business Entitics Skills Training (BEST) Cook University Entity Structuring Workshop (ESW) Executive Retreat Financial Clinics Fortify Your Income (FYI) Four Days with Wade & Ultra B.E.S.T. Next Step Real Estate Boot camp Real Estate Workshop Super BEST Travel Agent Wall Street Workshop Wealth Academy Wealth Information Network (W.I.N.) Wealth Information Network Plus WINSTOCK Youth Wall Street Workshop EXHIBIT B LICENSE ORDER ------------- EFFECTIVE DATE: EXECUTION DATE: LICENSOR: LICENSEE: ENDING DATE: PRODUCTS: BOOKS: - ----- PUBLICATIONS AND VIDEO AND AUDIO TAPES: - -------------------------------------- SEMINAR CURRICULUM AND MANUALS: - ------------------------------ WADE COOK FINANCIAL CORPORATION By: ---------------------------- Name: Kiman A. Lucas Title: General Counsel - ------------------------------- Name: Wade B. Cook Title: President - ------------------------------- Wade B. Cook, Licensor EX-99.11 11 EX-99.11 Exhibit 99.11 LIGHTHOUSE PUBLISHING GROUP, INC. PUBLISHING AGREEMENT This AGREEMENT is effective the 1st day of October, 1997, between Wade B. Cook of Seattle, Washington (hereinafter called the Author) and Lighthouse Publishing Group, Inc., whose principal place of business is at 14675 Interurban Avenue South, Seattle, Washington, 98168, (hereinafter called the Publisher). I. GRANT OF The Author hereby grants, assigns, and transfers to RIGHTS the Publisher the following exclusive rights and privileges to and in connection with a Work, presently entitled "Don't Set Goals (the Old Way)" which Work is a book. A. The sole and exclusive book publication rights in the United States, its territories, dependencies, and possessions, the Republic of the Philippines, and Canada, and the right to sell copies of the Work in the open market throughout the world. B. The sole and exclusive subsidiary publication and performance rights set forth in Article VIIA below. These subsidiary publication and performance rights are granted to the Publisher for the United States, its territories, dependencies, and possessions, the Republic of the Philippines, and Canada, and include the right to authorize others to exercise in any foreign country any of the rights granted to the Publisher. II. COPYRIGHT It is understood and greed that the copyright shall be secured by the Publisher in the name of the Work and the Publisher is hereby authorized to take all steps required to secure such copyright in the United States of America. The Publisher agrees to print an appropriate copyright notice in each and every copy of the published work and to require all parties to whom it grants licenses in connection with the work to do the same. The party in whose name copyright is registered shall hold for the benefit of the other such rights as the equities hereby created may prescribe. Unless it specifically agrees to do so in writing, the Publisher shall not be responsible for securing any copyright outside the United States of America. III. MANUSCRIPT The Author agrees to deliver to the Publisher not later than November 1, 1997 three finally revised copies of the manuscript satisfactory in form, style, and content and acceptable to the Publisher in its sole judgment and discretion. FORM OF A. Unless otherwise agreed in writing, the Author MANUSCRIPT shall furnish promptly and free of charge to the Publisher, complete and ready for reproduction, all drawings, maps, photographs, charts and designs which are a part of or necessary to the text. If the Author fails to supply any necessary drawings, maps, photographs, charts and designs in satisfactory form and within the specified time, the Publishers shall have the right to have them made and the charges and expenses of making them shall be paid for by the Author. B. The Publisher may, at his discretion, cause an index to be made of the work and charge the cost thereof against any sums due the Author hereunder. AUTHOR C. The provisions as to satisfaction and COMPLIANCE acceptability to the Publisher and time of delivery of such copy are material terms of this agreement and upon the Author's failure to comply with any of such provisions, the Publisher may at its option by written notice to the Author terminate this agreement, whereupon the Author shall return to the Publisher all amounts which it may have advance to him. In such event, if the manuscript should be completed subsequently, the Author shall nevertheless be obligated to offer the same to the Publisher, which at its option, shall have the right to publish the same upon the terms of the agreement. CORRECTIONS D. If the Publisher is directed by the Author to make alterations in any proofs from final copy as delivered, which shall cost more than ten percent of the cost of composition of the Work, the Author agrees to pay said excess. The Author shall pay in full for any corrections in the plates which he requires or which are necessary for the correction of actual errors after the plates have been made in conformity with the last proof as corrected by the Author. The Publisher shall upon request keep Page 1 the Author informed of such excess charges. SUBSEQUENT E. When the Publisher considers it necessary, it REVISIONS shall have the right in it sole discretion to call upon the Author to revise the Work, and the Author shall make such revisions. The provisions of this Agreement shall apply to revision of the Work by the Author as though any such revision were the original Work being published for the first time, except that the manuscript of the revised Work shall be delivered in final form by the Author to the Publisher within a reasonable amount of time; further, no initial payment shall be made in connection with such revision. Should the Author not provide the revision within a reasonable time, or should the Author be deceased, the Publisher may have the revision done and charge the cost of such revision against royalties due or that may become due the Author, and may display in the revised Work, and in advertising, the name of the person or persons who revised the Work. RETYPING F. If in the opinion of the publisher it is considered expedient to have the manuscript retyped in as many copies as shall be necessary, the cost of such retyping shall be borne by the Author. PUBLISHER'S G. The Publisher shall be free to prepare the manuscript DETERMINATION of the Work for the printer in such manner as shall be consistent with their publishing house style. All details as to the manner of publication, distribution and advertising, including the format and price of the Work in its manufactured form and the number and distribution of free copies, shall be left to the sole discretion of the Publisher. H. The Publisher will use the same care in protecting the manuscript and other material supplied to it hereunder as is its customary practice in protecting similar material in its possession, but it shall not be liable for damages, if any, resulting from the loss or destruction of such materials or any part thereof. IV. ADVANCE The Publisher will pay to the Author as an advance payment against all monies accruing to the Author under this agreement the sum of: None V. ROYALTIES A. The Publisher shall pay to the Author the following royalties on regular net sales, other than sales falling within (B) through (F) below on the Retail selling price of each copy sold: 10% on all copies sold. LIMITED B. The Publisher shall pay the Author one half of the REPRINT stipulated royalty, as stated above, on all copies sold from EDITION a reprinting of 3,500 copies or less, made after one year from the date of the first publication, this reduced royalty being provided by reason of the increased cost of manufacturing of small reprintings, to enable the Publisher to keep the Work in print and circulation as long as possible. SALE OF C. Where sheets are sold, except as a reminder, the SHEETS percentage of royalty shall be the same as for bound books and shall be calculated on the net amount received by the Publisher. FREE D. No royalties shall be paid on copies furnished gratis COPIES to the Author, or for review, advertising, samples or like purposes. EXCERPTS E. The Author grants sole and exclusive rights to the PERMISSIONS Publisher in the exercise of its discretion, to grant permission to publish extracts from the Work, whether or not a fee shall be collected on the Work for such use, the Publisher warranting to make no gratuitous grants of permissions, except as shall, in its estimate, advance the sale of the Work or enhance the public esteem of the Author, the Publisher shall pay to the Author one half of all sums of money received as compensation for such grants of permission to reprint extracts. The Publisher is authorized to permit publication of the Work in Braille, or photographing, recording and/or microfilming the Work for the physically handicapped without payment of fees and without compensation to the Author, providing no compensation is received by the Publisher. In case a compensation is received, the Publisher shall pay the Author fifty percent (50%) of the proceeds. Page 2 VI. REMAINDERS A. If, in the opinion of the Publisher, the Work OVERSTOCK shall become unsalable in the ordinary channels of the trade the Publisher may at its option sell part or all of the remaining copies as "remainders" after first informing the Author of its intention to do so. B. The Author shall receive a royalty of ten percent of the amount of the Publisher's sale price secured over the cost of production for all copies of overstock which the Publisher deems it expedient to sell at "remainder" prices, i.e., at less than half of the catalog retail price, except when these are sold at or below cost, in which case no royalty shall be paid. VII. SUBSIDIARY A. The further and additional rights referred to in RIGHTS this agreement are hereby defined to include the rights enumerated below, and are to be shared by the Author and the Publisher in the percentage indicated, less only such direct expenses, including agent's commissions, as shall be incurred by the Publisher in disposing of such rights:
To Author To Publisher --------- ------------ 1. Abridgment, condensation, or digest........50% 50% 2. Anthology or quotation.....................50% 50% 3. Book clubs or similar organizations........50% 50% 4. Reprint....................................50% 50% 5. Special editions...........................50% 50% 6. Second serial and syndication (including reproduction in compilations, magazines, newspapers, or books)....................50% 50%
B. All revenue derived from the sale of rights not specifically enumerated, whether now in existence or hereinafter coming into existence, shall be shared equally by the Author and the Publisher. C. All such rights shall be disposed of by the sale, lease, license, or otherwise by the Publisher who for that purpose is constituted the attorney-in-fact of the Author. The Author agrees to sign, make, execute, deliver and acknowledge all such papers, documents and agreements as may be necessary to effectuate the grants hereinabove contemplated. In the event that the Author shall fail to do so, they may be signed, executed, delivered and acknowledged by the Publisher as the attorney-in-fact of the Author with the same full force and effect as if signed by the Author. All sums due under this Agreement shall be paid to the Author's agent Money Chef, Inc. or other designated agent whose receipt shall be a full and valid discharge of the Publisher's obligations and who shall act with the authority of the Author in all matters arising out of this agreement. IX. PUBLICATION The Publisher, in consideration of the rights granted, DATE agrees to publish the work at its own expense, in such style or styles as the Publisher deems most advisable, not later than 12 months after the Publisher's acceptance of the final revised manuscript (except on account of late delivery of manuscript by the Author, strikes, fires, other contingencies beyond the control of the Publisher or its suppliers, or advisability of postponement because of prospective advantageous trade conditions, in which event publication shall be postponed.) XI. AUTHOR'S A. The Author represents and warrants to the WARRANTY Publisher: (a) that the work is original; (b) that he is the sole author and proprietor thereof, and has full power to enter into this agreement; (c) that the work has not heretofore been published in whole or part in volume form and that he has not entered into or become subject to any contract, agreement or understanding with respect thereto other than this agreement; (d) that if published it will not infringe upon any proprietary right at common law, or any statutory copyright, or any other right whatsoever; and (e) that it is innocent and contains no matter whatsoever that is obscene, libelous, in violation of any right of privacy or otherwise in contravention of law. The Author shall indemnify and hold harmless the Publisher against any damage or judgment, including court costs and attorneys' fees, which may be substained or recovered against the Publisher by reason of the publication or sale of the Work, arising from anything contained herein. Author shall also reimburse the Publisher for all expenses including court costs, attorney's fees and amounts paid in settlement, sustained by the Publisher in resisting any claim, demand, suit, action or proceeding asserted or instituted against the Publisher based upon the publication sale of the Work by reason of anything contained therein. Page 3 PLAINTIFF B. The Author hereby grants to the Publisher the right, ACTION if copyright is in the Author's name, to bring in the name COPYRIGHT of the Author as plaintiff or complainant, any action or ASSIGNMENT proceeding for the enjoining of an infringement of the copyright in the said Work and for any damages resulting therefrom, and the net amount recovered after deducting all expenses of suit shall be divided equally between the Author and Publisher. The copyright shall be assigned by either party to the other on demand, when necessary for bringing, defending or maintaining a copyright action under this agreement, after the termination of which action the copyright shall on demand be reassigned. COMPETING C. The Author will not, without the written consent WORKS of the Publisher, write, print, publish or produce, or cause to be written, printed, published or produced, during the continuance of this contract, any other edition of said Work or any work in any form of a similar character or title tending to interfere with or injure the sale of the Work in any manner. AUTHOR'S D. The Author agrees, in the event that the Author PERMISSION plans to incorporate in the Work any writings or composition previously published elsewhere, to obtain and deliver to the Publisher proper and complete written permission and authorization to reprint same from the owner of the copyright covering same. XII. In case the Publisher fails to keep said Work in print WITHDRAWAL and for sale and after written demand from the Author, OF WORK declines or neglects to reprint the work within six months and to offer it for sale, or in the event that, after one year from the date of the first publication, the Work in the opinion of the Publisher is no longer merchantable or profitable, and it gives one month's notice to the Author of its desire and intention to discontinue publication, this contract shall terminate and all rights preserved, with any plates of illustrations furnished by the Author and any remaining copies and sheets shall be transferred to the Author, provided that Author shall pay the manufacturing costs (including composition) of such plates and the manufacturing cost of such remaining copies or sheets, in default of which payments the Publisher shall have the rights to destroy any plates and to sell remaining copies or sheets at cost of less, without payment of royalty to the Author upon such copies or sheets. In case of the termination of the contract, if the copyright is in the name of the Publisher it shall assign said copyright to the Author. The Work shall not be considered to be out of print if it is on public sale in any printed edition, in the United States, or if there shall be in existence a contract for cheap edition publication which provides for publication within six (6) months after the work is out of print in the regular edition. XIII. A. If a petition in bankruptcy (as distinguished from BANKRUPTCY reorganization or arrangement) shall be filed by the Publisher, or shall be filed against the Publisher and finally sustained, the Author shall have the right to buy back, at his option, to be exercised in thirty days, the rights of publication at their fair market value, to be determined by agreement, together with any plates or remaining copies of sheets, at their fair market value, this also to be determined by agreement, and thereupon this contract shall terminate. However, no reversion of rights under this clause shall take place until after the Author has repaid to the Publisher any indebtedness incurred by him and still outstanding under this agreement. If this agreement contains a clause of option on future books by the Author, such clause shall become null and void in event of the Publisher's bankruptcy or receivership. AUTHOR'S B. The Author, upon his written request, shall have EXAMINATION the right to examine or cause to be examined through certified public accountants the books of account of the Publisher insofar as such books of account shall relate to the Work. If such examination shall reveal errors of accounting (other than those arising from an interpretation of this agreement) amounting to a sum in excess of ten percent of the total royalties earned in the period under examination to the Author's disadvantage, the costs of such examination shall be borne by the Publisher, otherwise such costs shall be borne by the Author. XIV. SEMI- The Publisher agrees to render semi-annual statements ANNUAL of account to March 31st and September 30th of each year, STATEMENTS on the succeeding July 1st and January 1st and to make PAYMENTS settlements in cash or about said last mentioned dates. In making accountings, the Publisher shall have the right to allow for a reasonable reserve against returns and nonpayment of invoices for copies billed out by the Publisher. Page 4 XV. AUTHOR'S The Publisher agrees to present to the Author 100 (one COPIES hundred) free copies of said Work upon publication, and to permit the Author to purchase from it further copies for its own personal use, at a discount of forty percent off list price. Author shall be billed directly for these copies, and shall make payment therefor within 30 days of invoice date. No consignment sales shall be made to Author. Author shall not receive royalties on sales made to him. XVI. RECOVERABLE All payments made by Publisher to the Author, whether PAYMENTS under this agreement or not, shall be chargeable against and recoverable from any or all monies accruing to the Author under this contract and for all other contracts been the parties of their assigns. XVII. TAX It is mutually agreed that State, Federal, and Foreign WITHHOLDING taxes on the Author's earnings, when paid by the Publisher, are proper charges against the Author's earnings due under this agreement, and may be withheld by the Publisher. XVIII. This agreement shall be binding upon and shall ensure ASSIGNMENT to the benefit of the parties hereto, their successors, assigns, executors, administrators and/or personal representatives and may be assigned by either party hereto, except that no assignment by the Author shall be valid against the Publisher unless the Publisher has received written notice therefrom from the Author and has consented to the same in writing. XIX. Any controversy or claim arising out of this agreement ARBITRATION or the breach thereof shall be settled by arbitration in accordance with rules then obtaining of the American Arbitration Association, and judgment upon the award may be entered in the highest court of the form, State or Federal, having jurisdiction. Such arbitration shall be held in the City of Seattle, Washington, unless otherwise agreed by the parties. The Author may at his option, in case of failure to pay royalties, refuse to arbitrate, and pursue his legal remedies. XX. NOTICES Any written notice required under any of the provisions of this agreement shall be deemed to have been properly served by delivery in person or by mailing the same to the parties hereto at the addresses set forth above, except as the addresses may be changed by notice in writing; provided, however, that notices of termination shall be sent by registered mail. XXI. WAIVER A waiver of any breach of this agreement or of any of the terms or ocnditions by either party thereto shall not be deemed a waiver of any repetition of such breach or in any wise affect any other terms or conditions hereof; no waiver shall be valid or binding unless it shall be in writing, and signed by the parties. XXII. DELIVERY This agreement shall no be binding on either the OF CONTRACT Publisher or the Author unless it is signed by both parties and delivered to the Publisher within a period of two months from the date of the agreement. The changes, alterations and interlineations made in Articles VII,X,XVI of this contract and the additional Articles numbered NONE made and added before execution hereof. IN WITNESS WHEREOF, the parties hereto have hereunto affixed their respective hands and seals the day and year first above written. LIGHTHOUSE PUBLISHING GROUP, INC. /s/ Cheryle Hamilton /s/ Wade B. Cook - ------------------------ ------------------------- By: Cheryle Hamilton Wade B. Cook, Author 1/12/98 1-9-98 - ------------------------ ------------------------- Date: Date: Page 5 Distribution Agreement This agreement, made Sept. 21, 1997 by and between Origin Trade Books, Inc. (Origin) of 6200 South 380 West, Murray, Utah, 84107, and Publisher Lighthouse Publishing Group, Inc., a subsidiary of Wade Cook Financial Corporation. Address: 14675 Interurban Avenue South Seattle, Washington 98168-4664 Telephone: 206-901-3000 Fax: 206-901-3100 E-Mail Address Contact: Cheryle Hamilton ISBN Prefix: 0-910019- TRADE DISTRIBUTION SERVICE 1. Origin will sell and distribute Publisher's Don't Set Goals (The Old Way) exclusively to the retail and wholesale book trade, libraries, warehouse clubs, and mass merchandisers as mutually agreed to. PERFORMANCE BY ORIGIN 2. Origin agrees to use its best efforts to sell and distribute Publisher's title(s) so as to obtain the greatest revenues consistent with the character of the title(s) and sound business practices in the publishing industry. Furthermore, Origin shall, to the best of its ability, perform the other services customarily rendered by book distributors which shall include: warehousing, shipping, billing, customer service, the collection of accounts receivable (but not litigation) and the processing of returns. 3. Origin may hold a sales conference for the Publisher to present forthcoming titles to the sales and marketing team before each selling season commences. Origin will notify Publisher of the date, time and place of each sales conference. 4. Origin shall prepare its own order forms, invoices and other forms to be used in the selling and billing of titles at its own expense. 5. Origin will provide basic trade marketing support at its own expense. Trade marketing shall be defined as preparing seasonal catalogs, wholesale microfiche charges and part of the space cost of participating in the ABA convention. 6. Origin will offer special advertising and promotional opportunities, including premium placement/display, catalog ads, special events, author signings, secondary displays and consumer point-of-purchase signage for an additional fee at the option of the publisher. 7. Origin shall maintain an 800# order line for the use of selling and customer service. VISA and MasterCard facility will be made available to customers. 8. Origin or its agents will sell Publisher's title(s) to the trade under Origin's trade retail and wholesale discount policies, which are subject to change from time to time. 9. Origin shall hold Publisher's inventory on consignment in Origin's warehouse for the sale of Publisher's title(s), with legal title being retained by Publisher until Origin's sale and shipment of the product. Origin and Publisher shall mutually determine the quantities of each title being held on consignment. 10. Origin will store Publisher's books in a neat and orderly manner. However, Publisher agrees to remove inventory within 60 days after advance notification by Origin when Origin determines current levels of inventory are in excess of current sales requirements. 11. Origin shall charge Publisher for services rendered on the basis of a percentage of Net Sales (defined as gross sales less returns). Origin's percentage shall cover all services except those as otherwise specified in this agreement. The percentage shall be in effect for one year from the first month of billing and will be subject to review and revision each year (12 months of billing activity) and every subsequent year as long as this agreement is in force. Sales and Distribution Charge as a percentage of Net Sales: Commencing with the October 1997 sales period: 20% of all sales. 12. On or about the fifteenth day after the close of each monthly accounting period, Origin will render to Publisher a detailed accounting of all sales, current month's returns, and other charges, if any, occurring in that period. Returns will be deducted from Origin's monthly payment to publisher in the same month in which the deduction is taken against Origin. 13. Payments of the amounts due Publisher shall accompany the statement and shall be made on the following schedule: 100% of the monies due 120 days after the close of each accounting month, with a 15 day grace period. 14. Origin shall provide to Publisher monthly statements of all sales and distribution activities. These reports shall record the number of books of each title received from Publisher, the number shipped to or returned from booksellers and such other reports that Origin prepares to inform Publisher of sales of its titles. 15. In the event that Publisher's monthly returns deduction exceeds the amounts owed by Origin in any monthly payment period, Origin can, at its option: A. bill Publisher for the amount payable upon presentation, or, B. carry the credit balance over to the next period and any thereafter until the obligation to Origin has been completely satisfied. 16. Origin shall make every effort, short of bad debt collection procedures or collection lawsuits, to collect from its accounts the monies due on Origin sales of Publisher's titles. If it is determined by Origin that it cannot collect receivables from delinquent accounts, then Origin agrees to turn the delinquent account(s) over to Publisher for collection purposes. Origin retains the right to provide collection efforts and, if successful, shall remit to Publisher the pro rata share after costs and expenses of said collection efforts. PERFORMANCE BY PUBLISHER 17. Publisher shall publish titles that include the following information: copyright information, Library of Congress cataloguing in publication data, full ISBN number, EAN bar coding and the price printed on the back cover of each copy and such other data as is standard to the bookselling industry. 18. Publisher shall provide Origin upon request with seasonal catalog copy, tip sheet copy, jacket cover art and selling materials as may be required by the Origin sales force. 19. Publisher shall inform Origin of its intent to declare titles out of print in a timely and appropriate manner by written notice. Publisher shall also advertise all out of print declarations at its own expense. Origin agrees to handle the placing of such ads. 20. Publisher shall bear the cost for all advertising,promotion and publicity to the consumer and trade, except for those basic activities identified in paragraph 5. Origin must first obtain written consent from Publisher for any advertising, promotion and publicity expenditures that it makes on behalf of Publisher. 21. Publisher holds the right to remainder any of its mint titles as long as Origin shall be given ninety (90) days written notification prior to the remainder sale. Publisher shall make all arrangements, and incur all costs, including packing and shipping with respect to the remainder sale. 22. Publisher shall be responsible for insuring its inventory being held in Origin's warehouse, or advising Origin in writing of its decision to self-insure. Origin's responsibility is limited to careful and prudent handling of all goods in its possession, but it assumes no responsibility for fire, theft or other hazards that could be covered by all risk insurance. MISCELLANEOUS 23. Titles that are determined to be in unsaleable condition due to damage or shelf worn conditions resulting from being in retail stores or at wholesaler premises will be stored separately. Such titles will be returned to Publisher from time to time or at Publisher's written request, Origin will destroy such titles, or donate them to an approved charitable organization. 24. It is understood and agreed that this contract is a sales and distribution agreement only, and that Publisher retains all of Publisher's liabilities in their entirety. TERMS OF AGREEMENT 25. This agreement shall be in force for a period of 12 months. Subsequent cancellation by either Origin or Publisher requires one hundred and twenty days (120) advance notification before the anniversary date. If notification is not given then this agreement will renew on a year to year basis with 120 days advance notification still required. ARBITRATION 26. Any disputes arising under this Agreement shall be submitted to, determined and settled by formal arbitration at the joint equal cost of the parties in Murray, UT, pursuant to the laws of the State of Utah and the rules of the American Arbitration Association. The parties agree to be bound to and abide by the arbitration decision. 27. Any notice to be given under this agreement shall be in writing and may be effected, either by personal delivery, or by U.S. mail, return receipt requested. Mailed notices shall be sent to the parties at their following addresses: Origin Book Sales, Inc. Lighthouse Publishing Group Mike Hurst Attn: Cheryle Hamilton 6200 South 14675 Interurban Ave South Murray, UT 84107 Seattle, WA 981684664 In witness whereof, each of the parties hereto have caused its duly authorized representative on its behalf to execute this agreement. Origin Book Sales, Inc. Lighthouse Publishing Group, Inc. /s/ Mike Hurst /s/ Cheryle Hamilton - ----------------------- ---------------------- Mike Hurst, General Manager Cheryle Hamilton, Executive Administrator 10-1-97 9-21-97 - ------------------ --------------- Date Date Distribution Agreement This agreement, made Sept. 21, 1997 by and between Origin Trade Books, Inc. (Origin) of 6200 South 380 West, Murray, Utah, 84107, and Publisher Lighthouse Publishing Group, Inc., a subsidiary of Wade Cook Financial Corporation. Address: 14675 Interurban Avenue South Seattle, Washington 98168-4664 Telephone: 206-901-3000 Fax: 206-901-3100 E-Mail Address Contact: Cheryle Hamilton ISBN Prefix: 0-910019- TRADE DISTRIBUTION SERVICE 1. Origin will sell and distribute Publisher's titles listed in Attachment "A" exclusively to the retail and wholesale book trade, libraries, warehouse clubs, and mass merchandisers NOT listed in Attachment "B". PERFORMANCE BY ORIGIN 2. Origin agrees to use its best efforts to sell and distribute Publisher's title(s) so as to obtain the greatest revenues consistent with the character of the title(s) and sound business practices in the publishing industry. Furthermore, Origin shall, to the best of its ability, perform the other services customarily rendered by book distributors which shall include: warehousing, shipping, billing, customer service, the collection of accounts receivable (but not litigation) and the processing of returns. 3. Origin may hold a sales conference for the Publisher to present forthcoming titles to the sales and marketing team before each selling season commences. Origin will notify Publisher of the date, time and place of each sales conference. 4. Origin shall prepare its own order forms, invoices and other forms to be used in the selling and billing of titles at its own expense. 5. Origin will provide basic trade marketing support at its own expense. Trade marketing shall be defined as preparing seasonal catalogs, wholesale microfiche charges and part of the space cost of participating in the ABA convention. 6. Origin will offer special advertising and promotional opportunities, including premium placement/display, catalog ads, special events, author signings, secondary displays and consumer point-of-purchase signage for an additional fee at the option of the publisher. 7. Origin shall maintain an 800# order line for the use of selling and customer service. VISA and MasterCard facility will be made available to customers. 8. Origin or its agents will sell Publisher's title(s) to the trade under Origin's trade retail and wholesale discount policies, which are subject to change from time to time. 9. Origin shall hold Publisher's inventory on consignment in Origin's warehouse for the sale of Publisher's title(s), with legal title being retained by Publisher until Origin's sale and shipment of the product. Origin and Publisher shall mutually determine the quantities of each title being held on consignment. 10. Origin will store Publisher's books in a near and orderly manner. However, Publisher agrees to remove inventory within 60 days after advance notification by Origin when Origin determines current levels of inventory are in excess of current sales requirements. 11. Origin shall charge Publisher for services rendered on the basis of a percentage of Net Sales (defined as gross sales less returns). Origin's percentage shall cover all services except those as otherwise specified in this agreement. The percentage shall be in effect for one year from the first month of billing and will be subject to review and revision each year (12 months of billing activity) and every subsequent year as long as this agreement is in force. Sales and Distribution Charge as a percentage of Net Sales: Commencing with the October 1997 sales period: 20% of all sales. 12. On or about the fifteenth day after the close of each monthly accounting period, Origin will render to Publisher a detailed accounting of all sales, current month's returns, and other charges, if any, occurring in that period. Returns will be deducted from Origin's monthly payment to publisher in the same month in which the deduction is taken against Origin. 13. Payments of the amounts due Publisher shall accompany the statement and shall be made on the following schedule: 100% of the monies due 120 days after the close of each accounting month, with a 15 day grace period. 14. Origin shall provide to Publisher monthly statements of all sales and distribution activities. These reports shall record the number of books of each title received from Publisher, the number shipped to or returned from booksellers and such other reports that Origin prepares to inform Publisher of sales of its titles. 15. In the event that Publisher's monthly returns deduction exceeds the amounts owed by Origin in any monthly payment period, Origin can, at its option: A. bill Publisher for the amount payable upon presentation, or, B. carry the credit balance over to the next period and any thereafter until the obligation to Origin has been completely satisfied. 16. Origin shall make every effort, short of bad debt collection procedures or collection lawsuits, to collect from its accounts the monies due on Origin sales of Publisher's titles. If it is determined by Origin that it cannot collect receivables from delinquent accounts, then Origin agrees to turn the delinquent account(s) over to Publisher for collection purposes. Origin retains the right to provide collection efforts and, if successful, shall remit to Publisher the pro rata share after costs and expenses of said collection efforts. PERFORMANCE BY PUBLISHER 17. Publisher shall publish titles that include the following information: copyright information, Library of Congress cataloguing in publication data, full ISBN number, EAN bar coding and the price printed on the back cover of each copy and such other data as is standard to the bookselling industry. 18. Publisher shall provide Origin upon request with seasonal catalog copy, tip sheet copy, jacket cover art and selling materials as may be required by the Origin sales force. 19. Publisher shall inform Origin of its intent to declare titles out of print in a timely and appropriate manner by written notice. Publisher shall also advertise all out of print declarations at its own expense. Origin agrees to handle the placing of such ads. 20. Publisher shall bear the cost for all advertising, promotion and publicity to the consumer and trade, except for those basic activities identified in paragraph 5. Origin must first obtain written consent from Publisher for any advertising, promotion and publicity expenditures that it makes on behalf of Publisher. 21. Publisher holds the right to remainder any of its mint titles as long as Origin shall be given ninety (90) days written notification prior to the remainder sale. Publisher shall make all arrangements, and incur all costs, including packing and shipping with respect to the remainder sale. 22. Publisher shall be responsible for insuring its inventory being held in Origin's warehouse, or advising Origin in writing of its decision to self-insure. Origin's responsibility is limited to careful and prudent handling of all goods in its possession, but it assumes no responsibility for fire, theft or other hazards that could be covered by all risk insurance. MISCELLANEOUS 23. Titles that are determined to be in unsaleable condition due to damage or shelf worn conditions resulting from being in retail stores or at wholesaler premises will be stored separately. Such titles will be returned to Publisher from time to time or at Publisher's written request, Origin will destroy such titles, or donate them to an approved charitable organization. 24. It is understood and agreed that this contract is a sales and distribution agreement only, and that Publisher retains all of Publisher's liabilities in their entirety. TERMS OF AGREEMENT 25. This agreement shall be in force for a period of 12 months. Subsequent cancellation by either Origin or Publisher requires one hundred and twenty days (120) advance notification before the anniversary date. If notification is not given then this agreement will renew on a year to year basis with 120 days advance notification still required. ARBITRATION 26. Any disputes arising under this Agreement shall be submitted to, determined and settled by formal arbitration at the joint equal cost of the parties in Murray, UT, pursuant to the laws of the State of Utah and the rules of the American Arbitration Association. The parties agree to be bound to and abide by the arbitration decision. 27. Any notice to be given under this agreement shall be in writing and may be effected, either by personal delivery, or by U.S. mail, return receipt requested. Mailed notices shall be sent to the parties at their following addresses: Origin Book Sales, Inc. Lighthouse Publishing Group Mike Hurst Attn: Cheryle Hamilton 6200 South 14675 Interurban Ave South Murray, UT 84107 Seattle, WA 981684664 In witness whereof, each of the parties hereto have caused its duly authorized representative on its behalf to execute this agreement. Origin Book Sales, Inc. Lighthouse Publishing Group, Inc. /s/ Mike Hurst /s/ Cheryle Hamilton - ----------------------- ---------------------- Mike Hurst, General Manager Cheryle Hamilton, Executive Administrator 10-1-97 9-27-97 - ------------------ --------------- Date Date CONTRACT ATTACHMENT "A" Titles to be sold by Origin Trade Books, Inc. for Lighthouse Publishing Group, Inc. Wallstreet Money Machine Real Estate Money Machine Stock Market Miracles How to Pick up Foreclosures Brilliant Deductions Bear Market Baloney Business Buy The Bible ATTACHMENT "B"
Account Street City State Zip 1 American Wholesale Book Co./Books A Million 4350 Dryson Blvd Florence AL 35630 2 B. Dalton Booksellers 111 Fifth Ave, 2nd Fl New York NY 10011 3 Baker & Taylor 44 Kirby Avenue Somerville NJ 08876 4 Barnes & Noble 111 Fifth Ave, 2nd Fl New York NY 10011 5 Barnes & Noble #200 6 E. 18th St. New York NY 10003 6 Othelot 1829 Reisterstown Rd. #130 Baltimore MD 21208 7 Bookazine 75 Book Road Bayonne NJ 07002 8 Bookland of Maine 78 Atlantic Place South Portland ME 04106 9 Borders, Inc. 515 East Liberty Ann Arbor MI 48108 10 Brodard 500 Arch St. Williamsport PA 17705 11 Clean Well Lighted Place for Books 601 Van Ness Ave San Francisco CA 94102 12 Collseum Books 1775 Broadway, Ste 507 New York NY 10019 13 Crown Books Inc. 3300 7th Ave. Landover MD 20785 14 Follett College Stores 400 W Grand Elmhurst IL 60126 15 Hastings 3601 Plains Blvd. Suite 1 Amarillo TX 19102 16 Ingram 1 Ingram Rd. La Vergne TN 37088 17 Lauriat's Inc/Encore/Royal 10 Pequot Way Canton MA 02021 18 Marboro Books One Pond Road Rockleigh NJ 07647 19 Musicland Group 2001 Musicland Dr. Franklin IN 46131 20 NACS Corp 528 E. Lorain St. Oberlin OH 44074 21 New England Mobile Book Fair 82 Needham St. Newton Highlands MA 02161 22 Powell's Books 1005 Av Burnside Portland OR 97209 23 Rizzoli Bookstore 300 Park Ave South New York NY 10010 24 Tattered Cover 1628 16th Street Denver CO 80202 25 Tower Books 2601 Del Monte Street W. Sacramento CA 92691 26 Virgin Megastore 4751 Wilshire Blvd. Los Angeles CA 90010 27 Waldenbooks 3451 S. State St. Ann Arbor MI 48108 28 Waterstone's 2191 Hornig Road Philadephia PA 19116
EX-99.14 12 EX-99.14 [STAMP] ARTICLES OF MERGER Pursuant to the provisions of the General Corporation Law of the State of Nevada, NNS 92A 200, the undersigned corporation hereby submits the following Articles of Merger for filing for the purpose of merging Profit Financial Corporation, a Utah corporation ("PROFIT") into Wade Cook Financial Corporation, a Nevada corporation ("WADE"), and together with PROFIT, "Constituent Entity". ARTICLE I Profit Financial Corporation is a corporation organized and existing under the laws of Utah with its agent address at 3098 South Highland Drive, Suite 460, Salt Lake City, Utah 84106. Wade Cook Financial Corporation is a corporation duly organized and existing under the laws of the State of Nevada whose agent address is 3885 S. Decatur Blvd., Suite 2010, Las Vegas, NV, 89103. ARTICLE II A plan of merger (the "Plan") attached to these Articles of Merger as Exhibit A, has been approved by the shareholders of each Constituent Entity. ARTICLE III Neither Constituent Entity is a subsidiary and therefore, the approval of the shareholders of any parent company was not necessary. ARTICLE IV A copy of the Articles of Incorporation of Wade Cook Financial Corporation is attached hereto for filing with the Secretary of State. ARTICLE V The Plan of Merger is attached hereto as Exhibit A. DATED this 10th day of September, 1997. WADE COOK FINANCIAL CORPORATION By: /s/ Wade B. Cook --------------------------- Name: Wade B. Cook Title: President ACKNOWLEDGED: State of Utah Department of Commerce Division of Corporations and Commercial Code WADE COOK FINANCIAL CORPORATION I hereby certify that the foregoing has been pled and approved on the 22 day of 97. In the office of this By: /s/ Laura M. Cook Division and hereby issue this Certificate ---------------------------- thereof. Name: Laura M. Cook Title: Secretary Examiner -------------------- Date 12/26/97 /s/ Korla S. Woods ---------------------- Korla S. Woods Division Director AGREEMENT AND PLAN OF MERGER This Plan of Merger is made and entered into this 22nd day of December, 1997, by and between Profit Financial Corporation, a Utah corporation ("PROFIT"), and Wade Cook Financial Corporation, a Nevada corporation ("WADE" or the "Surviving Company"). RECITALS A. PROFIT is a public reporting corporation organized and existing under the laws of the State of Utah whose registered address is 3098 South Highland Drive, Suite 460, Salt Lake City, Utah, 84106 and has total authorized capital stock consisting of 20,000,000 shares of common stock, par value of $0.01, and 5,000,000 shares of preferred stock, par value $10.00. B. WADE is a Nevada corporation formed and existing under the laws of the State of Nevada whose registered address is 3885 S. Decatur Blvd., Suite 2010, Las Vegas, Nevada, 89103 and who has total authorized capital stock consisting of 60,000,000 shares of common stock with a par value of $0.01 per share and 5,000,000 shares of preferred stock with a par value of $10.00 per share. C. The Board of Directors of WADE and of PROFIT, respectively, deem it advisable for PROFIT to merge with and into WADE. NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, WADE and PROFIT hereby agree to the following Plan of Merger: 1. Names of Each Party to the Merger. PROFIT will merge with and into WADE. 2. Terms and Conditions of Merger. The effective date of merger shall be upon the filing of the Articles of Merger with the appropriate office or division of the State of Utah or December 20, 1997 or whichever first occurs Upon the effective date of the merger. The separate corporate existence of PROFIT shall cease; title to all real estate and other property owned by PROFIT shall be vested in WADE without reversion or impairment; and the Surviving Company shall have all liabilities of PROFIT. Any proceeding pending by or against PROFIT may be continued as if such merger did not occur, or the Surviving Company may be substituted in the proceeding for WADE. 3. Governing Law. The laws of the State of Nevada shall govern the Surviving Company. 4. Name of Surviving Company. The name of the Surviving Company shall be Wade Cook Financial Corporation. 5. Registered Agent and Registered Office. The address of the registered office of the Surviving Company shall be 3885 S. Decatur Blvd., Suite 2010, Las Vegas, Nevada, 89103, and the name of the Registered Agent shall be Acorn Corporation Services, Inc. 6. Accounting. The assets and liabilities of WADE and PROFIT (collectively the "Constituent Parties") as of the effective date of the merger shall be taken up on the books of the Surviving Company at the amounts at which they are carried at that time on the respective books of the Constituent Parties. 7. Certificate of Formation. The Articles of Incorporation of WADE are hereby executed and attached hereto as Exhibit "A", and incorporation herein by this preference. The Articles of Incorporation shall constitute the Articles of Incorporation of the Surviving Company. 8. Bylaws. The Bylaws of WADE as of the effective date of the merger shall be consistent and not contradict any provisions provided herein. 9. Directors. The Directors of PROFIT as of the effective date of the merger may or may not serve as directors of the Surviving Company. An initial board of directors (or director) shall be designated in the Articles of Incorporation of the Surviving Company and may be changed from time to time as provided for in the Surviving Company's Bylaws. 10. Manner and Basics of converting Shares. As of the effective date of the merger: a) Each share of WADE issued and outstanding shall continue to be one share of the Surviving Company. b) The shareholders in PROFIT shall convert their shares of common stock on the basis of one share of PROFIT common stock for three shares of common stock in the Surviving Company. As a result of this conversion, the shareholders of the Surviving Company will own a total equity interest in the Surviving Company measured by each member's pro rata interest in PROFIT. c) Any authorized but unissued shares of PROFIT, if any, on the effective date of merger shall be surrendered to the Surviving Company for cancellation, and no shares of the Surviving Company shall be issued in respect thereof. d) On the effective date of the merger, holders of shares certificated in PROFIT shall be deemed to be holders of share certificates in Surviving Company and such holders may, but need not surrender them to the Surviving Company, or its appointed agent, in such manner as the Surviving Company legally shall require. Upon receipt of such certificate, the Surviving Company shall issue in exchange therefor a Agreement and Plan of Merger Page 2 of 4 certificate of shares in the Surviving Company representing the number of shares to which such holder shall be entitled as set forth above. e) In addition, such holders shall be entitled to receive any distributions on such shares of the Surviving Company which may have been declared and paid between the effective date of the merger and the issuance to such shareholder of the certificate of such shares. f) Any options granted by PROFIT to purchase unissued shares or shares equivalents of PROFIT shall continue to be options to purchase equal numbers of shares of common stock of the Surviving Corporation without any change in the terms and conditions as set forth in such options. 11. Shareholder and Member Approval. This Plan of Merger shall be submitted to the shareholders of WADE and PROFIT for their approval in the manner provided under the laws of the states of Nevada and Utah respectively. After approval by a vote of the holders of a simple majority of the shares entitled to vote thereon of WADE and the holders of more than fifty percent (50%) of the issued shares by the shareholders of PROFIT the Articles of Merger shall be filed as required under the laws of the State of Nevada. 12. Rights of Dissenting Shareholders. Any shareholder of WADE or PROFIT who has the right to dissent from this merger as provided under the laws of the states of Nevada and Utah, and who so dissents in accordance with requirements thereof, shall be entitled, upon surrender of the certificate or certificates representing certificated shares or upon imposition of restrictions of transfer of uncertificated shares, to receive payment of the fair value of such shareholder's shares as provided pursuant to the law of the states of Nevada and Utah. 13. Termination of Merger. This merger may be abandoned at any time prior to the filing of Articles of Merger with the Secretary of State upon a vote of a majority of the Board of Directors of WADE and of PROFIT. If the merger is terminated, there shall be no liability on the part of either Constituent Party, their respective Boards of Directors or shareholders. 14. Counterparts. This Plan of Merger may be executed in any number of counterparts or by facsimile, and all such counterparts and copies shall be and constitute an original instrument. Agreement and Plan of Merger Page 3 of 4 IN WITNESS WHEREOF, this Plan of Merger has been adopted by the undersigned companies as of 15th day of August 1997. PROFIT FINANCIAL CORPORATION WADE COOK FINANCIAL CORPORATION By: Wade B. Cook By: Wade B. Cook ---------------------------- -------------------------- Name: Wade B. Cook Name: Wade B. Cook ---------------------------- -------------------------- Its: President Its: President ---------------------------- -------------------------- Agreement and Plan of Merger Page 4 of 4 [STAMP] Certificate of Correction This Certificate of Correction is in regards to the Articles of Merger and the Agreement and Plan of Merger of, by and between, Profit Financial Corporation, a Utah Corporation, and Wade Cook Financial Corporation, a Nevada Corporation, filed on Friday, December 19th, 1997. Upon further inspection, several clerical errors have been identified. The following corrections should be made as follows: As to the Articles of Merger: 1) The reference to "Profit Financial Corporation, a Utah corporation" in the first paragraph should be corrected to read "Wade Cook Financial Corporation (formerly Profit Financial Corporation), a Utah corporation." 2) The reference to "PROFIT" in the first paragraph should be corrected to read "UTAHWADE". 3) The phrase "and together with PROFIT, "Constituent Entity" in the first paragraph should be deleted. 4) The reference to "Profit Financial Corporation" in Article I should be corrected to read "Profit Financial Corporation (now known as Wade Cook Financial Corporation)". 5) Article II should be corrected in full to read "An agreement and plan of merger (the "Plan"), attached to these Articles of Merger as Exhibit A, has been approved by the shareholders of UTAHWADE. At the time of voting, 4,120,313 votes were cast in favor of the Plan by shareholders holding common stock of UTAHWADE, the only class of stock entitled to vote on the matter. Such vote was sufficient to approve the Plan." 6) The reference to "Constituent Entity" in Article III should be corrected to read "UTAHWADE or WADE". 7) Article IV should be corrected in full to read "The effective date of these Articles of Merger shall be upon filing of these Articles of Merger with the appropriate office or division of the State of Nevada or December 24, 1997, whichever first occurs." 8) Article V should be deleted in full. As to the Agreement and Plan of Merger: 1) The phrase "22nd day of December, 1997" in the first paragraph should be corrected to read "15th day of August, 1997." 2) The reference to "Profit Financial Corporation, a Utah corporation ("PROFIT") in the first paragraph should be corrected to read "Wade Cook Financial Corporation (formerly Profit Financial Corporation), a Utah corporation ("UTAHWADE"). 3) All references to "PROFIT" should be corrected to read "UTAHWADE." 4) The first sentence in subsection C10(b) should be corrected in full to read "The shareholders in UTAHWADE shall convert their shares of common stock on the basis of one share of UTAHWADE common stock for one share of common stock in the Surviving Company." 5) The reference to "Profit Financial Corporation" in the signature line should be corrected to read "Wade Cook Financial Corporation, formerly Profit Financial Corporation [Utah]." DATED this 24th day of December, 1997. ACKNOWLEDGED: WADE COOK FINANCIAL CORPORATION By: Wade B. Cook -------------------------- Wade B. Cook, President & Chairman PROFIT FINANCIAL CORPORATION ARTICLES OF MERGER Pursuant to the provisions of the Revised Business Corporation Act of the State of Utah, Title 16, Chapter 10a, the undersigned corporation hereby submits the following Articles of Merger for filing for the purpose of merging Wade Cook Financial Corporation (formerly Profit Financial Corporation), a Utah corporation ("Profit"), into Wade Cook Financial Corporation, a Nevada corporation ("WADE"). ARTICLE I Profit Financial Corporation (now known as Wade Cook Financial Corporation) is a corporation organized and existing under the laws of the State of Utah with its address at 3098 South Highland Drive, Suite 460, Salt Lake City, Utah 84106. Wade Cook Financial Corporation is a corporation duly organized and existing under the laws of the State of Nevada whose address is 3885 S. Decatur Blvd., Suite 2010, Las Vegas, Nevada 89103. ARTICLE II An agreement and plan of merger (the "Plan"), attached to these Articles of Merger as Exhibit A, has been approved by the shareholders of Profit. At the time of voting, 4,120,313 votes were cast in favor of the Plan by shareholders holding common stock of Profit, the only class of stock entitled to vote on the matter. Such vote was sufficient to approve the Plan. ARTICLE III Neither Profit or WADE is a subsidiary and therefore, the approval of the shareholders of any parent company was not necessary. ARTICLE IV The effective date of these Articles of Merger shall be upon the filing of these Articles of Merger with the appropriate office or division of the State of Utah or December 20, 1997, whichever first occurs. DATED this 20TH day of December, 1997. Profit Financial Corporation (A Utah Corporation) (now known as WADE COOK FINANCIAL CORPORATION) By: /s/Wade B. Cook Name: Wade B. Cook Its: President ACKNOWLEDGED: WADE COOK FINANCIAL CORPORATION By: /s/Laura M. Cook Name: Laura M. Cook Its: Secretary STATE OF WASHINGTON) ) COUNTY OF KING ) Before me, a Notary Public in and for said county and state, personally appeared Ken Zeringer, President of Columbia Corporate Services, Inc. who is known to me to be the same person who executed the foregoing Articles of Incorporation and duly acknowledged execution of the same. In witness whereof, I have hereunto subscribed my name and affixed my official seal this 18 day of December 1997. [ILLEGIBLE] ------------------------------------- [SEAL] Notary Public in and for the State of Washington residing at Seattle, WA For authorization see Exhibit "A", "Corporate Resolution", attached hereto and made a part hereof by reference. CORPORATE RESOLUTION BE IT HEREBY RESOLVED, by the Board of Directors of Wade Cook Financial Corporation, formerly Profit Financial Corporation, a Utah corporation, that the corporation authorize an increase in the total authorized common stock of the company by 80,000,000 shares to 140,000,000 shares of common stock par value $.01. I, Laura Cook, Secretary of Wade Cook Financial Corporation, formerly Profit Financial Corporation, hereby certify that the foregoing is a true copy of a resolution adopted by the Board of Directors of said Corporation at a meeting duly held the 13th day of August, 1997 in Seattle, Washington at which a quorum was present and voting, and that the same has not been repealed or amended and remains in full force and effect and does not conflict with the By-laws of said Corporation. Dated: 12/18/97 /s/ Laura M. Cook ------------------ ------------------------------- Laura Cook, Secretary Wade Cook Financial Corporation STATE OF WASHINGTON) ) COUNTY OF KING ) On the 18 day of December, 1997 personally appeared before me, Laura M. Cook, signer of the above instrument, who duly acknowledged to me that she executed the same. My Commission Expires /s/ Patricia A. Sanders 1-3-2001 ---------------------------- - --------------------- Notary Public 3215 South 314th Place [SEAL] ---------------------------- Residing At: Auburn, WA 98001 ---------------------------- MINUTES OF THE ANNUAL MEETING OF SHAREHOLDERS OF WADE COOK FINANCIAL CORPORATION December 10, 1997 The 1997 Annual Meeting of Shareholders of Wade Cook Financial Corporation (the "Company"), was held at the Company's headquarters located at 14675 Interurban Avenue, South, Seattle, Washington at 2:00 p.m., local time, on December 10, 1997. The meeting was called to order by the company's Chairman and Chief Executive Officer, Wade B. Cook. Mr. Cook served as Chairman of the meeting. The Chairman welcomed the shareholders in attendance. Lisa Michaels, was introduced as the "Inspector of Elections". Mr. Cook announced that a complete list of the shareholders of record of the Company as of September 1, 1997, the record date set by the Board of Directors to determine these shareholders entitled to vote at this meeting, was available at the meeting. The Chairman introduced the first item of business, which was the election of directors for the forthcoming year. The Chairman mentioned Dr. Warren Chancy, would no longer be considered for election to the Board of Directors. There being no additional nominations, shareholders cast their votes for the election of directors. The Chairman introduced the Company's key officers and members of its Board of Directors present at the meeting: Laura M. Cook - Director and Secretary John Childers, Sr. - Speaker Training Manager and Director Nicholas Dettman - Director Eric Marler - Speaker and Director Robert Hondel - Quantum Marketing and Director Cheryle Hamilton - President of Lighthouse Publishing and Director Pamela Andersen - Real Estate Investment manager and Director Robin Anderson - Sales manager and Director Kiman Lucas - General Counsel The second item of business was ratification of the Company's name change from Profit Financial Corporation, to Wade Cook Financial Corporation. Shareholders cast their ballots. The third item of business was authorization of reincorporation in the state of Nevada. Shareholders cast their ballots. WADE COOK FINANCIAL CORPORATION MINUTES OF THE ANNUAL MEETING OF SHAREHOLDERS (page 2) The fourth item of business was adoption of the 1997 Stock Incentive Plan. Shareholders cast their ballots. The final item of business was authorization of an increase in the total number of common stock of the company to 140,000,000 shares. Shareholders cast their ballots. The Chairman gave a report on the Company's fiscal year and plans for the future. Following his report, the Inspector of Elections informed the Chairman of the election results. The Chairman announced that all issues received a majority of affirmative votes and passed successfully. After the election results were announced, Mr. Cook responded to several questions from the floor. Mr. Cook then returned to his discussion about the Company's performance and vision for the upcoming fiscal year. The meeting was adjourned at approximately 3:30 p.m. local time. SECRETARY /s/ Laura M. Cook ------------------------- Laura M. Cook STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) On the 18 day of December, 1997 personally appeared before me, Laura M. Cook, signer of the above instrument, who duly acknowledged to me that she executed the same. My Commission Expires 1-9-2001 [illegible] - --------------------- ------------------------- Notary Public Residing at: [SEAL] [illegible] ------------------------- [illegible] [SEAL] CORPORATE CHARTER I, DEAN HELLER, the duly elected and qualified Nevada Secretary of State, do hereby certify that WADE COOK FINANCIAL CORPORATION did on December 19, 1997 file in this office the original Articles of Incorporation; that said Articles are now on file and of record in the office of the Secretary of State of the State of Nevada, and further, that said Articles contain all the provisions required by the law of said State of Nevada. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Great Seal of the State, at my office, in Carson City, Nevada, on December 22, 1997. [SEAL] /s/ Dean Heller Secretary of State /s/ [illegible] Certification Clerk ARTICLES OF INCORPORATION OF [STAMP] WADE COOK FINANCIAL CORPORATION The undersigned incorporator, for the purpose of forming a corporation (hereinafter referred to as the "Corporation") under the General Corporation Law of the State of Nevada (Title 7, Chapter 78 of the Nevada Revised Statutes, and the act amendatory thereof) does hereby adopt the following Articles of Incorporation. ARTICLE I: The name of the corporation (hereinafter called the "Corporation") is WADE COOK FINANCIAL CORPORATION. ARTICLE II: The name of the Corporation's resident agent in the state of Nevada is Acorn Corporate Services, Inc. and the street address of the said resident agent where process may be served is 3885 S. Decatur Blvd., Suite 2010, Las Vegas, Nevada 89103. ARTICLE III: The number of shares the Corporation is authorized to issue is 60,000,000 shares of Common Stock with a par value of $0.01 per share and 5,000,000 shares of Preferred Stock, with a par value of $10.00 per share. Shares of either the common or preferred stock of the Corporation may be issued from time to time in one or more classes or series, each of which class or series may have such distinctive designation or title as shall be fixed by the Board of Directors of the Corporation prior to the issuance of any shares thereof. Each such class or series of stock shall have such voting powers, full or limited, or no voting power, and such other relative, participating, optional or other rights, preferences, privileges and restrictions, including the voting rights, redemption provisions (including sinking fund provisions), dividend rights, dividend rates, liquidation preferences and conversion rights, and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issuance of such class or series of stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof pursuant to the authority hereby expressly vested in it, all in accordance with the laws of the State of Nevada. Any action by the Board of Directors under this section shall require the affirmative vote of a majority of the members of the Board of Directors then in office. ARTICLE IV: No holder of any of the shares of the Corporation shall, as such holder, have any right to purchase or subscribe for any shares of any class which the Corporation may issue or sell, whether or not such shares are exchangeable for any shares of the Corporation of any other class or classes, and whether such shares are issued out of the number of shares authorized by these Articles of Incorporation as originally filed, or by any amendment thereof, or out of shares of the Corporation acquired by it after the issue thereof, nor shall any holder of any of the shares of the Corporation, as such holder have any right to purchase or subscribe for any obligations which the Corporation may Issue or sell that shall be convertible into, or exchangeable for, any shares of the Corporation of any class or classes, or to which shall be attached or shall be appertain any warrant or warrants or other instrument or instruments that shall confer upon the holder thereof the right to subscribe for, or purchase from the Corporation any shares of any class or classes. ARTICLE V: The governing board of the Corporation shall be styled as "Directors". The initial Board of Directors shall consist of ten members and may be increased or decreased from time to time in the manner specified in the Bylaws of this corporation; provided however, that the number shall not be less than 3 or more than 12, and shall not be increased by more than two directors in any calendar year. In case of an increase in the number of directors, the additional director or directors shall be elected by the shareholders at an annual meeting or at a special meeting called for that purpose. In case of a vacancy in the Board of Directors, the remaining directors, by majority vote, may elect a successor to hold office for the unexpired term of the director whose position is vacant, and until the election and qualification of a successor. the directors of this Corporation will be divided into three classes: Class I, Class II, and Class III. Such classes must be as nearly equal in number as possible. The term of the initial Class I directors will expire at the first annual meeting of the shareholders following the designation, the term of the initial Class II directors will expire at the second annual meeting the shareholders following designation; and the term of the initial Class III directors will expire at the third annual meeting of the shareholders following designation. Thereafter, the term of office of a director shall be three years. If the number of directors is increased or decreased in the manner specified in the Bylaws, such change will be apportioned among the classes so that after the change, the classes will remain as nearly equal in number as possible. Notwithstanding any other provision of these Articles of Incorporation or the Bylaws of this corporation, the provisions of this Article V may not be amended or repealed, and no provisions inconsistent herewith may be adopted by the Corporation without the affirmative vote of the holders of at least two-thirds (2/3rds) of the Corporation's outstanding Common Stock. The names and street addresses and class designations of the initial directors of the Corporation are as follows: NAME ADDRESS CLASS Wade B. Cook 14675 Interurban Avenue South III Seattle, Washington 98168 ARTICLE VI: The purposes for which the Corporation organized is to engage in any lawful act or activity for which a corporation may be organized pursuant to the General Corporation Law of the State of Nevada. ARTICLE VII: The name and street address of the incorporator executing these Articles of Incorporation are as follows: NAME ADDRESS Columbia Corporate Services, Inc. 701 Fifth Avenue, Suite 5701 Seattle, WA 98104 ARTICLE VIII: The Corporation shall, to the fullest extent legally permissible under the provisions of the General Corporation Law of the State of Nevada, as the same may be amended and supplemented, indemnify and hold harmless any and all persons whom it shall have power to indemnify under said provisions from and against any and all liabilities (including expenses) in which he may be involved or with which he may be threatened, or other matters referred to in or covered by said provisions both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director or officer of the Corporation. Such indemnification provided shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any other Bylaw, Contract or Agreement, or Resolution adopted by the shareholders entitled to vote thereon after notice. ARTICLE IX: The period of duration of the Corporation shall be perpetual. ARTICLE X: The personal liability of each and all of the Directors of the Corporation is hereby eliminated to the fullest extent allowed as provided by the Nevada General Corporation Law,as the same may be supplemented and amended. The undersigned incorporator has executed these Articles of Incorporation this 18th day of December, 1997. COLUMBIA CORPORATE SERVICES, INC. /s/ Ken Zeringer By: Ken Zeringer Its: President STATE OF WASHINGTON ) ) ss. COUNTY OF KING ) Before me, a Notary Public in and for said county and state, personally appeared Ken Zeringer, President of Columbia Corporate Services, Inc. who is known to me to be the same person who executed the foregoing Articles of Incorporation and duly acknowledged execution of the same. In witness whereof, I have hereunto subscribed my name and affixed my official seal this 18 day of December, 1997. /s/ [ILLEGIBLE] -------------------------------- Notary Public in and for the [NOTARY SEAL] State of Washington residing at Seattle, WA. Articles of Incorporation - Wade Cook Financial Corporation Page -4- [STAMP] Certificate of Correction This certificate of Correction is in regards to the Articles of Merger and the Agreement and Plan of Merger of, by and between Profit Financial Corporation, a Utah Corporation, and Wade Cook Financial Corporation, a Nevada Corporation, filed on Friday, December 19th, 1997. Upon further inspection, several clerical errors have been identified. The following corrections should be made as follows: As to the Articles of Merger: 1) The reference to "Profit Financial Corporation, a Utah corporation" in the first paragraph should be corrected to read "Wade Cook Financial Corporation (formerly Profit Financial Corporation), a Utah corporation." 2) The reference to "PROFIT" in the first paragraph should be corrected to read "UTAHWADE." 3) The phrase "and together with PROFIT, "Constituent Entity" in the first paragraph should be deleted. 4) The reference to "Profit Financial Corporation" in Article I should be corrected to read "Profit Financial Corporation (now known as Wade Cook Financial Corporation)". 5) Article II should be corrected in full to read "An agreement and plan of merger (the "Plan"), attached to these Articles of Merger as Exhibit A, has been approved by the shareholders of UTAHWADE. At the time of voting, 4,120,313 votes were cast in favor of the Plan by shareholders holding common stock of UTAHWADE, the only class of stock entitled to vote on the matter. Such vote was sufficient to approve the Plan." 6) The reference to "Constituent Entity" in Article III should be corrected to read "UTAHWADE or WADE". 7) Article IV should be corrected in full to read "The effective date of these Articles of Merger shall be upon filing of these Articles of Merger with the appropriate office or division of the State of nevada or December 24, 1997, whichever first occurs." 8) Article V should be deleted in full. As to the Agreement and Plan of Merger: 1) The phrase "22nd day of December, 1997" in the first paragraph should be corrected to read "15th day of August, 1997." 2) The reference to "Profit Financial Corporation, a Utah corporation ("PROFIT") in the first paragraph should be corrected to read "Wade Cook Financial Corporation (formerly Profit Financial Corporation), a Utah corporation ("UTAHWADE")." 3) All references to "PROFIT" should be corrected to read "UTAHWADE." 4) The first sentence in subsection C10(b) should be corrected in full to read "The shareholders in UTAHWADE shall convert their shares of common stock on the basis of one share of UTAHWADE common stock for one share of common stock in the Surviving Company." 5) The reference to "Profit Financial Corporation" in the signature line should be corrected to read "Wade Cook Financial Corporation, formerly Profit Financial Corporation [Utah]." DATED this 24th day of December, 1997. ACKNOWLEDGED: WADE COOK FINANCIAL CORPORATION By: ---------------------------------- Wade B. Cook, President & Chairman EX-99.15 13 EX-99.15 BY Wade Cook Financial Corporation, ------------------------------- (name of corporation) a Nevada corporation ---------------------- (state of corporation) I, the undersigned, Secretary of the above named Corporation, DO HEREBY CERTIFY that: 1. The following resolution was duly adopted by the Board of Directors of the Corporation at a meeting thereof duly called and held on December 10, 1997, at which a quorum was present, the resolution has not - ----------- -- been rescinded, and it is still in full force and effect: WHEREAS, the Corporation is authorized to issue, and it has issued the following capital stock:
Number of Number of Shares Shares Class Par Value Authorized Issued - ----- --------- ---------- --------- "A" - Common Stock 140,000,000 60,435,000 - ------------------ --------- ----------- ---------- Preferred Stock 5,000,000 0 - ------------------ --------- ----------- ---------- - ------------------ --------- ----------- ----------
The address of the Corporation to which Notices may be sent is: 14675 Interurban Avenue South ----------------------------- Seattle, WA 98168-4664 ----------------------------- NOW, THEREFORE, IT IS RESOLVED that American Stock Transfer & Trust Company ("AST") is hereby appointed transfer agent and registrar* for all said authorized shares [the following shares -- - -------------------------------------------------------------------]** of the Corporation, in accordance with the general practices of AST and its regulations set forth in the pamphlet submitted to this meeting entitled "Regulations of the American Stock Transfer & Trust Company." - ----------------------------------------------------------------------------- *Delete either "transfer agent" or "regulars," if the appointment is not to cover such. **If the appointment is to cover less than the entire amount of the authorized capital stock, the words "all said authorized shares" should be stricken out and the class and (if the appointment is for less than all authorized shares of a class) number of shares to be covered by the appointment inserted in the blank space. 2. The following are the duly elected and qualified officers of the Corporation holding the respective offices set opposite their names, and the signatures set opposite their names are their genuine signatures:
NAME SIGNATURE Wade B. Cook Chairman /s/ Wade B. Cook - ------------- ------------- Wade B. Cook President /s/ Wade B. Cook - ------------- ------------- Vice-President - ------------- ------------- Vice-President - ------------- ------------- Treasurer - ------------- ------------- Assistant Treasurer - ------------- ------------- Laura M. Cook Secretary /s/ Laura M. Cook - ------------- ------------- Assistant Secretary - ------------- -------------
3. The name and address of legal counsel of the Corporation is: Kiman Lucas, 14675 Interurban Avenue South ------------------------------------------ Seattle, WA 98168-4664 ------------------------------------------ 4. Attached is a specimen stock certificate for each denomination of capital stock (the "Stock") for which AST has been authorized to act as transfer agent or registrar 5. Attached is a true copy of the certificate of incorporation, as amended, of the Corporation. 6. Attached is a true copy of the by-laws, as amended, of the Corporation. 7. If any provision of the certificate of incorporation or by-laws of the Corporation any court or administrative order, or any other document, affects any transfer agent or registrar function or responsibility relating to the shares, attached is a statement of each such provision. 8. All certificates representing Shares which were not issued pursuant to an effective registration statement under the Securities Act of 1933, as amended, bear a legend in substantially the following form: The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Act"). The shares may not be sold, transferred or assigned in the absence of an effective registration for these shares under the Act or an opinion of the Corporation's counsel that registration is not required under the Act. All Shares not so registered were issued or transferred in a transaction or series of transactions exempt from the registration provisions of the Act, and in each such issuance or transfer, the Corporation was so advised by its legal counsel. 9. If any class of the Corporation's securities are registered under the Securities Exchange Act of 1934, as amended, the most recent Form 10-K, proxy statement and annual report to stockholders of the Corporation are attached. 10. The initial term of AST's appointment hereunder shall be three years from the date hereof and the appointment shall automatically be renewed for further three year successive periods unless terminated by either party by written notice to the other given not less than ninety (90) days before the end of the initial or any subsequent three year period. AST's fees will not be increased during the initial three year term and, thereafter, may only be increased by agreement. Notwithstanding the aforegoing, AST shall be entitled to terminate the appointment forthwith on not less than thirty (30) days notice in the event that the Corporation commits any breach of its material obligations to AST including payment of any amount owing to AST. On termination of the appointment for any reason, AST shall be entitled to retain all transfer records and related documents until all amounts owing to AST have been paid in full. 11. The Corporation will advise AST promptly of any change in any Information contained in, or attached to, this Certificate by a supplemental Certificate or otherwise In writing. WITNESS my hand and seal of the Corporation this 20th day of January, 1998. ---- ------- -- /s/ Laura M. Cook ----------------- Secretary (corporate seal) /---------------------------------------------------------------/ / / / CERTIFICATE OF APPOINTMENT OF / / AMERICAN STOCK TRANSFER / / & TRUST COMPANY as / / / / /X/ TRANSFER AGENT /X/ REGISTRAR / / / /---------------------------------------------------------------/ EX-99.16 14 EX-99.16 WADE COOK FINANCIAL CORPORATION INDEMNIFICATION AGREEMENT INDEMNIFICATION AGREEMENT dated ___________________ by and between WADE COOK FINANCIAL CORPORATION, a Nevada corporation (the "Company"), and ______________________, a director or officer of the Company ("Indemnitee"). RECITALS A. Indemnitee is currently serving as a director or officer of the Company and in such capacity is performing valuable services for the Company. B. The shareholders of the Company have adopted Bylaws (the "Bylaws") providing for the indemnification of the directors or officers of the Company to the fullest extent permitted under Nevada law. C. The Bylaws and the General Corporation Law of the State of Nevada (the "Statute") specifically provide that they are not exclusive, and thereby contemplate that contracts may be entered into between the Company and the members of its Board of Directors with respect to indemnification of such persons. D. The Company and Indemnitee recognize the increasing difficulty in obtaining directors' and officers' liability insurance, the significant increases in the cost of such insurance and the general reduction in the coverage of such insurance. E. The Company and Indemnitee further recognize the substantial increase in litigation subjecting officers and directors to expensive litigation risks at the same time that such liability insurance has been severely limited. F. Indemnitee does not regard the current protection available as adequate given the present circumstances, and Indemnitee may not be willing to serve as a director or an officer without adequate protection. G. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, to serve as a director or an officer of the Company and to indemnify its directors and officers so as to provide them with the maximum protection permitted by law. H. In order to induce Indemnitee to continue to serve as a director or an officer of the Company and in consideration for his continued service, the Company has determined and agreed to enter into this agreement with Indemnitee. AGREEMENT In consideration of the recitals above and the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. Right to Indemnification. The Company shall indemnify Indemnitee if Indemnitee was or is made a party or is threatened to be made a party to or is otherwise involved (including, without limitation, as a witness) in any actual or threatened action, suit or proceeding, whether civil, criminal, administrative or investigative and whether formal or informal (hereinafter a "proceeding"), by reason of the fact that Indemnitee is or Indemnity Agreement Page 1 was a director of the Company or that, while serving as a director or an officer of the Company, Indemnitee is or was serving at the request of an executive officer of the Company as a director, officer, partner, trustee, employee or agent of another foreign or domestic corporation or of a foreign or domestic partnership, joint venture, trust, employee benefit plan or other enterprise, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, partner, trustee, or agent or in any other capacity while serving as a director, officer, employee, partner, trustee, or agent, shall be indemnified and held harmless by the Company against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement) actually and reasonably incurred or suffered by Indemnitee (hereinafter "expenses") in connection therewith; provided, however, that (a) the Company shall not indemnify Indemnitee from or on account of any act or omission of Indemnitee to the extent indemnification for such act or omission is specifically prohibited by the General Corporation Law of the State of Nevada or any successor provision of the Statute; and (b) except as provided in Section 2.1 hereof with respect to proceedings seeking to enforce rights to indemnification, the Company shall indemnify Indemnitee in connection with a proceeding (or part thereof) initiated by Indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Company. Such indemnification shall continue as to Indemnitee after Indemnitee has ceased to be a director, officer, employee or agent and shall inure to the benefit of Indemnitee's heirs, executors and administrators. The right to indemnification conferred in this Section 1 shall include the right to be paid by the Company the expenses incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that an advancement of expenses incurred by Indemnitee in his capacity as a director or officer (and not in any other capacity in which service was or is rendered by Indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Company of an undertaking (hereinafter an "undertaking"), by or on behalf of Indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that Indemnitee is not entitled to be indemnified for such expenses under this Section 1 or otherwise and upon the taking of such other action, if any, as may be required by the Statute. 2. Expenses, Indemnification Procedure. 2.1 Right of Claimant to Bring Suit. If a claim under Section 1 hereof is not paid in full by the Company within sixty (60) days after a written claim has been received by the Company, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, Indemnitee may, but need not, at any time thereafter bring suit against the Company to recover the unpaid amount of the claim. If successful in any such suit, or in a suit brought by the Company to recover an advancement of expenses pursuant to the terms of an undertaking, Indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit; provided, however, that if it shall be determined in any such suit that Indemnitee is entitled to receive part but not all of the indemnification or advancement of expenses sought, the expenses incurred by Indemnitee in connection with such suit shall be appropriately prorated. Indemnitee shall be presumed to be entitled to indemnification under this agreement upon submission of a written claim (and, in an action brought to enforce a claim for an advancement of expenses, where the required undertaking has been tendered to the Company and any other action required by the Statute has been taken), and thereafter the Company shall have the burden of proof to overcome the presumption that Indemnitee is not so entitled. Neither the failure of the Company (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of Indemnitee is proper in Indemnity Agreement Page 2 the circumstances, nor an actual determination by the Company (including its Board of Directors, independent legal counsel or its stockholders) that Indemnitee is not entitled to indemnification, shall be a defense to the suit or create a presumption that Indemnitee is not entitled to indemnification hereunder. 2.2 Notice/Cooperation by Indemnitee. As a condition precedent to Indemnitee's right to be indemnified under this agreement, Indemnitee shall give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this agreement. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. 2.3 Notice to Insurers. If, at the time of the receipt of a notice of a claim pursuant to Section 2.2 hereof, the Company has directors' and officers' liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding, in accordance with the terms of such policies. 2.4 Selection of Counsel. In the event the Company shall be obligated under Section 2.1 hereof to pay the expenses of any proceeding against Indemnitee, the Company shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, which approval shall not be unreasonably withheld, upon the delivery to Indemnitee of written notice. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ his counsel in any such proceeding at Indemnitee's expense and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense, or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 3. Additional Indemnification Rights: Nonexclusivity. 3.1 Scope. Notwithstanding any other provision of this agreement, the Company hereby agrees to indemnify Indemnitee to the full extent permitted by law, notwithstanding that such indemnification is not specifically authorized by this agreement, the Company's Articles of Incorporation (as amended from time to time), the Company's Bylaws, any statute, or otherwise. In the event of any changes, after the date of this agreement, in any applicable law, statute or rule which expands the right of a Nevada corporation to indemnify a member of its board of directors or an officer, such changes shall be within the purview of Indemnitee's rights and the Company's obligations under this agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a Nevada corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this agreement shall have no effect on this agreement or the parties' rights and obligations hereunder. 3.2 Nonexclusivity. The indemnification provided by this agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Indemnity Agreement Page 3 Company's Articles of Incorporation (as amended from time to time), its Bylaws, any agreement, any vote of shareholders or disinterested directors, the Statute, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. 4. Mutual Acknowledgment. Both the Company and Indemnitee acknowledge that, in certain instances, federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 5. Directors' and Officers' Liability Insurance. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the directors and officers with coverage for losses from wrongful acts, or to insure the Company's performance of its indemnification obligations under this agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of directors' and officers' liability insurance so obtained, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director, or of the Company's officers, if Indemnitee is not a director of the Company but is an officer. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available. if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit or if Indemnitee is covered by similar insurance maintained by a parent or subsidiary of the Company. 6. Severability. Nothing in this agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this agreement shall not constitute a breach of this agreement. The provisions of this agreement shall be severable. If this agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this agreement that shall not have been invalidated, and the balance of this agreement not so invalidated shall be enforceable in accordance with its terms. 7. Exceptions. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this agreement: 7.1 Claims Initiated by Indemnitee. To indemnify or advance expenses to Indemnitee with respect to proceedings of claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this agreement or any other statute or law or as otherwise required under the Statute; but such indemnification or advancement Indemnity Agreement Page 4 of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate. 7.2 Lack of Good Faith. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous. 7.3 Insured Claims. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company. 7.4 Claims Under Section 16(b). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor Statute. 8. Persons Serving Other Entities. If Indemnitee, while serving as a director or officer of the Company, is or was serving (i) as a director or officer of another foreign or domestic corporation of which a majority of the shares entitled to vote in the election of its directors is held by the Company, (ii) as a trustee of an employee benefit plan and the duties of the director or officer to the Company also impose duties on, or otherwise involve services by, the director or officer to the plan or to participants in or beneficiaries of the plan, or (iii) in an executive or management capacity in a foreign or domestic partnership, joint venture, trust or other enterprise of which the Company or a wholly owned subsidiary of the Company is a general partner or has a majority ownership, Indemnitee shall be deemed to have served, or to be so serving, at the request of an executive officer of the Company and entitled to the indemnification and advancement of expenses provisions of Section 1 of this agreement. 9. Settlement. The Company shall have no obligation to indemnify Indemnitee under this agreement for any amounts paid in settlement of any action, suit or proceeding effected without the Company's prior written consent. The Company shall not settle any claim in any manner which would impose any fine or any obligation on Indemnitee without Indemnitee's prior written consent. Neither the Company nor Indemnitee shall unreasonably withhold their respective consents to any proposed settlement. l0. Counterparts. This agreement may be executed in counterparts, each of which shall constitute an original. 11. Attorneys' Fees. In the event that any action is instituted by Indemnitee under this agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless, as a part of such action, a court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action was not made in good faith or was frivolous. In the event of an action instituted by or in the name of the Company under this agreement or to enforce or interpret any of the terms of this agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and crossclaims made in such action), unless as a part of such action the court determines that Indemnity Agreement Page 5 each of Indemnitee's material defenses to such action was made in bad faith or was frivolous. 12. Notice. All notices, requests, demands and other communications under this agreement shall be in writing and shall be deemed duly given (i) if delivered by hand and receipted for by the party addressed, on the date of such receipt, or (ii) if mailed by domestic certified or registered mail with postage prepaid, on the third business day after the date postmarked. Addresses for notice to either party are as shown on the signature page of this agreement, or as subsequently modified by written notice. 13. Consent to Jurisdiction. The Company and Indemnitee each hereby irrevocably consent to the jurisdiction of the courts of the State of Nevada for all purposes in connection with any action or proceeding which arises out of or relates to this agreement and agree that any action instituted under this agreement shall be brought only in the state courts of the state of Nevada. 14. Choice of Law. This agreement shall be governed by and its provisions construed in accordance with the laws of the state of Nevada. 15. Representation by Counsel. Indemnitee hereby understands agrees and accepts that counsel for the Company, in the name of Tracy M. Shier and Monahan & Biagi P.L.L.C., shall take no part in the individual representation of Indemnitee in any of the matters stated above. Tracy M. Shier and the firm of Monahan & Biagi P.L.L.C. shall represent Indemnitee as a member of the Board of Directors of the Company solely. IN WITNESS WHEREOF, the parties hereto have executed this agreement as of the date first above written. INDEMNITEE: WADE COOK FINANCIAL CORPORATION - --------------------------- ------------------------------------ By: Its: Indemnity Agreement Page 6 EX-99.17 15 EX-99.17 BYLAWS WADE COOK FINANCIAL CORPORATION ARTICLE I Offices The principal office of the corporation shall be located at its principal place of business or such other place as the Board of Directors (the "Board") may designate. The corporation may have such other offices, either within or without the State of Nevada, as the Board may designate or as the business of the corporation may require from time to time. ARTICLE II Shareholders 2.1 Annual Meeting. The annual meeting of the shareholders shall be held on such date and at such place and time as the Board may specify for the purpose of electing directors and officers and transacting such business as may properly come before the meeting. If the day fixed for the annual meeting is a legal holiday at the place of the meeting, the meeting shall be held on the next succeeding business day. If the annual meeting is not held on the date designated therefor, the Board shall cause the meeting to be held as soon thereafter as may be convenient. 2.2 Special Meetings. The President, the Board, or the holders of not less than fifty percent (50%) of the outstanding shares of the corporation entitled to vote at the meeting may call special meetings of the shareholders for any purpose. 2.3 Meetings by Telephone. Shareholders may participate in a meeting of the shareholders by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. 2.4. Place of Meeting. All meetings shall be held at the principal office of the corporation or at such other place within or without the State of Nevada designated by the Board. 2.5 Notice of Meeting. The President, the Secretary, the Board, or shareholders calling an annual or special meeting of shareholders as provided for herein, shall cause to be delivered to each shareholder entitled to notice of or to vote at the meeting either personally or by mail, postage prepaid, or facsimile transmission to the extent permitted by applicable state law, not less than ten (10) nor more than sixty (60) days before the meeting, written notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. At any time, upon written request of the holders of not less than fifty percent (50%) of the outstanding shares of the corporation entitled to vote at the meeting, it shall be the duty of the Secretary to give notice of a special meeting of shareholders to be held on such date and at such place and time as the Secretary may fix, not less than ten (10) nor more than sixty (60) days after receipt of said request, and if the Secretary shall neglect or refuse to issue such notice, the person making the request may do so and may fix the date for such meeting. If such notice is mailed, it shall be deemed delivered when deposited in the official government mail properly addressed to the shareholder at his or her address as it appears on the stock transfer books of the corporation with postage prepaid. If the notice is telegraphed, to the extent permitted by state law, it shall be deemed delivered when the telegram is delivered to the telegraph company. If the notice is transmitted by facsimile, to the extent permitted by state law, it shall be deemed delivered when received. 2.6 Waiver of Notice. Whenever any notice is required to be given to any shareholder under the provisions of these Bylaws, the Articles of Incorporation or the General Corporation Law of the State of Nevada, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. 2.7 Fixing of Record Date for Determining Shareholders. For the purpose of determining shareholders entitled to notice of, or to vote at, any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other purpose, the Board may fix in advance a date as the record date for any such determination. Such record date shall be not more than sixty (60) days, and in case of a meeting of shareholders, not less than ten (10) days prior to the date on which the particular action requiring such determination is to be taken. If no record date is fixed for the determination of shareholders entitled to vote at a meeting or to receive payment of a dividend, the date and hour on which the notice of meeting is mailed or on which the resolution of the Board declaring such dividend is adopted, as the case may be, shall be the record date and time for such determination. Such a determination shall apply to any adjournment of the meeting. 2.8 Voting Record. At least ten (10) days before each meeting of shareholders, a complete record of the shareholders entitled to vote at such meeting, or any adjournment thereof, shall be made, arranged in alphabetical order, with the address of and number of shares held by each shareholder. This record shall be kept on file at the registered office of the corporation for ten (10) days prior to such meeting and shall be kept open at such meeting for the inspection of any shareholder. 2.9 Quorum. A majority of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the shareholders. If less than one hundred percent of the outstanding shares entitled to vote are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. If a quorum is present or represented at a reconvened meeting following such an adjournment, any business may be transacted that might have been transacted at the meeting as originally called. 2.10 Manner of Acting. If a quorum is present, the affirmative vote of a majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, unless the vote of a greater number is required by these Bylaws, the Articles of Incorporation or the General Corporation Law of the State of Nevada. 2.11 Proxies. A shareholder may vote by proxy executed in writing by the shareholder or by his or her duly authorized agent. Such proxy shall be filed with the Secretary of the corporation before or at the time of the meeting. A proxy shall become invalid six (6) months after the date of its execution, unless otherwise provided in the proxy. A proxy with respect to a specified meeting shall entitle the holder thereof to vote Wade Cook Financial Corporation - Bylaws - Page 2 at any reconvened meeting following adjournment of such meeting but shall not be valid after the final adjournment thereof. 2.12 Voting of Shares. Each outstanding share entitled to vote with respect to the subject matter of an issue submitted to a meeting of shareholders shall be entitled to one vote upon each such issue. 2.13 Voting for Directors. Each shareholder entitled to vote at an election of directors may vote, in person or by proxy, the number of shares owned by such shareholder for as many persons as there are directors to be elected and for whose election such shareholder has a right to vote, or, unless otherwise provided in the Articles of Incorporation, each such shareholder may cumulate his or her votes by distributing among one or more candidates as many votes as are equal to the number of such directors multiplied by the number of his or her shares. 2.14 Action by Shareholders Without a Meeting. Any action which could be taken at a meeting of the shareholders may be taken without a meeting if a written consent setting forth the action so taken is signed by shareholders holding a majority of the voting power of all shares entitled to vote with respect to the subject matter thereof; provided, that if a different proportion of voting power is required by the Articles of Incorporation, these Bylaws or the General Corporate Law of the State of Nevada, then that proportion of written consents is required. Any such consents shall be inserted in the minute book as if it were the minutes of a meeting of the shareholders. ARTICLE III Board of Directors 3.1 General Powers. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the Board, except as may be otherwise provided in these Bylaws, the Articles of Incorporation or the General Corporation Law of the State of Nevada. 3.2 Number and Tenure. The Board may be increased or decreased from time to time; provided however, that the number shall not be less than three (3) or more than twelve (12), and shall not be increased by more than two directors in any calendar year. In case of an increase in the number of directors, the additional director or directors shall be elected by the shareholders at an annual meeting or at a special meeting called for that purpose. In case of a vacancy on the Board, the remaining directors, by majority vote, may elect a successor to hold office for the unexpired term of the director whose position is vacant, and until the election and qualification of a successor. The directors of this Corporation will be divided into three classes: Class I, Class II, and Class III. Such classes must be as nearly equal in number as possible. The term of the Class I directors will expire at the first annual meeting of the shareholders following the designation; the term of the Class II directors will expire at the second annual meeting of the shareholders following designation; and the term of the Class III directors will expire at the third annual meeting of the shareholders following designation. Any changes to the number of directors will be apportioned among the classes so that after the change, the classes will remain as nearly equal in number as possible. Wade Cook Financial Corporation - Bylaws - Page 3 The provisions of this Article 3.2 may not be amended or repealed, and no provisions inconsistent herewith may be adopted by the Corporation, without the affirmative vote of the holders of at least sixty-seven percent ( 67%) of the shares of the Corporation. 3.3 Annual and Regular Meetings. An annual Board meeting shall be held without notice immediately after and at the same place as the annual meeting of shareholders. A resolution of the Board, or any committee thereof, may specify the time and place either within or without the State of Nevada for holding regular meetings thereof without other notice than such resolution. 3.4 Special Meetings. Special meetings of the Board or any committee appointed by the Board may be called by or at the request of the Chairman of the Board, the President, the Secretary or any one director. The person or persons authorized to call special meetings may fix any place either within or without the State of Nevada as the place for holding any special Board meeting called by them. 3.5 Meetings by Telephone. Members of the Board or any committee designated by the Board may participate in a meeting of such Board or committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. 3.6 Notice of Special Meetings. Written notice of a special Board or committee meeting stating the place, day and hour of the meeting shall be given to a director at his or her address shown on the records of the corporation. Neither the business to be transacted at, nor the purpose of, any special meeting need be specified in the notice of such meeting. 3.6.1 Personal Delivery. If delivery is by personal service, the notice shall be effective if delivered at such address at least two (2) days before the meeting. 3.6.2 Delivery by Mail. If notice is delivered by mail, the notice shall be deemed effective if deposited in the official government mail properly addressed with postage pre-paid at least five (5) days before the meeting. 3.6.3 Delivery by Telex or Facsimile. If notice is delivered by telex or facsimile, the notice shall be deemed effective if sent and evidenced by transmission receipt or report at least three (3) days before the meeting. 3.7 Waiver of Notice. 3.7.1 In Writing. Whenever any notice is required to be given to any director under the provisions of these Bylaws, the Articles of Incorporation or the General Corporation Law of the State of Nevada, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board need be specified in the waiver of notice of such meeting. 3.7.2 By Attendance. The attendance of a director at a Board or committee meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Wade Cook Financial Corporation - Bylaws - Page 4 3.8 Quorum. A majority of the directors shall constitute a quorum for the transaction of business at any Board meeting. A majority of the directors present may adjourn the meeting from time to time without further notice. 3.9 Manner of Acting. The act of the majority of the directors present at a Board or committee meeting at which there is a quorum shall be the act of the Board or of such committee, unless the vote of a greater number is required by these Bylaws, the Articles of Incorporation, or the General Corporation Law of the State of Nevada. 3.10 Presumption of Assent. A director of the corporation present at a Board or committee meeting at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his or her dissent is entered in the minutes of the meeting, or unless such director files a written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof, or forwards such dissent by registered mail to the Secretary of the corporation immediately after the adjournment of the meeting. A director who voted in favor of such action may not dissent. 3.11 Action by Board or Committees Without a Meeting. Any action which could be taken at a meeting of the Board or of any committee appointed by the Board may be taken without a meeting if a written consent setting forth the action so taken is signed by each of the directors or by each committee member. Any such written consent shall be inserted in the minute book as if it were the minutes of a Board or a committee meeting. 3.12 Resignation. Any director may resign at any time by delivering written notice to the Chairman of the Board, the President, the Secretary or the Board, or to the registered office of the corporation, or by giving oral notice at any meeting of the directors or shareholders. Any such resignation shall take effect at the time specified therein, or if the time is not specified, upon delivery thereof and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. 3.13 Removal. At a meeting of shareholders called expressly for that purpose, one or more members of the Board (including the entire Board) may be removed, with or without cause, by a vote of the holders of two-thirds (66 2/3 %) of the shares then entitled to vote on the election of directors. If the Articles of Incorporation permit cumulative voting in the election of directors, and if less than the entire Board is to be removed, no one of the directors may be removed if the votes cast against his or her removal would be sufficient to elect such director if then cumulatively voted at an election of the entire Board. 3.14 Vacancies. Any vacancy occurring on the Board may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the Board. A director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office. Any directorship to be filled by reason of an increase in the number of directors may be filled by the Board for a term of office continuing only until the next election of directors by the shareholders. 3.15 Compensation. By Board resolution, directors may be paid their expenses, if any, of attendance at each Board meeting, or a fixed sum for attendance at each Board meeting, or a stated salary as a director, or a combination of the foregoing. No such Wade Cook Financial Corporation - Bylaws - Page 5 payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. 3.16 Establishment of Committees. The Board shall have power, by resolution or resolutions passed by a majority of the Board, to designate one or more committees from among its members, each committee to consist of not less than two directors of the Corporation, which to the extent provided in the resolutions or in these Bylaws, shall report to the Board and may exercise the authority of the Board to the extent provided in its enabling resolution and any pertinent subsequent resolutions adopted in like manner, provided that the authority of each such committee shall be subject to applicable law. Each committee of the Board shall keep regular minutes of its proceedings and shall report to the Board when requested to do so. Such committee or committees shall have such name or names as may be stated in these Bylaws or as may be determined from time to time by resolution of the Board. The initial committees of the Corporation shall be an Audit Committee, whose composition shall consist solely of outside director members, an Executive Committee, whose membership may consist solely of inside director members and a Compensation Committee, whose membership may consist of directors either from inside or outside of the Corporation, but whose majority consists of outside directors. The Board shall be responsible for the scope and power of the individual committees and their assignments. ARTICLE IV Officers 4.1 Number. The officers of the corporation shall be a President, Secretary and Treasurer, each of whom shall be elected by the Board. The Board may also elect Vice Presidents as well as other officers and assistant officers, including a Chairman of the Board who may or may not be an executive officer of the Corporation as may be designated by the Board, such officers and assistant officers to hold office for such period, have such authority and perform such duties as are provided in these Bylaws or as may be provided by resolution of the Board. Any officer may be assigned by the Board any additional title that the Board deems appropriate including the title of Chief Executive Officer, Chief Financial Officer, Chief Operations Officer, Chief Accounting Officer and Controller. The Board may delegate to any officer or agent the power to appoint any subordinate officers or agents and to prescribe their respective terms of office, authority and duties. Any two or more offices may be held by the same person. 4.2 Election and Term of Office. The officers of the corporation shall be elected annually by the Board at the Board meeting held after the annual meeting of the shareholders. If the election of officers is not held at such meeting, such election shall be held as soon thereafter as a Board meeting conveniently may be held. Unless an officer dies, resigns, or is removed from office, he or she shall hold office until the next annual meeting of the Board or until his or her successor is elected. 4.3 Resignation. Any officer may resign at any time by delivering written notice to the Chairman of the Board, the President,the Secretary or the Board, or by giving oral notice at any meeting of the Board. Any such resignation shall take effect at the time specified therein, or if the time is not specified, upon delivery thereof and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Wade Cook Financial Corporation - Bylaws - Page 6 4.4 Removal. Any officer or agent elected or appointed by the Board may be removed by the Board with or without cause whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. 4.5 Vacancies. A vacancy in any office created by the death, resignation, removal, disqualification, creation of a new office or any other cause may be filled by the Board for the unexpired portion of the term or for a new term established by the Board. 4.6 President. The President shall preside over meetings of the Board and shareholders and, subject to the Board's control, shall supervise and control all of the assets, business and affairs of the corporation. The President may sign certificates for shares of the corporation, deeds, mortgages, bonds, contracts, or other instruments, except when the signing and execution thereof have been expressly delegated by the Board or by these Bylaws to some other officer or agent of the corporation or are required by law to be otherwise signed or executed by some other officer or in some other manner. In general, the President shall perform all duties incident to the office of President, and such other duties as are prescribed by the Board from time to time. 4.7 Vice President. Except as otherwise provided herein, in the absence of the President or his inability to act, the senior Vice President shall act in his place and stead and shall have all the powers and authority of the President, except as limited by resolution of the Board. 4.8 Secretary. The Secretary shall: (a) keep the minutes of meetings of the shareholders and the Board in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these Bylaws or as required by law; (c) be custodian of the corporate records of the corporation; (d) keep registers of the post office address of each shareholder and Director; (e) sign certificates for shares of the corporation; (f) have general charge of the stock transfer books of the corporation; (g) sign, with the President, or other officer authorized by the President or the Board, deeds, mortgages, bonds, contracts, or other instruments; and (h) in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her by the President or by the Board. In the absence of the Secretary, an Assistant Secretary may perform the duties of the Secretary. 4.9 Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the corporation. He shall deposit all monies and other valuables in the name and to the credit of the corporation in such depositories as may be designated by the Board. The Treasurer shall disburse the funds of the corporation as may be ordered by the Board, the Chairman of the Board (if there is one), or the President, taking proper vouchers for such disbursements. He shall render to the Chairman of the Board (if there is one), the President and the Board at the regular meetings of the Board, or whenever they may request it, and to the shareholders at the annual meeting of the shareholders, an account of all his transactions as treasurer and of the financial condition of the corporation. If required by the Board he shall give the corporation a bond for the faithful discharge of his duties in such amount and with such surety as the Board shall prescribe. The Treasurer shall also perform such other duties as may be assigned to him by the Chairman of the Board (if there is one), the President or the Board. Wade Cook Financial Corporation - Bylaws - Page 7 ARTICLE V Contracts, Loans, Checks and Deposits 5.1 Contracts. The Board may authorize any officer or officers, or agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation. Such authority may be general or confined to specific instances. 5.2 Loans. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board. Such authority may be general or confined to specific instances 5.3 Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, or agent or agents, of the corporation and in such manner as is from time to time determined by resolution of the Board. 5.4 Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the Board may select. ARTICLE VI Certificates for Shares and Their Transfer 6.1 Issuance of Shares. No shares of the corporation shall be issued unless authorized by the Board, which authorization shall include the maximum number of shares to be issued and the consideration to be received for each share. 6.2 Certificates for Shares. Certificates representing shares of the corporation shall be signed by the President and shall include on their face written notice of any restrictions which may be imposed on the transferability of such shares. All certificates shall be consecutively numbered or otherwise identified. 6.3 Stock Records. The stock transfer books shall be kept at the registered office or principal place of business of the corporation or at the office of the corporation's transfer agent or registrar. The name and address of the person to whom the shares represented thereby are issued, together with the class, number of shares and date of issue, shall be entered on the stock transfer books of the corporation. The person in whose name shares stand on the books of the corporation shall be deemed by the corporation to be the owner thereof for all purposes. 6.4 Restrictions on Transfer. All certificates representing the issuance of shares of the corporation not otherwise registered pursuant to a registration statement filed with the Securities and Exchange Commission shall bear the following legend on the face of the certificate or on the reverse of the certificate if the reference to the legend is contained on the face: The securities evidenced by this Certificate have not been registered under the Securities Act of 1933 or any applicable state law, and no interest therein may be sold, distributed, assigned, offered, pledged or otherwise Wade Cook Financial Corporation - Bylaws - Page 8 transferred unless (a) there is an effective registration statement under such Act and applicable state securities laws covering any such transaction involving said securities or (b) this corporation receives an opinion of legal counsel for the holder of these securities (concurred in by legal counsel for this corporation) stating that such transaction is exempt from registration or (c) this corporation otherwise satisfies itself that such transaction is exempt from registration. 6.5 Transfer of Shares. The transfer of shares of the corporation shall be made only on the stock transfer books of the corporation pursuant to authorization or document of transfer made by the holder of record thereof or by his or her legal representative, who shall furnish proper evidence of authority to transfer, or by his or her attorney-in-fact authorized by power of attorney duly executed and filed with the Secretary of the corporation. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the former certificates for a like number of shares shall have been surrendered and canceled. 6.6 Lost or Destroyed Certificates. In the case of a lost, destroyed or mutilated certificate, a new certificate may be issued therefor upon such terms and indemnity to the corporation as the Board may prescribe. ARTICLE VII Books and Records The corporation shall keep correct and complete books and records of account, stock transfer books, minutes of the proceedings of its shareholders and Board and such other records as may be necessary or advisable. ARTICLE VIII Accounting Year The accounting year of the corporation shall be the calendar year, provided that if a different accounting year is at any time selected for purposes of federal income taxes, the accounting year shall be the year so selected. ARTICLE IX Seal The seal of the corporation shall consist of the name of the corporation, the state of its incorporation and the year of its incorporation. ARTICLE X Indemnification To the full extent permitted by the General Corporation Law of the State of Nevada, the corporation shall indemnify any person made or threatened to be made a party to any proceeding (whether brought by or in the right of the corporation or otherwise) by reason of the fact that he or she is or was a director or officer of the Wade Cook Financial Corporation - Bylaws - Page 9 corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, against judgments, penalties, fines, settlements and reasonable expenses (including attorneys' fees), actually and reasonably incurred by him or her in connection with such proceeding; and the Board may, at any time, approve indemnification of any other person which the corporation has the power to indemnify under the General Corporation Law of the State of Nevada. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which a person may be entitled as a matter of law or by contract or by vote of the Board or its shareholders. The corporation may purchase and maintain indemnification insurance for any person to the extent provided by applicable law. ARTICLE XI Amendments These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by the Board. The shareholders may alter, amend and repeal these Bylaws, or adopt new Bylaws and all Bylaws made by the Board may be amended, repealed, altered or modified by the shareholders; provided however, that any such actions by the shareholders shall require the affirmative vote of at least sixty-seven percent (67%) of the shareholders of the Corporation. The foregoing Bylaws were adopted by the Board on , 1997. - ------------------------- ------------------------------- By: Its: Wade Cook Financial Corporation - Bylaws - Page 10 EX-99.18 16 EX-99.18 WADE COOK FINANCIAL CORPORATION NOTICE OF GRANT OF STOCK OPTION Notice is hereby given of the following stock option grant (the "Option") to purchase shares of the Common Stock of WADE COOK FINANCIAL CORPORATION (the "Company"): Optionee:---------------------------------------------------- Grant Date:-------------------------------------------------- Option Price: $------------------------- per share Number of Option Shares:-------------------------------- shares Expiration Date:----------------------------------------- Type of Option:------------------------------ Incentive Stock Option ------------------------------ Non-Statutory Stock Option Vesting Schedule: Other Special Provisions: Optionee agrees to be bound by the terms and conditions of the Option as set forth in the Stock Option Agreement attached hereto as Exhibit A. Optionee also understands that the Option is granted subject to and in accordance with the express terms and conditions of the 1997 Stock Incentive Plan (the "Plan"), a copy of which is attached hereto as Exhibit B, and agrees to be bound by the terms and conditions of the Plan. Optionee hereby acknowledges receipt of a copy of the official plan prospectus, if any exists. NO EMPLOYMENT OR SERVICE CONTRACT. Nothing in the Stock Option Agreement or the Plan shall confer upon the Optionee the right to continue in the Service of the Company for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company or the Optionee, which rights are hereby expressly reserved by each, to terminate Optionee's Service at any time for any reason whatsoever, with or without cause. By:------------------------------- Title:---------------------------- OPTIONEE: Name:----------------------------- Address:-------------------------- -------------------------- EX-99.19 17 EX-99.19 WADE COOK FINANCIAL CORPORATION 1997 STOCK INCENTIVE PLAN 1. Establishment and Purpose. There is hereby adopted the Wade Cook Financial Corporation 1997 Stock Incentive Plan (the "Plan"). This Plan is intended to promote the interests of the Company (as defined below) and the stockholders of the Company by providing directors, officers, consultants and other employees of the Company with appropriate incentives and rewards to encourage them to enter into and continue in the employ of the Company and to acquire a proprietary interest in the long-term success of the Company; and to reward the performance of individual directors, officers, consultants and other employees in fulfilling their personal responsibilities for long-range achievements. 2. Definitions. As used in the Plan, the following definitions apply to the terms indicated below: (a) "Agreement" shall mean the written agreement between the Company and a Participant evidencing an Incentive Award. (b) "Board" shall mean the Board of Directors of the Company. (c) "Cause" shall mean (1) the willful and continued failure by the Participant substantially to perform his or her duties and obligations to the Company (other than any such failure resulting from his or her incapacity due to physical or mental illness); (2) the willful engaging by the Participant in misconduct which is materially injurious to the Company; (3) the commission by the Participant of a felony; or (4) the commission by the Participant of a crime against the Company which is materially injurious to the Company. For purposes of this Section 2(c), no act, or failure to act, on a Participant's part shall be considered "willful" unless done, or omitted to be done, by the Participant in bad faith and without reasonable belief that his or her action or omission was in the best interest of the Company. Determination of Cause shall be made by the Board in its sole discretion. (d) A "Change in Control" shall be deemed to have occurred in the event set forth in any one of the following paragraphs shall have occurred: (1) any Person is or becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company (not including in the securities beneficially owned by such Person any securities acquired directly from the Company) representing 25% or more of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction described in clause (i) of paragraph (3) below; or (2) the following individuals cease for any reason to constitute a majority of the number of directors then serving; individuals who, on the Effective Date, constitute the Board and any new director (other than a director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a consent solicitation, relating to the election of directors of the Company) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors on the Effective Date or whose appointment, election or nomination for election was previously so approved or recommended; or A-1 (3) there is consummated a merger or consolidation of the Company with any other corporation other than (i) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 75% of the combined voting power of the voting securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any securities acquired directly from the Company) representing 25% or more of the combined voting power of the Company's then outstanding securities; or (4) the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity at least 75% of the combined voting power of the voting securities of which are owned by Persons in substantially the same proportions as their ownership of the Company immediately prior to such sale. (e) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time, and any regulations promulgated thereunder. (f) "Company" shall mean Wade Cook Financial Corporation and, where appropriate, each of its Subsidiaries now held or hereinafter acquired. (g) "Company Stock" shall mean the common stock of the Company, $.01 par value. (h) "Disability" shall mean: (1)any physical or mental condition that would qualify a Participant for a disability benefit under the long-term disability plan maintained by the Company and applicable to him or her; (2)when used in connection with the exercise of an Incentive Stock Option following termination of employment, disability within the meaning of Section 22(e)(3) of the Code; or (3)such other conditions as may be determined in the sole discretion of the Board to constitute Disability. (i) "Effective Date" shall mean the date upon which this Plan is adopted by the Board. (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (k) The "Fair Market Value" of a share of Company Stock, as of a date of determination, shall mean (1)the closing, sales price per share of Company Stock on the national securities exchange on which such stock is principally traded for the last preceding date on which there was a sale of such stock on such exchange, or (2)if the shares of Company Stock are not listed or admitted to trading on any such exchange, the closing price as reported by the NASDAQ Stock Market for the last preceding day on which there was a sale of such stock on such exchange, or (3)if the shares of Company Stock are then listed on the NASDAQ Stock Market, the average of the highest reported bid and lowest reported asked price for the shares of Company Stock as reported by the National Association of Securities Dealer's, Inc. Automated Quotations System for the last preceding day on which there was a sale of such stock in such market, or (4)if the shares of Company Stock are not then listed on a national securities exchange or traded in an over-the-counter market or the value of such shares is not otherwise readily ascertainable, such value as determined by the Board in good faith. A-2 (l) "Incentive Award" shall mean any Option, Tandem SAR, Stand-Alone SAR, Restricted Stock, Phantom Stock, Stock Bonus or Other Award granted pursuant to the terms of the Plan. (m) "Incentive Stock Option" shall mean an Option that is an "incentive stock option" within the meaning of Section 422 of the Code, or any successor provision, and that is designated by the Board as an Incentive Stock Option. (n) "Issue Date" shall mean the date established by the Company on which certificates representing shares of Restricted Stock shall be issued by the Company pursuant to the terms of Section 10(e). (o) "Non-Qualified Stock Option" shall mean an Option other than an Incentive Stock Option. (p) "Option" shall mean an option to purchase shares of Company Stock granted pursuant to Section 7. (q) "Other Award" shall mean an award granted pursuant to Section 13 hereof. (r) "Partial Exercise" shall mean an exercise of an Incentive Award for less than the full extent permitted at the time of such exercise. (s) "Participant" shall mean (1) a director, officer, consultant or other employee to whom an Incentive Award is granted pursuant to the Plan and (2) upon the death of an individual described in clause (1), his or her successors, heirs, executors and administrators, as the case may be. "Person" shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (1) the Company, (2) a bank or other fiduciary holding securities under an employee benefit plan of the Company, (3) an underwriter temporarily holding securities pursuant to an offering of such securities or (4) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. (t) "Person" shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include (1) the Company, (2) a trustee or other fiduciary holding securities under an employee benefit plan of the Company, (3) an underwriter temporarily holding securities pursuant to an offering of such securities or (4) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company. (u) "Phantom Stock" shall mean the right, granted pursuant to Section II, to receive in cash or shares the Fair Market Value of a shares of Company Stock. (v) "Reload Option" shall mean a Non-Qualified Stock Option granted pursuant to Section 7(c)(5). (w) "Restricted Stock" shall mean a share of Company Stock which is granted pursuant to the terms of Section 10 hereof and which is subject to the restrictions set forth in Section 10(c). (x) "Rule 16b-3" shall mean the Rule 16b-3 promulgated the Exchange Act, as amended from time to time. (aa) "Securities Act" shall mean the Securities Act of 1933, as amended from time to time. (bb) "Stand-Alone SAR" shall a stock appreciation right which is granted pursuant to Section 9 and which is not related to any Option. A-3 (cc) "Stock Bonus" shall mean a bonus payable in shares of Company Stock granted pursuant to Section 12. (dd) "Subsidiary" shall mean "subsidiary corporation" within the meaning of Section 424(f) of the Code. (ee) "Tandem SAR" shall mean a stock appreciation right which is granted pursuant to Section 8 and which is related to an Option. (ff) "Vesting Date" shall mean the date established by the Board on which a share of Restricted Stock or Phantom Stock may vest. 3. STOCK SUBJECT TO THE PLAN. (a) Shares Available for Awards. The maximum number of shares of Company Stock reserved for issuance under the Plan shall be 1,000,000 shares (subject to adjustment as provided herein). Such shares may be authorized by unissued Company Stock or authorized and issued Company Stock held in the Company's treasury. The Board may direct that any stock certificate evidencing shares issued pursuant to the Plan shall bear a legend setting forth such restrictions on transferability as may apply to such shares pursuant to the Plan. The grant of a Tandem SAR shall not reduce the number of shares of Company Stock with respect to which Incentive Awards may be granted pursuant to the Plan. (b) Adjustment for Change in Capitalization. In the event that the Board shall determine that any dividend or other distribution (whether in the form of cash, Company Stock, or other property), recapitalization. Company Stock split, reverse Company Stock split, reorganization, merger, consolidation, spin-off, combination, repurchase, or share exchange, or other similar corporate function or event, affects the Company Stock such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of Participants under the Plan, then the Board shall make such equitable changes or adjustments as it deems necessary or appropriate to any or all of (1) the number and kind of shares of Company stock which may then be issued in connection with Incentive Awards, (2) the number and kind of shares of Company Stock issued or issuable in respect of outstanding Incentive Awards, (3) the exercise price, grant price or purchase price relating to any Incentive Award, and (4) the maximum number of shares subject to Incentive Awards which may be awarded to any employee during any tax year of the Company; provided that, with respect to Incentive Stock Options, such adjustment shall be made in accordance with Section 424 of the Code. (c) Re-use of Sharer. The following shares of Company Stock shall again become available for Incentive Awards: except as provided below, any shares subject to an Incentive Award that remain unissued upon the cancellation, surrender, exchange or termination of such award for any reason whatsoever; and any shares of Restricted Stock forfeited. Notwithstanding the foregoing, upon the exercise of any Incentive Award granted in tandem with any other Incentive Awards, such related Awards shall be canceled to the extent of the number of shares of Company Stock - as to which the Incentive Award is exercised and such number of shares shall no longer be available for Incentive Awards under the Plan. A-4 4. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Baord. The Board shall have the authority in its sole discretion subject to and not inconsistent with the express provisions of the plan, to administer the Plan and to exercise the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Incentive Awards; to determine the persons to whom and the time or times at which Incentive Awards shall be granted; to determine the type and number of Incentive Awards to be granted, the number of shares of Stock to which Incentive Awards may relate and the terms and conditions, restrictions and performance criteria relating to any Incentive Award, and whether, to what extent, and under what circumstances an Incentive Award may be settled, canceled, forfeited, exchanged or surrendered; to make adjustments in the performance goals in recognition of unusal or non-recurring events affecting the Company or the financial statements of the Company, or in response to changes in applicable laws, regulations, or accounting principles; to construe and interpret the Plan and any Incentive Award; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of Agreements; and to make all other determinations deemed necessary or advisable for the administration of the Plan. The Board may, in its absolute discretion, without amendment to the Plan, (a) accelerate the date on which any Option or Stand-Alone SAR granted under the Plan becomes exercisable, waive or amend the operation of Plan provisions respecting exercise after termination of employment or otherwise adjust any of the terms of such Option or Stand-Alone SAR, and (b) accelerate the Vesting Date or Issue Date, or waive any condition imposed hereunder, with respect to any share of Restricted Stock, Phantom Stock or other Incentive Award or otherwise adjust any of the terms applicable to any such Incentive Award. No member of the Board shall be liable for any action, omission or determination relating to the Plan, and the Company shall indemnify (to the extent permitted under Nevada law and the bylaws of the Company) and hold harmless each member of the Board and each other employee of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been delegated against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Board) arising out of any action, omission or determination relating to the plan, unless, in either case, such action, omission or determination was taken or made by such director or employee in bad faith and without reasonable belief that it was in the best interests of the Company. 5. ELIGIBILITY. The persons who shall be eligible to receive Incentive Awards pursuant to the Plan shall be such directors, officers, consultants and other employees of the Company as the Board shall select from time to time. 6. AWARDS UNDER THE PLAN; AGREEMENT. The Board may grant Options, Tandem SARS, Stand-Alone SARS shares of Restricted Stock, shares of Phantom Stock, Stock Bonuses and Other Awards in such amounts and with such terms and conditions as the Board shall determine, subject to the provisions of the Plan. Each Incentive Award granted under the Plan (except as unconditional Stock Bonus) shall be evidenced by an Agreement which shall contain such provisions as the Board may in its sole discretion deem necessary or desirable. By accepting an Incentive Award, a Participant thereby agrees that the award shall be subject to all of the terms and provisions of the Plan and the applicable Agreement. 7. OPTIONS. (a) Identification of Options. Each Option shall be clearly identified in the applicable Agreement as either an Incentive Stock Option or a Non-Qualified Stock Option. (b) Exercise Price. A-5 Each Agreement with respect to an Option shall set forth the amount (the "option exercise price") payable by the grantee to the Company upon exercise of the Option. The option exercise price per share shall be determined by the Board; provided, however, that in the case of an Incentive Stock Option, the option exercise price shall in no event be less than the Fair Market Value of a share of Company Stock on the date the Option is granted. (c) Term and Exercise of Options. (1) Unless the applicable Agreement provides otherwise, an Option shall be exercisable as to one-third (1/3) of the shares covered thereby on the date of grant, with an additional one-third (1/3) of such Option becoming cumulatively exercisable on each of the first and second anniversaries of the date of grant. The Board shall determine the expiration date of each Option; provided, however, that no Incentive Stock Option shall be exercisable more than 10 years after the due of grant. (2) Notwithstanding the provisions of subsection (1) above, the exercisability of Options granted pursuant to this Section 7 may be subject to the attainment by the Company of performance goals pre-established by the Board, based on one or more of the following criteria: (A) return on total stockholder equity; (B) earnings per share of Company Stock; (C) net income (before or after taxes); (D) earnings before interest, taxes, depreciation and amortization; (E) revenues; (F) return on assets; (G) market share; (H) cost reduction goals; (I) any combination of, or a specified increase in, any of the foregoing; and (J) such other criteria as the Board may approve; in each case, as determined in accordance with generally accepted accounting principles. The exercisability of Options (or portions thereof) under this subsection (2) shall not be effective unless the attainment of such performance measures has been certified by the Board. (3) An Option may be exercised for all or any portion of the shares as to which it is exercisable, provided that no Partial Exercise of an Option shall be for less than 100 shares of Common Stock. The Partial Exercise of an Option shall not cause the expiration, termination or cancellation of the remaining portion thereof. (4) An Option shall be exercised by delivering notice to the Company's principal office, to the attention of its Secretary. Such notice shall be accompanied by the applicable Agreement, shall specify the number of shares of Company Stock with respect to which the Option is being exercised and the effective date of the proposed exercise and shall be signed by the Participant or other person then having the right to exercise the Option. Payment for shares of Company Stock purchased upon the exercise of an Option shall be made on the effective date of such exercise by one or a combination of the following means; (A) in cash or by personal check, certified check, bank cashier's check or wire transfer; (B) in shares of Company Stock owned by the Participant prior to the date of exercise and valued at their Fair Market Value on the effective date of such exercise; (C) by authorizing the Company to withhold whole shares of Company Stock which would otherwise be delivered upon exercise of the option having a Fair Market Value, determined as of the date of exercise, equal to the aggregate purchase price payable by reason of such exercise; (D) in cash by a broker-dealer acceptable to the Company to whom the optionee has submitted an irrevocable notice of exercise; or (E) by such other provision as the Board may from time to time authorize. The Board shall have sole discretion to disapprove of an election pursuant to any of clauses (B) - (E) and in the case of an optionee who is subject to Section 16 of the Exchange Act, the Company may require that the method of making such payment be in compliance with A-6 Section 16 and the rules and regulations thereunder. Any payment in shares of Company Stock shall be effected by the delivery of such shares to the Secretary of the Company, duly endorsed in blank or accompanied by stock powers duly executed in blank, together with any other documents and evidences as the Secretary of the Company shall require. (5) Certificates for shares of Company Stock purchased upon the exercise of an Option shall be issued in the name of the Participant or other person entitled to receive such shares, and delivered to the Participant or such other person as soon as practicable following the effective date on which the option is exercised. (6) The Board shall have the authority to specify, at the time of grant or, with respect to Non-Qualified Stock Options, at or after the time of grant, that a Participant shall be granted a new Non-Qualified Stock IP Option (a "Reload Option") for a number of shares equal to the number of shares surrendered by the Participant upon exercise of all or a part of an Option in the manner described in Section 7(c)(3)(ii) above, subject to the availability of shares of Company Stock under the Plan at the time of such exercise. Reload Options shall be subject to such conditions as may be specified by the Board in its discretion, subject to the terms of the Plan. (d) Limitations on Incentive Stock Options. (1) To the extent that the aggregate Fair Market Value of shares of Company Stock with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year under the Plan and any other stock option plan of the Company shall exceed $100,000, such Options shall be treated as Non-Qualified Stock Options. Such Fair Market Value shall be determined as of the date on which such Incentive Stock Option is granted. (2) No Incentive Stock Option may be granted to an individual if, at the time of the proposed grant, such individual owns (or is deemed to own under the Code) stock possessing more than ten percent of the total combined voting power of all classes of stock of the Company unless (i) the exercise price of such Incentive Stock Option is at least 110 percent (110%) of the Fair Market Value of a share of Company Stock at the time such Incentive Stock Option is granted and (ii) such Incentive Stock Option is not exercisable after the expiration of five years from the date such Incentive Stock Option is granted. (e) Effect of Termination of Employment. (1) Unless the applicable Agreement provides otherwise, in the event that the employment of a Participant with the Company shall terminate for any reason other than Cause, Disability or death, (A) Options granted to such Participant, to the extent that they are exercisable at the time of such termination, shall remain exercisable until the date that is three months after termination, on which date they shall expire at the close, and (B) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination. The three-month period described in this Section 7(e)(1) shall be extended to one year from the date of such termination in the event in the event of the Participant's death during such three-month period. Notwithstanding the foregoing, no Option shall be exercisable after the expiration of its term. (2) Unless the applicable Agreement provides otherwise, in the event the employment of a Participant with the Company shall terminate as of the Disability or death of the Participant, (A) Options granted to such Participant to the extent that they were A-7 exercisable at the time of such termination, shall remain exercisable until the first anniversary of such termination, on which date they shall expire, and (B) Options granted to such Participant, to the extent that they were not exercisable at the time of such termination, shall expire at the close of business on the date of such termination; provided, however, that no Option shall be exercisable after the expiration of its term. (3) In the event of the termination of a Participant's employment for Cause, all outstanding Options to such Participant shall expire at the commencement of business on the date of such termination. (f) Acceleration of Exercise Date Upon Change of Control. Upon the occurrence of a Change of Control, each Option granted under the Plan and outstanding at such time shall become fully and immediately exercisable and shall remain exercisable until its expiration, termination or cancellation. [This Space Intentionally Left Blank] A-8 8. Tandem SARs The Board may grant in connection with any Option granted hereunder one or more SARs relating to a number of shares of Company Stock less than or equal to the number of shares of Company Stock subject to the related Option. A Tandem SAR may be granted in connection with an Option only at the same time that such Option is granted: provided, however a Tandem SAR granted in connection with a Non-Qualified Stock Option may be granted subsequent to the time that such Non-Qualified Stock Option is granted. (a) Benefit Upon Exercise. The exercise of a Tandem SAR with respect to any number of shares of Company Stock shall entitle the Participant to a cash payment, for each such share, equal to the excess of (1) the Fair Market Value of a share of Company Stock on the exercise date over (2) the option exercise price of the related Option. Such payment shall be made as soon as practicable after the effective date of such exercise. (b) Term and Exercise of Tandem SAR. (1) A Tandem SAR shall be exercisable only if and to the extent that its related Option is exercisable. (2) The exercise of a Tandem SAR with respect to a number of shares of Company Stock shall cause the immediate and automatic cancellation of its related Option with respect to an equal number of shares. The exercise of an Option, or the cancellation, termination or expiration of an Option (other than pursuant to this Section 8(b)(2)), with respect to a number of shares of Company Stock shall cause the automatic and immediate cancellation of any related Tandem Shares to the extent of the number of shares of Company Stock subject to such Option which is so exercised, canceled, terminated or expired. (3) A Tandem SAR may be exercised for all or any portion of the shares as to which it is exercisable; provided, that no Partial Exercise of a Tandem SAR shall be with respect to less than 100 shares of Company Stock. (4) No Tandem SAR shall be assignable or transferable otherwise than together with its related Option. (5) A Tandem SAR shall be exercised by delivering notice to the Company's principal office, to the attention of its Secretary. Such notice shall be accompanied by the applicable Agreement, shall specify the number of shares of Company Stock with respect to which the Tandem SAR is being exercised and the effective date of the proposed exercise and shall be signed by the Participant or other person then having the right to exercise the Option to which the Tandem SAR is related. 9. Stand-Alone SARs. (a) Exercise Price. The exercise price per share of a Stand-Alone SAR shall be determined by the Board at the time of grant. (b) Benefit Upon Exercise. The exercise of a Stand-Alone SAR with respect to any number of shares of Company Stock shall entitle the Participant to a payment, for each such share, equal to the excess of (1) the Fair Market Value of a share of Company Stock on the exercise date over (2) the exercise A-9 price of the Stand-Alone SAR. Such payments shall be made as soon as practicable after such exercise, in cash and/or shares of Company Stock, as determined by the Board. (c) Term and Exercise of Stand-Alone SARs. (1) Unless the applicable Agreement provides otherwise, a Stand-Alone SAR, shall become cumulatively exercisable as to one-third (1/3) of shares covered thereby on the date of grant, with an additional one-third (1/3) of such Stand-Alone SAR to become cumulatively exercisable on each of the first and second anniversaries of the date of grant. The Board shall determine the expiration date of each Stand-Alone SAR. (2) A Stand-Alone SAR may be exercised for all or any portion of the shares as to which it is exercisable; provided, that no Partial Exercise of a Stand-Alone SAR shall be with respect to less than 100 shares of Company Stock. (3) A Stand-Alone SAR shall be exercised by delivering notice to the Company's principal office, to the attention of its Secretary. Such notice shall be accompanied by the applicable Agreement, shall specify the number of shares of Company Stock with respect to which the Stand-Alone SAR is being exercised, and the effective date of the proposed exercise, and shall be signed by the Participant. (d) Effect of Termination of Employment. The provisions set forth in Section 7(e) with respect to the exercise of Options following termination of employment shall apply as well to such exercise of Stand-Alone SARs. (e) Acceleration of Exercise Date Upon Change in Control. Upon the occurrence of a Change in Control, any Stand-Alone SAR outstanding at such time shall become fully and immediately exercisable and shall remain exercisable until its expiration, termination or cancellation. 10. Restricted Stock. (a) Issue Date and Vesting Date. At the time of the grant of shares of Restricted Stock, the Board shall establish an Issue Date or Issue Dates and a Vesting Date or Vesting Dates with respect to such shares. The Board may divide such shares into classes and assign a different Issue Date and/or Vesting Date for each class. If the grantee is employed by the Company on an Issue Date (which may be the date of grant), the specified number of shares of Restricted Stock shall be issued in accordance with the provisions of Section 10(c), provided that all conditions to the vesting of a share of Restricted Stock imposed pursuant to Section 10(b) are satisfied, and except as provided in Section 10(g), upon the occurrence of the Vesting Date with respect to a share of Restricted Stock, such shares shall vest and the restrictions of Section 10(c) shall lapse. (b) Conditions to Vesting. At the time of the grant of shares of Restricted Stock, the Board may impose such restrictions or conditions to the vesting of such as it, in its absolute discretion, deems appropriate. (c) Restrictions on Transfer Prior to Vesting. Prior to the vesting of a share of Restricted Stock, no transfer of a Participant's rights with respect to such share, whether voluntary or involuntary, by operation of law or otherwise, shall be permitted. Immediately upon any attempt to transfer such rights, such share, and all of the rights related thereto, shall be forfeited by the Participant. A-10 (d) Dividends on Restricted Stock. The Board in its discretion may require that any dividends paid on shares of Restricted Stock be held in escrow until all restrictions on such shares have lapsed. (e) Issuance of Certificates (1) Reasonably promptly after the Issue Date with respect to shares of Restricted Stock, the Company shall cause to be issued a stock certificate, registered in the name of the Participant to whom such shares were granted, evidencing such shares; provided that the Company shall not cause such a stock certificate to be issued unless it has received a stock power duly endorsed in blank with respect to such shares. Each such stock certificate shall bear the following legend: The transferability of this certificate and the shares represented hereby are subject to the restrictions, terms and conditions (including forfeiture provisions and restrictions against transfer) contained in the Wade Cook Financial Corporation 1997 Stock Incentive Plan and an agreement entered into between the registered owner of such shares and the Company. A copy of the Plan and Agreement is on file in the office of the Secretary of the Company. -------------------------------------------------------- Such legend shall not be removed until such shares vest pursuant to the terms hereof. (2) Each certificate issued pursuant to this Section 10(e), together with the stock powers relating to the shares of Restricted Stock evidenced by such certificate, shall be held by the Company unless the Board determines otherwise. (f) Consequences of Vesting. Upon the vesting of a share of Restricted Stock pursuant to the terms hereof, the restrictions of Section 10(c) shall lapse with respect to such share. Reasonably promptly after a share of Restricted Stock vests, the Company shall cause to be delivered to the Participant to whom such shares were granted, a certificate evidencing such share, free of the legend set forth in Section 10(e). (g) Effect of Termination of Employment. (1) Subject to such other provision as the Board may set forth in the applicable Agreement, and to the Board's amendment authority pursuant to a Participant's employment for any reason other than Cause, any and all shares to which restrictions on transferability apply shall be immediately forfeited by the Participant and transferred to, and reacquired by, the Company; provided that if the Board, in its sole discretion, shall within thirty (30) days after such termination of employment notify the participant in writing of its decision not to transfer the Participant's rights in such shares, then the Participant shall continue to be the owner of such shares subject to such continuing restrictions as the Board may prescribe in such notice. In the event of a forfeiture of shares pursuant to this section, the Company shall repay to the Participant (or the Participant's estate) any amount paid by the Participant for such shares. In the event that the Company requires a return of shares, it shall also have the right to require the return of all dividends paid on such shares, whether by termination of any escrow arrangement under which such dividends are held, or otherwise. (2) In the event of the termination of a Participant's employment for Cause all shares of Restricted Stock granted to such participant which have not vested as of the date of such termination shall immediately be returned to the Company, together with any dividend. A-11 (d) Dividends on Restricted Stock. The Board in its discretion may require that any dividends paid on shares of Restricted Stock be held in escrow until all restrictions on such shares have lapsed. (e) Issuance of Certificates (1) Reasonably promptly after the Issue Date with respect to shares of Restricted Stock, the Company shall cause to be issued a stock certificate, registered in the name of the Participant to whom such shares were granted, evidencing such shares; provided that the Company shall not cause such a stock certificate to be issued unless it has received a stock power duly endorsed in blank with respect to such shares. Each such stock certificate shall bear the following legend: The transferability of this certificate and the shares represented hereby are subject to the restrictions, terms and conditions (including forfeiture provisions and restrictions against transfer) contained in the Wade Cook Financial Corporation 1997 Stock Incentive Plan and an agreement entered into between the registered owner of such shares and the Company. A copy of the Plan and Agreement is on file in the office of the Secretary of the Company. -------------------------------------------------------- Such legend shall not be removed until such shares vest pursuant to the terms hereof. (2) Each certificate issued pursuant to this Section 10(e), together with the stock powers relating to the shares of Restricted Stock evidenced by such certificate, shall be held by the Company unless the Board determines otherwise. (f) Consequences of Vesting. Upon the vesting of a share of Restricted Stock pursuant to the terms hereof, the restrictions of Section 10(c) shall lapse with respect to such share. Reasonably promptly after a share of Restricted Stock vests, the Company shall cause to be delivered to the Participant to whom such shares were granted, a certificate evidencing such share, free of the legend set forth in Section 10(e). (g) Effect of Termination of Employment. (1) Subject to such other provision as the Board may set forth in the applicable Agreement, and to the Board's amendment authority pursuant to a Participant's employment for any reason other than Cause, any and all shares to which restrictions on transferability apply shall be immediately forfeited by the Participant and transferred to, and reacquired by, the Company; provided that if the Board, in its sole discretion, shall within thirty (30) days after such termination of employment notify the participant in writing of its decision not to transfer the Participant's rights in such shares, then the Participant shall continue to be the owner of such shares subject to such continuing restrictions as the Board may prescribe in such notice. In the event of a forfeiture of shares pursuant to this section, the Company shall repay to the Participant (or the Participant's estate) any amount paid by the Participant for such shares. In the event that the Company requires a return of shares, it shall also have the right to require the return of all dividends paid on such shares, whether by termination of any escrow arrangement under which such dividends are held, or otherwise. (2) In the event of the termination of a Participant's employment for Cause all shares of Restricted Stock granted to such participant which have not vested as of the date of such termination shall immediately be returned to the Company, together with any dividend. A-11 paid on such shares, in return for which the Company shall repay to the Participant any amount Paid by the Participant for such shares. (h) Effect of Change in Control. Upon the occurrence of a Change in Control, all outstanding shares of Restricted Stock which have not theretofore vested shall immediately vest and all restrictions on such shares shall immediately lapse. (i) Special Provisions Regarding Restricted Stock. Notwithstanding anything to the contrary contained herein, Restricted Stock granted pursuant to this Section 10 may be based on the attainment by the Company, of performance goals pre-established by the Board, based on one or more of the following criteria: (1) return on total stockholder equity; (2) earnings per share of Company Stock; (3) net income (before or after taxes); (4) earnings before interest, taxes, depreciation and amortization; (5) revenues; (6) return on assets; (7) market share; (8) cost reduction goals; (9) any combination of, or a specified increase in, any of the foregoing; and (10) such other criteria as the Board may approve; in each case, as determined in accordance with generally accepted accounting principles. Such shares of Restricted Stock shall be released from restrictions only after the attainment of such performance criteria has been certified by the Board. 11. Phantom Stock. (a) Vesting Date. At the time of the grant of shares of Phantom Stock, the Board shall establish a Vesting Date or Vesting Dates with respect to such shares. The Board may divide such shares into classes and assign a different Vesting Date for each class provided that all conditions to the vesting of a share of Phantom Stock imposed pursuant to Section 11(c) are satisfied, and except as provided in Section 11(d) upon the occurrence of the Vesting Date with respect to share of Phantom Stock, such share shall vest. (b) Benefit Upon Vesting. Upon the vesting of a share of Phantom Stock, the Participant shall be entitled to receive, within 30 days of the date on which such share vests, an amount in cash and/or of Company Stock, as determined by the Board, equal to the sum of (1) the Fair Market Value of a share of Company Stock on the date on which such share of Phantom Stock vests, and (2) the aggregate amount of cash dividends paid with respect to a share of Company Stock during the period commencing on the date on which the share of Phantom Stock was granted and terminating on the date on which such share vests. (c) Conditions of Vesting. At the time of the grant of shares of Phantom Stock, the Board may impose such restrictions or conditions to the vesting of such share as it, in its absolute discretion, deems appropriate. (d) Effect of Termination of Employment. Subject to such other provision as the Board may set forth in the applicable Agreement, and to the Board's amendment authority pursuant to Section 4, shares of Phantom Stock that have not vested, together with any dividends credited on such Shares, shall not be forfeited upon the Participant's termination of employment for any reason. (e) Effect Of Change in Control. A-12 Upon the occurrence of a Change in Control, all outstanding Phantom Stock which have not theretofore vested shall immediately vest and payment in respect of such shares shall be made in accordance with the term of this Plan. (f) Special Provisions Regarding Awards. Notwithstanding anything to the contrary contained herein, the vesting of Phantom Stock granted pursuant to this Section 11 may be based on the attainment by the Company of one or more of the performance criteria set forth in Section (10(i) hereof, in each case, as determined in accordance with generally accepted accounting principles. No payment in respect of any such Phantom Stock award will be paid until the attainment of the respective performance criteria have been certified by the Board. 12. Stock Bonuses. In the event that the Board grants a Stock Bonus, a certificate for the shares of Company Stock comprising such Stock Bonus shall be issued in the name of the Participant to whom such grant was made and delivered to such Participant as soon as practicable after the date on which such Stock Bonus is payable. 13. Other Awards. Other forms of Incentive Awards ("Other Awards") valued in whole or in part by reference to, or otherwise based on Company Stock may be granted either alone or in addition to other Incentive Awards under the Plan. Subject to the provisions of the Plan, the Board shall have sole and complete authority to determine the persons to whom and the time or times at which such Other Awards shall be granted, the number of shares of Company Stock to be granted pursuant to such Other Awards and all other conditions of such Other Awards. 14. Rights As A Stockholder. No person shall have any rights as a stockholder with respect to any shares of Company Stock covered by or relating to any Incentive Award until the date of issuance of a stock certificate with respect to such shares. Except as otherwise expressly provided in Section 3(c), no adjustment to any Incentive Award shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued. 15. No Special Employment Rights; No Right To Incentive Award. Nothing contained in the Plan or any Agreement shall confer upon any Participant any right with respect to the continuation of employment by the Company or interfere in any way with the right of the Company, subject to the terms of any separate employment agreement to the contrary, at any time to terminate employment or to increase or decrease the compensation of the participant. No person shall have any right to receive an Incentive Award hereunder. The Board's granting of an Incentive Award to a participant at any time shall neither require the Board to grant any other Incentive Award to such Participant or any other person at any time, or preclude the Board from making subsequent grants to such Participant or any other person. 16. Securities Matters. (a) The Company shall be under no obligation to effect the registration pursuant to the Securities Act of any interests in the Plan or any shares of Company Stock to be issued hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to the contrary, the Company shall not be obliged to cause to be issued or delivered any certificates evidencing shares of Company Stock pursuant to the Plan unless and until the Company is advised by its counsel that the issuance and delivery of such certificates is in A-13 compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Company Stock are traded. The Board may require, as a condition of the issuance and delivery of certificates evidencing shares of Company Stock pursuant to the terms hereof, that the recipient of such certificates make such agreements and representations, and that such certificates bear such legends, as the Board, in its sole discretion, deems necessary or desirable. (b) The transfer of any shares of Company Stock hereunder shall be effective only at such time as counsel to the Company shall have determined that the issuance and delivery of such shares is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Company Stock are traded. The Board may, in its sole discretion, defer the effectiveness of any transfer of shares of the Company Stock hereunder in order to allow the issuance of such shares to be made pursuant to registration or an exemption from registration or other methods for compliance available under federal or state securities laws. The Board shall inform the Participant in writing of its decision to defer the effectiveness of a transfer. During the period of such deferral in connection with the exercise of an Option, the Participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid with respect thereto. 17. Withholding Taxes. Whenever cash is to be paid pursuant to an Incentive Award, the Company shall have the right to deduct therefrom an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. Whenever shares of Company Stock are to be delivered pursuant to an Incentive Award, the Company shall have the right to require the Participant to remit to the Company in cash an amount sufficient to satisfy any federal, state and local withholding tax requirements related thereto. With the approval of the Board, a Participant may satisfy the foregoing requirement by electing to have the Company withhold from delivery shares of Company Stock having a value equal to the amount of tax to be withheld. Such shares shall be valued at their Fair Market Value on the date of which the amount of tax to be withheld is determined (the "Tax Date"). Fractional share amounts shall be settled in cash. Such a withholding election may be made with respect to all or any portion of the shares of Company Stock to be delivered pursuant to an Incentive Award. 18. Notification of Election Under Section 83(b) of the Code. If any Participant shall, in connection with the acquisition of shares of Company Stock under the Plan, make the election permitted under Section 83(b) of the Code, such Participant shall notify the Company of such election within 10 days of filing notice of election with the Internal Revenue Service. 19. Notification Upon Disqualifying Disposition Under Section 421(b) of the Code. Each Agreement with respect to an Incentive Stock Option shall require the Participant to notify the Company of any disposition of shares of Company Stock issued pursuant to the exercise of such Option under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), within 10 days of such disposition. 20. Amendment Or Termination of The Plan. The Board may, at any time, suspend or terminate the Plan or revise or amend it in any respect whatsoever, provided, however, that stockholder approval shall be required if and to the extent the Board determines that such approval is appropriate for purposes of satisfying Section 422 of the Code or Rule 16b-3. Incentive Awards may be granted under the Plan prior to the receipt of such stockholder approval but each such grant shall be subject in its entirety to such approval and no award may be exercised, vested or otherwise satisfied prior to the receipt of such approval. Nothing herein shall restrict A-14 the Board's ability to exercise its discretionary authority pursuant to Section 4, which discretion may be exercised without amendment to the Plan. No action hereunder may, without the consent of a Participant, reduce the Participant's rights under, any outstanding Incentive Award. 21. Transfers of Incentive Awards. Options granted under the Plan shall not be transferable except (a) by will or the laws of descent and distribution; (b) pursuant to a "qualified domestic relations order" as such term is defined in the Employee Retirement Income Security Act of 1974, as amended; or (c) as specifically provided below. Any Participant may transfer Non-Qualified Stock Options to members of his or her Immediate Family (as defined below) if (1) the Agreement pursuant to which the Option was granted so provides, (2) such agreement was approved by the Board, and (3) the Participant does not receive any consideration for the transfer. "Immediate Family" means children, grandchildren, and spouse of the Participant or one or more trusts for the benefit of such family members or partnerships in which such family members are the only partners. Any Non-Qualified Stock Option agreement may be amended to provide for the transferability feature as outlined above, provided that such amendment is approved by the Board. Any Option not granted pursuant to an Agreement expressly permitting its transfer shall not be transferable. During the lifetime of the Participant, options may be exercised only by the Participant, the guardian or legal representative of the Participant, or the transferee as permitted under this Section 21(c). 22. Expenses and Receipts. The expenses of the Plan shall be paid by the Company. Any proceeds received by the Company in connection with any Incentive Award will be used for general corporate purposes. 23. Failure to Comply. In addition to the remedies of the Company elsewhere provided for herein, failure by a Participant (or beneficiary) to comply with any of the terms and conditions of the Plan or the applicable Agreement, unless such failure is remedied by such Participant (or beneficiary) within ten days after notice of such failure to the Board, shall be grounds for the cancellation and forfeiture of such Incentive Award, in whole or in part, as the Board, in its absolute discretion, may determine. 24. Effective Date and Term of Plan. The Plan became effective on the Effective Date, but the Plan (and any grants of Incentive Awards made prior to shareholder approval of the Plan) shall be subject to the requisite approval of the stockholders of the Company. In the absence of such approval, such Incentive Awards shall be null and void. Unless earlier terminated by the Board, the right to grant Incentive Awards under the Plan will terminate on the tenth anniversary of the Effective Date. Incentive Awards outstanding at Plan termination will remain in effect according to their terms and the provisions of the Plan. 25. Applicable Law. Except to the extent preempted by any applicable federal law, the Plan will be construed and administered in accordance with the laws of the State of Nevada, without reference to its principles of conflicts of law. 26. Participant Rights. No Participant shall have any claim to be granted any award under the Plan, and there is no obligation for uniformity of treatment for Participants. Except as provided specifically herein, a Participant or a transferee of an Incentive Award shall have no rights as a stockholder with respect to any shares covered by any award until the date of the issuance of a Company Stock certificate to him or her for such shares. A-15 27. Unfunded Status of Awards. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant pursuant to an Incentive Award, nothing contained in the Plan or any Agreement shall give any such Participant any rights that are greater than those of a general creditor of the Company. 28. No Fractional Shares. No fractional shares of Company Stock shall be issued or delivered pursuant to the Plan. The Board shall determine whether cash, other Incentive Awards, or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated. 29. Beneficiary. A Participant may file with the Board a written designation of a beneficiary on such form as may be prescribed by the Board and may, from time to time, amend or revoke such designation, if no designated beneficiary survives the Participant, the executor or administrator of the Participant's estate shall be deemed to be the grantee's beneficiary. 30. Interpretation. The Plan is designed and intended to comply with Rule 16b-3 and, to the extent applicable, with Section 162(m) of the Code, and all provisions hereof shall be construed in a manner to so comply. 31. Severability. If any provision of the Plan is held to be invalid or unenforceable, the other provisions of the Plan shall not be affected but shall be applied as if the invalid or unenforceable provision had not been included in the Plan. [This Space Intentionally Left Blank] A-16 EX-99.20 18 EX-99.20 PROMISSORY NOTE $125,000.00 Date: May 23, 1997 FOR VALUE RECEIVED the undersigned hereby promise to pay to USA/Wade Cook Seminars, Inc. at 14675 Interurban Ave. South, Seattle, WA 98168 or at such other place as the holder hereof may designate in writing, the principal sum of One Hundred Twenty Five Thousand dollars and no/100 ($125,000.00), payable in forty-eight (48) consecutive equal monthly payments, including interest as provided below, of ($3,606.88) each, commencing with the first payment on the 7th day of July, 1997, and continuing with a like payment on the 7th day of each and every consecutive month thereafter until the entire remaining unpaid principal balance has been paid in full, subject to the following additional terms and conditions: 1. Interest. Interest shall accrue on the unpaid principal balance at the simple rate of Seventeen percent (17.00%) per annum. 2. Application of Payments. Payments shall be applied first toward the payment and satisfaction of accrued and unpaid interest, if any, and the remainder shall be applied toward the reduction of principal. Principal and interest shall be payable only in lawful money of the United States of America. 3. Prepayment. The undersigned shall have the right, without penalty, to pre-pay any part of all of the unpaid principal balance due hereunder, upon payment in full of all interest, principal and any other amounts due hereunder, payments shall terminate. In any event, the attorney's fees, as provided herein, shall be paid in full on or before May. 2001. 4. Default/Late Charges/Acceleration. In the event any installment payment due hereunder or any portion thereof is not made within thirty (30) days after its due date and such default is occasioned by the default of any lessee, then, to that extent, Debtor shall have sixty (60) days from such due date to repossess the subject motor vehicle(s), re-lease the same and resume making monthly installment payments pursuant to the Note. 5. No Waiver. The acceptance of any installment or payment after the occurrence of a default or event giving rise to the right of acceleration provided for in the previous paragraph shall not constitute a waiver of such right of acceleration with respect to any event. 6. Costs of Collection/Attorneys' Fees, etc. In the event any payment due under this Note is not made, or any obligation provided to be satisfied or performed under any instrument given to secure payment of the obligations evidenced hereby is not satisfied or performed, at the time and in the manner required, the undersigned agrees to pay all costs and expenses (regardless of the particular nature thereof and whether incurred with or without suit and before or after judgment) which may be incurred by the holder hereof in connection with the enforcement of any of his rights under this Note or under any such other instrument, or any right arising out of the breach thereof, including but not limited to, reasonable expenses incurred in foreclosing on the collateral securing payment hereof, court costs, and reasonable attorney's fees. 7. Notice. Any notice or demand hereunder shall be deemed to have been given to and received by the undersigned when personally delivered or when deposited in the U.S. mail, certified or registered mail, return receipt requested, postage pre-paid, and addressed to the undersigned at the address set forth below or at such other address as the undersigned may hereafter designate in writing to the holder hereof. This note shall be governed by and construed in accordance with the laws of the State of Utah. NEWSTART CENTRE, INC. By /s/ Robert J. Atmore ------------------------------ Robert J. Atmore, President SECURED LOAN AGREEMENT THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement") is made and entered into on this 23rd day of May, 1997, by and between NEWSTART CENTRE, INC., a Utah Corporation with its principal place of business in Salt Lake County, State of Utah, (hereinafter referred to as "Debtor") and Wade Cook Seminars, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168 (hereinafter referred to as "Secured Party"). CAPTIONS AND HEADINGS. The captions and headings throughout this Agreement are for convenience of reference only, and the words contained therein shall in no way be held or deemed to define, limit, describe, explain, modify, amplify or add to the interpretation, construction or meaning of any provisions of or the scope or intent of this Agreement or in any way affect this Agreement. RECITALS: A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and selling motor vehicles to the general public, and B. WHEREAS, DEBTOR desires to borrow working capital for the purchase of automobiles to sale or lease, and C. WHEREAS, Secured Party desires to loan working capital to Debtor, NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto hereby agree as follows: 1. Loan. Secured Party hereby lends to Debtor, receipt of which is hereby acknowledged, the sum of $ $125,000.00 payable to Debtor in certified funds concurrent with the execution of this Agreement and the other documents/instruments referred to below. 2. Loan Documents. a) Execution and delivery by Debtor. Debtor hereby agrees to execute, by and through its authorized representatives, and to deliver to Secured Party, the following instruments/ documents to effect the loan described in paragraph 1 above. 1) Promissory Note dated the 23rd day of May, 1997, a copy of which is attached hereto as Exhibit "A". 2) Certificate of Delivery and Receipt of Documents, a copy of which is attached hereto as Exhibit "B". b) Execution and delivery by Secured Party. Secured Party hereby agrees to execute and deliver to Debtor the Certificate of Delivery and Receipt of Documents dated the 23rd of May, 1997, (Exhibit "B"). 3. Grant of Lien. Debtor hereby grants to Secured Party a continuing lien against each vehicle (hereinafter the "vehicles") purchased with Secured Party's funds to secure the payment and performance of each and every obligation, liability and undertaking of Debtor under the loan documents and Debtor hereby represents and warrants to secured Party that Debtor is or, after acquisition by Debtor, will be the owner of the vehicles and possesses all requisite power and authority to execute and deliver this Agreement and to grant to Secured Party a lien as to all of the vehicles or any replacements thereof. 4. No Other Security Interests/Liens. No financing statement or lien covering the vehicles has been given or filed by Debtor with any filing officer, and the said vehicles are or will be free from any adverse liens, security interests, claims or encumbrances of any kind. 5. Taxes and Assessments. All taxes, assessments and other governmental charges including Utah State sales tax, county property tax, and license and registration fees upon the vehicles will, to the best of Debtor's knowledge, have been paid and shall continue to be paid as they become due and payable. 6. Substitution of Collateral. Secured Party consents and acknowledges that Debtor, from time to time, June sell, transfer or assign any or all of the said vehicles or leases covering the vehicles. Secured Party further agrees to cooperate with and to execute and deliver to Debtor such additional documents as June be necessary to sell or otherwise dispose of any of the vehicles provided Debtor, within a reasonable time, replaces such vehicle(s) with other vehicle(s) of equal or greater value and lists Secured Party as the sole lien holder on the titles to any such replacement vehicles. 7. Evidence of Title. Debtor shall, within thirty (30) days after the receipt thereof, deliver to Secured Party copies of any and all title and/or registration documents relating to any of the motor vehicles covered by this Agreement showing Secured Party as the sole lienholder. Debtor shall not further mortgage, pledge, grant or permit to exist any lien against or security interest in, or encumbrance on, any of the vehicles without the prior written consent of Secured Party. 8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at Debtor's or Lessee's expense, proper insurance coverage on the vehicles covered by this Agreement upon terms and with limits of coverage reasonably required by the existing custom and usage in the motor vehicle leasing industry and all rights, duties and obligations of Debtor and Lessees with respect to insurance coverage of the vehicles, including, without limitation, payment of premiums, use of proceeds and disposition of policies shall be as are standard in the auto leasing industry. 9. Licenses and Permits. Debtor shall keep in effect all licenses, permits and franchises required by law or contract relating to the vehicles and shall pay, when due, all fees and other charges pertaining thereto. 10. Miscellaneous. (a) Entire Agreement. This Agreement, together with all of the documents/instruments listed herein constitute the entire agreement between the parties. There are no terms, obligations, covenants, representations, statements, or conditions between the parties, other than those contained herein. No variations or modifications of this Agreement or waiver of any of the terms or provisions hereof shall be deemed valid unless in writing and signed by both parties. (b) Grace Period. In the event of a non-monetary default, Debtor shall have thirty (30) days after receipt of written notice thereof from Secured Party in which to cure such default. (c) Amendments. Neither this Agreement nor any provisions hereof June be changed, waived, discharged or terminated orally and June only be modified or amended by an instrument in writing, signed by Secured Party and Debtor. (d) Binding Effect. This Agreement shall be binding upon Debtor and Debtor's successors and assigns. This Agreement shall inure to the benefit of Secured Party, and Secured Party's heirs, personal representatives, successors and assigns. (e) Notices. Except as otherwise provided herein, all notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered or, if mailed, then when mailed, if mailed by registered or certified mail, postage prepaid, addressed as follows: If to Secured Party, to: If to Debtor, to: Wade Cook Seminars, Inc. Newstart Centre, Inc. c/o 14675 Interurban Ave. South 5200 South State Street Seattle, WA. 98168 Murray, Utah 84107 Such addresses June be changed by notice to the other parties given in the same manner as above provided. Any notice given hereunder shall be deemed given as of the date delivered or mailed. (f) Severability. If any term or provision of this Agreement shall, to any extent, be determined by a court of competent jurisdiction to be void, voidable or unenforceable, such void, voidable or unenforceable term or provision shall not affect any other term or provision of this Agreement. (g) Governing Law. This Agreement and all matters relating hereto shall be governed by, construed and interpreted in accordance with the laws of the State of Utah, County of Salt Lake. (h) Termination. This Agreement shall terminate upon the full and complete performance and satisfaction by Debtor of all of its obligations to Secured Party under this Agreement or any other instrument referred to herein requiring performance by Debtor. IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured Loan Agreement effective as of the date first above written. DEBTOR: NEWSTART CENTRE, INC. By /s/ Robert J. Atmore -------------------------------- Robert J. Atmore, President SECURED PARTY: Wade Cook Seminars, Inc. By /s/ Wade B. Cook -------------------------------- Wade B. Cook CERTIFICATE OF DELIVERY AND RECEIPT OF DOCUMENTS I, Robert J. Atmore, of/for NEWSTART CENTRE, INC. do hereby certify that on the 23rd day of May, 1997 I delivered to WADE COOK SEMINARS, INC. of 14675 Interurban Ave. South, Seattle, WA 98168 one (1) original and/or one (1) copy of each of the following documents: (i) Secured Loan Agreement dated the 23rd day of May, 1997, between NEWSTART CENTRE, INC. as Debtor, and WADE COOK SEMINARS, INC. as Secured Party. (ii) Promissory Note dated the 23rd day of May, 1997. NEWSTART CENTRE, INC. By /s/ Robert J. Atmore ---------------------------- Robert J. Atmore, President SECURED LOAN AGREEMENT THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement") is made and entered into on this 20th day of June, 1997, by and between NEWSTART CENTRE, INC., a Utah Corporation with its principal place of business in Salt Lake County, State of Utah, (hereinafter referred to as "Debtor") and Wade Cook Seminars, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168 (hereinafter referred to as "Secured Party"). CAPTIONS AND HEADINGS. The captions and headings throughout this Agreement are for convenience of reference only, and the words contained therein shall in no way be held or deemed to define, limit, describe, explain, modify, amplify or add to the interpretation, construction or meaning of any provisions of or the scope or intent of this Agreement or in any way affect this Agreement. RECITALS: A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and selling motor vehicles to the general public, and B. WHEREAS, DEBTOR desires to borrow working capital for the purchase of automobiles to sale or lease, and C. WHEREAS, Secured Party desires to loan working capital to Debtor, NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto hereby agree as follows: 1. Loan. Secured Party hereby lends to Debtor, receipt of which is hereby acknowledged, the sum of $ S125,000.00 payable to Debtor in certified funds concurrent with the execution of this Agreement and the other documents/instruments referred to below. 2. Loan Documents. a) Execution and delivery by Debtor. Debtor hereby agrees to execute, by and through its authorized representatives, and to deliver to Secured Party, the following instruments/ documents to effect the loan described in paragraph 1 above. 1) Promissory Note dated the 20th day of June, 1997, a copy of which is attached hereto as Exhibit "A". 2) Certificate of Delivery and Receipt of Documents, a copy of which is attached hereto as Exhibit "B". b) Execution and delivery by Secured Party. Secured Party hereby agrees to execute and deliver to Debtor the Certificate of Delivery and Receipt of Documents dated the 20th of June, 1997, (Exhibit "B"). 3. Grant of Lien. Debtor hereby grants to Secured Party a continuing lien against each vehicle (hereinafter the "vehicles") purchased with Secured Party's funds to secure the payment and performance of each and every obligation, liability and undertaking of Debtor under the loan documents and Debtor hereby represents and warrants to secured Party that Debtor is or, after acquisition by Debtor, will be the owner of the vehicles and possesses all requisite power and authority to execute and deliver this Agreement and to grant to Secured Party a lien as to all of the vehicles or any replacements thereof. 4. No Other Security Interests/Liens. No financing statement or lien covering the vehicles has been given or filed by Debtor with any filing officer, and the said vehicles are or will be free from any adverse liens, security interests, claims or encumbrances of any kind. 5. Taxes and Assessments. All taxes, assessments and other governmental charges including Utah State sales tax, county property tax, and license and registration fees upon the vehicles will, to the best of Debtor's knowledge, have been paid and shall continue to be paid as they become due and payable. 6. Substitution of Collateral. Secured Party consents and acknowledges that Debtor, from time to time, July sell, transfer or assign any or all of the said vehicles or leases covering the vehicles. Secured Party further agrees to cooperate with and to execute and deliver to Debtor such additional documents as July be necessary to sell or otherwise dispose of any of the vehicles provided Debtor, within a reasonable time, replaces such vehicle(s) with other vehicle(s) of equal or greater value and lists Secured Party as the sole lien holder on the titles to any such replacement vehicles. 7. Evidence of Title. Debtor shall, within thirty (30) days after the receipt thereof, deliver to Secured Party copies of any and all title and/or registration documents relating to any of the motor vehicles covered by this Agreement showing Secured Party as the sole lienholder. Debtor shall not further mortgage, pledge, grant or permit to exist any lien against or security interest in, or encumbrance on, any of the vehicles without the prior written consent of Secured Party. 8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at Debtor's or Lessee's expense, proper insurance coverage on the vehicles covered by this Agreement upon terms and with limits of coverage reasonably required by the existing custom and usage in the motor vehicle leasing industry and all rights, duties and obligations of Debtor and Lessees with respect to insurance coverage of the vehicles, including, without limitation, payment of premiums, use of proceeds and disposition of policies shall be as are standard in the auto leasing industry. 9. Licenses and Permits. Debtor shall keep in effect all licenses, permits and franchises required by law or contract relating to the vehicles and shall pay, when due, all fees and other charges pertaining thereto. 10. Miscellaneous. (a) Entire Agreement. This Agreement, together with all of the documents/instruments listed herein constitute the entire agreement between the parties. There are no terms, obligations, covenants, representations, statements, or conditions between the parties, other than those contained herein. No variations or modifications of this Agreement or waiver of any of the terms or provisions hereof shall be deemed valid unless in writing and signed by both parties. (b) Grace Period. In the event of a non-monetary default, Debtor shall have thirty (30) days after receipt of written notice thereof from Secured Party in which to cure such default. (c) Amendments. Neither this Agreement nor any provisions hereof July be changed, waived, discharged or terminated orally and July only be modified or amended by an instrument in writing, signed by Secured Party and Debtor. (d) Binding Effect. This Agreement shall be binding upon Debtor and Debtor's successors and assigns. This Agreement shall inure to the benefit of Secured Party, and Secured Party's heirs, personal representatives, successors and assigns. (e) Notices. Except as otherwise provided herein, all notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered or, if mailed, then when mailed, if mailed by registered or certified mail, postage prepaid, addressed as follows: If to Secured Party, to: If to Debtor, to: Wade Cook Seminars, Inc. Newstart Centre, Inc. c/o 14675 South Loafer Canyon Road 5200 South State Street Elkridge, Ut. 84651 Murray, Utah 84107 Such addresses July be changed by notice to the other parties given in the same manner as above provided. Any notice given hereunder shall be deemed given as of the date delivered or mailed. (f) Severability. If any term or provision of this Agreement shall, to any extent, be determined by a court of competent jurisdiction to be void, voidable or unenforceable, such void, voidable or unenforceable term or provision shall not affect any other term or provision of this Agreement. (g) Governing Law. This Agreement and all matters relating hereto shall be governed by, construed and interpreted in accordance with the laws of the State of Utah, County of Salt Lake. (h) Termination. This Agreement shall terminate upon the full and complete performance and satisfaction by Debtor of all of its obligations to Secured Party under this Agreement or any other instrument referred to herein requiring performance by Debtor. IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured Loan Agreement effective as of the date first above written. DEBTOR: NEWSTART CENTRE, INC. By /s/ Robert J. Atmore ------------------------------ Robert J. Atmore, President SECURED PARTY: Wade Cook Seminars, Inc. By /s/ Wade B. Cook ------------------------------ Wade B. Cook PROMISSORY NOTE (Secured) $ $125,000.00 Date: June 20, 1997 FOR VALUE RECEIVED the undersigned hereby promise to pay to Wade Cook Seminars, Inc. at 14675 Interurban Ave. South, Seattle, WA 98168 or at such other place as the holder hereof June designate in writing, the principal sum of One Hundred Twenty Five Thousand dollars and no/100 ($ $125,000.00 ), payable in forty-eight (48) consecutive equal monthly payments, including interest as provided below, of ($3.606.88) each, commencing with the first payment on the 4th day of August, 1997, and continuing with a like payment on the 4th day of each and every consecutive month thereafter until the entire remaining unpaid principal balance has been paid in full, subject to the following additional terms and conditions: 1. Interest. Interest shall accrue on the unpaid principal balance at the simple rate of Seventeen percent (17.00%) per annum. 2. Application of Payments. Payments shall be applied first toward the payment and satisfaction of accrued and unpaid interest, if any, and the remainder shall be applied toward the reduction of principal. Principal and interest shall be payable only in lawful money of the United States of America. 3. Prepayment. The undersigned shall have the right, without penalty, to pre-pay any part or all of the unpaid principal balance due hereunder, in which event subsequent monthly payments shall be reduced proportionately, or, upon payment in full of all interest, principal and any other amounts due hereunder, payments shall terminate. In any event, the entire principal balance, together with ail accrued interest and any accrued costs or attorney's fees, as provided herein, shall be paid in full on or before June, 2001. 4. Default/Late Charges/Acceleration. In the event any installment payment due hereunder or any portion thereof is not made within thirty (30) days after its due date and such default is occasioned by the default of any lessee, then, to that extent, Debtor shall have sixty (60) days from such due date to repossess the subject motor vehicle(s), re-lease the same and resume making monthly installment payments pursuant to the Note. Any installment payment or any portion thereof not paid within the said sixty-day (60) period shall be added on to the end of the term covered by the Note and the final due date for such payment or part thereof, together with any accrued interest thereon shall be extended by one month for each such installment payment missed. 5. No Waiver. The acceptance of any installment or payment after the occurrence of a default or event giving rise to the right of acceleration provided for in the previous paragraph shall not constitute a waiver of such right of acceleration with respect to any subsequent default or event. 6. Costs of Collection/Attorneys' Fees, etc. In the event any payment due under this Note is not made, or any obligation provided to be satisfied or performed under any instrument given to secure payment of the obligations evidenced hereby is not satisfied or performed, at the time and in the manner required, the undersigned agrees to pay all costs and expenses (regardless of the particular nature thereof and whether incurred with or without suit and before or after judgment) which June be incurred by the holder hereof in connection with the enforcement of any of his rights under this Note or under any such other instrument, or any right arising out of the breach thereof, including but not limited to, reasonable expenses incurred in foreclosing on the collateral securing payment hereof, court costs, and reasonable attorneys" fees. 7. Notice. Any notice or demand hereunder shall be deemed to have been given to and received by the undersigned when personally delivered or when deposited in the U.S. mail, certified or registered mail, return receipt requested, postage pre-paid, and addressed to the undersigned at the address set forth below or at such other address as the undersigned June hereafter designate in writing to the holder hereof. This note shall be governed by and construed in accordance with the laws of the State of Utah. NEWSTART CENTRE, INC. By /s/ Robert J. Atmore ---------------------------- Robert J. Atmore, President CERTIFICATE OF DELIVERY AND RECEIPT OF DOCUMENTS I, Robert J, Atmore, of/for NEWSTART CENTRE, INC. do hereby certify that on the 20th day of June, 1997 I delivered to Wade Cook Seminars, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168 one (1) original and/or one (1) copy of each of the following documents: (i) Secured Loan Agreement dated the 20th day of June, 1997, between NEWSTART CENTRE, INC., as Debtor, and Wade Cook Seminars, Inc. as Secured Party. (ii) Promissory Note dated the 20th day of June, 1997. DATED this 20th day of June, 1997. NEWSTART CENTRE, INC. By /s/ Robert J. Atmore ------------------------------ Robert J. Atmore, President RECEIPT The undersigned do hereby acknowledge receipt of each of the documents or copies thereof listed above and attached to this Certificate. DATED this 20th day of June, 1997. Name: Wade Cook Seminars, Inc. By /s/ Wade B. Cook Fed EIN# 93-1012978 ------------------------------- ---------- Wade B. Cook SECURED LOAN AGREEMENT THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement") is made and entered into on this 25th day of July, 1997, by and between NEWSTART CENTRE, INC., a Utah Corporation with its principal place of business in Salt Lake County, State of Utah ("Debtor"),and WADE COOK SEMINARS, INC. of 14675 Interurban Ave. South, Seattle, WA 98168, ("Secured Party"). CAPTIONS AND HEADINGS. The captions and headings throughout this Agreement are for convenience of reference only, and the words contained therein shall in no way be held or deemed to define, limit, describe, explain, modify, amplify or add to the interpretation, construction or meaning of any provisions of or the scope or intent of this Agreement or in any way affect this Agreement or in any way affect this Agreement. RECITALS: A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and selling motor vehicles to the general public, and B. WHEREAS, DEBTOR desires to borrow working capital for the purchase of automobiles to sale or lease, and C. WHEREAS, Secured Party desires to loan working capital to Debtor, NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties agree as follows: 1. Loan. Secured Party lends to Debtor, receipt of which is hereby acknowledged, the sum of $125,000.00 payable to Debtor in certified funds concurrent with the execution of this Agreement and the other documents or instruments referred to below. 2. Loan Documents. a) Execution and delivery by Debtor. Debtor hereby agrees to execute, by and through its authorized representatives, and to deliver to Secured Party, the following instruments or documents to effect the loan described in paragraph 1 above. 1) Promissory Noted dated the 25th day of July, 1997, a copy of which is attached hereto as Exhibit "A". 2) Certificate of Delivery and Receipt of Documents, a copy of which is attached hereto as Exhibit "B". b) Execution and delivery by Secured Party. Secured Party agrees to execute and deliver to Debtor the Certificate of Delivery and Receipt of Documents dated the 25th of July, 1997, (Exhibit "B"). 3. Grant of Lien. Debtor grants to Secured Party a continuing lien against each vehicle ("vehicles") purchased with Secured Party's funds to secure the payment and performance of each and every obligation, liability and undertaking of Debtor under the loan documents and Debtor represents and warrants to secured Party that Debtor is or, after acquisition by Debtor, will be the owner of the vehicles and possesses all requisite power and authority to execute and deliver this Agreement and to grant to Secured Party a lien as to all of the vehicles or any replacements thereof. 4. No Other Security Interests/Liens. Debtor warrants and represents to Secured Party corporate resolution. No financing statement or lien covering the vehicles has been given or filed by Debtor with any filing officers, and the said vehicles are or shall be free from any adverse liens, security interests, claims or encumbrances of any kind. 5. Taxes and Assessments. All taxes, assessments and other governmental charges including Utah State sales tax, county property tax, and license and registration fees upon the vehicles will, to the best of Debtor's knowledge, have been paid and shall continue to be paid as they become due and payable. 6. Substitution of Collateral. Secured Party consents and acknowledges that Debtor, from time to time, may sell, transfer or assign any or all of the said vehicles or leases covering the vehicles. Secured Party further agrees to cooperate with and to execute and deliver to Debtor such additional documents as may be necessary to sell or otherwise dispose of any of the vehicles provided Debtor, (not to exceed 7 days), replaces such vehicle (s) with other vehicle (s) of equal or greater value and lists Secured Party as the sole lien holder on the titles to any such replacement vehicles. 7. Evidence of Title. Debtor shall, within thirty (30) days after the receipt, deliver to Secured Party copies of any and all title and/or registration documents relating to any of the motor vehicles covered by this Agreement showing Secured Party as the sole lienholder. Debtor shall not further mortgage, pledge, grant or permit to exist any lien against or security interest in, or encumbrance on, any of the vehicles without the prior written consent of Secured Party. 8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at Debtor's or Lessee's expense, proper insurance coverage on the vehicles covered by this Agreement upon terms and with limits of coverage reasonably required by the existing custom and usage in the motor vehicle leasing industry and all rights, duties and obligations or Debtor and Lessees with respect to insurance coverage of the vehicles, including, without limitation, payment of premiums, use of proceeds and disposition of policies shall be as are standard in the auto leasing industry. 9. Licenses and Permits. Debtor shall keep in effect all licenses, permits and franchises required by law or contract relating to the vehicles and shall pay, when due, all fees and other charges pertaining thereto. 10. Miscellaneous. (a) Entire Agreement. This Agreement, together with all of the documents/instruments listed herein constitute the entire agreement between the parties. There are no terms, obligations, covenants, representations, statements, or conditions between the parties, other than those contained herein. No variations or modifications of this Agreement or waiver of any of the terms or provisions hereof shall be deemed valid unless in writing and signed by both parties. (b) Grace Period. In the event of a non-monetary default, Debtor shall have thirty (30) days after receipt of written notice thereof from Secured Party in which to cure such default. (c) Amendments. Neither this Agreement nor any provisions hereof may be changed, waived, discharged or terminated orally and may only be modified or amended by an instrument in writing, signed by Secured Party and Debtor. (d) Binding Effect. This Agreement shall be binding upon Debtor and Debtor's successors and assigns. This Agreement shall inure to the benefit of Secured Party, and Secured Party's heirs, personal representatives, successors and assigns. (e) Notices. Except as otherwise provided herein, all notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered or, if mailed, then when mailed, if mailed by registered or certified mail, postage prepaid, addressed as follows: If to Secured Party, to: WADE COOK SEMINARS, INC. c/o 11275 South Loafer Canyon Road Elkridge, Ut. 84651 If to Debtor, to: NEWSTART CENTRE, INC. 5200 South State Street Murray, Utah 84107 Such addresses may be changed by notice to the other parties given in the same manner as provided. Any notice given hereunder shall be deemed given as of the date delivered or mailed. (f) Severability. If any term or provision of this Agreement shall, to any extent, be determined by a court of competent jurisdiction to be void, voidable or unenforceable, such void, voidable or unenforceable term or provision shall not affect any other term or provision of this Agreement. (g) Governing Law. This Agreement and all matters relating hereto shall be governed by, construed and interpreted in accordance with the laws of the State of Utah, County of Salt Lake. (h) Termination. This Agreement shall terminate upon the full and complete performance and satisfaction by Debtor of all of its obligations to Secured Party under this Agreement or any other instrument referred to herein requiring performance by Debtor. IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured Loan Agreement effective as of the date first above written. DEBTOR: NEWSTART CENTRE, INC. By /s/ Robert J. Atmore -------------------------------- Robert J. Atmore, President SECURED PARTY: WADE COOK SEMINARS, INC. By /s/ Wade Cook -------------------------------- Wade Cook, President PROMISSORY NOTE (Secured) $ $125,000.00 Date: July 25,1997 FOR VALUE RECEIVED the undersigned hereby promise to pay to Wade Cook Seminars, Inc. at 14675 Interurban Ave. South, Seattle, WA 98168 or at such other place as the holder hereof July designate in writing, the principal sum of One Hundred Twenty Five Thousand dollars and no/100 ($ $125,000.00 ), payable in forty-eight (48) consecutive equal monthly payments, including interest as provided below, of ($3,606.88) each, commencing with the first payment on the 8th day of September, 1997, and continuing with a like payment on the 8th day of each and every consecutive month thereafter until the entire remaining unpaid principal balance has been paid in full, subject to the following additional terms and conditions: 1. Interest. Interest shall accrue on the unpaid principal balance at the simple rate of Seventeen percent (17.00%) per annum. 2. Application of Payments. Payments shall be applied first toward the payment and satisfaction of accrued and unpaid interest, if any, and the remainder shall be applied toward the reduction of principal. Principal and interest shall be payable only in lawful money of the United States of America. 3. Prepayment. The undersigned shall have the right, without penalty, to pre-pay any part or all of the unpaid principal balance due hereunder, in which event subsequent monthly payments shall be reduced proportionately, or, upon payment in full of all interest, principal and any other amounts due hereunder, payments shall terminate. In any event, the entire principal balance, together with all accrued interest and any accrued costs or attorney's fees, as provided herein, shall be paid in full on or before July, 2001. 4. Default/Late Charges/Acceleration. In the event any installment payment due hereunder or any portion thereof is not made within thirty (30) days after its due date and such default is occasioned by the default of any lessee, then, to that extent, Debtor shall have sixty (60) days from such due date to repossess the subject motor vehicle(s), re-lease the same and resume making monthly installment payments pursuant to the Note. Any installment payment or any portion thereof not paid within the said sixty-day (60) period shall be added on to the end of the term covered by the Note and the final due date for such payment or part thereof, together with any accrued interest thereon shall be extended by one month for each such installment payment missed. 5. No Waiver. The acceptance of any installment or payment after the occurrence of a default or event giving rise to the right of acceleration provided for in the previous paragraph shall not constitute a waiver of such right of acceleration with respect to any subsequent default or event. 6. Costs of Collection/Attorneys' Fees, etc. In the event any payment due under this Note is not made, or any obligation provided to be satisfied or performed under any instrument given to secure payment of the obligations evidenced hereby is not satisfied or performed, at the time and in the manner required, the undersigned agrees to pay all costs and expenses (regardless of the particular nature thereof and whether incurred with or without suit and before or after judgment) which July be incurred by the holder hereof in connection with the enforcement of any of his rights under this Note or under any such other instrument, or any right arising out of the breach thereof, including but not limited to, reasonable expenses incurred in foreclosing on the collateral securing payment hereof, court costs, and reasonable attorneys' fees. 7. Notice. Any notice or demand hereunder shall be deemed to have been given to and received by the undersigned when personally delivered or when deposited in the U.S. mail, certified or registered mail, return receipt requested, postage pre-paid, and addressed to the undersigned at the address set forth below or at such other address as the undersigned July hereafter designate in writing to the holder hereof. This note shall be governed by and construed in accordance with the laws of the State of Utah. NEWSTART CENTRE, INC. By /s/ Robert J. Atmore -------------------------------- Robert J. Atmore, President CERTIFICATE OF DELIVERY AND RECEIPT OF DOCUMENTS I, Robert J. Atmore, of/for NEWSTART CENTRE, INC. do hereby certify that on the 25th day of July, 1997 I delivered to Wade Cook Seminars, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168 one (1) original and/or one (1) copy of each of the following documents: (i) Secured Loan Agreement dated the 25th day of July, 1997, between NEWSTART CENTRE, INC., as Debtor, and Wade Cook Seminars, Inc. as Secured Party. (ii) Promissory Note dated the 25th day of July, 1997. DATED this 25th day of July, 1997. NEWSTART CENTRE, INC. By /s/ Robert J. Atmore -------------------------------- Robert J. Atmore, President RECEIPT The undersigned do hereby acknowledge receipt of each of the documents or copies thereof listed above and attached to this Certificate. DATED this 25th day of July, 1997. Name: Wade Cook Seminars, Inc. By: /s/ Wade B. Cook Fed EIN# ------------------------------ -------------------------- Wade B. Cook, President SECURED LOAN AGREEMENT THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement") is made and entered into on this 22nd day of August, 1997, by and between NEWSTART CENTRE, INC., a Utah Corporation with its principal place of business in Salt Lake County, State of Utah, (hereinafter referred to as "Debtor") and Information Quest, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168 (hereinafter referred to as "Secured Party"). CAPTIONS AND HEADINGS. The captions and headings throughout this Agreement are for convenience of reference only, and the words contained therein shall in no way be held or deemed to define, limit, describe, explain, modify, amplify or add to the interpretation, construction or meaning of any provisions of or the scope or intent of this Agreement or in any way affect this Agreement. RECITALS: A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and selling motor vehicles to the general public, and B. WHEREAS, DEBTOR desires to borrow working capital for the purchase of automobiles to sale or lease, and C. WHEREAS, Secured Party desires to loan working capital to Debtor, NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto hereby agree as follows: 1. Loan. Secured Party hereby lends to Debtor, receipt of which is hereby acknowledged, the sum of $ $125,000.00 payable to Debtor in certified funds concurrent with the execution of this Agreement and the other documents/instruments referred to below. 2. Loan Documents. a) Execution and delivery by Debtor. Debtor hereby agrees to execute, by and through its authorized representatives, and to deliver to Secured Party, the following instruments/ documents to effect the loan described in paragraph 1 above. 1) Promissory Note dated the 22nd day of August, 1997, a copy of which is attached hereto as Exhibit "A". 2) Certificate of Delivery and Receipt of Documents, a copy of which is attached hereto as Exhibit "B". b) Execution and delivery by Secured Party. Secured Party hereby agrees to execute and deliver to Debtor the Certificate of Delivery and Receipt of Documents dated the 22nd of August, 1997, (Exhibit "B"). 3. Grant of Lien. Debtor hereby grants to Secured Party a continuing lien against each vehicle (hereinafter the "vehicles") purchased with Secured Party's funds to secure the payment and performance of each and every obligation, liability and undertaking of Debtor under the loan documents and Debtor hereby represents and warrants to secured Party that Debtor is or, after acquisition by Debtor, will be the owner of the vehicles and possesses all requisite power and authority to execute and deliver this Agreement and to grant to Secured Party a lien as to all of the vehicles or any replacements thereof. 4. No Other Security Interests/Liens. No financing statement or lien covering the vehicles has been given or filed by Debtor with any filing officer, and the said vehicles are or will be free from any adverse liens, security interests, claims or encumbrances of any kind. 5. Taxes and Assessments. All taxes, assessments and other governmental charges including Utah state sales tax, county property tax, and license and registration fees upon the vehicles will, to the best of Debtor's knowledge, have been paid and shall continue to be paid as they become due and payable. 6. Substitution of Collateral. Secured Party consents and acknowledges that Debtor, from time to time, August sell, transfer or assign any or all of the said vehicles or leases covering the vehicles. Secured Party further agrees to cooperate with and to execute and deliver to Debtor such additional documents as August be necessary to sell or otherwise dispose of any of the vehicles provided Debtor, within a reasonable time, replaces such vehicle(s) with other vehicle(s) of equal or greater value and lists Secured Party as the sole lien holder on the titles to any such replacement vehicles. 7. Evidence of Title. Debtor shall, within thirty (30) days after the receipt thereof, deliver to Secured Party copies of any and all title and/or registration documents relating to any of the motor vehicles covered by this Agreement showing Secured Party as the sole lienholder. Debtor shall not further mortgage, pledge, grant or permit to exist any lien against or security interest in, or encumbrance on, any of the vehicles without the prior written consent of Secured Party. 8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at Debtor's or Lessee's expense, proper insurance coverage on the vehicles covered by this Agreement upon terms and with limits of coverage reasonably required by the existing custom and usage in the motor vehicle leasing industry and all rights, duties and obligations of Debtor and Lessees with respect to insurance coverage of the vehicles, including, without limitation, payment of premiums, use of proceeds and disposition of policies shall be as are standard in the auto leasing industry. 9. Licenses and Permits. Debtor shall keep in effect all licenses, permits and franchises required by law or contract relating to the vehicles and shall pay, when due, all fees and other charges pertaining thereto. 10. Miscellaneous. (a) Entire Agreement. This Agreement, together with all of the documents/instruments listed herein constitute the entire agreement between the parties. There are no terms, obligations, covenants, representations, statements, or conditions between the parties, other than those contained herein. No variations or modifications of this Agreement or waiver of any of the terms or provisions hereof shall be deemed valid unless in writing and signed by both parties. (b) Grace Period. In the event of a non-monetary default, Debtor shall have thirty (30) days after receipt of written notice thereof from Secured Party in which to cure such default. (c) Amendments. Neither this Agreement nor any provisions hereof August be changed, waived, discharged or terminated orally and August only be modified or amended by an instrument in writing, signed by Secured Party and Debtor. (d) Binding Effect. This Agreement shall be binding upon Debtor and Debtor's successors and assigns. This Agreement shall inure to the benefit of Secured Party, and Secured Party's heirs, personal representatives, successors and assigns. (e) Notices. Except as otherwise provided herein, all notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered or, if mailed, then when mailed, if mailed by registered or certified mail, postage prepaid, addressed as follows: If to Secured Party, to: If to Debtor, to: Information Quest, Inc. Newstart Centre, Inc. c/o 14675 Interurban Ave. South 5200 South State Street Seattle, WA 98168 Murray, Utah 84107 Such addresses August be changed by notice to the other parties given in the same manner as above provided. Any notice given hereunder shall be deemed given as of the date delivered or mailed. (f) Severability. If any term or provision of this Agreement shall, to any extent, be determined by a court of competent jurisdiction to be void, voidable or unenforceable, such void, voidable or unenforceable term or provision shall not affect any other term or provision of this Agreement. (g) Governing Law. This Agreement and all matters relating hereto shall be governed by, construed and interpreted in accordance with the laws of the State of Utah, County of Salt Lake. (h) Termination. This Agreement shall terminate upon the full and complete performance and satisfaction by Debtor of all of its obligations to Secured Party under this Agreement or any other instrument referred to herein requiring performance by Debtor. IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured Loan Agreement effective as of the date first above written. DEBTOR: NEWSTART CENTRE, INC. By /s/ Robert J. Atmore -------------------------------- Robert J. Atmore, President SECURED PARTY: Information Quest, Inc. By /s/ Thomas Cloward -------------------------------- Thomas Cloward, Secretary Treasurer PROMISSORY NOTE (Secured) $ $125,000.00 Date: August 22, 1997 FOR VALUE RECEIVED the undersigned hereby promise to pay to Information Quest, Inc. at 14675 Interurban Ave. South, Seattle, WA 98168 or at such other place as the holder hereof August designate in writing, the principal sum of One Hundred Twenty Five Thousand Dollars and no/100 ($ $125,000.00), payable in forty-eight (48) consecutive equal monthly payments, including interest as provided below, of ($3,606.88) each, commencing with the first payment on the 6th day of October, 1997, and continuing with a like payment on the 6th day of each and every consecutive month thereafter until the entire remaining unpaid principal balance has been paid in full, subject to the following additional terms and conditions: 1. Interest. Interest shall accrue on the unpaid principal balance at the simple rate of Seventeen percent (17.00%) pet annum. 2. Application of Payments. Payments shall be applied first toward the payment and satisfaction of accrued and unpaid interest, if any, and the remainder shall be applied toward the reduction of principal. Principal and interest shall be payable only in lawful money of the United States of America. 3. Prepayment. The undersigned shall have the right, without penalty, to pre-pay any part or all of the unpaid principal balance due hereunder, in which event subsequent monthly payments shall be reduced proportionately, or, upon payment in full of all interest, principal and any other amounts due hereunder, payments shall terminate. In any event, the entire principal balance, together with all accrued interest and any accrued costs or attorney's fees, as provided herein, shall be paid in full on or before August, 2001. 4. Default/Late Charges/Acceleration. In the event any installment payment due hereunder or any portion thereof is not made within thirty (30) days after its due date and such default is occasioned by the default of any lessee, then, to that extent, Debtor shall have sixty (60) days from such due date to repossess the subject motor vehicle(s), re-lease the same and resume making monthly installment payments pursuant to the Note. Any installment payment or any portion thereof not paid within the said sixty-day (60) period shall be added on to the end of the term covered by the Note and the final due date for such payment or part thereof, together with any accrued interest thereon shall be extended by one month for each such installment payment missed. 5. No Waiver. The acceptance of any installment or payment after the occurrence of a default or event giving rise to the right of acceleration provided for in the previous paragraph shall not constitute a waiver of such right of acceleration with respect to any subsequent default or event. 6. Costs of Collection/Attorneys' Fees, etc. In the event any payment due under this Note is not made, or any obligation provided to be satisfied or performed under any instrument given to secure payment of the obligations evidenced hereby is not satisfied or performed, at the time and in the manner required, the undersigned agrees to pay all costs and expenses (regardless of the particular nature thereof and whether incurred with or without suit and before or after judgment) which August be incurred by the holder hereof in connection with the enforcement of any of his rights under this Note or under any such other instrument, or any right arising out of the breach thereof, including but not limited to, reasonable expenses incurred in foreclosing on the collateral securing payment hereof, court costs, and reasonable attorneys' fees. 7. Notice. Any notice or demand hereunder shall be deemed to have been given to and received by the undersigned when personally delivered or when deposited in the U.S. mail, certified or registered mail, return receipt requested, postage pre-paid, and addressed to the undersigned at the address set forth below or at such other address as the undersigned August hereafter designate in writing to the holder hereof. This note shall be governed by and construed in accordance with the laws of the State of Utah. NEWSTART CENTRE, INC. By Robert J. Atmore -------------------------- Robert J. Atmore, President CERTIFICATE OF DELIVERY AND RECEIPT OF DOCUMENTS I, Robert J, Atmore, of/for NEWSTART CENTRE, INC. do hereby certify that on the 22nd day of August, 1997 I delivered to Information Quest, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168 one (1) original and/or one (1) copy of each of the following documents: (i) Secured Loan Agreement dated the 22nd day of August, 1997, between NEWSTART CENTRE, INC., as Debtor, and Information Quest, Inc. as Secured Party. (ii) Promissory Note dated the 22nd day of August, 1997. DATED this 22nd day of August, 1997. NEWSTART CENTRE, INC. By /s/ Robert J. Atmore -------------------------------- Robert J. Atmore, President SECURED LOAN AGREEMENT THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement") is made and entered into on this 9th day of October, 1997, by and between NEWSTART CENTRE, INC., a Utah Corporation with its principal place of business in Salt Lake County, State of Utah, (hereinafter referred to as "Debtor") and Information Quest, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168 (hereinafter referred to as "Secured Party"). CAPTIONS AND HEADINGS. The captions and headings throughout this Agreement are for convenience of reference only, and the words contained therein shall in no way be held or deemed to define, limit, describe, explain, modify, amplify or add to the interpretation, construction or meaning of any provisions of or the scope or intent of this Agreement or in any way affect this Agreement. RECITALS: A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and selling motor vehicles to the general public, and B. WHEREAS, DEBTOR desires to borrow working capital for the purchase of automobiles to sale or lease, and C. WHEREAS, Secured Party desires to loan working capital to Debtor, NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto hereby agree as follows: 1. Loan. Secured Party hereby lends to Debtor, receipt of which is hereby acknowledged, the sum of $ $125,000.00 payable to Debtor in certified funds concurrent with the execution of this Agreement and the other documents/instruments referred to below. 2. Loan Documents. a) Execution and delivery by Debtor. Debtor hereby agrees to execute, by and through its authorized representatives, and to deliver to Secured Party, the following instruments/ documents to effect the loan described in paragraph 1 above. 1) Promissory Note dated the 9th day of October, 1997, a copy of which is attached hereto as Exhibit "A". 2) Certificate of Delivery and Receipt of Documents, a copy of which is attached hereto as Exhibit "B". b) Execution and delivery by Secured Party. Secured Party hereby agrees to execute and deliver to Debtor the Certificate of Delivery and Receipt of Documents dated the 9th of October, 1997, (Exhibit "B"). 3. Grant of Lien. Debtor hereby grants to Secured Party a continuing lien against each vehicle (hereinafter the "vehicles") purchased with Secured Party's funds to secure the payment and performance of each and every obligation, liability and undertaking of Debtor under the loan documents and Debtor hereby represents and warrants to secured Party that Debtor is or, after acquisition by Debtor, will be the owner of the vehicles and possesses all requisite power and authority to execute and deliver this Agreement and to grant to Secured Party a lien as to all of the vehicles or any replacements thereof. 4. No Other Security Interests/Liens. No financing statement or lien covering the vehicles has been given or filed by Debtor with any filing of officer, and the said vehicles are or will be free from any adverse liens, security interests, claims or encumbrances of any kind. 5. Taxes and Assessments. All taxes, assessments and other governmental charges including Utah State sales tax, county property tax, and license and registration fees upon the vehicles will, to the best of Debtor's knowledge, have been paid and shall continue to be paid as they become due and payable. 6. Substitution of Collateral. Secured Party consents and acknowledges that Debtor, from time to time, October sell, transfer or assign any or all of the said vehicles or leases covering the vehicles. Secured Party further agrees to cooperate with and to execute and deliver to Debtor such additional documents as October be necessary to sell or otherwise dispose of any of the vehicles provided Debtor, within a reasonable time, replaces such vehicle(s) with other vehicle(s) of equal or greater value and lists Secured Party as the sole lien holder on the titles to any such replacement vehicles. 7. Evidence of Title. Debtor shall, within thirty (30) days after the receipt thereof, deliver To Secured Party copies of any and all title and/or registration documents relating to any of the motor vehicles covered by this Agreement showing Secured Party as the sole lienholder. Debtor shall not further mortgage, pledge, grant or permit to exist any lien against or security interest in, or encumbrance on, any of the vehicles without the prior written consent of Secured Party. 8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at Debtor's or Lessee's expense, proper insurance coverage on the vehicles covered by this Agreement upon terms and with limits of coverage reasonably required by the existing custom and usage in the motor vehicle leasing industry and all rights, duties and obligations of Debtor and Lessees with respect to insurance coverage of the vehicles, including, without limitation, payment of premiums, use of proceeds and disposition of policies shall be as are standard in the auto leasing industry. 9. Licenses and Permits. Debtor shall keep in effect all licenses, permits and franchises required by law or contract relating to the vehicles and shall pay, when due, all fees and other charges pertaining thereto. 10. Miscellaneous. (a) Entire Agreement. This Agreement, together with all of the documents/instruments listed herein constitute the entire agreement between the parties. There are no terms, obligations, covenants, representations, statements, or conditions between the parties, other than those contained herein. No variations or modifications of this Agreement or waiver of any of the terms or provisions hereof shall be deemed valid unless in writing and signed by both parties. (b) Grace Period. In the event of a non-monetary default, Debtor shall have thirty (30) days after receipt of written notice thereof from Secured Party in which to cure such default. (c) Amendments. Neither this Agreement nor any provisions hereof October be changed, waived, discharged or terminated orally and October only be mod)fled or amended by an instrument in writing, signed by Secured Party and Debtor. (d) Binding Effect. This Agreement shall be binding upon Debtor and Debtor's successors and assigns. This Agreement shall inure to the benefit of Secured Party, and Secured Party's heirs, personal representatives, successors and assigns. (e) Notices. Except as otherwise provided herein, all notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered or, if mailed, then when mailed, if mailed by registered or certified mail, postage prepaid, addressed as follows: If to Secured Party, to: If to Debtor, to: Information Quest, Inc. Newstart Centre, Inc. c/o 14675 Interurban Ave. South 5200 South State Street Seattle, WA. 98168 Murray, Utah 84107 Such addresses October be changed by notice to the other parties given in the same manner as above provided. Any notice given hereunder shall be deemed given as of the date delivered or mailed. (f) Severability. If any term or provision of this Agreement shall, to any extent, be determined by a court of competent jurisdiction to be void, voidable or unenforceable, such void, voidable or unenforceable term or provision shall not affect any other term or provision of this Agreement. (g) Governing Law. This Agreement and all matters relating hereto shall be governed by, construed and interpreted in accordance with the laws of the State of Utah, County of Salt Lake. (h) Termination. This Agreement shall terminate upon the full and complete performance and satisfaction by Debtor of all of its obligations to Secured Party under this Agreement or any other instrument referred to herein requiring performance by Debtor. IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured Loan Agreement effective as of the date first above written. DEBTOR: NEWSTART CENTRE, INC. By /s/ Robert J. Atmore ------------------------- Robert J. Atmore, President SECURED PARTY: Information Quest, Inc. By /s/ Tom Cloward --------------------------- PROMISSORY NOTE (Secured) $ $125,000.00 Date: October 09, 1997 FOR VALUE RECEIVED the undersigned hereby promise to pay to Information Quest, Inc. at 14675 Interurban Ave. South, Seattle, WA 98168 or at such other place as the holder hereof October designate in writing, the principal sum of One Hundred Twenty Five Thousand dollars and no/100 ($ $125,000.00 ), payable in forty-eight (48) consecutive equal monthly payments, including interest as provided below, of ($3.606.88) each, commencing with the first payment on the 23rd day of November, 1997, and continuing with a like payment on the 23rd day of each and every consecutive month thereafter until the entire remaining unpaid principal balance has been paid in full, subject to the following additional terms and conditions: 1. Interest. Interest shall accrue on the unpaid principal balance at the simple rate of Seventeen percent (17.00%) per annum. 2. Application of Payments. Payments shall be applied first toward the payment and satisfaction of accrued and unpaid interest, if any, and the remainder shall be applied toward the reduction of principal. Principal and interest shall be payable only in lawful money of the United States of America. 3. Prepayment. The undersigned shall have the right, without penalty, to pre-pay any part or all of the unpaid principal balance due hereunder, in which event subsequent monthly payments shall be reduced proportionately, or, upon payment in full of all interest, principal and any other amounts due hereunder, payments shall terminate. In any event, the entire principal balance, together with all accrued interest and any accrued costs or attorney's fees, as provided herein, shall be paid in full on or before October, 2001. 4. Default/Late Charges/Acceleration. In the event any installment payment due hereunder or any portion thereof is not made within thirty (30) days after its due date and such default is occasioned by the default of any lessee, then, to that extent, Debtor shall have sixty (60) days from such due date to repossess the subject motor vehicle(s), re-lease the same and resume making monthly installment payments pursuant to the Note. Any installment payment or any portion thereof not paid within the said sixty-day (60) period shall be added on to the end of the term covered by the Note and the final due date for such payment or part thereof, together with any accrued interest thereon shall be extended by one month for each such installment payment missed. 5. No Waiver. The acceptance of any installment or payment after the occurrence of a default or event giving rise to the right of acceleration provided for in the previous paragraph shall not constitute a waiver of such right of acceleration with respect to any subsequent default or event. 6. Costs of Collection/Attorneys' Fees, etc. In the event any payment due under this Note is not made, or any obligation provided to be satisfied or performed under any instrument given to secure payment of the obligations evidenced hereby is not satisfied or performed, at the time and in the manner required, the undersigned agrees to pay all costs and expenses (regardless of the particular nature thereof and whether incurred with or without suit and before or after judgment) which October be incurred by the holder hereof in connection with the enforcement of any of his rights under this Note or under any such other instrument, or any right arising out of the breach thereof, including but not limited to, reasonable expenses incurred in foreclosing on the collateral securing payment hereof, court costs, and reasonable attorneys' fees. 7. Notice. Any notice or demand hereunder shall be deemed to have been given to and received by the undersigned when personally delivered or when deposited in the U.S. mail, certified or registered mail, return receipt requested, postage pre-paid, and addressed to the undersigned at the address set forth below or at such other address as the undersigned October hereafter designate in writing to the holder hereof. This note shall be governed by and construed in accordance with the laws of the State of Utah. NEWSTART CENTRE, INC. By /s/ Robert J. Atmore --------------------------------- Robert J. Atmore, President CERTIFICATE OF DELIVERY AND RECEIPT OF DOCUMENTS I, Robert J. Atmore, of/for NEWSTART CENTRE, INC. do hereby certify that on the 9th day of October, 1997 I delivered to Information Quest, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168 one (1) original and/or one (1) copy of each of the following documents: (i) Secured Loan Agreement dated the 9th day of October, 1997, between NEWSTART CENTRE, INC., as Debtor, and Information Quest, Inc. as Secured Party. (ii) Promissory Note dated the 9th day of October, 1997. DATED this 9th day of October, 1997. NEWSTART CENTRE, INC. By /s/ Robert J. Atmore ----------------------------- Robert J. Atmore, President RECEIPT The undersigned do hereby acknowledge receipt of each of the documents or copies thereof listed above and attached to this Certificate. DATED this 9th day of October, 1997. Name: Information Quest, Inc. By: /s/ Tom Cloward Fed EIN# 91-1824010 -------------------------------- ---------- SECURED LOAN AGREEMENT THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement") is made and entered into on this 9th day of October, 1997, by and between NEWSTART CENTRE, INC., a Utah Corporation with its principal place of business in Salt Lake County, State of Utah, (hereinafter referred to as "Debtor") and Left Coast Advertising, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168 (hereinafter referred to as "Secured Party"). CAPTIONS AND HEADINGS. The captions and headings throughout this Agreement are for convenience of reference only, and the words contained therein shall in no way be held or deemed to define, limit, describe, explain, modify, amplify or add to the interpretation, construction or meaning of any provisions of or the scope or intent of this Agreement or in any way affect this Agreement. RECITALS: A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and selling motor vehicles to the general public, and B. WHEREAS, DEBTOR desires to borrow working capital for the purchase of automobiles to sale or lease, and C. WHEREAS, Secured Party desires to loan working capital to Debtor, NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto hereby agree as follows: 1. Loan. Secured Party hereby lends to Debtor, receipt of which is hereby acknowledged, the sum of $ $125,000.00 payable to Debtor in certified funds concurrent with the execution of this Agreement and the other documents/instruments referred to below. 2. Loan Documents. a) Execution and delivery by Debtor. Debtor hereby agrees to execute, by and through its authorized representatives, and to deliver to Secured Party, the following instruments" documents to effect the loan described in paragraph 1 above. 1) Promissory Note dated the 9th day of October, 1997, a copy of which is attached hereto as Exhibit "A". 2) Certificate of Delivery and Receipt of Documents, a copy of which is attached hereto as Exhibit "B". b) Execution and delivery by Secured Party. Secured Party hereby agrees to execute and deliver to Debtor the Certificate of Delivery and Receipt of Documents dated the 9th of October, 1997, (Exhibit "B"). 3. Grant of Lien. Debtor hereby grants to Secured Party a continuing lien against each vehicle (hereinafter the "vehicles") purchased with Secured Party's funds to secure the payment and performance of each and every obligation, liability and undertaking of Debtor under the loan documents and Debtor hereby represents and warrants to secured Party that Debtor is or, after acquisition by Debtor, will be the owner of the vehicles and possesses all requisite power and authority to execute and deliver this Agreement and to grant to Secured Party a lien as to all of the vehicles or any replacements thereof. 4. No Other Security Interests/Liens. No financing statement or lien covering the vehicles has been given or filed by Debtor with any filing officer, and the said vehicles are or will be free from any adverse liens, security interests, claims or encumbrances of any kind. 5. Taxes and Assessments. All taxes, assessments and other governmental charges including Utah State sales tax, county property tax, and license and registration fees upon the vehicles will, to the best of Debtor's knowledge, have been paid and shall continue to be paid as they become due and payable. 6. Substitution of Collateral. Secured Party consents and acknowledges that Debtor, from time to time, October sell, transfer or assign any or all of the said vehicles or leases covering the vehicles. Secured Party further agrees to cooperate with and to execute and deliver to Debtor such additional documents as October be necessary to sell or otherwise dispose of any of the vehicles provided Debtor, within a reasonable time, replaces such vehicle(s) with other vehicle(s) of equal or greater value and lists Secured Party as the sole lien holder on the titles to any such replacement vehicles. 7. Evidence of Title. Debtor shall, within thirty (30) days after the receipt thereof, deliver to Secured Party copies of any and all title and/or registration documents relating to any of the motor vehicles covered by this Agreement showing Secured Party as the sole lienholder. Debtor shall not further mortgage, pledge, grant or permit to exist any lien against or security interest in, or encumbrance on, any of the vehicles without the prior written consent of Secured Party. 8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at Debtor's or Lessee's expense, proper insurance coverage on the vehicles covered by this Agreement upon terms and with limits of coverage reasonably required by the existing custom and usage in the motor vehicle leasing industry and all rights, duties and obligations of Debtor and Lessees with respect to insurance coverage of the vehicles, including, without limitation, payment of premiums, use of proceeds and disposition of policies shall be as are standard in the auto leasing industry. 9. Licenses and Permits. Debtor shall keep in effect all licenses, permits and franchises required by law or contract relating to the vehicles and shall pay, when due, all fees and other charges pertaining thereto. 10. Miscellaneous. (a) Entire Agreement. This Agreement, together with all of the documents/instruments listed herein constitute the entire agreement between the parties. There are no terms, obligations, covenants, representations, statements, or conditions between the parties, other than those contained herein. No variations or modifications of this Agreement or waiver of any of the terms or provisions hereof shall be deemed valid unless in writing and signed by both parties. Grace Period. In the event of a non-monetary default, Debtor shall have thirty (30) days after receipt of written notice thereof from Secured Party in which to cure such default. (c) Amendments. Neither this Agreement nor any provisions hereof October be changed, waived, discharged or terminated orally and October only be modified or amended by an instrument in writing, signed by Secured Party and Debtor. (d) Binding Effect. This Agreement shall be binding upon Debtor and Debtor's successors and assigns. This Agreement shall inure to the benefit of Secured Party, and Secured Party's heirs, personal representatives, successors and assigns. (e) Notices. Except as otherwise provided herein, all notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered or, if mailed, then when mailed, if mailed by registered or certified mail, postage prepaid, addressed as follows: If to Secured Party, to: If to Debtor, to: Left Coast Advertising, Inc. Newstart Centre, Inc. c/o 14675 Interurban 5200 South State Street Ave. South Seattle, WA. 98168 Murray, Utah 84107 Such addresses October be changed by notice to the other parties given in the same manner as above provided. Any notice given hereunder shall be deemed given as of the date delivered or mailed. (f) Severability. If any term or provision of this Agreement shall, to any extent, be determined by a court of competent jurisdiction to be void, voidable or unenforceable, such void, voidable or unenforceable term or provision shall not affect any other term or provision of this Agreement. (g) Governing Law. This Agreement and all matters relating hereto shall be governed by, construed and interpreted in accordance with the laws of the State of Utah, County of Salt Lake. (h) Termination. This Agreement shall terminate upon the full and complete performance and satisfaction by Debtor of all of its obligations to Secured Party under this Agreement or any other instrument referred to herein requiring performance by Debtor. IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured Loan Agreement effective as of the date first above written. DEBTOR: NEWSTART CENTRE, INC. By /s/ Robert J. Atmore ------------------------------------ Robert J. Atmore, President SECURED PARTY: Left Coast Advertising, Inc. By /s/ Vaughn Tanner ----------------------------------- Vaughn Tanner PROMISSORY NOTE (Secured) $ $125,000.00 Date: October 09, 1997 FOR VALUE RECEIVED the undersigned hereby promise to pay to Left Coast Advertising, Inc. at 14675 Interurban Ave. South, Seattle, WA 98168 or at such other place as the holder hereof October designate in writing, the principal sum of One Hundred TwentY Five Thousand dollars and no/100 ($ $125,000.00 ), payable in forty-eight (48) consecutive equal monthly payments, including interest as provided below, of ($3,606.88) each, commencing with the first payment on the 23rd day of November, 1997, and continuing with a like payment on the 23rd day of each and every consecutive month thereafter until the entire remaining unpaid principal balance has been paid in full, subject to the following additional terms and conditions: 1. Interest. Interest shall accrue on the unpaid principal balance at the simple rate of Seventeen percent (17.00%) per annum. 2. Application of Payments. Payments shall be applied first toward the payment and satisfaction of accrued and unpaid interest, if any, and the remainder shall be applied toward the reduction of principal. Principal and interest shall be payable only in lawful money of the United States of America. 3. Prepayment. The undersigned shall have the right, without penalty, to pre-pay any part or all of the unpaid principal balance due hereunder, in which event subsequent monthly payments shall be reduced proportionately, or, upon payment in full of all interest, principal and any other amounts due hereunder, payments shall terminate. In any event, the entire principal balance, together with all accrued interest and any accrued costs or attorney's fees, as provided herein, shall be paid in full on or before October, 2001. 4. Default/Late Charges/Acceleration. In the event any installment payment due hereunder or any portion thereof is not made within thirty (30) days after its due date and such default is occasioned by the default of any lessee, then, to that extent, Debtor shall have sixty (60) days from such due date to repossess the subject motor vehicle(s), re-lease the same and resume making monthly installment payments pursuant to the Note. Any installment payment or any portion thereof not paid within the said sixty-day (60) period shall be added on to the end of the term covered by the Note and the final due date for such payment or part thereof, together with any accrued interest thereon shall be extended by one month for each such installment payment missed. 5. No Waiver. The acceptance of any installment or payment after the occurrence of a default or event giving rise to the right of acceleration provided for in the previous paragraph shall not constitute a waiver of such right of acceleration with respect to any subsequent default or event. 6. Costs of Collection/Attorneys' Fees, etc. In the event any payment due under this Note is not made, or any obligation provided to be satisfied or performed under any instrument given to secure payment of the obligations evidenced hereby is not satisfied or performed, at the time and in the manner required, the undersigned agrees to pay all costs and expenses (regardless of the particular nature thereof and whether incurred with or without suit and before or after judgment) which October be incurred by the holder hereof in connection with the enforcement of any of his rights under this Note or under any such other instrument, or any right arising out of the breach thereof, including but not limited to, reasonable expenses incurred in foreclosing on the collateral securing payment hereof, court costs, and reasonable attorneys' fees. 7. Notice. Any notice or demand hereunder shall be deemed to have been given to and received by the undersigned when personally delivered or when deposited in the U.S. mail, certified or registered mail, return receipt requested, postage pre-paid, and addressed to the undersigned at the address set forth below or at such other address as the undersigned October hereafter designate in writing to the holder hereof. This note shall be governed by and construed in accordance with the laws of the State of Utah. NEWSTART CENTRE, INC. By /s/ Robert J. Atmore --------------------------- Robert J. Atmore, President CERTIFICATE OF DELIVERY AND RECEIPT OF DOCUMENTS I, Robert J, Atmore, of/for NEWSTART CENTRE, INC. do hereby certify that on the 9th day of October, 1997 I delivered to Left Coast Advertising, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168 one (1) original and/or one (1) copy of each of the following documents: (i) Secured Loan Agreement dated the 9th day of October, 1997, between NEWSTART CENTRE, INC., as Debtor, and Left Coast Advertising, Inc. as Secured Party. (ii) Promissory Note dated the 9th day of October, 1997. DATED this 9th day of October, 1997. NEWSTART CENTRE, INC. By /s/ Robert J. Atmore ------------------------------ Robert J. Atmore, President RECEIPT The undersigned do hereby acknowledge receipt of each of the documents or copies thereof listed above and attached to this Certificate. DATED this 9th day of October, 1997. Name: Left Coast Advertising, Inc. By: /s/ Vaughn Tanner Fed EIN# 91-1752154 ------------------------------- ---------- Vaughn Tanner SECURED LOAN AGREEMENT THIS SECURED LOAN AGREEMENT (hereinafter referred to as "Agreement") is made and entered into on this 19th day of August, 1997, by and between NEWSTART CENTRE, INC., a Utah Corporation with its principal place of business in Salt Lake County, State of Utah, (hereinafter referred to as "Debtor") and Left Coast Advertising, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168 (hereinafter referred to as "Secured Party'). CAPTIONS AND HEADINGS. The captions and headings throughout this Agreement are for convenience of reference only, and the words contained therein shall in no way be held or deemed to define, limit, describe, explain, modify, amplify or add to the interpretation, construction or meaning of any provisions of or the scope or intent of this Agreement or in any way affect this Agreement. RECITALS: A. WHEREAS, DEBTOR is engaged in the business of buying, leasing and selling motor vehicles to the general public, and B. WHEREAS, DEBTOR desires to borrow working capital for the purchase of automobiles to sale or lease, and C. WHEREAS, Secured Party desires to loan working capital to Debtor, NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto hereby agree as follows: 1. Loan. Secured Party hereby lends to Debtor, receipt of which is hereby acknowledged, the sum of $ $125,000.00 payable to Debtor in certified funds concurrent with the execution of this Agreement and the other documents/instruments referred to below. 2. Loan Documents. a) Execution and delivery by Debtor. Debtor hereby agrees to execute, by and through its authorized representatives, and to deliver to Secured Party, the following instruments/ documents to effect the loan described in paragraph 1 above. 1) Promissory Note dated the 19th day of August, 1997, a copy of which is attached hereto as Exhibit "A". 2) Certificate of Delivery and Receipt of Documents, a copy of which is attached hereto as Exhibit "B". b) Execution and delivery by Secured Party. Secured Party hereby agrees to execute and deliver to Debtor the Certificate of Delivery and Receipt of Documents dated the 19th of August, 1997, (Exhibit "B"). 3. Grant of Lien. Debtor hereby grants to Secured Party a continuing lien against each vehicle (hereinafter the "vehicles") purchased with Secured Party's funds to secure the payment and performance of each and every obligation, liability and undertaking of Debtor under the loan documents and Debtor hereby represents and warrants to secured Party that Debtor is or, after acquisition by Debtor, will be the owner of the vehicles and possesses all requisite power and authority to execute and deliver this Agreement and to grant to Secured Party a lien as to all of the vehicles or any replacements thereof. 4. No Other Security Interests/Liens. No financing statement or lien covering the vehicles has been given or filed by Debtor with any filing officer, and the said vehicles are or will be free from any adverse liens, security interests, claims or encumbrances of any kind. 5. Taxes and Assessments. All taxes, assessments and other governmental charges including Utah State sales tax, county property tax, and license and registration fees upon the vehicles will, to the best of Debtor's knowledge, have been paid and shall continue to be paid as they become due and payable. 6. Substitution of Collateral. Secured Party consents and acknowledges that Debtor, from time to time, August sell, transfer or assign any or all of the said vehicles or leases covering the vehicles. Secured Party further agrees to cooperate with and to execute and deliver to Debtor such additional documents as August be necessary to sell or otherwise dispose of any of the vehicles provided Debtor, within a reasonable time, replaces such vehicle(s) with other vehicle(s) of equal or greater value and lists Secured Party as the sole lien holder on the titles to any such replacement vehicles. 7. Evidence of Title. Debtor shall, within thirty (30) days after the receipt thereof, deliver to Secured Party copies of any and all title and/or registration documents relating to any of the motor vehicles covered by this Agreement showing Secured Party as the sole lienholder. Debtor shall not further mortgage, pledge, grant or permit to exist any lien against or security interest in, or encumbrance on, any of the vehicles without the prior written consent of Secured Party. 8. Insurance. Debtor shall maintain, or cause Lessees to maintain, at Debtor's or Lessee's expense, proper insurance coverage on the vehicles covered by this Agreement upon terms and with limits of coverage reasonably required by the existing custom and usage in the motor vehicle leasing industry and all rights, duties and obligations of Debtor and Lessees with respect to insurance coverage of the vehicles, including, without limitation, payment of premiums, use of proceeds and disposition of policies shall be as are standard in the auto leasing industry. 9. Licenses and Permits. Debtor shall keep in effect all licenses, permits and franchises required by law or contract relating to the vehicles and shall pay, when due, all fees and other charges pertaining thereto. 10. Miscellaneous. (a) Entire Agreement. This Agreement, together with all of the documents/instruments listed herein constitute the entire agreement between the parties. There are no terms, obligations, covenants, representations, statements, or conditions between the parties, other than those contained herein. No variations or modifications of this Agreement or waiver of any of the terms or provisions hereof shall be deemed valid unless in writing and signed by both parties. (b) Grace Period. In the event of a non-monetary default, Debtor shall have thirty (30) days after receipt of written notice thereof from Secured Party in which to cure such default. (c) Amendments. Neither this Agreement nor any provisions hereof August be changed, waived, discharged or terminated orally and August only be modified or amended by an instrument in writing, signed by Secured Party and Debtor. (d) Binding Effect. This Agreement shall be binding upon Debtor and Debtor's successors and assigns. This Agreement shall inure to the benefit of Secured Party, and Secured Party's heirs, personal representatives, successors and assigns. (e) Notices. Except as otherwise provided herein, all notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered or, if mailed, then when mailed, if mailed by registered or certified mail, postage prepaid, addressed as follows: If to Secured Party, to: If to Debtor, to: Left Coast Advertising, Inc. Newstart Centre, Inc. c/o 14675 Interurban Ave. South 5200 South State Street Seattle, WA 98168 Murray, Utah 84107 Such addresses August be changed by notice to the other parties given in the same manner as above provided. Any notice given hereunder shall be deemed given as of the date delivered or mailed. (f) Severability. If any term or provision of this Agreement shall, to any extent, be determined by a court of competent jurisdiction to be void, voidable or unenforceable, such void, voidable or unenforceable term or provision shall not affect any other term or provision of this Agreement. (g) Governing Law. This Agreement and all matters relating hereto shall be governed by, construed and interpreted in accordance with the laws of the State of Utah, County of Salt Lake. (h) Termination. This Agreement shall terminate upon the full and complete performance and satisfaction by Debtor of all of its obligations to Secured Party under this Agreement or any other instrument referred to herein requiring performance by Debtor. IN WITNESS WHEREOF, Debtor and Secured Party have executed this Secured Loan Agreement effective as of the date first above written. DEBTOR: NEWSTART CENTRE, INC. By /s/ Robert J. Atmore -------------------------------- Robert J. Atmore, President SECURED PARTY: Left Coast Advertising, Inc. By /s/ Vaughn Tanner -------------------------------- Vaughn Tanner PROMISSORY NOTE (Secured) $ $125,000.00 Date: August 19,1997 FOR VALUE RECEIVED the undersigned hereby promise to pay to Left Coast Advertising, Inc. at 14675 Interurban Ave. South, Seattle, WA 98168 or at such other place as the holder hereof August designate in writing, the principal sum of One Hundred Twenty Five Thousand dollars and no/100 ($ $125,000.00 ), payable in forty-eight (48) consecutive equal monthly payments, including interest as provided below, of ($3.606.88 ) each, commencing with the first payment on the 3rd day of October, 1997, and continuing with a like payment on the 3rd day of each and every consecutive month thereafter until the entire remaining unpaid principal balance has been paid in full, subject to the following additional terms and conditions: 1. Interest. Interest shall accrue on the unpaid principal balance at the simple rate of Seventeen percent (17.00%) per annum. 2. Application of Payments. Payments shall be applied first toward the payment and satisfaction of accrued and unpaid interest, if any, and the remainder shall be applied toward the reduction of principal. Principal and interest shall be payable only in lawful money of the United States of America. 3. Prepayment. The undersigned shall have the right, without penalty, to pre-pay any part or all of the unpaid principal balance due hereunder, in which event subsequent monthly payments shall be reduced proportionately, or, upon payment in full of all interest, principal and any other amounts due hereunder, payments shall terminate. In any event, the entire principal balance, together with all accrued interest and any accrued costs or attorney's fees, as provided herein, shall be paid in full on or before August, 2001. 4. Default/Late Charges/Acceleration. In the event any installment payment due hereunder or any portion thereof is not made within thirty (30) days after its due date and such default is occasioned by the default of any lessee, then, to that extent, Debtor shall have sixty (60) days from such due date to repossess the subject motor vehicle(s), re-lease the same and resume making monthly installment payments pursuant to the Note. Any installment payment or any portion thereof not paid within the said sixty-day (60) period shall be added on to the end of the term covered by the Note and the final due date for such payment or part thereof, together with any accrued interest thereon shall be extended by one month for each such installment payment missed. 5. No Waiver. The acceptance of any installment or payment after the occurrence of a default or event giving rise to the right of acceleration provided for in the previous paragraph shall not constitute a waiver of such right of acceleration with respect to any subsequent default or event. 6. Costs of Collection/Attorneys' Fees, etc. In the event any payment due under this Note is not made, or any obligation provided to be satisfied or performed under any instrument given to secure payment of the obligations evidenced hereby is not satisfied or performed, at the time and in the manner required, the undersigned agrees to pay all costs and expenses (regardless of the particular nature thereof and whether incurred with or without suit and before or after judgment) which August be incurred by the holder hereof in connection with the enforcement of any of his rights under this Note or under any such other instrument, or any right arising out of the breach thereof, including but not limited to, reasonable expenses incurred in foreclosing on the collateral securing payment hereof, court costs, and reasonable attorneys" fees. 7. Notice. Any notice or demand hereunder shall be deemed to have been given to and received by the undersigned when personally delivered or when deposited in the U.S. mail, certified or registered mail, return receipt requested, postage pre-paid, and addressed to the undersigned at the address set forth below or at such other address as the undersigned August hereafter designate in writing to the holder hereof. This note shall be governed by and construed in accordance with the laws of the State of Utah. NEWSTART CENTRE, INC. By /s/ Robert J. Atmore -------------------------------- Robert J. Atmore, President CERTIFICATE OF DELIVERY AND RECEIPT OF DOCUMENTS I, Robert J, Atmore, of/for NEWSTART CENTRE, INC. do hereby certify that on the 19th day of August, 1997 I delivered to Left Coast Advertising, Inc. of 14675 Interurban Ave. South, Seattle, WA 98168 one (1) original and/or one (1) copy of each of the following documents: (i) Secured Loan Agreement dated the 19th day of August, 1997, between NEWSTART CENTRE, INC., as Debtor, and Left Coast Advertising, Inc. as Secured Party. (ii) Promissory Note dated the 19th day of August, 1997. DATED this 19th day of August, 1997. NEWSTART CENTRE, INC. By /s/ Robert J. Atmore -------------------------------- Robert J. Atmore, President RECEIPT The undersigned do hereby acknowledge receipt of each of the documents or copies thereof listed above and attached to this Certificate. DATED this 19th day of August, 1997. Name: Left Coast Advertising, Inc. By: /s/ Vaughn Tanner Fed EIN# 91-1752154 ---------------------------------- ---------- Vaughn Tanner EX-99.21 19 EX-99.21 SHARE EXCHANGE AGREEMENT THIS AGREEMENT (the "Agreement" and/or the "Share Exchange") is entered into as of August 15, 1997, between Profit Financial Corporation ("Profit"), a Utah corporation and Gold Leaf Press, Inc., a Nevada corporation ("Gold Leaf"). REPRESENTATIONS A. Profit is a corporation organized and existing under the laws of the State of Nevada. B. The authorized capital stock of Profit consists of 25,000,000 shares divided into 20,000,000 shares of common stock, pare value $0.01, of which approximately 6,715,031 shares are duly issued and outstanding on the date hereof and 5,000,000 shares of preferred stock, par value $10.00, none of which are issued and outstanding. C. Gold Leaf is a corporation organized and existing under the laws of the State of Nevada. D. The authorized capital stock of Gold Leaf consists of 25,000 shares of common voting stock. As of the date hereof, 25,000 shares of common stock in Gold Leaf have been duly issued and outstanding. E. Profit and Gold Leaf enter into this Agreement whereby Profit will acquire all of the issued and outstanding stock of Gold Leaf by issuing 7,692 shares of common stock of Profit to the shareholders of Gold Leaf in exchange for shares of common stock of Gold Leaf held by them at an exchange rate of .30768 shares of Profit for each one share of Gold Leaf held. Profit and Gold Leaf intend the exchange to qualify as a tax-free reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. AGREEMENT In consideration of the foregoing recitals, the covenants and conditions set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Share Exchange, Effectiveness The shareholders of shares of common stock of Gold Leaf shall exchange their shares for newly issued shares of common stock of Profit in accordance with the terms and conditions of this Agreement. Upon the execution of this Agreement by Gold Leaf and Profit, the date for the effectiveness of this Agreement (the "Effective Time of the Share Exchange") shall be August 15, 1997. 2. Exchange of Shares At the Effective Time of the Share Exchange; (a) Each shareholder of Gold Leaf shall be issued .30768 share(s) of fully paid and nonassessable common stock of Profit for each share of Gold Leaf stock they own. Each shareholder of Gold Leaf shall sign an investment letter pursuant to Rule 144, substantially in the form attached hereto as Exhibit A, upon receiving Profit shares. (b) All shares of common stock of Gold Leaf that are tendered to Profit shall be retained by Profit and Gold Leaf shall become a wholly owned subsidiary of Profit. 3. Implementation Each of Profit and Gold Leaf shall take, or cause to be taken, all action or do, or cause to be done, all things necessary, proper or advisable under the laws of the State of Utah to consummate and make effective the Share Exchange. 4. Amendment This Agreement may, to the extent permitted by law, be amended, supplemented or interpreted at any time by action taken by the Board of Directors of both Gold Leaf and Profit; provided, however, that this Agreement may not be amended or supplemented after having been approved by the shareholders of Gold Leaf except by a vote or consent of shareholders in accordance with applicable law. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this AGREEMENT as of the date first set forth above. PROFIT FINANCIAL CORPORATION GOLD LEAF PRESS, INC. /s/ Illegible /s/ Curtis A. Taylor - ---------------------------------- -------------------------------------- By: By: Curtis A. Taylor Its: Its: President 2 EXHIBIT A Profit Financial Corporation 14675 Interurban Avenue South Seattle, WA 98168-4664 Gentlemen: This acknowledges receipt of Three Thousand, Eight Hundred Forty-Six (3,846) shares of common stock of Profit Financial Corporation, a Utah corporation (the "Corporation"). In connection with my acquisition of these securities, I understand as follows: The undersigned represents that he or she has the business or financial experience necessary to have the capacity to protect his or her own interests in connection with the proposed transaction. These securities are not registered under the Securities Act of 1933 (the "Act") as the transaction in which they are being acquired is exempt under Section 4(2) of the Act as not involving any public offering. Reliance of the Corporation and others upon this exemption is predicted in part upon my representation (which I hereby confirm) that I am acquiring these securities for my own account with no present intention of selling or otherwise distributing the same to the public. I understand that in the view of the Securities and Exchange Commission (the "SEC") the statutory and administrative basis for exemption would not be present if, notwithstanding my representation, I have in mind merely acquiring these securities for a market rise, or for sale if the market does not rise, or for a fixed or determinable period in the future. These securities must be held by me indefinitely unless they are subsequently registered under the Act or an exemption from registration is available. Any routine sales of these securities made in reliance upon the exemption afforded by Rule 144 of the SEC can be made only in limited amounts in accordance with the terms and conditions of that rule, and, in the event this rule is for some reason inapplicable, compliance with some other registration exemption will be required. The Corporation will supply to me such information in its possession as may be necessary to enable me to make routine sales of the securities under Rule 144, if that Rule is available. However, the Corporation is under no obligation to otherwise comply with any other exemption, or to register the securities received by the undersigned. In accordance with the policies of the SEC, the Corporation is placing the following or substantially similar legend upon the certificates representing the securities and is placing upon the Corporation's stock transfer records a stop-transfer order preventing transfer of the securities pending compliance with the conditions set forth in the legend: These securities are not registered under state or federal securities laws and may not be offered or sold, pledged (except a pledge pursuant to the terms of which any offer or sale upon foreclosure would be made in a manner that would not violate the registration provisions of federal or state securities laws) or otherwise distributed for value, nor may these securities be transferred on the books of the Corporation, without opinion of counsel, concurred in by counsel for the Corporation, that no violation of said registration provisions would result therefrom. I HAVE CAREFULLY READ THE FOREGOING AND UNDERSTAND THAT IT RELATES TO RESTRICTIONS UPON MY ABILITY TO SELL AND/OR TRANSFER MY SECURITIES. DATED: August 15, 1997 /s/ Curtis A. Taylor -- -------------------------------------- Curtis A. Taylor 3087 Camino Court Camino, CA 95709 2 Profit Financial Corporation 14675 Interurban Avenue South Seattle, WA 98168-4664 Gentlemen: This acknowledges receipt of Three Thousand, Eight Hundred Forty-Six (3,846) shares of common stock of Profit Financial Corporation, a Utah corporation (the "Corporation"). In connection with my acquisition of these securities, I understand as follows: The undersigned represents that he or she has the business or financial experience necessary to have the capacity to protect his or her own interests in connection with the proposed transaction. These securities are not registered under the Securities Act of 1933 (the "Act") as the transaction in which they are being acquired is exempt under Section 4(2) of the Act as not involving any public offering. Reliance of the Corporation and other upon this exemption is predicted in part upon my representation (which I hereby confirm) that I am acquiring these securities for my own account with no present intention of selling or otherwise distributing the same to the public. I understand that in the view of the Securities and Exchange Commission (the "SEC") the statutory and administrative basis for exemption would not be present if, notwithstanding my representation, I have in mind merely acquiring these securities for a market rise, or for sale if the market does not rise, or for a fixed or determinable period in the future. These securities must be held by me indefinitely unless that are substantially registered under the Act or an exemption from registration is available. Any routine sales of these securities made in reliance upon the exemption afforded by Rule 144 of the SEC can be made only in limited amounts in accordance with the terms and conditions of that rule, and, in the event this rule is for some reason inapplicable, compliance with some other registration exemption will be required. The Corporation will supply to me such information in its possession as may be necessary to enable me to make routine sales of the securities under Rule 144, if that Rule is available. However, the Corporation is under no obligation to otherwise comply with any other exemption, or to register the securities received by the undersigned. In accordance with the policies of the SEC, the Corporation is placing the following or substantially similar legend upon the certificates representing the securities and is placing upon the Corporation's stock transfer records a stop-transfer order preventing transfer of the securities pending compliance with the condition set forth in the legend: Name September 19, 1997 Page 2 - ------------------------ These securities are not registered under state or federal securities laws and may not be offered or sold, pledged (except a pledge pursuant to the terms of which any offer or sale upon foreclosure would be made in a manner that would not violate the registration provisions of federal or state securities laws) or otherwise distributed for value, nor may these securities be transferred on the books of the Corporation, without opinion of counsel, concurred in by counsel for the Corporation, that no violation of said registration provisions would result therefrom. I HAVE CAREFULLY READ THE FOREGOING AND UNDERSTAND THAT IT RELATES TO RESTRICTIONS UPON MY ABILITY TO SELL AND/OR TRANSFER MY SECURITIES. DATED: August 15, 1997 /s/ Stanley J. Zenk -- -------------------------------------- Stanley J. Zenk Mr. Stanley J. Zenk 5421 Buck Mountain Road Placerville, CA 95667 2 EX-99.22 20 EX-99.22 SHARE EXCHANGE AGREEMENT THIS AGREEMENT (the "Agreement" and/or the "Share Exchange") is entered into as of August 15, 1997, between Profit Financial Corporation ("Profit"), a Utah corporation and Origin Book Sales, Inc., a Utah corporation ("Origin"). REPRESENTATIONS A. Profit is a corporation organized and existing under the laws of the State of Utah. B. The authorized capital stock of Profit consists of 25,000,000 shares divided into 20,000,000 shares of common stock, par value $0.01, of which approximately 6,715,031 shares are duly issued and outstanding on the date hereof and 5,000,000 shares of preferred stock, par value $10.00, none of which are issued and outstanding. C. Origin is a corporation organized and existing under the laws of the State of Utah. D. The authorized capital stock of Origin consists of 1,000,000 shares of common voting stock. As of the date hereof, 97,867 shares of common stock in Origin have been duly issued and outstanding. E. Profit and Origin enter into this Agreement whereby Profit will acquire all of the issued and outstanding stock of Origin by issuing 30,269 shares of common stock of Profit to the shareholders of Origin in exchange for shares of common stock of Origin held by them at an exchange rate of .309287 shares of Profit for each one share of Origin held. Profit and Origin intend the exchange to qualify as a tax-free reorganization under Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as amended. AGREEMENT In consideration of the foregoing recitals, the covenants and conditions set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Share Exchange, Effectiveness The shareholders of shares of common stock of Origin shall exchange their shares for newly issued shares of common stock of Profit in accordance with the terms and conditions of this Agreement. Upon the execution of this Agreement by Origin and Profit, the date for the effectiveness of this Agreement (the "Effective Time of the Share Exchange") shall be the date at which Origin shareholders owning 100% of the Origin share tender their shares to Profit. 2. Exchange of Shares At the Effective Time of the Share Exchange; (a) Each shareholder of Origin shall be issued .309287 share(s) of fully paid and nonassessable common stock of Profit for each share of Origin stock they own. Each shareholder of Origin shall sign an investment letter pursuant to Rule 144, substantially in the form attached hereto as Exhibit A, upon receiving Profit shares. (b) All shares of common stock of Origin that are tendered to Profit shall be retained by Profit and Origin shall become a wholly owned subsidiary of Profit. Origin shall issue a stock certificate to Profit for 97,867 common shares of Origin, which amount constitutes all of the issued and outstanding shares of the Corporation. 3. Implementation Each of Profit and Origin shall take, or cause to be taken, all action or do, or cause to be done, all things necessary, proper or advisable under the laws of the State of Utah to consummate and make effective the Share Exchange. 4. Amendment This Agreement may, to the extent permitted by law, be amended, supplemented or interpreted at any time by action taken by the Board of Directors of both Origin and Profit; provided, however, that this Agreement may not be amended or supplemented after having been approved by the shareholders of Origin except by a vote or consent of shareholders in accordance with applicable law. IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this AGREEMENT as of the date first set forth above. PROFIT FINANCIAL CORPORATION ORIGIN BOOK SALES, INCORPORATED /s/ Michael S. Hurst - ---------------------------------- -------------------------------------- By: By: Michael S. Hurst Its: Its: President 2 EXHIBIT A Profit Financial Corporation 14675 Interurban Avenue South Seattle, WA 98168-4664 Gentlemen: This acknowledges receipt of ________________________________ ( ) shares of common stock of Profit Financial Corporation, a Utah corporation (the "Corporation"). In connection with my acquisition of these securities, I understand as follows: The undersigned represents that he or she has the business or financial experience necessary to have the capacity to protect his or her own interests in connection with the proposed transaction. These securities are not registered under the Securities Act of 1933 (the "Act") as the transaction in which they are being acquired is exempt under Section 4(2) of the Act as not involving any public offering. Reliance of the Corporation and others upon this exemption is predicted in part upon my representation (which I hereby confirm) that I am acquiring these securities for my own account with no present intention of selling or otherwise distributing the same to the public. I understand that in the view of the Securities and Exchange Commission (the "SEC") the statutory and administrative basis for exemption would not be present if, notwithstanding my representation, I have in mind merely acquiring these securities for a market rise, or for sale if the market does not rise, or for a fixed or determinable period in the future. These securities must be held by me indefinitely unless they are subsequently registered under the Act or an exemption from registration is available. Any routine sales of these securities made in reliance upon the exemption afforded by Rule 144 of the SEC can be made only in limited amounts in accordance with the terms and conditions of that rule, and, in the event this rule is for some reason inapplicable, compliance with some other registration exemption will be required. The Corporation will supply to me such information in its possession as may be necessary to enable me to make routine sales of the securities under Rule 144, if that Rule is available. However, the Corporation is under no obligation to otherwise comply with any other exemption, or to register the securities received by the undersigned. In accordance with the policies of the SEC, the Corporation is placing the following or substantially similar legend upon the certificates representing the securities and is placing upon the Corporation's stock transfer records a stop-transfer order preventing transfer of the securities pending compliance with the conditions set forth in the legend: These securities are not registered under state or federal securities laws and may not be offered or sold, pledged (except a pledge pursuant to the terms of which any offer or sale upon foreclosure would be made in a manner that would not violate the registration provisions of federal or state securities laws) or otherwise distributed for value, nor may these securities be transferred on the books of the Corporation, without opinion of counsel, concurred in by counsel for the Corporation, that no violation of said registration provisions would result therefrom. I HAVE CAREFULLY READ THE FOREGOING AND UNDERSTAND THAT IT RELATES TO RESTRICTIONS UPON MY ABILITY TO SELL AND/OR TRANSFER MY SECURITIES. DATED: August , 1997 -- -------------------------------------- [NAME] [ADDRESS] 2 RELEASE OF PLEDGE OF SHARES OF STOCK On August 8, 1997, Origin Book Sales, Inc. issued two promissory notes to Profit Financial Corporation. These notes were for the principle amounts of $100,000 and $3,250 respectively. Also, on August 8, 1997, Curtis Taylor pledged approximately 31% of his shares of stock in Origin Book Sales, Incorporated as collateral for the above mentioned notes. Since August 8, 1997, Profit Financial Corporation has entered into a Share Exchange Agreement whereby it has obtained all of the outstanding shares of Origin Book Sales, Incorporated. Accordingly, Profit Financial Corporation hereby releases the collateral previously pledged by Mr. Taylor and terminates the Pledge of Shares of Stock Agreement executed by Mr. Curtis Taylor on August 8, 1997. FINANCIAL PROFIT CORPORATION -------------------------------------- Its: EX-99.23 21 EXHIBIT 99.23 Purchase Order Form 1. Identification of Parties From: Profit Financial Corporation, soon to be known as Wade Cook Financial Corporation with principal offices at 14675 Interurban Avenue South, Seattle, Washington, 98168, (Buyer). To: Applied Voice Recognition, Inc., with principal offices at 4615 Post Oak Place, Suite 111, Houston, Texas, 77027, (Seller). 2. Purchase. Please enter our purchase order for goods of the following description and quantity: 10,000 units of a private label automated speech recognition system with continuous speech recognition integrated with IBM via voice or equivalent and a self-contained contact manager developed by Seller. Featuring: * write a letter * do a fax * office memo * new document * calculator 3. Purchase Price. The purchase price of the goods, in accordance with your quotation, is $60.00 per unit for a total of six hundred thousand dollars ($600,000.00) and is not subject to change. 4. Marketing: The cover design, product name, and other marketing designs for the private label will be approved by WADE and/or its affiliates or authorized agent. 5. Delivery Instructions. The goods will be shipped to Buyer's warehouse at Shipping Department, 4479 South 134th Place, Seattle, Washington, 98168-6204, FOB Houston. The first shipment of 2,000 units will be delivered on or before November 15, 1997, the remaining 8,000 units will be delivered within 30 days of request by Buyer in a minimum of 2,000 unit increments. 6. Payment. The purchase price of the goods is to be $120,000 paid in advance with the remainder of the balance to be pre-paid as additional units are requested by Buyer. 7. Training Expenses. WADE will pay expenses for AVRI to come to Seattle and provide training to a group of up to 40 WADE employees and/or speakers. 8. Trainer. AVRI will train a designated trainer of the product at their headquarters. 9. Arbitration. All disputes, claims, and/or requests for specific contractual performance, or other equitable relief, or damages or any other matters in question between the parties arising out of this Agreement shall be submitted for arbitration, solely. Demand shall be made to the American Arbitration Association and shall be conducted in Houston, Texas by a one person arbitrator, unless the parties mutually agree otherwise. Arbitration shall be in accordance with the commercial rules of the American Arbitration Association. The award of the Arbitrator shall be final and judgment may be entered upon it in any court having jurisdiction thereof, and the prevailing party shall be entitled to costs and reasonable attorney's fees arising out of such arbitration. 10. Acceptance. A copy of this order must be signed by Seller under the word "Accepted" and returned immediately to Buyer. 11. Contract Complete. Only the terms and conditions set out in this Purchase Order shall constitute the agreement between Buyer and Seller. Seller may make no modification in those terms and conditions. Dated: September 12, 1997 Profit Financial Corporation /s/ Wade B. Cook, President - --------------------------------- By: Wade B. Cook, President Accepted: Applied Voice Recognition, Inc. /s/ Timothy J. Connolly - --------------------------------- By: Timothy J. Connolly, Chairman and CEO -----END PRIVACY-ENHANCED MESSAGE-----