-----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, QyreaW4Q2i9ScKdUtWRRFsuV3B4DNrBxiPr3CHhIp3usN/b5yVhzWUXARR5BnSK3 6OhiwXSUKQXdYiKjWhvEtQ== 0000950153-97-000619.txt : 19970701 0000950153-97-000619.hdr.sgml : 19970701 ACCESSION NUMBER: 0000950153-97-000619 CONFORMED SUBMISSION TYPE: 10-12G/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 19970630 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROFIT FINANCIAL CORP CENTRAL INDEX KEY: 0000894417 STANDARD INDUSTRIAL CLASSIFICATION: 8200 IRS NUMBER: 911787197 STATE OF INCORPORATION: UT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-12G/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-29342 FILM NUMBER: 97632168 BUSINESS ADDRESS: STREET 1: 14675 INTERURBAN AVENUE SOUTH CITY: SEATTLE STATE: WA ZIP: 98168 BUSINESS PHONE: 2069013000 10-12G/A 1 AMENDMENT NO. 1 TO FORM 10 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10/A-1 General Form for Registration of Securities Pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934 PROFIT FINANCIAL CORPORATION - - ------------------------------------------------------------------------------- (Exact Name of Registration as Specified in Its Charter) UTAH 91-1772094 - - ------------------------------- ------------------------------- (State or Other Jurisdiction of (IRS Employer) Incorporation or Organization) 14675 Interurban Avenue South Seattle, Washington 98168 - - ---------------------------------------- ------------------------------- (Address of Principal Executive Offices) (Zip Code) (206) 901-3000 - - ------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities to be registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which to be so Registered Each Class is to be Registered None None - - ------------------------------------------------------------------------------- - - ------------------------------------------------------------------------------- Securities to be registered pursuant to Section 12(g) of the Act: Class A Common Stock $.01 par value - - ------------------------------------------------------------------------------- (Title of Class) - - ------------------------------------------------------------------------------- (Title of Class) 2 THIS REGISTRATION STATEMENT CONTAINS FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED ("EXCHANGE ACT"). ACTUAL RESULTS OR EVENTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED OR CONTEMPLATED BY SUCH STATEMENTS AS THE RESULT OF VARIOUS FACTORS INCLUDING, WITHOUT LIMITATION, THE RISK FACTORS DISCUSSED IN THIS REGISTRATION STATEMENT. THE CONSIDERATIONS DISCUSSED IN THIS REGISTRATION STATEMENT ARE NOT INTENDED TO REPRESENT A COMPLETE LIST OF THE GENERAL OR SPECIFIC RISKS THAT MAY AFFECT THE CLASS A COMMON STOCK ("COMMON STOCK") OF PROFIT FINANCIAL CORPORATION ("PROFIT, AND, TOGETHER WITH ITS DIRECT AND INDIRECT SUBSIDIARIES, THE "COMPANY"). IT SHOULD BE RECOGNIZED THAT OTHER RISKS MAY BE SIGNIFICANT, NOW OR IN THE FUTURE, AND THE RISKS SET FORTH BELOW MAY AFFECT THE COMMON STOCK OF THE COMPANY TO A GREATER EXTENT THAN INDICATED. THE COMPANY COMPLETED A TWO-FOR-ONE STOCK SPLIT OF ITS COMMON STOCK IN SEPTEMBER 1996. ALL SHARE AND PER SHARE INFORMATION CONTAINED HEREIN AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO HAVE BEEN ADJUSTED TO REFLECT THE IMPACT OF THE STOCK SPLIT UNLESS OTHERWISE INDICATED. RISK FACTORS An investment in the Common Stock of the Company involves a high degree of risk. Prospective investors should carefully consider the following factors, together with the other information contained in this Registration Statement, in evaluating the Company and its business before purchasing shares of Common Stock of the Company. Dependence on Wade B. Cook The Company's future prospects and financial condition depend in large part on the continued services of Wade B. Cook, the Company's founder and the President and Chairman of the Company ("Mr. Cook"). Substantially all of the programs, products and services provided by the Company are based on materials and ideas developed by Mr. Cook. The loss of the services of Mr. Cook could have a material and adverse effect on the Company's business, financial condition and results of operation. See "Business" and "Certain Relationships and Related Transactions". Dependence on Certain Relationships The Company derived the preponderance of its revenues in the fiscal years ended December 31, 1996, 1995 and 1994 from sponsoring and promoting products, seminars and services licensed from Money Chef, Inc., formerly known as USA/Wade Cook Seminars, Inc. ("Money Chef"), and believes that it will continue to derive the majority of its revenues in the foreseeable future from these sources. In January 1993, the Company entered into a Product Agreement with Money Chef for the right to promote and sponsor seminars, entity formation services and products owned or controlled by Money Chef. In June, 1997, the Company renegotiated the Product Agreement. Mr. Cook is the President of Money Chef and is a trustee of a trust, created for the benefit of Mr. Cook's family, that owns all of the outstanding shares of Money Chef. Any factor adversely affecting the Company's relationship with Mr. Cook or 2 3 Money Chef could have a material and adverse effect on the Company's business, financial condition and results of operation. See "Business-Dependence on Certain Relationships", "Management's Discussion and Analysis of Results of Operations and Financial Condition" and "Certain Related Transactions". Managing Growth The Company has recently experienced rapid and dramatic growth in the number of employees, the number of classes and seminars offered by the Company, the scope of its operating and financial management system and the geographic areas of its operations. This growth has resulted in a significant increase in the level of responsibility for both existing and new management personnel. The Company's ability to manage growth will require it to continue to implement and improve its operational, financial and management systems and to motivate and effectively manage an increasing number of employees. The Company's failure to manage its growth effectively could have a material and adverse effect on the Company. Limited Operating History The Company has a limited operating history, and although the Company has experienced significant growth since the reorganization of the Company in 1995, this is not necessarily indicative of future operating results. No assurance can be given that the Company will be able to maintain profitability on a quarterly or annual basis in the future. Dependence on Successful Introduction of New Programs, Products and Services The Company's growth strategy is dependent on its ability to sell existing programs, products and services to additional markets and on its continued ability to successfully develop and introduce new programs, products and services. Although the Company is currently developing new programs and products, it may need to rely upon the willingness of authors and producers of products and programs to sell or license them to the Company. There can be no assurance that the Company will be able to develop or acquire rights to additional products and programs that it seeks on acceptable terms. Further, market conditions and the level of customer interest may be different for the Company's current products than for new products or programs, and there can be no assurance that the Company will be able to compete favorably with, and obtain market acceptance for, any new products and programs. Failure of the Company to successfully develop, acquire, introduce and market new products and programs could have a materially adverse effect on the Company's business and future prospects. Dependence on Changing Economic Conditions The Company's revenues and profitability may be significantly affected by general economic conditions. A significant portion of the Company's revenues are derived from individuals who, the Company believes, may adjust their expenditures for educational seminars and materials during economic downturns. Should the economy weaken in any future period, these individuals may not increase or may decrease their expenditures on the type of programs, products and services provided by the Company, which would have a material and adverse effect on the Company's business, financial condition and results of operations. In addition, the Company has significant investments in marketable 3 4 securities and may have significant investments in the real estate market. Any weakening of the economy in any future period may have a material and adverse effect on the investments held by the Company. See "Business - Real Estate and Other Investments". Potential Liability The Company faces exposure to potential claims in the event that the methods and techniques presented in its programs and products are alleged to have resulted in significant losses to an investor using such methods and techniques. The Company requires its customers to execute a letter acknowledging the risks inherent in following the investment and other strategies presented by the Company. There can be no assurances that the Company will be able to avoid any claims asserting such liability. In addition, any such claims or litigation could result in the diversion of the management's attention and resources, which could have a material and adverse effect on the Company. Although the Company currently has general liability insurance, there can be no assurance that insurance coverage will continue to be available in the future on commercially reasonable terms, or at all, or that such insurance will be adequate to cover potential liability claims or that a loss of insurance coverage or the assertion of a liability claim or claims would not materially adversely affect the Company's business, financial condition and result of operations. Competition The highly competitive market in which the Company competes is fragmented and decentralized, with low barriers to entry. The management of the Company believes that the Company is a leader in the financial education market and that no single competitor accounts for a dominant market share. The Company's competitors include other companies and individuals who promote and conduct seminars and provide products on topics relating to investment strategies, financial planning and personal wealth management. The Company believes that the majority of independent training providers are small organizations, which often provide training as one of several services or product lines or provide limited services and product lines. There can be no assurance that the Company will be successful in maintaining its current position in the financial education market or continue to be successful against such competition. See "Business-Competition". Risk Associated with Possible Acquisitions and Other Investments Historically, the Company has invested the majority of its excess cash in marketable securities. The Company has also made small investments in certain venture capital partnerships and private companies. Although the Company is continuing to invest a significant portion of its cash flow in marketable securities, it is also aggressively seeking alternative vehicles through which the Company can invest cash flow from its programs, products and services and from its existing investment portfolio. A significant portion of the assets of the Company may be used for the acquisition of real property and ownership interests in limited partnerships that invest in real property. The Company is actively evaluating acquisition and other investment opportunities that fit within the investment strategy of the Company. Depending on the investment opportunities that become available to the Company, the Company may also seek to expand its existing investment portfolio to include, among other things, substantial interests in private and public companies in related and unrelated businesses. The type of investments that the Company is seeking and investing in involve numerous risks, including potential difficulties in the assimilation of acquired assets, diversion of management's attention away from normal 4 5 operating activities and the diversion of the Company's resources from other investment opportunities. The Company has limited experience in executing and implementing such investments and no assurances can be given as to the success of the Company in executing and implementing the investments that the Company is currently involved with or may be involved with in the future. See "Business-Real Estate and Other Investments". Control by Management As of June 24, 1997, senior management of the Company collectively owns approximately 60.4% of the outstanding shares of Common Stock. Mr. Cook and entities affiliated with Mr. Cook own approximately 60.1% 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 affairs 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". ITEM 1. BUSINESS. Profit is a holding company. Wade Cook Seminars, Inc., Profit's wholly-owned subsidiary ("WCSI"), markets and delivers a variety of seminars and workshops focused on investment strategies, financial planning and personal wealth management and produces and sells audiotapes, 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 almost all of the Company's revenues for the fiscal year ended December 31, 1996 ("fiscal 1996"). The Company believes that it is well positioned to take advantage of the increasing demand for information and training on investment strategies, financial planning and personal wealth management. The Company also believes that its approach to education and training offers many advantages over other financial and investment seminars and related financial information products due to the breadth and depth of its programs, products and services, the quality and size of its instructor force and its strong marketing and sales team. Two other of the Company's subsidiaries, Left Coast Advertising, Inc. ("Left Coast") and Lighthouse Publishing Group, Inc. ("Lighthouse Publishing"), conduct advertising and publishing services, respectively, for the Company. The Company's principal executive office is located at 14675 Interurban Avenue South, Seattle, Washington 98168 and its telephone number is (206) 901-3000. Business Strategy The Company's objective is to increase its leadership position on personal finance. In pursuit of its objective, the Company's strategy is to: 5 6 Expand its Market into Smaller Cities. Historically, the Company has marketed and provided its seminars and products to residents located in or near cities in the United States with populations over one million. The Company will be expanding to cities with smaller populations in the future to broaden its market penetration. Expand Program and Product Offerings. The Company is currently developing and will continue to expand its library of programs, products and services to increase sales to its existing customers and to attract new customers. The Company hopes to offer a comprehensive array of programs, products and services on almost all aspects of investment strategies, financial planning and wealth management. Explore Other Means of Advertising. To access new clients, the Company will explore other means of advertising, including television infomercials and advertising and newsprint advertising, to reach individuals who may be interested in the products, programs and services offered by the Company. Strengthen Customer Base in Existing Markets. The Company has only recently begun marketing and providing its programs, products and services in many markets. The Company will seek to aggressively market its programs, products and services in the newer markets to attract new customers and increase sales to existing customers. Explore Strategic Alliances. To increase sales of its programs and products, the Company will explore opportunities for strategic alliances and collaborative efforts with book clubs and major bookstore chains and with providers and developers of programs and products consistent with the strategic vision of the Company. Prior Business History Prior to May 18, 1995, the Company's educational seminar business was conducted by United Support Association, Inc. ("USAI"), a corporation incorporated in Nevada in 1989 that was owned by the Wade B. Cook Family Trust. On May 18, 1995, Profit acquired all of the outstanding capital stock of USAI in exchange for 1,880,000 shares of Profit's common stock. Profit was formed in 1979 as a Utah corporation under the name Profiteer Corporation. Prior to June 1, 1995, Profit engaged primarily in farming and ranching in Utah. USAI's name was changed to "Wade Cook Seminars, Inc." in February 1997 due in part to the marketing advantages of using Mr. Cook's name and associating the programs with his successful publications. Principal Programs, Products and Services 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 right to promote, produce and sell these programs, products and services pursuant to the terms of a Product Agreement with Money Chef. See "--Dependence on Certain Relationships" below. 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. The 6 7 Company believes that its competitive position and its name recognition have been greatly enhanced by the popularity of Mr. Cook's books. Since 1996, over 300,000 copies of Mr. Cook's books have been sold throughout the United States. The Company plans to continue capitalizing on the popularity and exposure from such books. Educational Seminars and Workshops The Company promotes and sponsors a series of programs designed to meet the educational needs of clients interested in increasing their wealth and better managing their personal finances. The seminars provided by the Company include the following: Financial Clinic is a three-hour seminar explaining the various 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 Work Shop. This seminar is currently taught nationwide eight to ten times a week. 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 stock market basic terminology, how to choose a brokerage firm, stock market strategies, and how to place a trade. The students observe instructors purchasing or selling securities from brokers as they follow the investment strategies taught in the class. The Company also offers the seminar Youth Wall Street for younger investors. This seminar is currently taught nationwide nine to eleven times per week. 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. Next Step is a two-day seminar for participants who have already attended the WSWS. Advance stock market investments strategies are taught in a format in which students can actively participate in making investments. Next Step is currently taught nationwide twelve times a year. Wealth Academy 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. Wealth Academy is currently taught nationwide six to nine times a year. Executive Retreat is a two-day workshop designed for participants who own or control Nevada corporations to gain a broader understanding of the mechanics using a corporation for tax advantages, limited liability and estate planning. The workshop is currently taught two to three times a year at two locations. The seminars provided by the Company accounted for approximately 52%, 53% and 30% of the Company's revenues in fiscal 1996, 1995 and 1994, respectively. The Company typically conducts its 7 8 seminars and workshops at major cities in the United States with populations of over one million. The majority of the Company's seminars are held in Los Angeles, California, Denver, Colorado, Seattle, Washington, Las Vegas, Nevada, Washington, D.C., Orlando, Florida and Dallas, Texas. The Company derived more than 10% of its revenues in fiscal 1996 from seminars taught in the states of California, Colorado, Washington and Nevada. On March 31, 1997, forty speakers conducted seminars for the Company throughout the United States. Thirty-five of such speakers were independent contractors and five were employees of the Company. The Company provides extensive 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 "secondary speakers" on tour. The best of these secondary 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 engagement with the Company. Audiotapes, Videotapes, Books and Other Printed Materials The Company'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 22%, 20% and 17% of the revenues of the Company for fiscal 1996, 1995 and 1994, respectively, The books promoted and sold by the Company include 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, 12 Special Reports, The Incorporation Handbook, How to Pick Up Foreclosures, Owner Financing, Cook's Book on Creative Real Estate, 101 Ways to Buy Real Estate without Cash and 555 Clean Jokes. Each of these books was written by Mr. Cook. The audio tapes promoted and sold by the Company include the multi-tape audio seminars Financial Fortress Home Study and Zero to Zillions. In addition, the Company sells single tapes that generally address the ideas and concepts taught in its seminars. The Company's single audio tapes include: Financial 4x4; Financial Power Pack; Paper Tigers; Unlimited Wealth; High Performance Business Strategies; Brilliant Deductions II; Retirement Prosperity; Money Mysteries of the Millionaires; The Power of Nevada Corporations; Entity Structuring; Outrageous Returns; Tax Updates 1 & 2; 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. Mr. Cook is the primary speaker in each of these tapes. 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 and All About Wall Street Workshop. Entity Formation Services The Company provides information and assistance to individuals interested in preparing Nevada Corporations, Living Trusts, Pension Plans, Family Limited Partnerships, Charitable Remainder Trusts 8 9 and Business Trusts. After providing its clients with information about the various entities, the Company typically outsources the formation of the entities to independent outside vendors for a commission. The entity formation services of the Company accounted for 14%, 20% and 45% of the Company's revenues in fiscal 1996, 1995 and 1994, respectively. 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 Company's trades for each day using the investment strategies discussed in Wall Street Money Machine and Stock Market Miracles and taught in the Company's seminars. WIN also provides stock information and updates on the Company's programs and products, including a schedule of events and seminars provided by the Company. Subscription to WIN accounted for 7%, 7% and 2% of the Company's revenues in fiscal 1996, 1995 and 1994, respectively. Sales and Marketing The Company creates interest and demand for its programs, products and services through a mix of radio advertising, direct mail advertising and telephone and Internet marketing. Radio Advertising The Company primarily uses radio advertising to reach potential customers. Advertising on the radio permits the Company to consistently advertise its programs and products to potential customers nationally. Generally, the Company advertises on the radio offering a free audio tape explaining certain stock market strategies and informing customers of a financial clinic that will be presented by the Company. The radio advertising attracts customers to the Financial Clinic seminars, which then introduce and market the other programs, products and services provided by the Company. The management of the Company believes that radio advertising is crucial to maintaining the Company's current market niche and to maintaining or increasing its revenues. Any factors that adversely affect the availability or attractiveness of radio advertising for the Company, such as a significant price increase in the cost of radio advertising, could have a material and adverse effect on the Company's business, financial condition and results of operation. Direct Mail Marketing and Advertising The Company markets its programs, products and services through direct mailing to its mailing list of over 300,000 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 advertisement using desktop publishing, and electronic pre-press technology to create the files used to produce direct full-color film for plate-making. This capability enables the Company to make quick improvements to its marketing materials in order to feature the latest financial developments and address market opportunities in a timely manner. 9 10 Sales Team The Company's sales force consists of over 180 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 to refine their sales skills and to provide updates on the products, programs and services being offered by the Company. The Company believes its sales force has been critical to the Company's success in selling its products, program and services. 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. The Company believes that the Internet will become an increasingly significant marketing channel to prospective clients in the future. Dependence on Certain Relationships The Company derived the preponderance of its revenues in fiscal 1996, 1995 and 1994 from sponsoring and promoting products, seminars and services licensed from Money Chef and believes that it will continue to derive the majority of its revenues in the foreseeable future from these sources. In January, 1993, the Company entered into a Product Agreement with Money Chef for the rights to promote and sponsor seminars, entity formation services and products owned or controlled by Money Chef. Mr. Cook is the President of Money Chef and is a trustee of a trust, created for the benefit of Mr. Cook's family, that owns all of the outstanding shares of Money Chef. Accordingly, any factor adversely affecting the Company's relationship with Mr. Cook or Money Chef could have a material and adverse effect on the Company's business, financial condition and results of operation. On June 26, 1997, Wade Cook Seminars, Inc. renegotiated the Product Agreement for an additional period through June 30, 2002 for a flat royalty of 10% of gross sales. For fiscal years 1995 and 1996, Money Chef had the right to take a royalty ranging from 10% to 50% of gross revenues however they opted to take only 10%. Mr. Cook does not have an "outputs contract" with the Company and so the Management of the Company can not guarantee that all future products created by Mr. Cook will be licensed by the Company under the terms of the Product Agreement. The Company also entered into an agreement with Mr. Cook for the publication rights in the United States, its territories, dependencies and possessions and the republic of the Philippines and Canada and the right to sell copies in the open market throughout the world for the books Real Estate Money Machine, Wall Street Money Machine, Stock Market Miracles, Bear Market Baloney and Business Buy the Bible. Under the terms of each Agreement, the Company is obligated to pay Mr. Cook 10% of the retail selling price for each book sold. Certain additional rights in the book are to be shared equally. 10 11 Intellectual Property The Company regards its seminars, workshops and other materials as proprietary and relies primarily on a combination of statutory and common law copyright, trademark and trade secret law, plus employee and third-party non-disclosure agreements and other methods to protect its proprietary rights. Notwithstanding the foregoing, a third party or parties could copy or otherwise obtain and use the Company's materials in an unauthorized manner or use these materials to develop programs, products and services which are substantially similar to those of the Company. If substantial unauthorized use of the Company's products were to occur, the Company's business and results of operations could be materially and adversely affected. There can be no assurance that the Company's means of protecting its proprietary rights will be adequate or that the Company's competitors will not independently develop similar educational materials, similar seminars, workshops and programs or delivery methods. Customers The Company's customers are individuals with a broad variety of backgrounds, who are interested in one or more of the seminar topics which are presented by the Company. The Company is not dependent upon any single customer for any of its businesses, and has no contracts or other agreements with any third party pursuant to which the Company generates a material amount of its revenues. Competition The highly competitive market in which the Company operates is fragmented and decentralized, with low barriers to entry. The management believes that the Company is a leader in the financial education market and that no single competitor accounts for a dominant market share. The Company's competitors include other companies and individuals who promote and conduct seminars and provide products on topics relating to investment, financial planning and personal wealth management. The Company believes that the majority of independent training providers are small organizations, which often provide training as one of several services or product lines or provide limited services and product lines. The Company differentiates itself from these providers based on its size, the scope and quality of its proprietary course offerings and the number, quality and experience of its instructors. Some of these competitors however 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. Some competitors have greater financial and other resources than the Company. There can be no assurance that the Company will be successful in maintaining its current position in the financial education market or continue to be successful against such competition. Employees and Consultants The Company currently employs 342 full-time employees and 10 part-time employees. In addition, the Company has engaged the services of approximately 35 independent contractors, primarily as seminar speakers. On June 24, 1997, the Company had 80 seminar speakers (including full time and part time employees and consultants) 39 shipping and order fulfillment employees, 186 sales staff, 5 graphics staff, 12 marketing and advertising professionals and 70 management, legal, accounting and 11 12 administrative staff. None of the Company's employees are represented by a labor union. The Company believes that its relationship with its employees is good. Real Estate and Other Investments Historically, the Company has invested the majority of its excess cash in marketable securities. The Company has also made small investments in certain venture capital partnerships and private companies. Although the Company is continuing to invest a significant portion of its excess cash in marketable securities, it is also aggressively seeking alternative vehicles through which the Company can invest excess cash from its programs, products and services and from its existing investment portfolio. Recently, the Company began focusing on investment opportunities in real estate related markets. Primarily through Profit Financial Real Estate Management Company, Inc., a wholly owned subsidiary of Profit ("RE Management"), and various other subsidiaries (together, the "Real Estate Subsidiaries"), the Company has begun investing in real estate projects. Typically, the Company invests in real estate limited partnerships as the sole or as a significant limited partner, and in some cases, acts as a general partner. Through these investments, the Company has significant ownership interest in four hotels in various stages of development and is aggressively evaluating several other real estate investment opportunities. To date, the investment amounts per project have ranged from $228,000 for less than 10% percent of a project to $3,450,000 for 100% ownership of a project. Of the Company's hotel/motel project investments, one hotel is an operating business, one hotel is currently under construction, and two are investments in real property on which hotels or motels are scheduled or planned to be constructed under the name Fairfield Inn Suites or Hampton Inn Suites. In late 1996, the Company purchased its headquarters in the Seattle, Washington area for approximately $3 million and spent approximately $2.5 million on tenant improvements. The Company's strategy for fiscal 1997 is to continue to directly and indirectly make real estate-related investments, including acquiring and developing hotels and motels primarily in Utah, Nevada, California and Washington. The Company is currently evaluating or negotiating its investment in a variety of properties and plans on making up to fourteen additional real estate related investments in fiscal 1997. Depending on the investment opportunities that become available to the Company, the Company may also seek to expand its existing investment portfolio in fiscal 1997 to include, among other things, substantial interests in private and public companies in related and unrelated businesses. The type of investments that the Company is seeking involve numerous risks, including potential difficulties in the assimilation of any acquired assets, operations or businesses, diversion of management's attention away from normal operating activities, and the diversion of the Company's resources from other investment opportunities. The Company has limited experience in executing and implementing such investments and no assurances can be given as to the success of the Company in executing and implementing the investments that the Company is currently involved with or may be involved with in the future. ITEM 2. FINANCIAL INFORMATION. The following table summarizes certain selected financial data and is qualified in its entirety by the more detailed financial statements contained elsewhere in this Registration Statement. 12 13 SELECTED CONSOLIDATED FINANCIAL DATA
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------- 1996 1995 1994 1993** 1992** ---- ---- ---- ------ ------ AUDITED AUDITED AUDITED STATEMENT OF OPERATIONS DATA: Net Sales $40,724,515 $7,567,335 $1,973,145 $727,974 $573,492 Cost of Sales 15,682,936 3,373,888 861,734 146,727 118,504 ---------- --------- ------- ------- ------- Operating income (loss) 4,739,876 339,446 (22,667) 351,165 393,344 Net income(loss) per share .46 .02 (.03) .14 .20 --- --- ----- --- --- Number of shares used in computing net income (loss) per share* 6,623,280 6,398,426 6,398,426 2,463,228 2,368,554
------------------------------------------------------------------------------ Year Ended December 31, ------------------------------------------------------------------------------ BALANCE SHEET DATA: 1996 1995 1994 1993** 1992** Cash and cash equivalents $ 635,141 $26,840 $ 1,001 $ 11,344 $ 1,590 Working capital (3,890,698) (763,216) 10,663 1,792,582 2,928.527 Long-term obligations -- -- -- 466,860 476,529 Total assets 16,937,659 2,283,055 675,347 3,120,478 3,984,138 Total stockholders equity 3,702,024 528,899 405,101 2,432,059 3,606,467
* See Note A of Notes to Financial Statements for an explanation of the computation of per share data. ** The 1993 and 1992 figures include results of operation of business lines which were spun off in connection with the reorganization in 1995. *** This balance sheet information is based solely on the Company's 1993 and 1992 tax returns. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND FINANCIAL CONDITION The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements contained elsewhere in this Registration Statement. Overview and Outlook Profit is a holding company that, through its subsidiary WCSI, conducts educational investment seminars and produces and sells audiotapes, videotapes, books and other written materials focused on investment strategies, financial planning and personal wealth management. The Company also invests in marketable securities, and invests in real estate related limited partnership, venture capital limited partnerships and private companies. WCSI also hosts WIN, an electronic bulletin board service accessible via the Internet that allows subscribers to log on for information related to the stock market on its web site on the Internet at http://www.wadecook.com. Two other of the Company's subsidiaries, Left Coast and Lighthouse Publishing, conduct advertising and publishing services, respectively, for the Company. 13 14 To date, the vast majority of revenues of the Company have been derived from the educational seminars and products related to such seminars. These seminars and related products are almost exclusively based on products and seminars developed by Mr. Cook and are licensed to the Company by entities owned or controlled by Mr. Cook or by members of his family pursuant to a Product Agreement with Money Chef. The Company believes that the sales of seminars and products developed by Mr. Cook will constitute the majority of revenues for the Company for the foreseeable future. Accordingly, any factor adversely affecting Mr. Cook or the Company's relationship with Mr. Cook or Money Chef would have a material adverse impact on the Company's business, financial condition and results of operation. See "Risk Factors-Dependence on Certain Relationships" The Company is currently seeking to develop new seminars and products with new authors so that it can diversify its seminar topics, protect its current role as a leader in the educational investment seminar business, and attract new customers. The Company may also seek joint ventures with other similar seminar businesses to expand its customer and product base. However, there can be no assurances that the Company will be successful in these endeavors. The failure of the Company to successfully expand its customer and product base and minimize its dependence on Mr. Cook may have a material and adverse effect upon the Company's future business and prospects. The Company believes that the success of the Wall Street Workshop, which accounts for the vast majority of the Company's current revenues, is due in part to the ability of its workshop facilitators to make demonstration trades with stock brokers during the seminars to familiarize students with the investment process. Typically, after discussing certain stock market strategies, the facilitators will purchase or sell securities during the class to illustrate the process of trading these investments. To allow facilitators to purchase or sell marketable securities during the course of the Wall Street Workshops, the Company has set up sub-accounts within its own brokerage accounts. After an investment is made, many of these investments are sold by the Company's in-house traders without returning the rate of return anticipated by the facilitators in making the investment. The Company's need to maintain an adequate cash position in every brokerage account, especially when every account is a margin account, sometimes requires the Company to liquidate the investments made by its facilitators, even if they produce losses. Historically, the losses have generally been offset by the short term capital gains achieved by the facilitators and money managers. However, there can be no assurances that losses will not arise in the future. Although these subaccounts are only a small portion of the Company's portfolio of assets, the risk of investing in stocks and derivatives creates the possibility of some losses for the Company. The investment portfolio of the Company has materially increased from 1994 through 1996. The Company intends to continue to invest in its stock market portfolio as necessary to support the trading of securities during the Wall Street Workshops as a teaching mechanism, to use its portfolio as a tool to train speakers for the Wall Street Workshop and to attempt to earn investment income. The Company intends to pursue its current stock market investment strategies. However, there can be no assurances that the condition of the stock market will be what the management of the Company anticipates that it will be at any given time or that the Company will be in a position to effectively take advantage of existing market conditions. As with any investment in the stock market, the Company may suffer significant losses from pursuing its investment strategies. WCSI has grown from three employees in 1989 to over 300 employees in 1997. The increase in staffing at the Company reflects the dramatic growth in demand for the Company's seminars and the 14 15 corresponding need to increase the Company's sales forces to adequately service the increasing customer base and to coordinate seminars in most major cities in America. The management of the Company believes that the historical rate of expansion of its staff in 1994, 1995 and 1996 will slow down in 1997 as the current number of employees is sufficient for the Company's current needs. Although the Company has historically been profitable, there can be no assurance that the Company will maintain or increase revenues, maintain profit ability or avoid losses in any future period. The future results of operation, both annually and from quarter to quarter, are subject to a variety of factors applicable to the Company and the industries and markets in which it operates. Results of Operations Annual Results The following table provides a summary of the Company's operating results for the years 1996, 1995 and 1994:
YEAR ENDED DECEMBER 31, ------------------------------------- 1996 1995 1994 ---- ---- ---- AUDITED AUDITED AUDITED STATEMENT OF OPERATIONS DATA: Net Sales $40,724,515 $7,567,335 $1,973,145 Cost of Sales 15,682,936 3,373,888 861,734 Operating income (loss) 4,739,876 339,446 (22,667) Net income(loss) per share .46 .02 (.03) Number of shares used in computing net income (loss) per share* 6,623,280 6,398,426 6,398,426
- - -------------------------------------------- * See Note A of Notes to Financial Statements for an explanation of the computation of per share data. The Company has increased its gross revenues in each of the past three years. Gross revenues of the Company were $1,973,145 in 1994, $7,567,335 in 1995 and $40,724,515 in 1996. The rapid increase of gross revenues for the Company from 1994 to 1996 is due to a variety of factors including, the dramatic increase in the frequency of various seminars, the significant increase in fees for the seminars, the establishment of the Wall Street Workshop program, the development of WIN, the sales of the book, "Wall Street Money Machine," and the introduction of two new seminars. The average retail price of the seminars have generally increased 73% from 1994 to 1995 and 25% from 1995 to 1996. Wall Street Workshop was increased from $780 in 1994 to $1,677 in 1995 and $2,195 in 1996. Wealth Academy increased from $1,950 in 1994 to $2,206 in 1995 to $3,286 in 1996. The fee for the WIN bulletin board service increased from $495 in 1994 to $1,995 in 1995 and $2,995 in 1996. The fee increase allowed the Company to focus its resources to develop and increase market and 15 16 research support for its web site. In fiscal 1997, the Company does not anticipate any significant changes in the fee structure for any of its programs. The Company has increased the frequency of Wall Street Workshops from two per month in 1995 to two per week in early 1996, to five times per week in early 1997. The Company will attempt to continue increasing the number and frequency of seminars that the Company offers. Net Sales. The net income for the Company for the past three fiscal years was net loss of $195,730 for 1994 to a net profit of $123,798 in 1995 and $3,064,639 in 1996. This represents an increase of $319,528, or 163% from 1994 to 1995 and $2,940,841, or 2376% from 1995 to 1996. It should be noted that the reorganization of Profit occurred on May 18, 1995, and the losses carried by Profit for the first four and one-half months of 1995 affected the profit and loss margin for the Company. The management of the Company anticipates strong growth in fiscal 1997, however, there can be no assurances. Cost of Sales. Although the direct costs of staffing the individual seminars, workshops, or financial clinics as a percentage of net sales have remained relatively stable over the past three years, the total cost has increased to correspond with the increase in the number seminars, workshops and financial clinics provided by the Company. From 1994 to 1995, costs went from $861,784 to $3,373,888, which is an increase of $2,512,104 or 292%, and from 1995 to 1996, costs went from $3,373,888 to $15,682,936, which is an increase of $12,309,048 or 365%. The seminar business is not generally seasonal in nature although the Company experiences somewhat slower participation rates during July and August. 16 17 Liquidity and Capital Resources Since the acquisition of WCSI in 1995, the Company has financed its operations primarily through cash flow from operations. At December 31, 1996, 1995 and 1994, respectively, the Company had cash and cash equivalents of $635,141, $26,840, $100, respectively. Total assets increased from $594,216 in 1994 to $2,283,055 in 1995 to $16,937,659 in 1996 and total liabilities increased from $184,967 in 1994 to $1,458,352 in 1995 to $12,618,335 in 1996. Although no assurances can be given, the Company does not anticipate any trends which will materially increase or decrease its current level of liquidity. In the past, the Company had the opportunity to increase its liquidity by its investment strategies in the purchasing and selling of marketable securities. The investment in marketable securities will need to continue for teaching purposes with respect to each Wall Street Workshop. In addition, the Company anticipates it will maintain or increase its current level of investment in marketable securities in the future. The Company may channel some of the liquidity of its investment portfolio into real estate limited partnerships that are purchasing hotels or motels or underlying real property to construct such hotels, to making investments in venture capital limited partnerships or other less liquid investments or paying down underlying debt attached to its corporate headquarters. See "Business-Real Estate and Other Investments". The current monthly payments for the outstanding loan for the corporate headquarters of $50,000 per month will increase on September 1, 1997 to $100,000 per month, until February 1, 1999. The contract allows the Company to make lump sum prepayments on January 1, or July 1, in increments of $100,000 but not more than $500,000. The Company may make a prepayment of $500,000 on July 1, 1997. There is no prepayment penalty. Except for the mortgage on its corporate headquarters, the Company currently does not access external sources of liquidity and the management of the Company does not currently expect to access external sources of liquidity in the immediate future. The Company has material commitments for its various hotel or motel development projects. The Real Estate Subsidiaries have long term or short term debt payments for various hotel and motel development projects that will affect the Company's liquidity in 1997. These include monthly payments of $10,430 and a down payment of $25,000 for its 8.8% ownership of Park City Hotel Partners, Limited Partnership, by WCSI; $690,000 payment for 51% ownership of FSS, Limited Partnership; $590,000 for 51% ownership of Reno F.I.S., Limited Partnership; $3,450,000, including payments of $1,400,000 in 1997 as well as monthly payments of approximately $16,000 for 100% ownership of Rising Tide, Limited Partnership. The anticipated source of revenue to meet these commitments will be from operational revenue and investment portfolio growth. The management of the Company believes that some revenue may be generated through income from the limited partnerships owning the hotels/motels if occupancy increases in late 1997 and early 1998. However, these expectations may not be met if the investment portfolio held by the Company experiences little growth or a diminution in value or if the existing trend of increased occupancy in hotel/motels adversely changes. The liquidity of the Company may be impaired in the event the underlying loans wrapped by Rising Tide, Limited Partnership, a subsidiary of the Company, are called by the lenders. Rising Tide, Limited Partnership assumed the debt from East Bay Associates, LLC for two outstanding loans from 17 18 The Bank of Utah in the amount of approximately $790,000 and a business loan, in the amount of approximately $790,000. Both loans may be accelerated at any time, creating a cash flow risk for the Company and reducing the ability of the Company to continue its investment strategies in purchasing hotels. Although there can be no assurances that the loans will not be accelerated, the management of the Company does not anticipate the loans will be accelerated and has structured the wrap around assumption package to pay off the debt. In addition, the hotel owned by Rising Tide Limited Partnership is operational and producing a current income stream. The income stream from Rising Tide may be used to minimize the impact that the acceleration of the loans would have on the liquidity of the Company. The major expenses for the completion of the remodeling and refurbishing of the corporate headquarters will be completed by the summer of 1997. The Company purchased, in cash, all the office furniture, office equipment, and office art in past fiscal year and the first quarter of 1997. The Company does not anticipate any significant expenses exceeding $250,000 for its corporate headquarters in 1997. The Company's current financial resources and estimated cash flow from operations are expected to provide adequate capital to fund the Company's operations, including its various real estate development projects, for the foreseeable future. The Company has unused sources of liquid assets in a stock market portfolio estimated at $5 million which the Company will seek to invest in various vehicles. See "Business - Real Estate and Other Investments". Other Matters Inflation did not have a significant impact on the Company's operations in fiscal 1996, 1995 and 1994. ITEM 3. PROPERTIES. The Company's headquarters are located in a three-story, 63,000 square foot office building in Seattle, Washington. The Company purchased the building in 1996, and believes that the facility is adequate for the Company's needs for the foreseeable future. The headquarters building houses the management and sales staff of Profit, together with its subsidiaries WCSI, Left Coast, Lighthouse Publishing and RE Management. The headquarters building also contains three seminar rooms at which the Company conducts seminars for the Seattle metropolitan area. The Company leases approximately 29,000 square feet of warehouse space in Tukwila, Washington where it stores and ships audio tapes, video tapes, books and other printed materials. The lease for such space expires in April 2000. ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock as of June 24, 1997 for (i) each executive officer of the Company; (ii) each director of the Company; (iii) all executive officers and directors of the Company as a group; and (iv) each person known by the Company to be the beneficial owner of more than five percent of the Common Stock: 18 19
Beneficial Owner(1) Shares Beneficially % of Outstanding Owned(2) Stock(3) -------- -------- Officers and Directors: Wade B. Cook(4)...........................................................4,138,540 60.1% Andrew T. Rice....................................................................0 * Laura M. Cook(5)..........................................................4,138,540 60.1% Cheryle Hamilton................................................................140 * Robert T. Hondel.............................................................20,140 * Dr. Warren H. Chaney..............................................................0 * John V. Childers(6)..........................................................20,140 * Nicholas Dettman..................................................................0 * Eric W. Marler(7)............................................................20,500 * All executive officers and directors of the 4,181,460 60.4% Company as a group (9 persons)......... Non-management 5% Stockholders:(8) Yeaman Enterprises, Inc.(6) 3098 S. Highland Drive, Suite 460 Salt Lake City, Utah 84106..............................................741,813 13.7% Wade B. Cook and Laura M. Cook Family Trust(7).......................................................2,800,000 41.9%
- - ------------------------------------------------------------------------------- *........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 Profit 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 6,680,864 shares of Common Stock outstanding on June 24, 1997. (4) Includes (a) 938,540 shares owned by Mr. Cook, (b) 200,000 shares owned by the Wade Cook Family Trust, a trust established for the benefit of Mr. and Mrs. Cook's family, (c) 200,000 shares of Common Stock subject to immediately exercisable option to exercise options held by Yeaman Enterprises Inc., and (d) shared voting and investment power over 2,800,000 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. (5) Includes shared voting and investment power over 2,800,000 shares of Common Stock owned by the Wade B. Cook and Laura M. Cook Family Trust, Wade B. Cook and Laura M. Cook are husband and wife. Also includes 1,338,540 shares or options owned by Mr. Cook or by the Wade Cook Family Trust, as to which Mrs. Cook disclaims beneficial ownership. All shares held by Mrs. Cook are held as community property (6) Includes 20,000 shares subject to exercisable options. (7) Includes 2500 shares subject to an immediately exercisable option and 200,000 shares subject to option to purchase immediately exercisable options. (8) These shares of Common Stock are held in a Custodial Trust Account at Yeaman Enterprises, Inc. for the benefit of Mr. Yeaman's family. Mr. Yeaman disclaims beneficial ownership for such shares. Includes options to acquire 100,000 shares of common stock on July 31, 1997 and 100,000 shares on August 31, 1997 19 20 ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS. The following table sets forth certain information as of June 21, 1997 concerning each of the directors, executive officers and other senior officers of the Company:
Name Age Position ---- --- -------- Wade B. Cook 47 President and Chairman of the Board Andrew T. Rice 40 Treasurer and Controller Laura M. Cook 44 Secretary and Director Cheryle Hamilton 45 Director of Lighthouse Publishing Robert T. Hondel 54 General Sales Manager of WCSI Dr. Warren H. Chaney 54 Director John V. Childers 52 Director Nicholas Dettman 49 Director Eric W. Marler 39 Director
Wade B. Cook has been the Chairman of the Board and the President since June, 1995. Mr. Cook also served as Treasurer and President of WCSI since 1989. Mr. Cook is an internationally recognized author of 15 books on finance, real estate, asset protection and the stock market, and 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. Andrew T. Rice has been Treasurer and Controller for the Company since June 1997. Prior to his involvement with the Company, Mr. Rice was Controller for Cosmos Development and Administration Corp. a major real estate development company based in Bellevue, Washington. Laura M. Cook has been the Secretary and a member of the Board of Directors of the Company since May 1995. Mrs. Cook has also served as an officer and operational manager in several subsidiaries of the Company. Mrs. Cook has also managed accounting systems for various corporations for 15 years. Mrs. Cook is the wife of Mr. Cook. Cheryle Hamilton has been the Director of Lighthouse Publishing since October, 1996. 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 the General Sales Manager of WCSI. 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 Ms. Anderson's uncle. Dr. Warren H. Chaney has served on the Board of Directors since July 1996. Since 1980, Dr. Chaney has been involved in the motion picture and television industry as writer, director and producer for projects originating from Paige-Brace Cinema, Ltd., Lorimar Films, TMS, Inc., Skorris Films Inc., Sandpiper Productions, Inc., Leading Edge Entertainment, Inc., Warren Chaney Productions, Ind., Intercontinental Releasing Corporation, and Millennial Entertainment. 20 21 John V. Childers has been a member of the Board of Directors since August 1995. In addition to his duties as Director, Mr. Childers acts as a Speaker Trainer of the Company. Prior to his association with the Company, Mr. Childers was the Chairman and President of Ideal Travel Concepts, a travel company with locations in Tennessee and Florida. Nicholas Dettman has been a member of the Board of Directors since May, 1995. He is a captain of Delta Airlines, located in Atlanta, Georgia for over 30 years. He is the owner and operator of Kalowai Plantation, a orchid ranch in Kauai, Hawaii. Eric W. Marler has been a Director since December 1996 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 1996. Mr. Marler is Vice President of Cascade Management Associates LP, 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. Board of Directors Directors of the Company are elected by the Company's shareholders and hold office until the next annual meeting of shareholders and until their successors are elected and qualified, or until their earlier resignation or removal. The Company's officers serve at the discretion of the Board of Directors. No director that is an employee of the Company is compensated for services as a member of the Board of Directors or for services on any committee of the Board of Directors. Compensation for non-employee directors consists of a retainer of $500 dollars per year. Compensation for all non-employee directors also consist of a fee varying from $25 to $125 depending on the length of the meeting for each board meeting and committee meeting attended in person or by telephone. Directors are reimbursed for reasonable travel and out-of-pocket expenses incurred on behalf of the Company. During the fiscal year ending December 31, 1996, the Company did not have a compensation committee. All matters concerning executives compensation were addressed by Mr. Cook. The Company is planning to implement a compensation committee and an audit committee later this year. Involvement in Legal Proceeding 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. Mr. Cook is currently in the process of negotiating the treatment of this proceeding. The U.S. Securities and Exchange Commission has commenced a private formal investigation against the Company and certain of its officers and directors, including Mr. Cook. In addition, the Securities Division of the State of Washington has commenced an informal investigation of Mr. Cook, 21 22 together with WCSI and the Company. The Company does not believe it or any of its officers engaged in any inappropriate activity or violated applicable laws. See "Legal Proceedings". Employment Agreements Pursuant to an Employment Agreement, dated as of June 25, 1997 and effective as of July 1, 1997, Mr. Cook will be 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 and additional incentive compensation if certain performance targets are met. 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. ITEM 6. EXECUTIVE COMPENSATION. The following table sets forth information regarding employee compensation paid for all services rendered to the Company in all capacities during fiscal 1996 by the Company's Chief Executive Officer, (one current executive officer and one former executive officer). No other executive officers of the Company received in excess of $100,000 during the last fiscal year.
Annual Compensation Name and Position Salary Bonus Other Long Term All Other - - ----------------- ------ ----- ----- --------- ---------- (3) Compensation Compensation(1) ----- ------------ --------------- Wade B. Cook, $90,628 none none none (2) President and Chairman, Chief Executive Officer Robert T. Hondel, $180,069 $1,000 --- none --- General Sales Manager Christopher Carde (4) $222,550 $1,500 none none --- Former General Counsel, CEO and Director Margaret Huss Sales Representative $127,459 $38,803 none none --- Barry Collett $9,652 $125,541 none none --- Sales Representative
- - ------------------------------ (1) 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 and mortgages at market rates. The aggregate amount of such personal benefits however, do not exceed the lessor of $50,000 or 10% of the total of the annual salary and bonus reported for the named executive officers. 22 23 (2) Royalties are also paid by WCSI indirectly to Mr. Cook pursuant to a Product Agreement. See "Certain Relationships and Related Transactions." (3) All employees of the Company have received a small number of shares from time to time as a bonus in exceeding certain sales expectations. (4) Mr. Carde's employment was terminated on May 7, 1997. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company had a Product Agreement on January 3, 1993 with Money Chef setting forth certain terms for the right to use the name and products. The royalty payments paid to Money Chef under the Product Agreement ranged from 10% to 50% of gross sales (as defined in the Product Agreement). In fiscal 1995 and 1996, the Company was generally required to pay Money Chef 10% to 30% of gross sales, with Money Chef having the right to specify the percentage within the 10% to 50% range that the Company must pay. Money Chef has opted to receive the minimum amount of royalties of 10% in each of fiscal 1996 and 1995. The Company paid royalties of $4,366,183 in 1996 and $755,550 in 1995 and $82,923 in 1994. On June 26, 1997, Wade Cook Seminars, Inc. renegotiated the Product Agreement for an additional period through June 30, 2002 for a flat royalty of 10% of gross sales. Mr. Cook does not have an "outputs contract" with the Company and so the Management of the Company can not guarantee that all future products created by Mr. Cook will be licensed by the Company under the terms of the Product Agreement. The royalty payments paid to Money Chef under the Product Agreement ranged from 10% to 50% of gross sales (as defined in the Product Agreement). In fiscal year 1995 and 1996, the Company was generally required to pay Money Chef 10% to 30% of gross sales, with Money Chef having the right to specify the percentage within the 10% to 50% range that the Company must pay. Money Chef has opted to receive the minimum amount of royalties of 10% in each of fiscal pay. Money Chef has opted to receive the minimum amount of royalties of 10% in each of fiscal 1996 and 1995. The Company has licensed the rights to Mr. Cook's books, Real Estate Money Machine, Wall Street Money Machine, Stock Market Miracles, Bear Market Baloney, and Business Buy the Bible under individual Publishing Agreements with Lighthouse Publishing Group, Inc., (a subsidiary). Under the terms of each of the book licenses, Mr. Cook is paid a royalty of ten percent (10%) of the retail price of each book sold. Scott Scheuerman, who is the brother-in-law of Mr. Cook, is president of BOSS, Inc. and Acorn Corporate Services, Inc. which are Nevada corporations operating out of Nevada. Acorn acts as resident agent for Nevada corporations and BOSS provides corporate services for Nevada corporations operating in Nevada. The Company markets these services and sells the processing of Nevada corporations. Clients of USA that purchased either/or both Acorn resident agent services or BOSS services increased from 600 in 1994 to 1,120 in 1995 and 1,360 in 1996. 23 24 Evergreen Lodging, L.P., a Nevada limited partnership ("Evergreen") which is an indirect subsidiary of the Company, has loaned approximately $275,000 to Cross Roads, L.P., a limited partnership of which Mr. Cook serves as the president of the general partner of the partnership. The indebtedness is evidenced by a Secured Demand Note dated February 7, 1996 in the original principal amount of $25,000 and a Secured Demand Note dated August 30, 1996 in the original principal amount of $250,000, each payable to Evergreen and executed by Cross Roads, L.P. WCSI has loaned approximately $125,000 to Newstart Centre, Inc., a Utah corporation related to the Company. The indebtedness is evidenced by a Promissory Note (Secured) dated February 4, 1997 in the original principal amount of $125,000 payable to WCSI and executed by Newstart Centre, Inc. and a Secured Loan Agreement dated February 4, 1997 by and between WCSI and Newstart Centre, Inc. In 1995, the Company entered into an agreement with Associated Reciprocal Traders, Ltd. ("ART") to purchase 20,000 Investor Relations-Advertising-Infomercial radio air time spots, priced at $25 per ad spot, per station, for a sum total of $500,000. In payment of the foregoing, the Company issued 100,000 shares of Common Stock to ART in January 1996. Eric W. Marler, the former Chief Financial Officer of the Company and a current Director and a speaker in its educational seminars, is the owner of 50% of the issued shares of Cascade Management Associates, L.P. ("Cascade"). Cascade provides seminar speaking services for a fee of $10,000 per month to USA since September 1996. The Company, through Profit or its subsidiaries, is the payee under numerous secured notes, the vast majority of which are secured, bearing varying interest rates in the aggregate amount of approximately $1,700,000 as of January 31, 1997. These loans include several loans to purchase homes and cars for employees of the Company The Company obtained services from seminar speakers provided by companies owned by officers and other significant employees of the Company. Total speaker fees paid to such companies totaled $131,337 for the year ended December 31, 1996 and none for years 1995 and 1994. There were no additional amounts due to such companies as of December 31, 1996. John V. Childers, a director of the Company, contracts with WCSI through Speaker Services, Inc., a private corporation, to train all speakers for all events produced by WCSI. The agreement sets forth a compensation plan of one percent (1%) of the gross of all Financial Clinic seminars, and one-half percent (0.5%) of the gross of all Wall Street Workshops. Additionally, Mr. Childers is the president of Ideal Travel Corporation ("Ideal"), and WCSI utilizes Ideal as well as other travel agencies in the planning of its corporate travel. As a result of the corporate working relationship between Ideal and WCSI, Mr. Cook receives a minimal appropriation fee of five percent (5%) from Ideal on all travel initiated by WCSI. Paul Cook, Mr. Cook's brother, contracts with WCSI to provide speaking services. Paul Cook executed a loan from WCSI on June 18th, 1997 for a total of seventy-five thousand dollars ($75,000) for a two-year period at the interest rate of 11 percent (11%). The loan is secured by a second position on Mr. Cook's home in Salt Lake City, Utah. 24 25 Crossroad Northwest, LP, a limited partnership controlled by the Wade B. Cook Family Trust owes $637,401 under a secured note. ITEM 8. LEGAL PROCEEDINGS. The following is a description of material pending legal proceedings to which the Company or any of its subsidiaries is a party or which any of their properties is subject: Investigation by the U.S. Securities and Exchange Commission The Company and certain of its executive officers have received subpoenas to provide certain information in the Matter of Wade Cook Seminars, a private informal investigation by the Securities and Exchange Commission ("SEC"). The investigation relates to the possible violation of Sections 5(a), 5(c) and 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 203(a) and 206(1) and (2) of the Investment Advisers Act. The SEC has 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 any of its executive officers and directors has engaged in any inappropriate activity or violated applicable laws, and the Company intends to continue to cooperate with the investigation. No assurance can be given as to the outcome of this investigation. Informal Investigations by the State of Washington The Assistant Attorney General for the State of Washington's Department of Financial Institutions, Securities Division commenced an informal investigation of Mr. Cook, WCSI and the Company in September, 1996. The Assistant U.S. Attorney for the Western District of Washington issued a subpoena to WCSI in March 1997 for records related to an independent contractor of the Company. Although the breadth and nature of these two investigations are not known, the Company does not believe it or any of its executive officers and directors has engaged in any inappropriate activity or violated applicable laws and the Company intends to continue to cooperate with the investigation. No assurances, however, can be given as to the outcome of these investigations. Wade Cook Seminars, Inc. v. Charles Mellon, et al. The Company brought a suit against defendants Robbins Research International and Charles E. Mellon in the King County Superior Court on September 16, 1996 and joined Anthony Robbins and Options Management, Inc. in June 1997. The Company alleges breach by Mellon of a noncompete agreement and unfair competition and inducement to breach the noncompete by Robbins Research and Anthony Robbins in hiring Mellon to present a copy of the Company's Wall Street Workshop seminar on behalf of defendants. An injunction in favor of WCSI was granted October 9, 1996 and attorney fees were awarded to the plaintiffs against Mr. Mellon. The trial is currently scheduled for September 1997. Wade B. Cook v. Anthony Robbins and Robbins Research International, Inc. The Company brought suit in United States District Court, Western District of Washington, against Tony Robbins and Robbins Research International, Inc. on June 18, 1997 for damages and 25 26 injunctive relief for copyright infringement. The Company alleges Tony Robbins copied or caused to be copied significant portions of Wall Street Money Machine, authored by Wade B. Cook, and used these materials in a course entitled "Financial Power." Other Proceedings The Company and its subsidiaries are also parties to various administration actions and other legal proceedings arising in the ordinary course of business, none of which is expected to materially affect the financial position, results of operation or cash flow of the Company. ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Although there is currently no established trading market for shares of Common Stock of the Company, the Company's Common Stock is quoted under the stock symbol "PFNL" in the over-the-counter market. At June 20, 1997, there were four market makers of the Company's Common Stock. 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 retail markups, markdowns or commissions and may not reflect actual transactions.
HIGH BID LOW BID -------- ------- 1997 ---- Quarter Ended March 31 $3.00 $2.88 April 1 to June 20 $5.25 $2.50 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
The high and low bid quotation price for the Common Stock on June 20, 1997 was $5.25 and $4.63, respectively. As of June 20, 1997, the Company had approximately 6,680,000 shares of Common Stock outstanding. As of June 20, 1997, there were approximately 924 record holders of Common Stock. 26 27 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 apply any earnings to the expansion and development of its business. ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES. On June 28, 1996, the Company authorized 16,000 shares of its Common Stock at $3 per share to five employees for subscription notes receivable. In addition, on June 28, 1996, the Company authorized 30,420 shares of its Common Stock at $2.50 per share to various employees as additional employee compensation. The stocks were issued in January 1997. Each negotiated transaction was made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act") as isolated transactions to a single investor which did not involve a public offering. On June 28, 196, the Company issued 10,000 shares of its common Stock at $30 per share to Paradise Funding. This transaction was made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act as an isolated transaction to a single investor and it did not involve a public offering. On January 31, 1996, the Company issued 100,000 shares of Common Stock to Associated Reciprocal Traders, Ltd. in payment of an agreement to purchase 20,000 Investor Relations-Advertising-Infomercial radio air time spots, priced at $25 per ad spot, per station, for a sum total of $500,000. The negotiated transaction was made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act as isolated transactions to a few limited investors which did not invoke a public offering. On January 1, 1995, the Company transferred its ranching operations in Uintah County, Utah to Four Star, Inc. in exchange for all of Four Star's outstanding common stock pursuant to a plan of reorganization under section 368(a)(1)(D) of the Internal Revenue Code. All of Four Star's stocks were then distributed to Yeaman Enterprises, Inc. in exchange for 1,880,00 shares of the Company's stock as part of the reorganization on April 1, 1995. The negotiated transaction was made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act as isolated transactions to a single investor which did not invoke a public offering. See "Business-Prior Business History." ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED. The Company's authorized stock consists of 20,000,000 shares of Class A Common Stock, par value .01 per share ("Common Stock"), and 5,000,000 shares of Preferred Stock, par value $10 per share ("Preferred Stock"). As of June 15, 1997, there were outstanding approximately 6,680,000 shares of Common Stock and no shares of Preferred Stock outstanding. All of the currently outstanding shares of Common Stock are validly issued, fully paid, and non-assessable. On August 6, 1996, the Board of Directors declared a two-for-one stock split on the Company's Class A 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 27 28 common shares (3,325,211 common shares before the split). The effects of the stock split are accounted for in all shares and per share data included in this Registration Statement. Common Stock The holders of Common Stock are entitled to one vote for each share on all matters submitted to a vote of stockholders and do not have cumulative voting rights. Accordingly, the holders of a majority of the stock entitled to vote in any election of directors may elect all of the directors nominated for election. Subject to preferences that may be applicable to any then outstanding Preferred Stock, the holders of Common Stock will be entitled to receive such dividends, if any, as may be declared by the Board of Directors from time to time out of legally available funds. Upon liquidation, dissolution, or winding up of the Company, the holders of Common Stock will be entitled to share ratably in all assets of the Company that are legally available for distribution, after payment of all debts and other liabilities and subject to the prior rights of holders of any Preferred Stock then outstanding. The holders of Common Stock have no preemptive, subscription, redemption, or conversion rights. The rights, preferences, and privileges of holders of Common Stock will be subject to the rights of the holders of share of any series of Preferred Stock that the Company may issue in the future. The authorized Preferred Stock of the Company is available for issuance from time to time at the discretion of the Board of Directors of the Company without stockholder approval. The Board of Directors have the authority to prescribe, for each series of Preferred Stock it establishes, the number of shares in that series, the consideration for such shares in that series and the designations, powers, preferences and relative, participating, optional or other special rights, and such qualifications, limitations or restrictions on the shares in that series. Depending upon the rights of such Preferred Stock, the issuance of Preferred Stock could have a material adverse affect on the holders of Common Stock by delaying or preventing the change in control of the Company, making removal of the present management of the Company more difficult or resulting in restrictions upon the payment of dividends and other distributions to the holders of Common Stock. The management of the Company currently has no plans to issue any shares of any class or series of its Preferred Stock. Dividend Policy 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 apply any earnings to the expansion and development of its business. Transfer Agent and Registrar The transfer agent and registrar for the Common Stock is National Stock Transfer in Salt Lake City, Utah. ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Company does not have any provision in its charter, by-laws, or other contracts providing for indemnification of its officers and directors. The Utah Business Corporation Act, however, generally provides that a corporation may indemnify an individual made a party to a proceeding because he is or was a director, officer, employee, 28 29 fiduciary or agent of the corporation, against any liability incurred in the proceeding if (i) the individual's conduct was in good faith, (ii) the individual reasonably believed that his conduct was in, or not opposed to, the corporation's best interests, and (iii) in the case of any criminal proceeding he had no reasonable cause to believe his conduct was unlawful; provided, however, that (x) in the case of an action by or in the right of the corporation, indemnification is limited to reasonable expenses incurred in connection with the proceeding and (y) the corporation may not, unless authorized by a court of competent jurisdiction, indemnify an individual (A) in connection with a proceeding by or in the right of the corporation in which the individual was adjudged liable to the corporation, or (B) in connection with any other proceeding in which the individual is adjudged liable on the basis that he derived an improper personal benefit. In a judicial proceeding under the foregoing clause (y), in order to authorize indemnification the court must determine that the individual is fairly and reasonably entitled to indemnification in view of all the relevant circumstances. A director or officer is entitled to mandatory indemnification if he was successful, on the merits or otherwise, in the defense of any proceeding, or in the defense of any claim, issue or matter in the proceeding, against the reasonable expenses incurred by him in connection with the proceeding or claim with respect to which he was successful. A corporation may also indemnify and advance expenses to an officer, employee, fiduciary or agent to a greater extent if not inconsistent with public policy and if provided for by the articles of incorporation, by-laws, general or specific action of its board of directors or contract. ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The audited consolidated financial statements for the Company for the fiscal years ended December 31, 1996, 1995 and 1994, and the report thereon and the related financial statements, schedules and reports thereon, are set forth below, beginning on page F-1. ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS. On February 6, 1997, the Company engaged Miller and Company, an accounting firm based in Santa Monica, California to act as its independent certified public accountants and to audit the Company's financial statements for the fiscal years ended December 31, 1995 and 1996. The Company terminated its relationship with Smith and Company, an accounting firm based in Salt Lake City, Utah on May 1, 1995 upon the completion of the merger of a subsidiary of the Company with WCSI. With respect to the financial statements for the years ended December 31, 1994, the report of Smith and Company did not contain an adverse opinion or a disclaimer of opinion and were not modified or qualified as to uncertainty, audit scope or accounting principles. The decision to change accountants was recommended and approved by the Board of Directors of the Company. There were no disagreements with Smith and Company on accounting principles or practices, financial statement disclosure, or auditing scope or procedure related to the Company. 29 30 ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements. Page ---- Years Ended December 31, 1996, 1995 and 1994 F-1 Report of Independent Certified Public Accountants F-1 FINANCIAL STATEMENTS: Consolidated Balance Sheets F-2 Consolidated Statements of Income and Retained Earnings F-4 Consolidated Statement of Changes in Shareholders' Equity F-5 Consolidated Cash Flow Statements F-6 Report of Independent Certified Public Accountants F-20 FINANCIAL STATEMENT SCHEDULES: Schedule 1 - Consolidated Financial Information of Registrant F-21
(b) Exhibits Index.
EXHIBIT DESCRIPTION ------- ----------- 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 3.2* Bylaws of Profiteer Corporation 4.1** Form of Company's Class A Common Stock Certificate 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. 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
30 31
EXHIBIT DESCRIPTION ------- ----------- 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) 16.1** Letter re: Change in Certifying Accountant 21.1* List of Profit Financial Corporation Subsidiaries
----------------------- * Filed previously. ** To be filed by either by amendment of by a subsequent filing by the Company. 31 32 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized. Dated June 27, 1997 PROFIT FINANCIAL CORPORATION By Wade B. Cook ---------------------------------- Wade B. Cook, President 33 CONTENTS Report of Independent Certified Public Accountants............................2 Consolidated Balance Sheets...................................................3 Consolidated Statements of Income and Retained Earnings.......................5 Consolidated Statements of Changes in Shareholders' Equity....................6 Consolidated Cash Flow Statements.............................................7 Notes to Consolidated Financial Statements....................................8 Report of Independent Certified Public Accountants...........................21 Schedule 1 - Condensed Financial Information of Registrant...................22
34 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Profit Financial Corporation Seattle, Washington We have audited the accompanying consolidated balance sheets of Profit Financial Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, changes in shareholders' equity, and cash flows for each of the years ended December 31, 1996, 1995 and 1994. 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 Profit Financial Corporation and subsidiaries as of December 31, 1996 and 1995, and the results of their consolidated operations and their consolidated cash flows for the years ended December 31, 1996, 1995 and 1994 in conformity with generally accepted accounting principles. In 1995, as described in Note-J to the financial statements, the Company changed 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 25 June 1997 35 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS
December 31, ---------------------------------- CURRENT ASSETS 1996 1995 ------------- ------------- Cash and cash equivalents $ 635,141 $ 26,840 Marketable securities 3,801,039 349,206 Trade and credit card receivables 848,282 129,188 Notes receivable, current portion 329,060 16,452 Notes receivable from officers, current portion 13,191 - Other receivables 11,378 1,611 Inventory 395,743 46,139 Prepaid expenses 93,196 596 Deferred royalties to related party 48,781 - Deferred tax asset 783,064 7,340 ------------- ------------- TOTAL CURRENT ASSETS 6,958,875 577,372 ------------- ------------- PROPERTY AND EQUIPMENT 7,135,205 345,011 ------------- ------------- OTHER ASSETS Non-marketable investments 522,600 1,235,100 Notes receivable 1,385,742 90,452 Notes receivable from officers 236,413 - Due from related parties 663,401 - Deposits 35,423 35,120 ------------- ------------- TOTAL OTHER ASSETS 2,843,579 1,360,672 ------------- ------------- TOTAL ASSETS $ 16,937,659 $ 2,283,055 ============= =============
The accompanying notes are an integral part of these consolidated financial statements. 3 36 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY
December 31, ------------------------------ CURRENT LIABILITIES 1996 1995 - - ------------------- ------------ ------------ Current portion of long-term debt $ 660,708 $ 77,175 Accounts payable and accrued expenses 976,644 501,560 Margin loans in investment accounts 1,103,936 -- Payroll and other taxes withheld and accrued 807,414 114,090 Income taxes payable 2,075,872 95,200 Deferred revenue 5,160,999 352,325 Royalties payable to related party -- 136,238 Notes payable to related party 19,000 19,000 Notes payable to officer 45,000 45,000 ------------ ------------ TOTAL CURRENT LIABILITIES 10,849,573 1,340,588 LONG-TERM DEBT 1,768,762 117,764 ------------ ------------ TOTAL LIABILITIES 12,618,335 1,458,352 ------------ ------------ MINORITY INTEREST 617,300 295,804 ------------ ------------ SHAREHOLDERS' EQUITY Preferred stock, 5,000,000 shares authorized at $10 par value, none issued and outstanding -- -- Class A common stock, 20,000,000 shares authorized at $0.01 par value, 6,680,864 shares and 3,199,211 shares outstanding as of December 31, 1996 and 1995, respectively 66,807 31,991 Paid-in capital 1,072,608 498,938 Prepaid advertising (500,000) -- Retained earnings (deficit) 3,062,609 (2,030) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 3,702,024 528,899 ------------ ------------ TOTAL LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY $ 16,937,659 $ 2,283,055 ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 4 37 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Years ended December 31, ---------------------------------------------- 1996 1995 1994 ----------- ---------- ---------- REVENUES, NET OF RETURNS AND DISCOUNTS $40,724,515 $7,567,335 $1,973,145 COST OF REVENUES: Royalties to related party 4,366,183 755,500 82,923 Speaker fees to related party 131,337 - - Other cost of revenues 11,185,416 2,618,388 778,811 ----------- ---------- ---------- TOTAL COST OF REVENUES 15,682,936 3,373,888 861,734 ----------- ---------- ---------- GROSS PROFIT 25,041,579 4,193,447 1,111,411 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 20,301,703 3,755,001 1,134,078 IMPAIRMENT OF LONG-LIVED ASSETS - 99,000 - ----------- ---------- ---------- INCOME (LOSS) FROM OPERATIONS 4,739,876 339,446 (22,667) ----------- ---------- ---------- OTHER INCOME (EXPENSES) Dividends and interest 60,028 5,547 5,668 Gain (loss) on trading securities 92,711 88,719 (1,616) Other income 58,513 6,648 1,975 Loss on investment on non-marketable securities - (107,400) (178,200) Loss on disposition of fixed assets (21,960) - - Interest expense (263,285) (25,422) (8,770) ----------- ---------- ---------- TOTAL OTHER INCOME (EXPENSES) (73,993) (31,908) (180,943) ----------- ---------- ---------- INCOME (LOSS) BEFORE INCOME TAXES 4,665,883 307,538 (203,610) ----------- ---------- ---------- PROVISION FOR INCOME TAXES 1,601,244 183,740 (7,880) ----------- ---------- ---------- NET INCOME (LOSS) $ 3,064,639 $ 123,798 $ (195,730) =========== ========= ========== EARNINGS (LOSS) PER SHARE $ 0.46 $0.02 $(0.03) =========== ========= ========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 6,623,280 6,398,426 6,398,426 =========== ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. 5 38 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Class A Common Stock ----------------------------- Additional Retained Total Paid-in Earnings Prepaid Shareholders Shares Amount Capital (Deficit) Advertising Equity ------------ ------------- ------------- ------------- ----------- ------------- Balances - December 31, 1994 3,199,211 $ 31,991 $ 4,093,794 $ (2,053,257) $ 2,072,528 Reorganization under section 368(a)(1)(D) of the Internal Revenue Code (1,880,000) (18,800) (3,578,056) 1,875,057 (1,721,799) Issuance of common stock in exchange for WCS stock 1,880,000 18,800 (16,800) 52,372 54,372 Net income for the year ended December 31, 1995 123,798 123,798 ------------ ------------- ------------- ------------- ----------- ------------- Balances - December 31, 1995 3,199,211 $ 31,991 $ 498,938 $ (2,030) $ 0 $ 528,899 ------------ ------------- ------------- ------------- ----------- ------------- Issuance of common stock 26,000 260 77,740 78,000 Issuance of common stock in exchange for 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 common stock 30,422 304 75,746 76,050 Subscriptions receivable (45,564) (45,564) Net income for the year ended December 31, 1995 3,064,639 3,064,639 ------------ ------------- ------------- ------------- ----------- ------------- Balances - December 31, 1996 6,680,864 $ 66,807 $ 1,072,608 $ 3,062,609 $ (500,000) $ 3,702,024 ============ ============= ============= ============= =========== =============
The accompanying notes are an integral part of these consolidated financial statements. 39 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CASH FLOW STATEMENTS
Years ended December 31, ------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995 1994 ------------ ------------ ------------ Net income (loss) $ 3,064,639 $ 123,798 $ (195,730) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 344,991 38,816 30,663 (Gains) losses on trading marketable securities (92,711) (88,719) 1,616 Losses on disposition of fixed assets 21,960 -- -- Impairment of long-lived assets -- 99,000 -- Loss on investment in non-marketable securities -- 107,400 178,200 Purchases of trading securities (11,290,111) (1,059,197) (7,293) Proceeds from sale of trading securities 9,034,925 920,395 -- Changes in assets and liabilities: Receivables (3,249,764) (144,765) (75,557) Inventory (349,604) (4,688) Prepaid expenses (141,381) (597) 1,861 Deferred taxes (775,724) 540 (7,880) Deposits (303) (29,752) (2,268) Accounts payable and accrued expenses 475,084 302,305 104,533 Payroll and other taxes withheld and accrued 693,324 60,191 11,332 Income taxes payable 1,980,672 105,200 (10,000) Deferred revenue 4,808,674 303,133 41,312 Due to related party -- -- (22,958) Royalties payable (136,238) 177,806 -- ------------ ------------ ------------ TOTAL ADJUSTMENTS 1,323,794 787,069 243,561 ------------ ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 4,388,433 910,866 47,831 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (4,729,382) (214,849) (54,051) Subsidiary's investment (87,500) (1,113,100) -- Return of subsidiary's investment 800,000 -- -- ------------ ------------ ------------ NET CASH USED FOR INVESTING ACTIVITIES (4,016,882) (1,327,949) (54,051) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of subsidiary's minority interest 321,496 340,904 -- Short-term borrowings -- 141,175 6,220 Repayment on short-term borrowings (193,232) (38,156) -- Issuance of common stock 108,486 -- -- ------------ ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES 236,750 443,923 6,220 ------------ ------------ ------------ NET INCREASE IN CASH 608,301 26,840 -- CASH, beginning of year 26,840 -- -- ------------ ------------ ------------ CASH, end of year $ 635,141 $ 26,840 $ -- ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 7 40 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A - Summary of Significant Accounting Policies Business 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., which was acquired by PFC in 1995, and Lighthouse Publishing Group, 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 website, Wealth Information Network (WIN), which allows subscribers to log on for information related to the stock market. Lighthouse Publishing Group, Inc. publishes books on related topics. The copyrights to most seminars, video and audio tapes, and written materials are owned and controlled by Money Chef, Inc., formerly known as USA/Wade Cook Seminars, Inc., a related party. As used hereafter, "Company" refers to Profit Financial Corporation and its consolidated subsidiaries. Accounting principles and consolidation policy The accompanying consolidated financial statements include the accounts of Profit Financial Corporation and its majority-owned subsidiaries. WCS has a fiscal year end of January 31, and the balances as of January 31, 1997, 1996 and 1995 have been used to prepare the consolidated financial statements as of December 31, 1996, 1995 and 1994. 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 $581,558, and $41,348 as of December 31, 1996 and 1995, respectively . Marketable securities Brokerage accounts are used by seminar instructors during the seminars, especially at the Wall Street Workshop, to demonstrate how to buy and sell securities using a broker. Marketable securities consist mainly of stocks and options. They have been categorized as trading securities and, as a result, are stated at market value. All changes in trading securities' fair values are reported in earnings as they occur. Realized gains and losses on the sale of securities are determined using the specific-identification method. 8 41 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A - Summary of Significant Accounting Policies (continued) 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 the accelerated method over the estimated useful lives of the related assets for both financial reporting and tax reporting purposes. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated life of the asset or the remaining term of the lease. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations. Revenue recognition Tuition revenues for seminars are recognized when services are rendered. Subscription revenues for the website membership are deferred and recognized over the term of the subscription. Other revenues are recognized when finished products are shipped to customers or services have been rendered. Advertising costs Advertising costs are expensed when incurred. 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. Earnings per share Earnings per share is based on the weighted average number of shares of common stock and common stock equivalents outstanding during each year. Earnings per share is computed using the treasury stock method. 9 42 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note B - Common Stock Split On August 6, 1996, the Board of Directors declared a two-for-one stock split on the Company's Class A 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 split are accounted for in all share and per share data included in these consolidated financial statements. Note C - Concentration of Risks Cash in banks, based on bank balances, exceeded federally insured limits by $574,388 and $7,851 as of December 31, 1996 and 1995, respectively. Receivables from four credit card companies aggregated approximately $376,256 and $129,188 at December 31, 1996 and 1995 respectively. The Company invests the majority of its excess cash in marketable securities. Marketable securities are carried at fair market value, which amounted to $3,801,039, and $349,206 as of December 31, 1996, and 1995, and accounted for 22% and 15% of the Company's consolidated assets as of December 1996 and 1995 respectively. The following table shows the percentage of revenues:
1996 1995 1994 ---- ---- ---- Seminars 52% 53% 30% W.I.N. subscriptions 12% 7% 3% Entity formation services 14% 20% 50% Product sales 22% 20% 17%
The following table shows the states from which the Company derived over 10% of its seminar revenues:
1996 1995 1994 ---- ---- ---- California 15% 27% 34% Colorado 7% 11% -- Washington 13% 13% 38% Nevada 2% 1% 16%
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 of Money Chef, Inc. One of the co-trustees of the Cook Family Trust, the shareholder of Money Chef, Inc., is the president of the Company. This individual was the named defendant of a fraud charge in the State of Arizona. The case was dismissed with prejudice on June 5, 1997. 10 43 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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 PFC, WCS and the Company's president. Note E - 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 stocks were then distributed to Yeaman Enterprises, Inc. (Yeaman) in exchange for 1,880,000 shares of the Company's stock as part of the reorganization. The consolidated financial statements for the periods presented have been restated to exclude the accounts related to the ranch operations. The following assets and liabilities were transferred to Four Star in the reorganization: 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
11 44 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note E - Reorganization and Business Combination (continued) The condensed financial positions of PFC 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 466,602 443,831 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 common stock of PFC. The transaction has been accounted for as pooling of interests and, accordingly, the consolidated financial statements for the periods presented have been restated to include the accounts of WCS. Net sales and net income of the separate companies for the periods preceding the acquisition were as follows:
Net Sales Net Income --------- ---------- Three months ended March 31, 1995 (unaudited): PFC -- -- WCS 944,061 106,012 --------- ---------- Combined 944,061 106,012 --------- ---------- Year ended December 31, 1994: PFC -- (178,200) WCS 1,973,145 (17,530) --------- ---------- Combined 1,973,145 (195,730) --------- ----------
12 45 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note F - 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 Money Chef, Inc. for royalty payments ranging from ten to fifty percent of gross sales. Royalty expenses totaled $4,366,183, $755,500, and $82,923 for the years ended December 31, 1996, 1995 and 1994 respectively. $48,781 of royalties were prepaid as of December 31, 1996 and $136,238 of royalties was owed as of December 31, 1995. Money Chef, Inc. has opted to receive royalties of the minimum percentage of revenue for all of the three years. The Company obtained services from seminar speakers provided by companies owned by officers of the Company. Total speaker fees paid to such companies totaled $131,337 for the year ended December 31, 1996 and none for years 1995 and 1994. There were no additional amounts due to such companies as of December 31, 1996 and 1995. Due from related parties in the amount of $663,401 represents advances from the following:
Name of Related Company's Percentage Parties of Ownership Amount --------------- --------------------- --------- Crossroad Northwest, LP 0% $ 637,401 Five Star Consulting, Inc. 0% 25,000 Total Hoteliers, LP 0% 1,000 ------------ --------- Total $ 663,401 =========
Note G - Marketable Securities The net unrealized loss in trading securities that has been included in earnings during the period amounted to $226,264, $20,899, and $23,180 for the years ended December 31, 1996, 1995, and 1994 respectively. Note H - Receivables Following is a summary of receivables:
December 31, -------------------------- 1996 1995 ----------- -------- Trade and credit card receivables $ 848,282 $129,188 Installment notes 1,714,802 106,904 Notes receivable from officer 249,604 - Due from related parties 663,401 - Other 11,378 1,611 ----------- -------- Total $3,487,467 $237,703 ========== ========
Management estimates that substantially all receivables are collectible. 13 46 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note I - Property and Equipment The following is a summary of property and equipment:
December 31, ------------------------- 1996 1995 ----------- --------- Land $ 532,000 $ 27,470 Building 4,183,361 109,882 Equipment 1,270,583 218,555 Automobiles 828,604 -- Furniture and fixtures 681,425 52,793 Leasehold improvements -- 25,090 ----------- --------- 7,495,973 433,790 Less: Accumulated depreciation (360,768) (88,779) ----------- --------- Total $ 7,135,205 $ 345,011 =========== =========
Depreciation expense charged to operations was $344,991, $38,816 and $30,663 in December 31, 1996, 1995, and 1994, respectively. Note J - Non-Marketable Investments and Accounting Changes Non-marketable investments consists of investments in venture capital partnerships and private companies, and 99 lots of land in a recreational development in the County of Antrim, Michigan. The estimated non-marketable investments approximated the carrying amount at December 31, 1996 and 1995. 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 Antrim, Michigan. The Company considers the sale prices of comparable lots in the recreational development project as indicators of fair value. 14 47 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note K - Long-Term Debt The following is a summary of long-term debt:
December 31, 1996 1995 ------------ ---------- Unsecured note payable to unrelated party, due in monthly installments of $11,100, bears interest at 21% per annum $ -- $ 70,000 Unsecured note payable to unrelated party, due in monthly installments of $1,000, bears interest at 20% per annum -- 6,204 Automobile loan payable to a credit union assumed by the company on behalf of an employee, due December 2003, bears interest at 9.25% per annum 36,178 -- Unsecured note payable to a related party, originally due October 15, 1996, bears interest at 10% per annum 19,000 19,000 Unsecured note payable to a related party, originally due October 15, 1996; bears interest at 10% per annum 45,000 45,000 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, includes interest at 9% per annum 2,393,292 -- Mortgage payable, secured by land and building, due in monthly installments of $1,067, bears interest at 10% per annum -- 118,735 ------------ ---------- Total Debt $ 2,493,470 $258,939 Less: Current maturities others (660,708) (77,175) related parties (19,000) (19,000) officer (45,000) (45,000) ------------ ---------- Total Long Term Debt $ 1,768,762 $ 117,764 ============ ===========
15 48 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note K - Long-Term Debt (continued) The following are maturities of long-term debt for each of the next five years: 1997 $ 724,708 1998 1,091,782 1999 655,498 2000 4,954 2001 5,432 Thereafter 11,096 ----------- Total $ 2,493,470 Less: Current long-term debt 724,708 ----------- $ 1,768,762 ===========
Note L - Prepaid Advertising In 1995, the Company entered into an agreement with Associated Reciprocal Traders, Ltd. (ART) to purchase from ART 20,000 Investor Relations-Advertising-Infomercial radio air time spots, priced at $25 per ad spot, per station, for a sum total of $500,000. In payment of the foregoing, the Company issued 100,000 shares of common stock to ART in January 1996. The prepaid advertising is shown as a reduction of shareholders' equity rather than as an asset. Note M - Disclosures About Fair Value of Financial Instruments Financial Accounting Standards Board ("FASB") has issued Statement of Financial Accounting Standards (SFAS) No. 107, Disclosures About Fair Value of Financial Instruments, as part of a continuing process by the FASB to improve information regarding financial instruments. The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents - The carrying amount of cash and cash equivalents approximates its fair value. Marketable securities - The fair value of marketable securities were estimated based on quotes obtained from brokers for those instruments. Non-Marketable Investments - The fair value of non-marketable investments is determined by financial positions of the investee companies and market conditions. Margin loans in investment accounts - The carrying amount of margin loans approximates its fair value. Long-Term Debt - The fair values of the Company's long-term debt either approximates fair value or estimates using discounted cash flow analyses based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. 16 49 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note M - Disclosures About Fair Value of Financial Instruments (continued) The carrying amounts and fair values of the Company's financial instruments at December 31, 1996 and 1995 are as follows:
1996 1995 --------------------------- ---------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------------ ----------- ------------ ----------- Cash and cash equivalents $ 635,141 $ 635,141 $ 26,840 $ 26,840 Marketable securities 3,801,039 3,801,039 349,206 349,206 Non-marketable investments 522,600 522,600 1,235,100 1,235,100 Margin loans in investment accounts 1,103,936 1,103,936 - - Long-term debt 1,768,762 1,768,762 117,764 117,764
The carrying amounts in the table are included in the balance sheet under the indicated captions. Note N - Lease and Other Commitments Operating lease commitments are primarily for office space. Rental expense amounted to $294,918, $109,133 and $70,314 for the years ended December 31, 1996, 1995, and 1994 respectively. Future minimum rental commitments are as follows: 1997 $ 46,098 1998 46,098 1999 46,098 2000 7,683 ---------- Total $ 145,977 ==========
The Company entered into an employment agreement in January, 1997, with one of its executive officers. The agreement provided for a minimum salary plus incentive bonuses which are payable if specified management goals are attained. The agreement also gives the officer the right to purchase 80,000 shares at $1.50 per share through 1999 at 20,000 shares per year. The options may be exercised within a ten year period from the date of vesting. The Company entered into agreements in 1996 with two contracting companies to make improvements on its office building in Seattle, Washington. Total commitments on future payments was approximately $375,000 as of December 31, 1996. 17 50 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note O - Income Taxes Provisions for income taxes in the consolidated statements of income consist of the following components:
Years ended December 31, 1996 1995 1994 ----------- ----------- ----------- Current Federal $ 2,321,968 $ 183,200 $ -- State -- -- -- Other States 55,000 -- -- ----------- ----------- ----------- 2,376,968 183,200 -- Deferred Federal (775,724) 540 (7,880) State -- -- -- ----------- ----------- ----------- (775,724) 540 (7,880) ----------- ----------- ----------- Total income taxes $ 1,601,244 $ 183,740 $ (7,880) =========== =========== ===========
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: 1996 1995 ----------- ----------- Unrealized gain on trading securities $ 79,192 $ 7,340 Deferred revenues 806,294 -- State income tax 19,250 -- ----------- ----------- Total deferred tax assets 904,736 7,340 ----------- ----------- Deferred tax liabilities: Accelerated depreciation 61,691 -- State income tax 59,981 -- ----------- ----------- Total deferred liabilities 121,672 -- ----------- ----------- Net Deferred tax asset $ 783,064 $ 7,340 =========== ===========
18 51 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note O - Income Taxes (continued) The reconciliation of the effective income tax rate to the Federal statutory rate is as follows:
1996 1995 1994 -------- -------- -------- Federal income tax rate 35.0% 35.0% 35.0% Unrealized gain on trading securities 1.7 1.8 -- Deferred revenues 17.3 -- -- Accelerated depreciation (1.3) -- -- Capitalized interest (1.3) -- -- State income tax 0.4 -- -- -------- -------- -------- Effective income tax rate 51.8% 36.8% 35.0% ======== ======== ========
Note P - Revenues and Other Cost of Revenues
Seminar Product Entity WIN Revenues Sales Formations Subscriptions 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 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 $ 4,802,194 $ 5,264,969 $ 1,057,900 $ 60,353 $ 11,185,416 ------------ ------------ ------------ ------------ ------------ Year ended December 31, 1995: Revenues, net of returns & discounts $ 4,049,360 $ 1,477,200 $ 1,538,459 $ 502,316 $ 7,567,335 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 353,915 101,937 282,520 -- 738,372 Travel 357,772 -- 132,327 -- 490,099 ------------ ------------ ------------ ------------ ------------ Total $ 901,766 $ 1,256,236 $ 449,177 $ 11,209 $ 2,618,388 ------------ ------------ ------------ ------------ ------------ Year ended December 31, 1994: Revenues, net of returns & discounts $ 532,422 $ 331,225 $ 1,064,670 $ 44,828 $ 1,973,145 Other cost of revenues: Cost of goods sold -- 217,355 -- -- 217,355 Credit card fees 12,805 7,293 23,441 987 44,526 Cost of meeting rooms 14,083 -- -- -- 14,083 Speaker fees 64,279 54,017 286,986 -- 405,282 Travel 35,123 -- 62,442 -- 97,565 ------------ ------------ ------------ ------------ ------------ Total $ 126,290 $ 278,665 $ 372,869 $ 987 $ 778,811 ------------ ------------ ------------ ------------ ------------
19 52 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note Q - Dividends The Company did not declare or pay any dividends for the years shown in these financial statements. Note R - Non-Monetary Transactions 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 asset was capitalized 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 also has 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, and received a note bearing 8% interest per annum as consideration. In June 1996, prior to the two-for-one stock split, the Company issued 16,000 shares of its Class A common stock at $3 per share ($1.50 per share with effect of the stock split) to various employees for subscription notes receivable. In addition, the Company issued 30,422 shares of its Class A common stock at $2.50 per share to various employees as additional employee compensation. Note S - Supplementary Disclosure of Cash Flow Information The Company paid $263,285 and $25,422 in interest, and $100,000 and $78,000 in income taxes, in the years ended December 31, 1996 and 1995 respectively. No interest or income taxes were paid in the year ended December 31, 1994. 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. 20 53 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Profit Financial Corporation Seattle, Washington The audits referred to in our report to the Board of Directors of Profit Financial Corporation and subsidiaries dated June 25, 1997, relating to the consolidated financial statements of Profit Financial Corporation and subsidiaries included the audit of schedules listed under Item 14 of Form 10-K for the years ended December 31, 1996, 1995, and 1994. 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 audits. In our opinion such financial statement schedules present fairly, in all material respects, the information set forth therein. Certified Public Accountants Santa Monica, California 25 June 1997 54 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS ASSETS
December 31, ------------------------------ CURRENT ASSETS 1996 1995 ------------ ------------ Investment in subsidiary $ 110,552 $ 110,552 Investment in land 148,500 148,500 Investment in non-marketable securities 18,600 18,600 Other receivables 1,378 -- Due from subsidiary 48,013 -- ------------ ------------ TOTAL ASSETS $ 327,043 $ 277,652 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY December 31, ------------------------------ CURRENT LIABILITIES 1996 1995 ------------ ------------ Accounts payable and accrued expenses $ 22,080 $ 41,396 ------------ ------------ TOTAL LIABILITIES 22,080 41,396 ------------ ------------ SHAREHOLDERS' EQUITY Preferred stock -- -- Common stock 66,807 31,991 Paid-in capital 1,072,608 498,938 Prepaid advertising (500,000) -- Retained earnings (deficit) (334,452) (294,673) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 304,963 236,256 ------------ ------------ TOTAL LIABILITIES, MINORITY INTEREST, AND SHAREHOLDERS' EQUITY $ 327,043 $ 277,652 ============ ============
22 55 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT Years ended December 31, --------------------------------------- 1996 1995 1994 --------- --------- --------- INTEREST INCOME $ 2,013 $ -- $ -- GENERAL AND ADMINISTRATIVE EXPENSES (41,792) (18,625) -- LOSS ON NON-MARKETABLE SECURITIES -- (107,400) (178,200) IMPAIRMENT OF LONG-LIVED ASSETS -- (99,000) -- --------- --------- --------- INCOME (LOSS) BEFORE INCOME TAXES (39,779) (225,025) (178,200) PROVISION FOR INCOME TAXES -- -- -- --------- --------- --------- NET LOSS $ (39,779) $(225,025) $(178,200) ACCUMULATED DEFICIT, BEGINNING (294,673) (178,200) -- ISSUANCE OF COMMON STOCK IN EXCHANGE FOR INVESTMENT IN SUBSIDIARY -- 108,552 -- --------- --------- --------- ACCUMULATED DEFICIT, ENDING $(334,452) $(294,673) $(178,200) ========= ========= =========
23 56 PROFIT FINANCIAL CORPORATION AND SUBSIDIARIES SCHEDULE 1 - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) STATEMENTS OF CASH FLOWS
Years ended December 31, --------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995 1994 --------- --------- --------- Net income (loss) $ (39,779) $(225,025) $(178,200) 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 -- 107,400 178,200 Changes in assets and liabilities: Receivables (1,378) -- -- Due from subsidiary (48,013) -- -- Accounts payable and accrued expenses (19,316) 18,625 -- --------- --------- --------- TOTAL ADJUSTMENTS (68,707) 225,025 178,200 --------- --------- --------- NET CASH PROVIDED BY OPERATING ACTIVITIES (108,486) 225,025 178,200 --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 108,486 -- -- --------- --------- --------- NET INCREASE IN CASH -- -- -- CASH, beginning of year -- -- -- --------- --------- --------- CASH, end of year $ -- $ -- $ -- ========= ========= =========
24 EX-3.1D 2 AMENDMENT TO ARTICLES OF INCORPORATION PROFITEER 1 EXHIBIT 3.1(d) AMENDMENT TO THE ARTICLES OF INCORPORATION OF PROFITEER CORPORATION (NAMED CHANGED HEREIN TO PROFIT FINANCIAL CORPORATION) WHEREAS, there was issued by the Secretary of State a Charter dated February 2, 1979 constituting and creating PROFITEER CORPORATION a corporation organized under the laws of this state with its principal place of business in Salt Lake City, Utah. The undersigned, President and Secretary of PROFITEER CORPORATION hereby certify that ten (10) days notice was given each shareholder by mail or personal contact as required by the Corporation's by-laws, of the meeting of the shareholders which was held on September 10, 1991, which notice stated the time and place of the meeting and the purpose thereof. And further, that the meeting was duly held pursuant to such notice. At the time of the meeting there were 9,623,394 shares outstanding and entitled to vote, 5,622,772 shares present in person or by proxy and that 5,622,772 shares voted in favor of, no shares voting against, amending the Articles of Incorporation as follows: That Article I, be amended and changed to read as follows: Name: the name of the Corporation is PROFIT FINANCIAL CORPORATION. That Article IV, be amended and changed to read as follows: The stock of this corporation is divided into two classes, namely: Common Stock in the amount of 20,000,000 (twenty million) shares of the par value of one cent ($0.01) each, and Preferred Stock in the amount of Five million (5,000,000) shares of the par value of Ten dollars ($10) each. The Common Stock shall be subject to the prior rights of the holders of the Preferred Stock as herein declared, and shall be entitled to such dividends as the board of directors may declare, only out of any surplus or net profits remaining after the payment of the full dividends for any fiscal year 2 on the preferred stock, or after there shall have been set aside from the surplus or net profits a sum sufficient for the payment of full dividends on the preferred stock for such fiscal year. In no event shall any dividend whatever be paid or declared or any distribution made on the common stock, or any other stock hereafter created, of the company other than preferred stock, unless and until full cumulative dividends on the preferred stock for all past quarterly dividend periods shall have been paid, full cumulative dividends as aforesaid on the preferred stock for the then or current quarterly dividend period shall have been paid or a sum sufficient for the payment thereof set apart for such payment, and the surplus of the company available for the declaration and payment of dividends on the preferred stock shall, after paying or making provision for the payment of dividends on the preferred stock as above provided, at least equal ten dollars for each share of the preferred stock then outstanding. And further, your petitioners certify that they have complied in all respects with Sections 16-10-54 through 16-10-60, Utah Code Annotated, 1953 as amended. WHEREFORE, they pray that the Articles of Incorporation of PROFITEER CORPORATION be so amended. DATED this 10th day of September, 1991. /s/ David R. Yaman ------------------------------------ President /s/ Krista Cafterton ------------------------------------ Secretary STATE OF UTAH ) : SS County of Salt Lake ) On this 10th day of September, 1991, before me, a notary public, personally appeared David R. Yeaman and Krista Castleton, known to me to be the persons whose names are subscribed to the within document, and acknowledge that they executed the same. /s/ Janice Ragsdale - - ------------------------------ Notary Public 2 EX-10.1A 3 PRODUCT AGREEMENT BTWN UNITED SUPPORT & MONEY CHEF 1 EXHIBIT 10.1(a) PRODUCT AGREEMENT AN AGREEMENT made this the 3 day of January, 1993, between United Support Association, Inc. (USA), the Purchaser, 15220 SE 272nd, Suite F, Kent, Washington, 98042 and USA/Wade Cook Seminars, Inc. (WCS), the Seller, 18929 SE 292nd Place, Kent, Washington, 98042 USA and WCS hereby agree as follows: RECITALS Whereas, USA is a Nevada Corporation, sponsoring and promoting certain seminars owned by WCS, a Nevada Corporation; and Whereas, USA, on behalf of WCS, has been sponsoring and promoting certain seminars owned by WCS for the past several years controlled only by a verbal agreement between parties; and Whereas, the cost charged to USA for the right to use the name and products owned by WCS for the seminar business has not been documented; and Whereas, it is understood, one of the principle owner, principle officer, or General Manager, of both corporations, USA and WCS, is Wade B. Cook, all potential conflict of interests have been disclosed, discussed and waived by the respective Board of Directors and shareholders of USA and WCS; and Whereas, both parties desire to memorialize their previous verbal agreement and past performance with a written agreement; Therefore, the parties agree to the following terms: I. PRODUCT COST A. As full consideration for any and all rights granted by WSC, USA shall pay WCS, by check mailed to the address set forth above, the following sums: 1) For the fiscal year 1993 (ending January 31, 1994), and for the fiscal year 19984 (ending January 31, 1995), USA shall pay ten percent (10%) of all gross sales related to the seminars business protected and owned by WCS, but promoted and sponsored by USA. 2) For the fiscal year 1995 (ending January 31, 1996), and for the fiscal year 1996 (ending January 31, 1997), USA shall pay WCS from ten percent (10%) to thirty percent (30%) of all gross sales. WCS shall have an option of taking a minimum of ten percent (10%) or a maximum of thirty percent (30%) of all gross sales. WCS shall also have the option of taking the minimum payment of ten percent (10%) in direct payment, and the optional twenty percent (20%) may be paid 2 directly into stock brokerage accounts on behalf of WCS. 3) Gross sales shall be described as the total amount of money collected by USA directly relating to the promotion and sponsorship of certain seminars owned and controlled by WCS, including the sale of products and services owned and controlled by WCS, minus all refunds or bad debts. 4) The cost for the right to market and sell any entity structuring service (Corporation, Limited Partnership, Living Trust, Charitable Remainder Trust, pension, Business Trust) shall be limited to ten percent (10%) with the distinction that any entity seminar sales may be subject to the thirty percent (30%) cost of goods factor. 5) In the event Wade B. Cook teaches any seminar sponsored by USA, then WCS shall be entitled to fifty percent (50%) of gross sales from that event. II. PAYMENT SCHEDULE A. As full consideration for any and all rights granted by WCS, USA shall pay WCS, by check mailed to the address set forth above, the following sums: 1) Ten percent (10%) of all gross sales on a bi-monthly basis. If WCS desires any sum over ten percent (10%), up to a maximum of thirty percent (30%) then WCS must notify USA either in writing or verbally. USA will forward a check for the remaining requested balance within twenty-four (24) hours. 2) Any remaining balance due WCS must be claimed within sixty (60) days after each fiscal year or the option to claim the outstanding balances, if any, expires. III. EXAMINATION OF BOOKS A. WCS may examine the financial books of USA upon written request. B. The financial books shall be made available, at USA's headquarters, within ten (10) days after The written request. IV. ADVERTISING AND PROMOTION A. USA shall have the right in conjunction with WCS, to advertise and promote products in a manner that is mutually acceptable to both parties. B. Any alterations of the product for the purposes of advertising must be approved by WCS. 2 3 V. DISPUTES AND GOVERNING LAW A. EXCLUSIVE JURISDICTION FOR THE DETERMINATION OF DISPUTES BETWEEN OR AMONG PARTIES TO THIS AGREEMENT IS HEREBY VESTED IN THE COURT OF COMPETENT JURISDICTION, IN THE STATE OF WASHINGTON. B. ARBITRATION MAY ALSO BE UTILIZED AS AGREED UPON BY BOTH PARTIES. - - ---------------------------------------------- DATE ACCEPTED AND AGREED: UNITED SUPPORT ASSOCIATION, INC. - - ---------------------------------------------- WADE B. COOK President of United Support Association, Inc. USA/WADE COOK SEMINARS, INC. - - ---------------------------------------------- WADE B. COOK President of USA/Wade Cook Seminars, Inc. 3 EX-10.3B 4 AMENDED AGREEMENT BTWN LIGHTHOUSE & WADE B. COOK 1 EXHIBIT 10.3(b) LIGHTHOUSE PUBLISHING GROUP, INC. PUBLISHING AGREEMENT This AGREEMENT hereby replaces in whole the Agreement entitled "Lighthouse Publishing Group, Inc. Publishing Agreement" dated February 1, 1996, between Wade Cook Seminars and Lighthouse Publishing Group, Inc. This AGREEMENT is effective the 1st day of February 1996 , 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, 98168-4664, (hereinafter called the Publisher). I. GRANT OF The Author hereby grants, assigns, and transfers to the RIGHTS Publisher the following exclusive rights and privileges to and in connection with a Work, presently entitled Wall Street Money Machine 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 book 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 February 28 , 1996 three finally revised copies of the manuscript, approximately 70,000 words in length, 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 shall MANUSCRIPT 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 acceptability COMPLIANCE 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. Page 1 2 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 the Author informed of such excess charges. SUBSEQUENT E. When the Publisher considers it necessary, it shall REVISIONS have the right in its 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 DETERMINATION manuscript 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 EDITION from 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 remainder, 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 COPIES D. No royalties shall be paid on copies furnished gratis 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. Page 2 3 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. VI. REMAINDERS A. If, in the opinion of the Publisher, the Work shall - - - OVERSTOCK 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 3 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 Publisher: WARRANTY (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 sustained or recovered against the Publisher Page 3 4 by reason of the publication or sale of the Work, arising from anything contained therein. Author shall also reimburse the Publisher for all expenses including court costs, attorneys' 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. 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 of WORKS 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 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 the EXAMINATION 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. Page 4 5 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 PAYMENTS make 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. 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. All payments made by Publisher to the Author, whether RECOVERABLE under this agreement or not, shall be chargeable against PAYMENTS and recoverable from any or all monies accruing to the Author under this contract and for all other contracts between the parties or their assigns. XVIII. 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. Any written notice required under any of the provisions NOTICES 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. A waiver of any breach of this agreement or of any of WAIVER the terms or conditions 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 not 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. Page 5 6 IN WITNESS WHEREOF, the parties hereto have hereunto affixed their respective hands and seals the day and year first above written. LIGHTHOUSE PUBLIISHING GROUP, INC. /s/ JERALD MILLER /s/ WADE B. COOK - - ------------------------------- ------------------------------- By: Jerald Miller Wade B. Cook, Author 6-26-97 6-26-97 - - ------------------------------- ------------------------------- Date: Date: /s/ JODI COVAL /s/ ROBIN ANDERSON - - ------------------------------- ------------------------------- Witness Witness Name: Jodi Coval Name: Robin Anderson 06/26/97 6/26/97 - - ------------------------------- ------------------------------- Date: Date: EX-10.4B 5 AMENDED AGREEMENT BTWN LIGHTHOUSE & WADE B. COOK 1 EXHIBIT 10.4(b) LIGHTHOUSE PUBLISHING GROUP, INC. PUBLISHING AGREEMENT This AGREEMENT hereby replaces in whole the Agreement entitled "Lighthouse Publishing Group, Inc. Publishing Agreement" dated January 1, 1997, between Wade Cook Seminars and Lighthouse Publishing Group, Inc. This AGREEMENT is effective the 1st day of January 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, 98168-4664, (hereinafter called the Publisher). I. GRANT OF RIGHTS The Author hereby grants, assigns, and transfers to the Publisher the following exclusive rights and privileges to and in connection with a Work, presently entitled Stock Market Miracles 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 book 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 January 31 , 1997 three finally revised copies of the manuscript, approximately 70,000 words in length, 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 MANUSCRIPT Author 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 Page 1 2 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 the Author informed of such excess charges. SUBSEQUENT E. When the Publisher considers it necessary, REVISIONS it shall have the right in its 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 DETERMINATION manuscript 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 REPRINT B. The Publisher shall pay the Author one EDITION half of the stipulated royalty, as stated above, on all copies sold from 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 SHEETS remainder, the percentage of royalty shall be the same as for bound books and shall be calculated on the net amount received by the Publisher. FREE COPIES D. No royalties shall be paid on copies furnished gratis to the Author, or for review, advertising, samples or like purposes. EXCERPTS E. The Author grants sole and exclusive PERMISSIONS rights to the 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. Page 2 3 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. VI. REMAINDERS A. If, in the opinion of the Publisher, the - - - OVERSTOCK Work 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 RIGHTS to in 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 DATE granted, agrees to publish the work at its own expense, in such style or styles as the Publisher deems most advisable, not later than 3 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 sustained or recovered against the Publisher by reason of the publication or sale of the Work, arising from anything contained therein. Author Page 3 4 shall also reimburse the Publisher for all expenses including court costs, attorneys' 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. PLAINTIFF ACTION B. The Author hereby grants to the Publisher COPYRIGHT the right, if copyright is in the Author's name, to ASSIGNMENT bring in the name of the Author as plaintiff or complainant, any action or 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 WORKS consent 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 PERMISSION Author 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 WITHDRAWAL in print and for sale and after written demand from OF WORK the Author, 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. BANKRUPTCY A. If a petition in bankruptcy (as distinguished from reorganization or arrangement) shall be filed by the Publisher, or shall be filed against the Publisher and finally sustained, the Author shall have 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, EXAMINATION shall have 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 of account to March 31st and Page 4 5 ANNUAL September 30th of each year, on the succeeding July STATEMENTS PAYMENTS 1st and January 1st and to make 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. XV. AUTHOR'S The Publisher agrees to present to the Author COPIES 100 (one 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, PAYMENTS whether 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 between the parties or their assigns. XVIII. TAX It is mutually agreed that State, Federal, WITHHOLDING and Foreign 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 ASSIGNMENT shall ensure 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 ARBITRATION agreement 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. Any written notice required under any of the NOTICES 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. A waiver of any breach of this agreement or WAIVER of any of the terms or conditions 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 OF This agreement shall not be binding on either CONTRACT the 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. Page 5 6 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/ JERALD MILLER /s/ WADE B. COOK - - ------------------------------- -------------------------------- By: Jerald Miller Wade B. Cook, Author 6/26/97 6/26/97 - - ------------------------------- -------------------------------- Date: Date: /s/ JODI COVAL /s/ ROBIN ANDERSON - - ------------------------------- -------------------------------- Witness Jodi Coval Witness Name: Name: 6/26/97 6/26/97 - - ------------------------------- -------------------------------- Date: Date: Page 6 EX-10.5 6 AGREEMENT BTWN WADE B. COOK & LIGHTHOUSE 1 EXHIBIT 10.5 LIGHTHOUSE PUBLISHING GROUP, INC. PUBLISHING AGREEMENT This AGREEMENT is effective the 1st day of March 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, 98168-4664, (hereinafter called the Publisher). I. GRANT OF The Author hereby grants, assigns, and transfers to the RIGHTS Publisher the following exclusive rights and privileges to and in connection with a Work, presently entitled Bear Market Balony 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 book 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 March 28, 1997 three finally revised copies of the manuscript, approximately 70,000 words in length, 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 acceptability COMPLIANCE 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 Page 1 2 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 the Author informed of such excess charges. SUBSEQUENT E. When the Publisher considers it necessary, it shall REVISIONS have the right in its 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 DETERMINA- manuscript of the Work for the printer in such manner as TION 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 remainder, 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 COPIES D. No royalties shall be paid on copies furnished gratis 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 Page 2 3 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. VI. REMAINDERS - A. If, in the opinion of the Publisher, the Work shall OVERSTOCK 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 3 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 sustained or recovered against the Publisher by reason of the publication or sale of the Work, arising from anything contained therein. Author shall also reimburse the Publisher for all expenses including court costs, attorneys' fees and amounts paid in settlement, sustained by the Publisher in resisting any claim, demand, suit, action or Page 3 4 proceeding asserted or instituted against the Publisher based upon the publication sale of the Work by reason of anything contained therein. 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 of WORKS 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. WITHDRAWAL In case the Publisher fails to keep said Work in print OF WORK and for sale and after written demand from the Author, 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. BANKRUPTCY A. If a petition in bankruptcy (as distinguished from reorganization or arrangement) shall be filed by the Publisher, or shall be filed against the Publisher and finally sustained, the Author shall have 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 the EXAMINATION 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 settlements in cash or about said last mentioned dates. In making accountings, the Publisher shall have the right to allow Page 4 5 PAYMENTS for a reasonable reserve against returns and nonpayment of invoices for copies billed out by the Publisher. 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. All payments made by Publisher to the Author, whether RECOVERABLE under this agreement or not, shall be chargeable against and PAYMENTS recoverable from any or all monies accruing to the Author under this contract and for all other contracts between the parties or their assigns. XVIII. 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 conditions 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 not 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. Page 5 6 IN WITNESS WHEREOF, the parties hereto have hereunto affixed their respective hands and seals the day and year first above written. LIGHTHOUSE PUBLIISHING GROUP, INC. /s/ JERALD MILLER /s/ WADE B. COOK - - ----------------------------------- ----------------------------------- By: Jerald Miller Wade B. Cook, Author 6-26-97 6-26-97 - - ----------------------------------- ----------------------------------- Date: Date: /s/ JODI COVAL /s/ BRANDEE GIBSON - - ----------------------------------- ----------------------------------- Witness Witness Name: Jodi Coval Name: Brandee Gibson 6-26-97 6-26-97 - - ----------------------------------- ----------------------------------- Date: Date: Page 6 EX-10.6 7 AGREEMENT BTWN WADE B. COOK & LIGHTHOUSE 1 EXHIBIT 10.6 LIGHTHOUSE PUBLISHING GROUP, INC. PUBLISHING AGREEMENT This AGREEMENT is effective the 1st day of May 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, 98168-4664, (hereinafter called the Publisher). I. GRANT OF The Author hereby grants, assigns, and transfers to the RIGHTS Publisher the following exclusive rights and privileges to and in connection with a Work, presently entitled Business Buy The Bible 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 book 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 May 28 , 1997 three finally revised copies of the manuscript, approximately 70,000 words in length, 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 shall MANUSCRIPT 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 acceptability COMPLIANCE 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 Page 1 2 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 the Author informed of such excess charges. SUBSEQUENT E. When the Publisher considers it necessary, it shall REVISIONS have the right in its 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 DETERMINA- manuscript of the Work for the printer in such manner as NATION 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 REPRINT B. The Publisher shall pay the Author one half of the EDITION stipulated royalty, as stated above, on all copies sold from 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 remainder, 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 COPIES D. No royalties shall be paid on copies furnished gratis 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 Page 2 3 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. VI. REMAINDERS - A. If, in the opinion of the Publisher, the Work shall OVERSTOCK 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 3 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 Publisher: WARRANTY (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 sustained or recovered against the Publisher by reason of the publication or sale of the Work, arising from anything contained therein. Author shall also reimburse the Publisher for all expenses including court costs, attorneys' fees and amounts paid in settlement, sustained by the Publisher in resisting any claim, demand, suit, action or Page 3 4 proceeding asserted or instituted against the Publisher based upon the publication sale of the Work by reason of anything contained therein. PLAINTIFF ACTION B. The Author hereby grants to the Publisher the right, COYRIGHT if copyright is in the Author's name, to bring in the name ASSIGNMENT of the Author as plaintiff or complainant, any action or 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. WITHDRAWAL In case the Publisher fails to keep said Work in print OF WORK and for sale and after written demand from the Author, 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. BANKRUPTCY A. If a petition in bankruptcy (as distinguished from reorganization or arrangement) shall be filed by the Publisher, or shall be filed against the Publisher and finally sustained, the Author shall have 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-ANNUAL The Publisher agrees to render semi-annual statements STATEMENTS of account to March 31st and September 30th of each year, on the succeeding July 1st and January 1st and to make settlements in cash or about said last mentioned dates. In making accountings, the Publisher shall have the right to allow Page 4 5 PAYMENTS for a reasonable reserve against returns and nonpayment of invoices for copies billed out by the Publisher. 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 between the parties or their assigns. XVIII. TAX It is mutually agreed that State, Federal, and Foreign WITHHOLDINGS 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. ASSIGNMENT This agreement shall be binding upon and shall ensure 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. ARBITRATION Any controversy or claim arising out of this agreement 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 conditions 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 not 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. Page 5 6 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/ JERALD MILLER /s/ WADE B. COOK - - --------------------------------------- ---------------------------------- By: Jerald Miller Wade B. Cook, Author 6/26/97 - - --------------------------------------- ---------------------------------- Date: Date: /s/ JODI COAL /s/ ROBIN ANDERSON - - --------------------------------------- ---------------------------------- Witness Witness Name: Jodi Coal Name: 6/26/97 6/26/97 - - --------------------------------------- ---------------------------------- Date: Date: Page 6 EX-10.7 8 PURCHASE AND SALE AGREEMENT 1 EXHIBIT 10.7 COMMERCIAL AND INVESTMENT REAL ESTATE PURCHASE AND SALE AGREEMENT Date July 4, 1996 The undersigned Buyer, United Support Association, Inc. (Nevada Corporation), agrees to buy and Seller agrees to sell, on the following terms, the real property and all improvements thereon (collectively, the "Property") commonly known as 14675 Interurban Avenue, in the City of Tukwila, King County, Washington, legally described as: SEE EXHIBIT A. (Buyer and Seller authorize the Listing Agent, Selling Licensee, or Closing Agents to insert and/or correct, over their signatures, the legal description of the Property.) 1. PURCHASE PRICE. The total purchase price is Three Million Three Hundred Thousand and No/100 Dollars ($3,300,000.00), including the earnest money, payable as follows: [ ] all cash at closing, including the earnest money, with no financing contingency. [ ] all cash at closing, including the earnest money, contingent on new financing under Section 4a below. [X] $750,00 of the purchase price in cash at closing, including the earnest money, with the balance of the purchase price paid as follows (check only one): [ ] Buyer's assumption of any underlying note and deed of trust, or real estate contract, under Section 4b below; [X] Buyer's delivery at closing of a promissory note for the balance of the purchase price, secured by a deed of trust encumbering the Property, as described in Section 4c below; [ ] Buyer's delivery at closing of real estate contract for the balance of the purchase price as described in Section 4c below. [ ] Other. 2. EARNEST MONEY RECEIPT. Selling Licensee acknowledges receipt from Buyer of $200,000 earnest money, in the form of [ ] Cash [ ] Personal check [X] Promissory note due upon contingency removal [ ] Other ____________, to be held [ ] by Closing Agent [ ] in Selling Licensee's pooled trust account (with interest paid to the Washington Housing Fund). Selling Licensee may, however, transfer the earnest money to Closing Agent. If the earnest money is to be held by Selling Licensee and is over $5,000, it shall be deposited to: [ ] Selling Licensee's pooled trust account [ ] A separate trust account in Selling Licensee's name, with the interest credited at closing to Buyer whose Social Security (or taxpayer ID) Number is ________________. If this sale fails to close, whoever is entitled to the earnest money is entitled to interest. Selling Licensee shall not deposit any check until mutual acceptance of this Agreement. Buyer agrees to pay financing and purchase costs incurred by Buyer. If all or part of the earnest money is to be returned to Buyer and any such costs remain unpaid, Selling Licensee may deduct and pay them therefrom. 3. ADDENDUMS. The following addendums are attached hereto: [ ] None [X] No. 1. 4. FINANCING. [Text intentionally omitted.] (Note to Buyer and Seller: If the Property is currently used primarily for farming or agricultural purposes, then a nonjudicial foreclosure/forfeiture remedy is available only to Seller by using a real estate contract not a deed of trust.) 1 2 A. SECTION 1031 LIKE-KIND EXCHANGE. If either Seller or Buyer intends for this transaction to be a part of a Section 1031 like-kind exchange, then the other party agrees to cooperate in the completion of the like-kind exchange so long as the cooperating party incurs no additional liability in doing so, and so long as any expenses (including attorneys fees and costs) incurred by the cooperating party that are related only to the exchange are paid or reimbursed to the cooperating party at or prior to closing. 5. INSPECTION CONTINGENCIES. This Agreement shall terminate and Buyer shall receive a refund of the earnest money unless Buyer gives written notice to Seller within eighteen (18) days (20 days if not filled in) of mutual acceptance of this Agreement stating that Buyer is reasonably satisfied with specified results of the following inspections. If such notice is timely given, the inspection contingencies stated in this Section 5 shall be deemed to be satisfied. A. BOOKS, RECORDS, LEASES, AGREEMENTS. Seller shall make available for inspection by Buyer or its agents as soon as possible but no later than ten (10) five (5) days after mutual acceptance of this Agreement all documents available to Seller relating to the ownership and operation of the Property including without limitation: (i) statements for real estate taxes, assessments, and utilities, property management agreements, service contracts, leases of personal property or fixtures, leases of all or a portion of the Property, and a schedule of tenants, rents, and deposits; (ii) plans, specifications, permits, drawings, surveys, reports, and maintenance records; and (iii) accounting records and audit reports. Buyer shall determine within the contingency period stated in the preceding introductory paragraph whether it wishes and is able to assume, as of closing, all of the foregoing leases, contracts, and agreements which have terms extending beyond closing B. PROPERTY INSPECTION. Seller shall permit Buyer or its agents, at Buyer's sole expense and risk, to enter the Property, at reasonable times after legal notice to tenants, to conduct inspections concerning the structural condition of the improvements, all mechanical, electrical and plumbing systems, hazardous materials (limited to a Phase I audit only), pest infestation, soils conditions, sensitive areas, wetlands, or other matters affecting the feasibility of the Property for Buyer's intended use. Buyer agrees to indemnify and defend Seller from all liens, costs, expenses, including attorneys and expert fees, arising from or relating to Buyer's entry onto and inspection of the Property. This agreement to indemnify and defend Seller shall survive closing. 6. TITLE INSURANCE. A. TITLE REPORT. Seller authorizes Lender and Listing Agent, Selling Licensee or Closing Agents, at Seller's expense, to apply for and deliver to Buyer a [ ] standard [ ] extended (standard, if not completed) coverage owner's policy of title insurance. If an extended coverage owner's policy specified, Buyer shall pay the increased costs associated with that policy including the excess premium over that charged for a standard coverage policy, and the cost of any survey required by the title insurer. The title report shall be issued by First American Title Company by July 12th. B. PERMITTED EXCEPTIONS. Buyer shall notify Seller of any objectionable matters in the title commitment or any supplemental report within ten (10) days after receipt of such commitment or supplement. Buyer may not object to the following: (a) rights of tenants existing as of closing; (b) real property taxes due after closing; (c) if consistent with Buyer's intended use of the Property, easements and reservations including reserved oil, gas, and/or mineral rights; and (d) governmental building and land use regulations, codes, and laws. This Agreement shall terminate and Buyer shall receive a refund of the earnest money, less any costs advanced or committed for Buyer, unless (a) within ten (10) days of Buyer's notice of such objections, Seller agrees to remove all objectionable provisions; or (b) within fifteen (15) days after Buyer's notice of such objections, Buyer notifies Seller in writing that it waives any objections which Seller does not agree to remove. The provisions referenced in (a) through (d) above and those provisions not objected to or for which Buyer waived its objections shall be referred to collectively as the "Permitted Exceptions." The title policy shall contain no exceptions other than the General Exclusions and Exceptions common to such form of policy and the 2 3 Permitted Exceptions. 7. CLOSING OF SALE. This sale shall be closed on or before July 26, 1995 ("closing") by First American Title Company ("Closing Agent"). Buyer and Seller will, immediately on demand, deposit with Closing Agent all instruments and monies required to complete the purchase in accordance with this Agreement. "Closing" shall be deemed to have occurred when all documents are recorded and the sale proceeds are available to Seller. If this sale cannot be closed by the above date, because of circumstances beyond the control of the party whose performance is delayed, closing shall be extended seven (7) days beyond cessation of such circumstance but in not event more than thirty (30) days beyond the above date. Time is of the essence in the performance of this Agreement. 8. CLOSING COSTS. Seller shall pay the excise tax and premium for the owner's extended coverage title policy. Seller and Buyer shall each pay one-half of the escrow fees. Real and personal property taxes and assessments payable in the year of closing; rents on any existing tenancies; interest; mortgage reserves; utilities; and other operating expenses shall be pro-rated as of closing. Security, cleaning, and any other unearned deposits on tenancies, and remaining mortgage or other reserves shall be assigned to Buyer at closing. The real estate commission is due on closing or upon Seller's default under this Agreement, whichever occurs first, an neither the amount nor due date thereof can be changed without Listing Agent's written consent. 9. POST-CLOSING ADJUSTMENTS, COLLECTIONS, AND PAYMENTS. After closing, Buyer and Seller shall reconcile the actual amount of revenues or liabilities upon receipt or payment thereof to the extent those items were prorated or credited at closing based on estimates. Any bills or invoices received by Buyer after closing which relate to services rendered or goods delivered to the Seller or the Property prior to closing shall be paid by Seller upon presentation of such bill or invoice. At Buyer's option, Buyer may pay such bill or invoice and be reimbursed the amount paid plus interest at the rate of twelve percent (12%) per annum beginning fifteen (15) days from the date of Buyer's written demand to Seller for reimbursement until such reimbursement is made. Rents collected from each tenant after closing shall be applied for the benefit of Seller for delinquent rentals owed for a period prior to closing. The amounts applied for the benefit of Seller shall be turned over by Buyer to Seller promptly after receipt. 10. OPERATIONS PRIOR TO CLOSING. Prior to closing, Seller shall continue to operate and maintain the Property in the ordinary course of its business and shall operate the Property in compliance with all applicable laws, rules, regulations and ordinances. Seller shall not enter into or modify existing rental agreements or leases (except that Seller may modify or terminate residential rental agreements or leases in the ordinary course of its business), service contracts, or other agreements affecting the Property which have terms extending beyond closing without first obtaining Buyer's consent, which shall not be unreasonably withheld. Seller shall maintain the condition of the Property in the condition existing on the date of mutual acceptance of the Agreement. 11. POSSESSION. Buyer shall be entitled to possession, subject to existing tenancies, [ ] on closing [ ] _____________ (on closing, if not completed). 12. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller represents and warrants to Buyer that, to the best of Seller's knowledge, each of the following is true as of the date hereof and shall be true as of closing: (a) Seller is authorized to enter into the Agreement to sell the Property, and to perform its obligations under the Agreement; (b) all books, records, leases, agreements and other items delivered to Buyer pursuant to Section 5 above are accurate and complete; (c) the Property and the business conducted thereon comply with all applicable laws, regulations, codes and ordinances; (d) Seller has all certificates of occupancy, permits, and other governmental consents necessary to own and operate the Property for its current use; (e) there is no pending or threatened litigation which would adversely affect Buyer's ownership of the Property after closing; (f) there are no covenants, conditions, restrictions, or contractual obligations of Seller which will adversely affect Buyer's ownership of the Property after closing, or prevent Seller from performing its obligations under the Agreement, except as disclosed in the preliminary commitment for title insurance or 3 4 as otherwise disclosed to Buyer in writing prior to closing; (g) there is no pending or threatened condemnation or similar proceedings affecting the Property, and except as otherwise disclosed in the preliminary commitment for title insurance as or otherwise disclosed to Buyer in writing prior to closing, the Property is not within the boundaries of any planned or authorized local improvement district; (h) Seller has paid (except to the extent prorated at closing) all local, state and federal taxes (other than real and personal property taxes and assessments described in Section 8 above) attributable to the period prior to closing which, if not paid, could constitute a lien on Property (including any personal property), or for which Buyer may be held liable after closing; and (i) Seller warrants that, to the best of Seller's knowledge, there are no pending or threatened notices of violation of building, zoning, or land use codes applicable to the property, and that Seller is not aware of any concealed material defects in the Property except _________________. Seller makes no representations or warranties regarding the Property other than those specified in this Agreement, Buyer otherwise takes the Property "AS IS," and Buyer shall otherwise rely on its own pre-closing inspections and investigations. 13. HAZARDOUS SUBSTANCES. Seller represents and warrants to Buyer that, to the best of its knowledge: (i) there are no Hazardous Substances (as defined below) currently located in, on, or under the Property in a manner or quantity that presently violates any Environmental Law (as defined below); (ii) there are no underground storage tanks located on the Property; and (iii) there is no pending or threatened investigation or remedial action by any governmental agency regarding the release of Hazardous Substances or the violation of Environmental Law at the Property. As used herein, the term "Hazardous Substances" shall mean any substance or material now or hereafter defined or regulated as a hazardous substance, hazardous waste, toxic substance, pollutant, or contaminant under any federal, state, or local law, regulation, or ordinance governing any substance that could cause actual or suspected harm to human health or the environment ("Environmental Law"). The term "Hazardous Substances" specifically includes, but is not limited to petroleum, petroleum by-products, and asbestos. Seller agrees to indemnify, defend and hold Buyer harmless from and against any and all claims, liabilities, losses, penalties, remediation costs and expenses (including attorneys' and consultants' fees and costs) that Buyer may incur or have asserted against it as a result of the presence of any Hazardous Substance in, on, or under the Property which violates any Environmental Law at any time prior to closing. The provisions of this Section 13 shall survive closing or termination of this Agreement. 14. PERSONAL PROPERTY. This sale includes the following personal property: [X] None [ ] That portion of the personal property located on and used in connection with the Property, which Seller will itemize in an Addendum to be attached to this Agreement within ten (10) days of mutual acceptance (None, if not completed). The value assigned to the personal property shall be the amount agreed upon by the parties and, if they cannot agree, the County-assessed value if available, and if not available, the fair market value determined by an appraiser selected by the Listing Agent and Selling Licensee. Seller warrants title to, but not the condition of, the personal property and shall convey it by bill of sale. 15. CONDEMNATION AND CASUALTY. Buyer may terminate this Agreement and obtain a refund of the earnest money, less any costs advanced or committed for Buyer, if improvements on the Property are destroyed or materially damaged by casualty before closing, or if condemnation proceedings are commenced against all or a portion of the Property before closing. 16. FIRPTA - TAX WITHHOLDING AT CLOSING. Closing Agent is instructed to prepare a certification (CIBA or PSMLA Form 22E, or equivalent) that Seller is not a "foreign person" within the meaning of the Foreign Investment in Real Property Tax Act. Seller agrees to sign this certification. If Seller is a foreign person, and this transaction is not otherwise exempt from FIRPTA, Closing Agent is instructed to withhold and pay the required amount to the Internal Revenue Service. 17. CONVEYANCE. Title shall be conveyed by a Statutory Warranty Deed subject only to the Permitted Exceptions. If this Agreement is for conveyance of Seller's vendee's interest in a Real Estate Contract, the Statutory Warranty Deed shall include a contract vendee's assignment sufficient to convey after acquired title. At closing, Seller shall transfer to 4 5 Buyer by written assignment all agreements, service contracts, rental agreements, tenant leases, leases of potential property or fixtures, and any other agreements or contract rights which Buyer is assuming pursuant to Section 5 of the Agreement. The written assignment shall provide that Seller shall be responsible for and shall indemnify Buyer against any defaults occurring by reason of actions taken by Seller or performance due prior to closing, and that Buyer shall assume and indemnify Seller against liability arising from all performance due after closing. 18. SEATTLE REQUIREMENTS. If the Property is in the City of Seattle, (a) Seller shall deliver to Buyer a Certificate of Land Use and Local Assessments (not applicable to single family dwellings not represented to be a lawful site for more than one dwelling unit), and (b) Seller warrants that U.L. approved smoke detectors are installed. Only in buildings constructed before 1980 may the smoke detectors be battery powered. 19. NOTICES. Unless otherwise specified, any notice required, or permitted in, or related to, this Agreement must be in writing; signed by any one Buyer or Seller (including either husband or wife); and received by or at the selling office of Selling Licensee who, for this limited purpose, shall be the Agent of both parties. Any time limit in or applicable to a notice shall commence on the day following receipt of the notice by the Selling Licensee, unless that is a Saturday, Sunday or holiday, in which event it will commence on the next following business day. SELLER AND BUYER MUST KEEP SELLING LICENSEE ADVISED OF THEIR WHEREABOUTS TO RECEIVE PROMPT NOTIFICATION OF RECEIPT OF NOTICE. SELLING LICENSEE HAS NO RESPONSIBILITY TO ADVISE OF RECEIPT OF A NOTICE BEYOND EITHER PHONING THE PARTY OR CAUSING A COPY OF THE NOTICE TO BE DELIVERED TO THE PARTY'S ADDRESS ON THIS AGREEMENT. 20. AGENCY DISCLOSURE. At the signing of this Agreement, Selling Licensee, Bob Bencze and Arvin Vander Veen of Colliers Macaulay Nicolls International, represented Buyer, and Listing Agent, N/A, represented Seller. Each party signed this Agreement confirms that prior oral and/or written disclosure of agency or non-agency was provided to him/her in this transaction. 21. ASSIGNMENT. Buyer [X] may [ ] may not (may not, if not completed) assign this Agreement, or Buyer's rights hereunder, without Seller's prior written consent, unless provided otherwise herein. 22. DEFAULT AND ATTORNEY'S FEE. In the event Buyer fails, without legal excuse, to complete the purchase of the Property, then (check one): [X] that portion of the earnest money which does not exceed five percent (5%) of the purchase price shall be forfeited to Seller (subject to Seller's obligation to pay certain costs and a commission under Section 25 below) as the sole and exclusive remedy available to Seller for such failure; or Seller may, at its option, (a) keep as liquidated damages all or a portion of the earnest money (subject to Seller's obligation to pay certain costs and a commission under Section 21 below) as the sole and exclusive remedy available to Seller for such failure, (b) bring suit against Buyer for Seller's actual damages, (c) bring suit to specifically enforce this Agreement and recovery any incidental damages, or (d) pursue any other rights or remedies available at law or equity. If Buyer, Seller, Listing Agent or Selling Licensee institutes suit concerning this Agreement, the prevailing party is entitled to court costs and a reasonable attorney's fees. In the event of trial, the amount of the attorney's fees shall be fixed by the court. The venue of any suit shall be the county in which the Property is located, and this Agreement shall be governed by the laws of the state where the Property is located. 23. MISCELLANEOUS PROVISIONS. A. COMPLETE AGREEMENT. The Agreement and any addenda and exhibits to it state the entire understanding of Buyer and 5 6 Seller regarding the sale of the Property. There are no verbal agreements which modify or affect the Agreement. B. NO MERGER: The terms of the Agreement shall not merge in the deed or other conveyance instrument transferring the Property to Buyer at closing. The terms of this Agreement shall survive closing. C. COUNTERPART SIGNATURES. The Agreement may be signed in counterpart, each signed counterpart shall be deemed and original, and all counterparts together shall constitute one and the same agreement. 24. ACCEPTANCE; COUNTEROFFERS. Seller has until 12:30 p.m. of July 5, 1996 to accept this offer (if not filled in, the third business day following the last Buyer signature below). Acceptance is not effective until a signed copy hereof is actually received by or at the office of Selling Licensee. If this offer is not so accepted, it shall lapse and Selling Licensee shall refund the earnest money to Buyer. (If either party makes a future counteroffer, the other party shall have until 5:00 p.m. on the ______ day (if not filled in, the second day) following the receipt or at the office of Selling Licensee to accept the counteroffer, unless sooner withdrawn. Acceptance is not effective until a signed copy thereof is received by or at the office of Selling Licensee. If the counteroffer is not accepted or countered, this Agreement shall lapse and the earnest money shall be refunded to the Buyer. 25. SELLER'S ACCEPTANCE AND BROKERAGE AGREEMENT. Seller agrees to sell the Property on the terms and conditions herein, and further agrees to pay a commission in an amount computed in accordance with the listing agreement. If there is no written listing agreement, Seller agrees to pay a commission of _______ ( %) of the sales price or One Hundred Thousand and No/100 Dollars ($100,000). This is a reduced commission from the normal 6% or $165,000. The commission shall be apportioned between Listing Agent and Selling Licensee as specified in the listing agreement or any co-brokerage agreement. Seller assigns to Listing Agent and Selling Licensee a portion of the sales proceeds equal to the commission. If the earnest money is retained as liquidated damages, any costs advanced or committed by Listing Agent or Selling Licensee for Buyer or Seller shall not be reimbursed or paid therefrom, and the balance shall be paid one-half to Seller and one-half to Listing Agent and Selling Licensee according to the listing agreement and any co-brokerage agreement. Seller acknowledges receipt of a copy of this Agreement, signed by both parties. 26. LISTING AGENT AND SELLING LICENSEE DISCLOSURE. EXCEPT AS OTHERWISE DISCLOSED IN WRITING TO BUYER OR SELLER, NEITHER SELLING LICENSEE NOR LISTING AGENT HAS MADE ANY REPRESENTATIONS OR WARRANTIES CONCERNING THE LEGAL EFFECT OF THIS AGREEMENT, BUYER'S OR SELLER'S FINANCIAL STRENGTH, OR THE PROPERTY, INCLUDING WITHOUT LIMITATION, THE PROPERTY ZONING, COMPLIANCE WITH APPLICABLE LAWS (INCLUDING LAWS REGARDING ACCESSIBILITY FOR DISABLED PERSONS), OR HAZARDOUS MATERIALS. SELLER AND BUYER ARE EACH ADVISED TO SEEK INDEPENDENT LEGAL AND TAX ADVICE ON THESE AND OTHER MATTERS RELATED TO THIS AGREEMENT. IF THE SAME BROKER REPRESENTED BOTH BUYER AND SELLER IN THIS TRANSACTION, BUYER AND SELLER HEREBY CONFIRM THAT THEY WERE TIMELY ADVISED OF THE DUAL REPRESENTATION, THAT THEY CONSENTED AND HEREBY CONSENT TO THE SAME AND THAT THEY DO NOT EXPECT THE BROKER TO DISCLOSE TO EITHER OF THEM ANY CONFIDENTIAL INFORMATION OBTAINED FROM THE OTHER PARTY. UNITED SUPPORT ASSOCIATION, INC. Buyer /s/ CHRISTOPHER CARDE Date JULY 4 19 96 Home Ph. __________________________ ___________ ____ _______________ Buyer Date 19 Home Ph. __________________________ ___________ ____ _______________ 6 7 Buyer's Address:_______________________________________ Fax No.________________ Selling Licensee (Company) By /s/ BOB BIANCIO _________________________________________ Seller_________________________ Date___________ 19 ____ Home Ph._______________ Seller_________________________ Date___________ 19 ____ Home Ph._______________ Print Seller's Names:_________________________________________ Seller's Address:_____________________________________________ Listing Office:_______________________________________________ 27. BUYER'S RECEIPT. Buyer acknowledges receipt of a Seller signed copy of this Agreement on _________________________________, 19_____. BUYER___________________________________ Buyer__________________________________ 7 8 COLLIERS MACAULAY NICOLLS INTERNATIONAL ADDENDUM NO. 1 ADDENDUM NO. 1 to Real Estate Purchase and Sale Agreement dated July 4, 1986, by and between United Support Association, Inc., as Purchaser, and James M. Saghi, as his separate estate, as Seller. 1. Purchase Price Payment The purchase price is payable to Sun Life of Canada as follows: $750,000 in cash at the time of closing to include any earnest money paid. The balance of $2,550,000 shall be placed on a promissory note secured by a first deed of trust with Sun Life of Canada on subject property. The note shall call for monthly payments of $50,000 for the first twelve months to include interest at the rate of 8% per year starting thirty (30) days from the date of closing. The next eighteen months shall call for monthly payments of $100,000 to include interest at the rate of 8% per year. The note shall be due on the thirty-first month when the remaining balance and interest shall be due. There shall be no pre-payment penalty. 2. Sun Life Approval This agreement is subject to approval of the financial terms by Sun Life of Canada. 3. James M. Saghi and Sun Life of Canada agree to hold harmless and indemnify United Support Association, Inc. from any cause of action, present or future, arising directly or indirectly between Sun Life of Canada and James M. Saghi concerning the subject property. 4. James M. Saghi shall surrender the deed in lieu of foreclosure to Sun Life of Canada upon acceptance of the financial terms of the subject Purchase and Sale Agreement. 5. Seller is to terminate all leases, service agreements and contracts affecting subject property by July 26, 1996. ACKNOWLEDGED AND AGREED to this ACKNOWLEDGED AND AGREED to this 4th day of JULY, 1996. ____day of________________, 1996. BUYER SELLER By: /s/ CHRISTOPHER CARDE By: ________________________________ ________________________________ Its:_______________________________ Its:_______________________________ 8 9 EXHIBIT A LEGAL DESCRIPTION OF PROPERTY PARCEL 1: LOTS 1, 2 AND 3 IN BLOCK 15 OF HILLMAN'S SEATTLE GARDEN TRACTS, AS PER PLAT RECORDED IN VOLUME 11 OF PLATES, PAGE 24, RECORDS OF KING COUNTY: EXCEPT THE NORTHEASTERLY 40 FEET THEREOF CONDEMNED FOR ROAD PURPOSES IN KING COUNTY SUPERIOR COURT CAUSE NO. 109001; TOGETHER WITH AN EASEMENT FOR EXISTING DRIVEWAY OVER AND ACROSS THE SOUTHERLY 5 FEET OF THE EASTERLY 315 FEET OF LOT 4 IN SAID BLOCK; EXCEPT THE NORTHEASTERLY 40 FEET THEREOF CONDEMNED AS AFORESAID; SITUATED IN THE CITY OF TUXWILA, COUNTY OF KING, STATE OF WASHINGTON. PARCEL 2: THE NORTH 250 FEET, AS MEASURED ALONG THE WEST LINE OF LOT 2, INTERURBAN ADDITION TO SEATTLE, AS PER PLAT RECORDED IN VOLUME 10 OF PLATS, PAGE 55, RECORDS OF KING COUNTY; EXCEPT THAT PORTION DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHWEST CORNER OF SAID LOT; THENCE SOUTH ALONG THE WEST LINE OF SAID LOT 250.00 FEET; THENCE NORTH 89 DEGREES 37 MINUTES 52 SECONDS EAST 178.40 FEET; THENCE NORTHWESTERLY TO A POINT ON THE NORTH LINE OF SAID LOT WHICH IS NORTH 89 DEGREES 37 MINUTES 52 SECONDS EAST A DISTANCE OF 10.00 FEET FROM THE POINT OF BEGINNING; THENCE SOUTH 89 DEGREES 37 MINUTES 52 SECONDS WEST 10.00 FEET TO THE POINT OF BEGINNING OF SAID EXCEPTION. SITUATED IN THE CITY OF TUKWILA, COUNTY OF KING, STATE OF WASHINGTON. PARCEL 3: THAT PORTION OF TUKWILA TRAP NO. 1 LYING SOUTHERLY OF LOT 1, BLOCK 15 OF HILLMAN'S SEATTLE GARDEN TRACTS, AS PER PLAT RECORDED IN VOLUME 11 OF PLATS, PAGE 24, RECORDS OF KING COUNTY, WASHINGTON DESCRIBED AS FOLLOWS: BEGINNING AT A POINT ON THE SOUTH LINE OF SAID LOT 1, LYING S89 DEGREES 37 FEET 52 INCHES W 136.89 FEET FROM THE INTERSECTION OF SAID SOUTH LINE, WITH THE SOUTHWESTERLY MARGIN OF INTERURBAN AVENUE SOUTH (THE SOUTHWESTERLY LINE OF THE NORTHEASTERLY 40 FEET OF LOT 1); THENCE N89 DEGREES 37 FEET 52 INCHES E 39SE FEET TO A POINT ON A CURVE TO THE RIGHT WITH A 150.00 FOOT RADIUS AND INITIAL RADIAL BEARING OF S22 DEGREES 13 FEET 28 INCHES E. THENCE SOUTHWESTERLY ON SAID CURVE AN ARC OF 122.06 FEET AND 9 10 CENTRAL ANGEL OF 3 DEGREES LESS THAN 42 FEET 40 INCHES TO THE SOUTH LINE OF SAID LOT 1; THENCE N89 DEGREES 37 FEET 52 INCHES E 59.56 FEET TO THE POINT OF BEGINNING. 10 11 COLLIERS MACAULAY NICHOLLS INTERNATIONAL DEPOSIT NOTE $200,000 Seattle, Washington July 4, 1996 FOR VALUE RECEIVED, each of the undersigned promises to pay in lawful money of the United States, without grace, to Colliers Macaulay Nicholls International ("CMNI"), or order, at Seafirst Fifth Avenue Plaza, 800 Fifth Avenue, Suite 3000, Seattle, Washington 98104, or at such other place as the holder hereof from time to time may designate in writing, the principal sum of Two Hundred Thousand and No/100 Dollars ($200,000) with no interest thereon. This note shall be paid on removal or waiver of contingencies contained in the Real Estate Purchase and Sale Agreement of even date herewith. After maturity, this Note shall bear interest at the maximum legal rate. If this Note shall be placed in the hands of an attorney for collection or if ___________ shall be brought to collect any of the principal or interest on this Note, each of the undersigned promises to pay all costs of collection, including reasonable attorneys' fees incurred thereby. Each maker of this Note executes the same as a principal and not as a __________. The obligations of this Note shall be joint and several. Each of the undersigned and all endorsers and all persons liable or to become liable on this Note under ____________________, demand _________ and notice of demand, ____________ and nonpayment and consent to any and all remedies and _____________ of the ____________ of payment hereof may be modified without affecting the liability of any party to this Note or any person liable with respect to any individuals _______________ thereby. This Note shall be construed according to the laws of the State of Washington. PURCHASER: By: /s/ CHRISTOPHER CARDE ____________________________ Its:___________________________ Date: 7/4/96 __________________________ Address: 11 12 PROMISSORY NOTE $3,3335,000.00 Dated: June 18, 1992 Seattle, Washington FOR VALUE RECEIVED, the undersigned, JAMES M. SAGHI, a married man as his sole and separate property (hereinafter referred to as the "Maker"), hereby promises to pay to the order of SUN LIFE ASSURANCE COMPANY OF CANADA (U.S.), a Delaware corporation (hereinafter referred to as the "Holder"), c/o Draper Shaw Associates, Inc., 9706 Fourth Avenue N.E., Suite 201, Seattle, Washington 98115, or at such other place as the Holder may from time to time designate in writing, the principal sum of THREE MILLION THREE HUNDRED FIFTY-FIVE THOUSAND AND NO/100 DOLLARS ($3,355,000.00), plus interest on the outstanding principal at the rate of nine percent (9%) per annum from the day the funds of the loan evidenced by this Note are wire transferred by Holder until fully paid, payable in the following manner: On the first (1st) day of July, 1992, all interest which will accrue under this Note from the day of wiring the loan funds through June 30, 1992 shall be paid by the Maker to the Holder. Commencing on the first (1st) day of August, 1992, and on the first (1st) day of each calendar month thereafter, Maker shall make payments of principal and interest at said rate to Holder in the amount of TWENTY-SIX THOUSAND NINE HUNDRED NINETY-SIX AND NO/100 DOLLARS ($26,996.00) per month. Notwithstanding anything to the contrary contained herein, the entire unpaid principal balance plus accrued interest shall be paid in full in the form of a final balloon payment on May 31, 1997. Notwithstanding anything further to the contrary, in the event the encroachment of the building on the Property onto the South 147th Street right-of-way and any set-back violation related thereto are not fully resolved to Holder's satisfaction by May 31, 1993, then the entire unpaid principal balance plus accrued interest shall be due in full on June 1, 1993. All scheduled payments shall, in the absence of a default by Maker under this Note, be applied first to the interest due, and any balance shall be applied in reduction of principal. The principal and interest hereto shall be payable in lawful money of the United States of America which shall be legal tender for public and private debts at the time of payment. In no event shall the interest rate exceed the legal rate of interest provided for under the laws of the State of Washington. The privilege is reserved to prepay in full, but not in part, on any monthly payment due, subject to giving thirty (30) days' prior written notice and subject to the payment of a prepayment premium which shall be the greater of (a) two percent (2%) of the then outstanding balance of this Note, or (b) a Yield Maintenance Prepayment Fee computed as follows: the proceeds of the prepayment will be assumed to be immediately reinvested in a United States Treasury Security having a coupon interest rate and maturity most closely equivalent to that of this Note. If the yield on that certain United States Treasury Security, as published in the Wall Street Journal on the fifth (5th) business day prior to the date of prepayment, is: (1) less than nine percent (9%) per annum, Maker shall pay to Holder a fee equal to the positive difference between the two, divided by twelve (12), multiplied by the number of whole or partial months remaining until the maturity date of this Note and multiplied by the then outstanding balance of this Note; or (2) greater than or equal to nine percent (9%) per annum, then the prepayment fee shall be two percent (2%) of the then outstanding balance of this Note. No prepayment premium shall be due after February 28, 1997. If an event of default occurs under this Note or the documents securing the loan evidenced by this Note, thereby causing Holder to accelerate the loan evidenced by this Note prior to the maturity date, including the last eleven (11) days prior to a non-judicial trustee's sale under RCW 61.24 Holder will sustain damages due to the loss of its investment. Accordingly, in the event of any default and consequent 12 13 acceleration of the Note, the Deed of Trust or any other instruments given as further security for repayment of this Note, Maker will be required, to the extent permitted by law, to pay as liquidated damages an acceleration premium of the greater of (a) three percent (3%) of the then outstanding balance of this Note, or (b) a reinvestment formula amount calculated as follows: the amount accelerated will be assumed to be immediately reinvested in a United States Treasury Security having a coupon interest rate and maturity most closely equivalent to that of this Note. If the yield on that certain United States Treasury Security, as published in the Wall Street Journal on the fifth (5th) business day prior to the date of acceleration, is: (1) less than nine percent (9%) per annum, Maker shall pay Holder an acceleration premium equal to the positive difference between the two, divided by 12, multiplied by the number of whole or partial months remaining until the original maturity date of this Note, and multiplied by the then outstanding balance of this Note, or (2) greater than or equal to nine percent (9%) per annum, than the acceleration premium shall be three percent (3%) of the then outstanding balance of this Note. It is agreed that payment of this acceleration premium shall be additionally secured by the loan documents and will not preclude Holder from seeking enforcement of any other remedies available to it at law or in equity. No acceleration premium shall be payable if the loan evidenced by this Note is reinstated more than eleven (11) days prior to the trustee's sale. No prepayment premium shall be charged on involuntary prepayments occasioned by condemnation, fire or casualty. This Note evidences a loan and is secured by a first Deed of Trust of even date herewith executed and delivered by Maker covering certain real property therein described, together with any other security given to further secure this Note (collectively called the "Property" herein). It is hereby expressly agreed that, should any payment of any installment of interest and/or principal not be made when due hereunder, then Maker shall be in default under this Note and the entire indebtedness represented hereby shall, at the option of the Holder of this Note, without notice, become immediately due and payable. In addition, the Holder of this Note may collect a "late charge" not to exceed an amount equal to six percent (6%) of any installment which is not paid within ten (10) days of when due, to cover the extra expenses involved in handling delinquent payments. In the event of default in the payment of any installment, or in any term or condition hereof, or in the Deed of Trust or any other agreement between Maker and Holder pertaining to the indebtedness evidenced hereby, then, with such notice as may be required by the Deed of Trust and expiration of the applicable cure period, if any, the entire unpaid balance of this Note shall bear interest at thirteen percent (13%) per annum (the "Default Rate"). For the purpose of protecting Holder's security, keeping the Property free from subordinate financing liens and allowing Holder to raise the interest rate and collect assumption fees, Maker agrees that any sale, conveyance, further encumbrance (including the granting of any easements or other matters affecting title) or other transfer of title to the Property, or any interest therein (whether voluntarily or by operation of law) without Holder's prior written consent shall be an event of default, the entire balance of the indebtedness and all other sums evidenced by this Note or secured by the Deed of Trust shall be and become immediately due and payable, at the option of Holder. In addition, to the extent permitted by law, any prepayment charge or acceleration premium due under this Note shall also be payable. Any consent by Holder permitting an otherwise prohibited transfer or transaction shall not constitute a consent to or waiver of any right, remedy or power of Holder to withhold its consent on a subsequent occasion to a transfer not otherwise permitted by the provisions hereof. 13 14 For the purpose of, and without limiting the generality of the foregoing, the occurrence at any time of any of the following events without Holder's prior written consent shall be deemed to be an unpermitted transfer of title to the property and shall constitute an event of default under this Note. (a) any sale, conveyance, assignment, including any assignment for the benefit of creditors, or other transfer of, or the grant of a lien or security interest in, all or any part of the legal or equitable interest in the Property; or (b) any transfer, assignment, sale, encumbrance or other distribution of any general partnership or stock interest in Maker, or any partnership or stock interest in any partnership or corporate general partner of Maker. Notwithstanding the foregoing, one time only during the term of the Note, Holder hereby agrees to consent to the transfer of the Property in its entirety from the original Maker to an independent third party on an arms length basis so long as the purchaser is acceptable to Holder as measured and analyzed by normal and ordinary standards of financial strength, credit history, real estate management ability and experience and professional character, and so long as Maker pays Holder an assumption fee equal to the two percent (2%) of the then outstanding principal balance of the Note. Notwithstanding the foregoing, Maker shall have the right to transfer the Property to a trust or trusts controlled by Maker without payment of an assumption fee and any transfer resulting from the death of Maker shall not require either the consent of Holder or the payment of any fee. If any action is instituted to collect this Note, or any part hereof, or if it is placed in the hands of an attorney for collection, the undersigned promises and agrees to pay, in addition to any costs and disbursements provided by statute, all costs (including, but not limited to attorneys' fees, including such fees in any trial or appellate proceeding should litigation be instituted) incurred in connection with the collection thereof. The Maker and any endorsers hereof and all others who may become liable for all or any part of this obligation, agree hereby to be jointly and severally bound, and waive any homestead or exemption right against said debt, and, except for notices required to be given pursuant to the terms of this Note or the Deed of Trust, if any, jointly and severally waive presentment, protest and demand, notice of protest and demand, notice of dishonor and non-payment of this Note and any and all lack of diligence or any assignment of this Note and/or the Deed of Trust or any other agreements evidencing or securing this Note, extension of time, release of any party liable for this obligation, release of any security for this Note, or any other indulgence or forbearance whatsoever. Any such assignment, extension, release, indulgence or forbearance may be made without notice to the undersigned and without in any way affecting the personal liability of the undersigned. The Maker shall pay to the Holder, when so requested by Holder, in addition to the required installment of interest and principal, a monthly installment of one-twelfth (1/12th) of the annual real estate taxes, insurance premiums and assessments that may be assessed upon the property described in the Deed of Trust securing this Note. Delay in exercising any of the Holder's rights or options hereunder shall not constitute a waiver thereof, and waiver of any right or option shall not constitute a waiver of the right to exercise the same in the event of any subsequent default. If more than one person executes this Note, the term "Maker" shall include each as well as all of them and their obligations hereunder shall be joint and several. The provisions of this Note shall be binding upon and inure to the benefit of the heirs, personal representatives, successors and assigns of the parties hereto. 14 15 This Note shall be construed according to the laws of the State of Washington. Time is of the essence of this Note and each and every term and provision hereof. Maker's financial responsibility for repayment of this Note is limited to the Property, both real and personal, securing repayment of this Note and Maker shall not be personally liable to Holder for any monetary deficiency arising from a foreclosure or similar action, should such occur. No such financial responsibility limitation shall apply, however, to any insurance proceeds or condemnation awards received by Maker and not applied according to the terms of the Deed of Trust, nor shall it apply to any rents received by Maker subsequent to any default by Maker under this Note or the Deed of Trust and not applied to the operation of the property securing this Note or to this Note, nor will Maker's liability be limited with respect to any matter arising from any action taken against Maker or Holder as owner of the property securing this Note for violation of any environmental protection law or ordinance, including, but not limited to, all laws pertaining to asbestos, all as more fully set forth in the Environmental Indemnity Agreement executed by Maker in favor of Holder of even date herewith. Further, Maker hereby agrees to undertaken and indemnify and hold Holder harmless from any and all claims, including environmental claims, as may become liens prior and superior to the Deed of Trust. MAKER: ------ /s/ JAMES M. SAGHI -------------------------------------- JAMES M. SAGHI 15 EX-10.8 9 EMPLOYMENT AGREEMENT DATED JUNE 24, 1997. 1 Exhibit 10.8 EMPLOYMENT AGREEMENT 1. PARTIES: This Agreement is between Wade Cook Seminars, Inc., 14675 Interurban Avenue South, Seattle, Washington 98168 ("WCSI")and Wade B. Cook of Seattle, Washington ("Cook"). 2. POSITION: Cook shall be employed by WCSI as President and Chief Executive Officer. Cook shall report directly to the Board of Directors in accordance with the Bylaws and Articles of Incorporation. 3. EMPLOYMENT TERM: Cook shall be employed from July 1, 1997 through June 30, 2000 unless otherwise mutually agreed. 4. SALARY: Cook shall be paid a minimum salary of U.S. $240,000 for the first year of this Agreement, $265,000 for the second year of this Agreement, and $290,000 for the final year of this Agreement. Cook shall be paid in accordance with WCSI's standard method of payment for executives. Cook may receive additional bonuses for work as approved by the Board of Directors ("Board"). 5. OTHER COMPENSATION: Cook shall also receive the following benefits: A. Six weeks annual vacation leave; B. Use of a company car; C. Reimbursement of reasonable travel and other business expenses incurred by Cook in the performance of his executive duties; D. Health insurance for Cook and his family through WCSI's customary provider; E. Compensation for reasonable tax and accountancy advice; F. $1 million life insurance policy up to a reasonable cost of $7500 per year; and G. Any other benefits provided executive employees of WCSI as outlined in the current Personnel Handbook or as directed by the Board of Directors. 6. TERMINATION: This Agreement may be terminated as follows: 1 2 A. By Death: WCSI shall pay to Cook'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 WCSI's obligation shall terminate. Nothing in this Section shall affect any entitlement of Cook's heirs to the benefits of any life insurance plan purchased by WCSI. B. By Disability: If, in the opinion of the Board of Directors, Cook 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 WCSI shall terminate. C. By WCSI for Cause: WCSI may terminate, without liability and without prejudice to any other remedy to which WCSI 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, Cook acts, or fails to act, in bad faith and to the material detriment of WCSI or its subsidiaries, parent company or affiliates; (2) Cook 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 Cook's performance; (3) Cook commits any material act of dishonesty or a felony affecting WCSI, its subsidiaries, parent company or affiliates; (4) Cook has a chemical dependency which interferes with the performance of his executive duties and responsibilities; (5) Cook commits gross misconduct or neglect, or, in the reasonable and good faith opinion of the Board, demonstrates incompetence in the management of the affairs of WCSI or its subsidiaries, parent company or affiliates; (6) Cook is convicted of a felony or any crime involving moral turpitude, fraud or misrepresentation; or (7) Cook materially breaches any term of this Agreement upon 30 days written notice by WCSI. E. By WCSI Without Cause: The Employment Period may be terminated without Cause by WCSI only upon written notice and payment of six months severance pay. F. By Cook for Good Reason: Cook may terminate this Agreement for "Good Reason" upon 30 days written notice if WCSI requires Cook to relocate outside the Seattle area. Or G. By Cook without Good Reason: Upon six months written notice or as otherwise mutually agreed. 7. MERGER OR ACQUISITION OF WCSI: In the event of a merger by WCSI or its parent company, with another company during the Employment Term, Cook shall have the option of remaining in his current position as President and Chief Executive Officer or shall be allowed to terminate his employment with WCSI or new company upon the payment of the equivalent of the remainder of the Agreement. 8. SECRECY: Cook shall not divulge any proprietary information relating to WCSI or its subsidiaries, parent company or affiliates, which Cook may have acquired during his employment except as necessary in the performance of his duties with WCSI. 2 3 9. RETIREMENT: WCSI shall pay to any pension, life insurance or comparable financial planning scheme designated by Cook an amount equal to 10% of Cook's gross salary (up to the maximum amount permissible under the law). 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 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. 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 Washington. 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 24th day of June, 1997. WADE COOK SEMINARS, INC. By: /s/ Kiman Lucas ------------------------------- Name: Kiman Lucas Title: General Counsel Date: 6/24/97 /s/ Wade B. Cook - - ---------------------------------- Wade B. Cook Date: 6/24/97 EX-10.9 10 COMMERCIAL LEASE DATED JUNE 25, 1997. 1 EXHIBIT 10.9 COMMERCIAL LEASE This lease is made between Wade Cook Seminars, Inc., herein called Lessor, and U.S.A. Corporate Services, Inc., herein called Lessee. Lessor hereby offers to lease to Lessee the premises situated in the City of Tukwila, County of King, State of Washington, described as 1340 square feet of the second floor of 14675 Interurban Ave. South, Seattle, WA 98168, upon the following TERMS and CONDITIONS: 1. TERM AND RENT. Lessor agrees to rent the above premises for a term of 1 year, commencing July 1, 1997 and terminating on June 30, 1998 or sooner as provided herein at the monthly rental of ($1.00 per square feet) payable in advance on the first day of each month for that month's rental, during the term of this lease. All rental payments shall be made to Lessor, at the address specified above. 2. USE. Lessee shall use and occupy the premises for conducting business. The premises shall be used for no other purpose. Lessor represents that the premises may lawfully be used for such purpose. 3. CARE AND MAINTENANCE OF PREMISES. Lessee acknowledges that the premises are in good order and repair, unless otherwise indicated herein. Lessee shall, at his own expense and at all times, maintain the premises in good and safe condition, and shall surrender the same at termination hereof, in as good condition as received, normal wear and tear excepted. Lessee shall be responsible for all repairs required, excepting the roof, exterior walls and structural foundations. 4. ALTERATIONS. Lessee shall not, without first obtaining the written consent of Lessor, make any alterations, additions, or improvements, in, to or about the premises. 5. ORDINANCES AND STATUTES. Lessee shall comply with all statutes, ordinances and requirements of all municipal, state and federal authorities now in force, or which may hereafter be in force, pertaining to the premises, occasioned by or affecting the use thereof by Lessee. 6. ASSIGNMENT AND SUBLETTING. Lessee shall not assign this lease or sublet any portion of the premises without prior written consent of the Lessor, which shall not be unreasonably withheld. Any such assignment or subletting without consent shall be void and, at the option of the Lessor, may terminate this lease. 7. UTILITIES. The rental cost shall include heating, air conditioning, sewer, water, gas and electricity. Lessee shall be solely liable for all telephone services. 2 8. ENTRY AND INSPECTION. Lessee shall permit Lessor or Lessor's agents to enter upon the premises at reasonable times and upon reasonable notice, for the purpose of inspecting the same. 9. POSSESSION. If Lessor is unable to deliver possession of the premises at the commencement hereof, Lessor shall not be liable for any damage caused thereby, nor shall this lease be void or voidable, but Lessee shall not be liable for any rent until possession is delivered. Lessee may terminate this lease if possession is not delivered within 30 days of the commencement of the term hereof. 10. INDEMNIFICATION OF LESSOR. Lessor shall not be liable for any damage or injury to Lessee, or any other person, or to any property, occurring on the demised premises or any part thereof, and Lessee agrees to hold Lessor harmless from any claim for damages, no matter how caused. 11. INSURANCE. Lessee, at his expense, shall maintain plate glass and public liability insurance including bodily injury and property damage insuring Lessee and Lessor with minimum coverage as follows: Lessee shall provide Lessor with a Certificate of Insurance showing Lessor as additional insured. The Certificate shall provide for a ten-day written notice to Lessor in the event of cancellation or material change of coverage. To the maximum extent permitted by insurance policies which may be owned by Lessor or Lessee, Lessee and Lessor, for the benefit of each other, waive any and all rights of subrogation which might otherwise exist. 12. EMINENT DOMAIN. If the premises or any part thereof or any estate therein, or any other part of the building materially affecting Lessee's use of the premise, shall be taken by eminent domain, this lease shall terminate on the date when title vests pursuant to such taking. The rent, and any additional rent, shall be apportioned as of the termination date, and any rent paid for any period beyond that date shall be repaid to Lessee. Lessee shall not be entitled to any part of the award for such taking or any payment in lieu thereof, but Lessee may file a claim for any taking of fixtures and improvements owned by Lessee, and for moving expenses. 2 3 13. DESTRUCTION OF PREMISES. In the event of a partial destruction of the premises during the term hereof, from any cause, Lessor shall forthwith repair the same, provided that such repairs can be made within sixty (60) days under existing governmental laws and regulations, but such partial destruction shall not terminate this lease, except that Lessee shall be entitled to a proportionate reduction of rent while such repairs are being made, based upon the extent to which the making of such repairs shall interfere with the business of Lessee on the premises. If such repairs cannot be made within said sixty (60) days, Lessor, at his option, may make the same within a reasonable time, this lease continuing in effect with the rent proportionately abated as aforesaid, and in the event that Lessor shall not elect to make such repairs which cannot be made within sixty (60) days, this lease may be terminated at the option of either party. In the event that the building in which the demised premises may be situated is destroyed to an extent of not less than one-third of the replacement costs thereof, Lessor may elect to terminate this lease whether the demised premises be injured or not. A total destruction of the building in which the premises may be situated shall terminate this lease. 14. LESSOR'S REMEDIES ON DEFAULT. If Lessee defaults in the payment of rent, or any additional rent, or defaults in the performance of any of the other covenants or conditions hereof, Lessor may give Lessee notice of such default and if Lessee does not cure any such default within 30 days, after the giving of such notice (or if such other default is of such nature that it cannot be completely cured within such period, if Lessee does not commence such curing within such 30 days and thereafter proceed with reasonable diligence and in good faith to cure such default), then Lessor may terminate this lease on not less than 30 days' notice to Lessee. On the date specified in such notice the term of this lease shall terminate, and Lessee shall then quit and surrender the premises to Lessor, but Lessee shall remain liable as hereinafter provided. If this lease shall have been so terminated by Lessor, Lessor may at any time thereafter resume possession of the premises by any lawful means and remove Lessee or other occupants and their effects. No failure to enforce any term shall be deemed a waiver. 15. SECURITY DEPOSIT. Lessee shall deposit with Lessor on the signing of this lease the sum of 0 Dollars ($0) as security deposit for the performance of Lessee's obligations under this lease, including without limitation, the surrender of possession of the premises to Lessor as herein provided. If Lessor applies any part of the deposit to cure any default of Lessee, Lessee shall on demand deposit with Lessor the amount so applied so that Lessor shall have the full deposit on hand at all times during the term of this lease. 16. ATTORNEY'S FEES. In case suit should be brought for recovery of the premises, or for any sum due hereunder, or because of any act which may arise out of the possession of the premises, by either party, the prevailing party shall be entitled to all costs incurred in connection with such action, including a reasonable attorney's fee. 17. NOTICES. Any notice which either party may, or is required to give, shall be given by mailing the same, postage prepaid, to Lessee at the premises, or Lessor at the 3 4 address first written, or at such other places as may be designated by the parties from time to time. 18. HEIRS, ASSIGNS, SUCCESSORS. This lease is binding upon and inures to the benefit of the heirs, assigns and successors in interest to the parties. 19. SUBORDINATION. This lease is and shall be subordinated to all existing and future liens and encumbrances against the property. 20. ENTIRE AGREEMENT. The foregoing constitutes the entire agreement between the parties and may be modified only by a writing signed by both parties. 21. WASHINGTON LAW. This Agreement and its application shall be governed by the laws of the State of Washington. 22. 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 rules of the American Arbitration Association. 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. Signed this 25th day of June, 1997. U.S.A. Corporate Services, Inc. Wade Cook Seminars, Inc. By /s/ J. Scott Scheurman By /s/ Wade B. Cooke ------------------------------- ------------------------------- Lessee Lessor EX-10.10 11 AGREEMENMT BTWN WADE B. COOK AND LIGHTHOUSE 1 EXHIBIT 10.10 LIGHTHOUSE PUBLISHING GROUP, INC. PUBLISHING AGREEMENT This AGREEMENT is effective the 1st day of November 1996, 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, 98168-4664, (hereinafter called the Publisher). I. GRANT OF The Author hereby grants, assigns, and transfers to the RIGHTS Publisher the following exclusive rights and privileges to and in connection with a Work, presently entitled Real Estate Money Machine 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 book 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 28 , 1996 three finally revised copies of the manuscript, approximately 70,000 words in length, 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 shall MANUSCRIPT 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 acceptability COMPLIANCE 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 Page 1 2 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 the Author informed of such excess charges. SUBSEQUENT E. When the Publisher considers it necessary, it shall REVISIONS have the right in its 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 DETERMINA- manuscript of the Work for the printer in such manner as TION 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 REPRINT B. The Publisher shall pay the Author one half of the EDITION stipulated royalty, as stated above, on all copies sold from 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 remainder, 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 COPIES D. No royalties shall be paid on copies furnished gratis 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 Page 2 3 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. VI. REMAINDERS - A. If, in the opinion of the Publisher, the Work shall OVERSTOCK 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 this RIGHTS 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 3 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 sustained or recovered against the Publisher by reason of the publication or sale of the Work, arising from anything contained therein. Author shall also reimburse the Publisher for all expenses including court costs, attorneys' fees and amounts paid in settlement, sustained by the Publisher in resisting any claim, demand, suit, action or Page 3 4 proceeding asserted or instituted against the Publisher based upon the publication sale of the Work by reason of anything contained therein. PLAINTIFF ACTION B. The Author hereby grants to the Publisher the right, COPYRIGHT if copyright is in the Author's name, to bring in the name ASSIGNMENT of the Author as plaintiff or complainant, any action or 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. WITHDRAWAL In case the Publisher fails to keep said Work in print OF WORK and for sale and after written demand from the Author, 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. BANKRUPTCY A. If a petition in bankruptcy (as distinguished from reorganization or arrangement) shall be filed by the Publisher, or shall be filed against the Publisher and finally sustained, the Author shall have 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 the EXAMINATION 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-ANNUAL The Publisher agrees to render semi-annual statements of STATEMENTS account to March 31st and September 30th of each year, on the succeeding July 1st and January 1st and to make settlements in cash or about said last mentioned dates. In making accountings, the Publisher shall have the right to allow Page 4 5 PAYMENTS for a reasonable reserve against returns and nonpayment of invoices for copies billed out by the Publisher. 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 between the parties or their assigns. XVIII. 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. ASSIGNMENT This agreement shall be binding upon and shall ensure 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 ARBITRATION agreement 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 conditions 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 OF This agreement shall not be binding on either the 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. Page 5 6 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/ JERALD MILLER /s/ WADE B. COOK - - ------------------------------------ --------------------------------- By: Jerald Miller Wade B. Cook, Author 6/26/97 6/26/97 - - ------------------------------------ --------------------------------- Date: Date: /s/ JODI COAL /s/ ROBIN ANDERSON - - ------------------------------------ --------------------------------- Witness Witness Name: Jodi Coal Name: Robin Anderson 6/26/97 6/26/97 - - ------------------------------------ --------------------------------- Date: Date: -----END PRIVACY-ENHANCED MESSAGE-----