March 30, 2011 - ASN/Shipping Manifest

The ASC ship notice/manifest (commonly known as the advance shipping
notice or ASN) is primarily an electronic version of the packing slip. However, instead of being received with the shipment, the ASN is transmitted at the time the shipment is released by the supplier to the Transportation Company. When the ASN and purchase order acknowledgement are used together, there is no need to provide supersession, obsolescence, or quantity rounding exception information via paper documents.

In general, only the following types of information will be included on the ASN:

- product information -- shipped, backordered, or cancelled quantities, and the
disposition of remainders;

- purchase order reference for each specified part;

- shipment physical characteristics -- weight, number of boxes; and,

- shipment information -- date shipped, expected arrival date, shipping mode, and
transportation company used.

Ideally, the distributor should integrate the electronic receipt of the ASN into his existing computerized receiving function. For instance, the following combination of manual and automated procedures might be used:

1. The supplier generates and transmits the ASN, assigning a shipment number.
2. The distributor receives the electronic transmission, verifies that the referenced
purchase orders are valid, and stores it according to the shipment number.
a. If critical parts ordered are not contained in the shipment, the distributor might
immediately begin finding alternative sources.
b. If the shipment is large or is expected to arrive on the same day as other
shipments, thereby causing an overload of receiving operations, the distributor might schedule additional receiving dock personnel or prioritize processing of shipments based on need for the parts in transit.

March 30, 2011 - Sample Invoice

Invoice: Key - Price & Quantity/Terms
If services - professional services rendered.

*** Note on products - do we need to collect sales tax? What if you're wholesale and not retail? When do we collect tax - and when are we exempt re trading goods?

Sample Invoice

Cypress Technologies
Suite 7, 77 Marwood Place
Crestwood, B.C., V6T 7Q7
1-888-888-888

Sarah's Computer Bin
8424 Business Plaza
Vancouver, B.C., V9W 2T2

Att'n: Sarah Norgaard

INVOICE FOR:

1 HP OfficeJet Inkjet Color Printer $583.97
Sales TAX $29.20


TOTAL PAYABLE: $654.05



Invoice No. 754

Date of Invoice: Month Day, 2010

To be paid within 30 days of invoice date.

March 30, 2011 - Spring Break

Spring Break

March 23, 2011 - Homework reading

Please read chapters 6 and 7 for next class.

March 23, 2011 - Marketing (small business)

Marketing

Art of Branding

In groups of 2 or 3, discuss:

1. Do you need to spend money on marketing/branding in your small business?
>>> If yes, how much - or how do you control costs for marketing services?

2. On a scale of 1 to 10 - where would you rank the importance of "marketing" in your business?

3. Can sales reps do the marketing and branding for you?
(sales reps create their own catalog sheets, et al)

4. Regarding "create a contagion" - to what degree do you feel the following is important to your business:

Cool

Effective

Distinctive

Disruptive

Emotive

Deep

Indulgent

Supported


* * *

Recruit Evangelists

* * *

March 23, 2011 - Key Terms

Key Terms

Demurrage

Distressed load

Bill of lading (i.e, the B.L's) * * * controls

Load/weight optimization

PHYTOSANITARY CERTIFICATION

http://www.state.sd.us/doa/das/phyto.html

March 23, 2011 - Art of Pitching

Art of Pitching

Explain yourself in first minute (think about your catalog sheet) * * * can the account understand what is going on in the first minute?


[investor pitch - we're not borrowing any money]

* * * THE PITCH

Manage for cash flow, not profitability * * *
KEY: however, work toward salary on 1040, not "investment income" (more on this in class);

Build bottom up forecast

SHIP THEN TEST (i.e., beta test on Amazon or E-bay)

>>>>> Start as a service business, then grow to mfg.

Function not form
Pick your battles

Go direct
>>> position against the leader

March 23, 2011 - Never Worry About Your Competition

“Never worry about your competition” lecture – we will form teams and have a lively debate over this concept. Then, in-depth lecture and group activity lab over government contracting – and the role using and leveraging government cash contracts play in start-up and entrepreneurship.

*** Disclose everything discussion (personal v. business); and, note why the no doc programs came about. Also, if you can't make any money yourself, then be sure to advise others how to invest theirs. I want to make a personal note on the cash hold position and why cash is king. Even if you're holding cash at $100.00, you still have the 100.00 versus giving a percentage away to manage it, you're already in the hole; and, should your investment go down - then . . . . there are a number of problems with "investment managers" and we will go over the problems dealing with the "50/50" game - telling 50 investors stocks go up, then 50 they go down - you've made 50 people money, right? - and continue to grow your crop of investors through that system - bring on another 100 and do it again. Why would you ever trust anybody to handle your money other than yourself? Do you agree, all the saints are in heaven when it comes to business? Therefore, is it a logical conclusion that if you want to be in business, you must only look out for yourself? Or, the free enterprise system will eliminate you by "natural selection"?

March 23, 2011 - EPP Due

The EPP paper is due this evening.

March 19, 2011 - Compilation Paper - Business Project

Compilation Paper - Business Project (update)

Key Elements of the Business Project:

* * * This is an example * * *

Page 1 - Name (dba), mission statement, date, et al.
Page 2 - TOC
Page 3 - Overview of the firm * et al.
Page 4 - Catalog Sheet
Page 5 - Price Sheet
Page 6 to 9 - Bill of Lading (if applicable); sales agreements, * * * PO, invoice, ASN, freight considerations, file system, lease/buy, where is your office, et al.
Page 10 - Conclusion

Merge the compilation paper, with the business project and in a minimum of six (6) pages reflect on the course and what you have learned, et al. Please make sure and reference the text (cite per APA). This is a creative opportunity to integrate the course material and class discussions with your business plan. I would encourage debate and discourse in the paper about vertical/horizontal integration, detached management, competition, cash only, et al.

* * * We will discuss in class * * *

March 19, 2011 - EPP, Mr. Vandersloot

Review the following from Mr. Vandersloot re EPP:

http://www.inc.com/magazine/20041015/hidi-vandersloot.html

Avon ladies. Tupperware parties. Pyramid schemes. That's what most people think of when they hear "direct-marketing company of home and health care products." Frank VanderSloot has changed those perceptions. His Idaho-based company, Melaleuca, which manufactures and distributes natural products ranging from shampoo to vitamins to tile cleaner, has reinvented the direct-marketing model, beginning by dialing back the sales pressure. The company's five-year run on the Inc. 500 began in 1990, and last year Melaleuca had revenue of $546 million. Melaleuca's marketing executives, as the salespeople are called, earn anywhere from a few hundred dollars a year to, in a few rare cases, as much as $1.75 million annually.

Melaleuca began out of the ashes of a previous company. In 1985, I became CEO of Oil of Melaleuca, a multilevel marketing firm selling products based on melaleuca oil. This oil, distilled from the leaves of the melaleuca tree in Australia, has natural antiseptic, fungicidal, and analgesic properties. And it has a history: Australians used it in first-aid kits during World War II for minor skin conditions, abrasions, and insect bites. The idea was to take the oil and put it into cosmetics.

I hadn't done my due diligence on the company before I got there. The business was full of problems. Like most multilevel companies, commissions and revenue were based on the idea of getting people to set up a business selling the product to consumers. One guy tries to set the next guy up. That guy tries to set up the next guy. They make commissions by pushing large amounts of inventory.

I quickly learned the major problem with that business model: Not a lot of product gets to the end consumer. It looked like the company was bringing in a lot of money, but it was mostly revenue from starter kits sold to folks setting up their business.

We had all kinds of other problems as well. A lot of our distributors were making claims in regard to what melaleuca oil could do that were not substantiated with good science. Plus, the family that had started the company had invested in a ranch where it had been told 80% of all the melaleuca trees in the world stood. Not true. Maybe only 5% of the world's melaleuca trees were on this ranch.

I've learned that the bleakest of times is often the best opportunity. One of my first determinations as CEO was that we had to close the company. I went to the owners of the company, and I told them we could rebuild if we ditched the current business model and started over. I wanted to get as far away as possible from multilevel marketing. I also told them that I wanted to be a partner in the business. They said, "Okay, but you've got to invest what we invested." That was basically my life savings.

I learned a whole lot in the next five months. I learned that there are a lot of folks out there who want naturally oriented products that aren't based on wives' tales or folklore. They want scientifically documented products that really work. I also learned that there were a lot of people looking to make it on their own. It's really tough to start your own business. Forty years ago you could start a hamburger stand and sell a better hamburger, but you can't do it today. So my goal was to come up with a business model that not only would market good natural products, but would also help set people up in business without all the regulations.

We rolled out an entirely new business model and product line on September 1, 1985. We sold more than just melaleuca oil; we had other naturally oriented products, like a line of cleaning products. I told our distributors, "We're not going to be operating in that multilevel-marketing deal you guys were interested in. It's not going to be a get-rich-quick program." No one was going to be selling inventories to people, so there would be no incentive to load people with product.

We lost half of our distributors. Our first month's sales were $75,000. The first three or four years, we didn't grow very much, partially because we were still trying to communicate our business model to the masses. But after our fifth year, we made the Inc. 500.

In the beginning I used to write all the catalogs, all the sales literature, all the brochures. Now a lot of things have improved, starting with our literature. But it's essentially the same concept -- the distribution model has worked since the first day. When a customer goes online or calls in to place an order with us, the person who gave him that catalog will get a commission. No one is knocking on his door. He didn't come to a party where he was pressured into buying or selling something. And we save money because we don't do any advertising and we ship right from our factory to people's homes.

Let's say you've got an independent marketing person and he's out representing your products and having a whole lot of success. But you learn that he's doing it in a way that isn't quite ethical, or is exaggerating the viability of the product. Some companies may be tempted to say, "Well, wait, look how much business he's bringing us. We'll take the risk. Maybe we won't get in trouble. We don't want to tap him on the shoulder and say, 'You can't do this." We've never shied from that. If somebody does that it risks our entire business, our entire reputation. I don't care how much money you bring in, if you're doing it the wrong way, we're not going to let it happen.

I love Corporate America, but it's not necessarily fair. When I see people who are struggling financially, I want to help those folks out. My family didn't have much money growing up. We shopped at St. Vincent de Paul and Goodwill stores. We've tried to design a business model for those people who want to supplement their income because they would like to make some extra money or because they are in debt up to their eyeballs. Something like 190,000 people earn a check from Melaleuca each month. About 20,000 of them make their primary living through the company.

The best advice I can give is that bad news doesn't always equal bad results. If the original company, Oil of Melaleuca, had been even a marginal success then we wouldn't have been tempted to plow ahead. It's just because Oil of Melaleuca was such a disaster that Melaleuca has become a success. If something isn't working, don't be afraid to plow it under and start over.

* * *

http://www.theaimcompanies.com/

* * *

March 19, 2011 - Operating Agreement (Class Example)

Operating Agreement (Class Example)

Class Example


OPERATING AGREEMENT

of

_____________________ LLC

Dated Effective: _____________ __, 2010



TABLE OF CONTENTS
(The Table of Contents for this operating agreement is for convenience of reference only and is not intended to define, limit or describe the scope or intent of any provisions of this operating agreement.)

ARTICLE 1. FORMATION 1
1.1. Name. 1
1.2. Articles of Organization. 1
1.3. Principal Place of Business. 1
1.4. Registered Office and Registered Agent. 1
1.5. Business Purpose. 1
1.6. Agreement. 1
ARTICLE 2. MEMBERS, CONTRIBUTIONS, AND INTERESTS 2
2.1. Names; Addresses; Capital Contributions; Membership Interests. 2
2.2. Limitation of Liability. 2
2.3. No Liability for Company Debts. 2
2.4. No Member Authority. 2
2.5. Other Business of Members. 2
2.6. Additional Members. 2
2.7. Additional Contributions. 3
2.8. No Interest on Capital Contributions. 3
2.9. Loans; Guaranties. 3
ARTICLE 3. MEMBER MEETINGS 3
3.1. Meetings. 3
3.2. Notice of Meeting. 4
3.3. Record Date. 4
3.4. Quorum. 4
3.5. Proxies. 4
3.6. Voting. 4
ARTICLE 4. MANAGEMENT 4
4.1. Number and Qualifications of Managers. 4
4.2. Election of Managers. 4
4.3. General Authority. 4
4.4. Other Activities. 4
4.5. Meetings; Notices: Quorum; Voting. 5
4.6. Resignation. 5
4.7. Removal of Manager by Members. 5
4.8. Salaries. 5
4.9. Other Agents. 5
4.10. Employment of Members or Affiliates. 5
4.11. Tax Matters. 5
ARTICLE 5. ACTIONS WITHOUT NOTICE, WITHOUT MEETING OR BY TELEPHONE 6
5.1. Meeting of all Members or Managers. 6
5.2. Action Without Meeting. 6
5.3. Meetings by Telephone. 6
ARTICLE 6. ACCOUNTING AND RECORDS 6
6.1. Books of Account. 6
6.2. Fiscal Year. 6
6.3. Accounting Reports. 6
6.4. Tax Returns. 6
6.5. Taxes of Taxing Jurisdictions. 7
6.6. Tax Matters Partner. 7
ARTICLE 7. ALLOCATIONS AND DISTRIBUTIONS 7
7.1. Allocations Generally. 7
7.2. Allocations of Income from Sales. 7
7.3. Distributions. 7
7.4. Distribution of Cash from Operations. 7
7.5. Distributions Upon Sale of Assets. 7
7.6. Shared Priorities. 8
7.7. Capital Accounts. 8
7.8. Compliance with Section 704. 8
7.9. Priority and Return of Capital. 8
ARTICLE 8. TRANSFERS OF MEMBERSHIP INTERESTS 8
8.1. Restriction on Disposition. 8
8.2. Prohibited Transfers. 9
8.3. Option to Purchase on Bankruptcy or Withdrawal. 9
8.4. Admission of Assignees as Members. 10
8.5. Rights of Unadmitted Assignees. 10
ARTICLE 9. WITHDRAWAL AND DISSOLUTION 10
9.1. No Withdrawal. 11
9.2. Events of Dissolution. 11
9.3. Effect of Death of a Member. 11
9.4. Liquidation Upon Dissolution and Winding Up. 11
9.5. Valuation of Member's Interest. 11
9.6. Effect of Purchase of Member's Interest. 11
ARTICLE 10. INDEMNIFICATION 11
10.1. Indemnification. 12
10.2. Limitation of Liability. 12
ARTICLE 11. AMENDMENTS 12
11.1. By Members. 12
11.2. By Managers. 12
ARTICLE 12. MISCELLANEOUS 12
12.1. Additional Documents. 12
12.2. Headings. 12
12.3. Severability. 12
12.4. No Third Party Beneficiaries. 12
12.5. No Partnership Intended for Nontax Purposes. 13
12.6. Partnership Intended for Tax Purposes. 13
12.7. Binding Effect. 13
12.8. Construction. 13
12.9. Time. 13
12.10. Governing Law. 13
12.11. Waiver of Action for Partition; No Bill for Partnership Accounting. 13
12.12. Counterpart Execution. 13
12.13. Specific Performance. 13
12.14. Notice. 14
12.15. Rights and Remedies Cumulative. 14
12.16. Waivers. 14
12.17. Attorney Fees. 14


OPERATING AGREEMENT OF ___________________ LLC
an Idaho Limited Liability Company

The undersigned members, desiring to form a limited liability company under the Idaho Limited Liability Company Act (the "Act"), hereby agree as follows:

ARTICLE 1. FORMATION

1.1. Name. The name of the limited liability company is __________________ LLC (the “LLC”).
1.2. Articles of Organization. Articles of organization were filed with the Idaho Secretary of State on __________ __, 2004.
1.3. Principal Place of Business. The principal office of the LLC shall initially be at . The managers may relocate the principal office or establish additional offices from time to time.

1.4. Registered Office and Registered Agent. The LLC's initial registered office shall be at , Idaho 83714, and the name of its initial registered agent at such address shall be . The members may change the registered office and registered agent from time to time.

1.5. Business Purpose. The purpose of the LLC shall be to purchase, own, develop, build and construct commercial real estate, own, manage, lease and operate commercial, retail, and other real estate and other business establishments on that certain real property more particularly described in Exhibit A, attached hereto and incorporated herein (the “Property”), and to engage in any other lawful business.

1.6. Agreement. The members executing the operating agreement hereby agree to the terms and conditions of the operating agreement, as it may from time to time be amended according to its terms. To the extent any provision of the operating agreement is prohibited or ineffective under the Act, the operating agreement shall be considered amended to the smallest degree possible in order to make the agreement effective under the Act. In the event the Act is subsequently amended or interpreted in such a way to make any provision of the operating agreement that was formerly invalid valid, such provision shall be considered to be valid from the effective date of such interpretation or amendment.

ARTICLE 2. MEMBERS, CONTRIBUTIONS, AND INTERESTS

2.1. Names; Addresses; Capital Contributions; Membership Interests. The names and addresses of the members of the LLC and their initial capital contribution and membership interests are as set forth below:

Name and address Agreed Value Membership Interest
Capital Contribution

Land valued at
$___/square foot




2.2. Limitation of Liability. Each member's liability shall be limited to the maximum extent permitted by applicable law. The failure of the LLC to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs shall not be grounds for imposing personal liability on the members or managers for liabilities of the LLC.

2.3. No Liability for Company Debts. Except as otherwise expressly required by Idaho law, the debts, obligations and liabilities of the LLC, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the LLC, and no member shall be obligated personally for any such debt, obligation or liability of the LLC solely by reason of being a member. Except as otherwise expressly required by this operating agreement or by Idaho law, the liability of each member shall be limited to the amount of capital contributions, if any, required to be made by such member in accordance with this operating agreement, but only when and to the extent the same shall become due pursuant to the provisions of this operating agreement.

2.4. No Member Authority. No member shall have any power or authority to contract on behalf of the LLC or otherwise bind the LLC unless the member has been given written authorization from the managers to act as an agent of the LLC.
2.5. Other Business of Members. Any member may engage independently or with others in other business and investment ventures of every nature and description, even if such business is competitive with the business of the LLC, and shall have no obligation to account to the LLC for such business or investments or for business or investment opportunities.

2.6. Additional Members. No additional members shall be admitted without the unanimous consent of the managers, except that such consent is not required to admit a deceased member's spouse, estate or other beneficiary as a member in place of the deceased member.

2.7. Additional Contributions. Except as set forth in this Section 2.7, no member shall be required or permitted to make any additional capital contributions. In the event that at any time, pursuant to the vote of the managers, the managers determine that additional funds in excess of the capital contributions are required by the LLC for its business or any of its obligations, expenses, costs, liabilities or expenditures, or for improvements with respect to any LLC property, the members shall be required to contribute such additional funds in proportion to their percentage interests.

In the event, after being notified to do so, a member ("defaulting member") fails to contribute additional funds as required herein, the other members who have made their required contributions ("non-defaulting members") may contribute the additional funds needed pro rata based upon their percentage interests, in which case the advance shall be deemed a demand loan by the non-defaulting member or members to the defaulting member bearing interest at the rate of twelve (12) percent per annum from the date the advance is made. The non-defaulting members and the LLC shall have any and all other remedies available at law or in equity against the defaulting members, in addition to the opportunity to advance funds to the LLC as a demand loan to the defaulting member as described above. To the extent of such advance plus interest, any distributions otherwise due to the defaulting member shall instead be paid to the non-defaulting member or members (pro rata with the amounts advanced by each non defaulting member) who made such contribution. The defaulting member may again receive distributions after all defaults are cured, and any loans to non-defaulting members are repaid in full.

2.8. No Interest on Capital Contributions. Except as otherwise provided herein, no interest shall be paid on capital contributions.

2.9. Loans; Guaranties. The LLC may borrow money from any member or third parties upon such commercially reasonable terms and conditions as may be approved by the managers. The members acknowledge that in order to obtain third-party financing for the operation of the LLC, the members, or principals of the members, may be required by third-party lenders to execute guarantees for such financing (each a “Guarantor”). With regard to any and all obligations arising from or related to any guarantee of any loan to the LLC (a “Guarantee Obligation”), the members hereby agree that if any Guarantor is obligated to satisfy any Guarantee Obligation, such Guarantor shall have a right of contribution against the other members to the extent of each member’s respective Membership Interest. In addition, each member hereby agrees to indemnify and hold the other members harmless from any claim, costs, damages or expenses, including attorneys fees, incurred with regard to any Guarantee Obligation in excess of each indemnified member’s Membership Interest. The rights of indemnification and contribution provided herein are in addition to any additional rights or remedies provided by law, or by any other agreement among the members, and shall include all costs and expenses, including attorneys fees and interest, incurred by a member in enforcing the terms hereof and/or with regard to any such claim.

ARTICLE 3. MEMBER MEETINGS

3.1. Meetings. A meeting of members shall be held (a) if it is called by the managers; or (b) if members holding at least twenty-five percent (25%) of the membership interests sign, date, and deliver to the LLC's principal office a written request for the meeting, describing the purpose or purposes for which it is to be held. Meetings of members shall be held at the principal office of the LLC or any other place specified in the notice of meeting.

3.2. Notice of Meeting. Notice of the date, time, and place of each members' meeting shall be given to each member not more than sixty (60) days nor less than ten (10) days before the meeting date. The notice must include a description of the purpose or purposes for which the meeting is called.

3.3. Record Date. The persons entitled to notice of and to vote at a members' meeting, and their respective membership interests, shall be determined as of the record date for the meeting. The record date shall be a date, not more than seventy (70) days nor less than ten (10) days before the meeting, selected by the managers. If the managers do not specify a record date, the record date shall be the date on which notice of the meeting was first mailed or otherwise delivered.

3.4. Quorum. The presence, in person or by proxy, of members holding at least sixty six percent (66%) of the membership interests shall constitute a quorum.

3.5. Proxies. A member may be represented at a meeting in person or by written proxy.

3.6. Voting. Each member shall be entitled to a vote based on the member's membership interest in the LLC on each matter requiring action by the members. Except as otherwise stated in the articles of organization, this operating agreement, or applicable law, a matter submitted to a vote of the members shall be deemed approved if the membership interests voted in favor exceed those voted against the matter.

ARTICLE 4. MANAGEMENT

4.1. Number and Qualifications of Managers. As provided in the articles of organization, the LLC shall be managed by managers. The number of managers shall be the number elected by the members and acting as such from time to time, but shall not be less than one (1). Managers may be individuals or entities, and need not be members of the LLC. The initial manager shall be .

4.2. Election of Managers. If an initial manager resigns, the office of manager shall be filled by election at a meeting of members called for the purpose of electing managers; the meeting notice must state that the purpose, or one of the purposes, of the meeting is election of managers. A manager other than the initial manager shall serve for a term ending when the members next hold a meeting at which managers are elected, or until the manager's earlier death, resignation, or removal.

4.3. General Authority. Subject to restrictions that may be imposed from time to time by the managers or members, any manager shall be an agent of the LLC with authority to contract on behalf of the LLC or to otherwise bind the LLC in the ordinary course of its business. Except as otherwise provided in this operating agreement, if there is more than one (1) manager, all actions shall require the vote and consent of a majority of the managers, and upon such consent, all documents shall require the signature of one (1) manager before such signature shall be effective.

4.4. Other Activities. Managers may have other business interests and may engage in other activities in addition to those relating to the LLC even if those activities are competitive with the business of the LLC. This Section does not change a manager's duty to act in a manner that such manager reasonably believes to be in the best interests of the LLC.

4.5. Meetings; Notices: Quorum; Voting. In the event there is more than one (1) manager, meetings of the managers may be called by any manager. Meetings shall be held at the place fixed by the managers or, if no such place has been fixed, at the principal office of the LLC. Oral or written notice of the date, time, and place of any meeting shall be given at least twenty-four (24) hours in advance. Written notice may be delivered personally, given by facsimile or other form of wire communication, or by mail or private carrier, to each manager's business or home address. Written notice shall be effective at the earliest of the following: (a) when received, (b) when sent by facsimile or other form of wire communication, or (c) two business days after being mailed. A majority of the managers shall be required to constitute a quorum. Each manager shall be entitled to one vote. The matter submitted to a vote of the managers shall be deemed approved if a majority of the votes are cast in favor of the matter.

4.6. Resignation. A manager may resign at any time by delivering written notice to the members. The resignation is effective upon notice, unless the notice specifies a later effective date. Once delivered, a notice of resignation is irrevocable unless revocation is permitted by the members. The resignation of a manager who is also a member shall not affect the manager's rights as a member and shall not constitute a withdrawal of the member.

4.7. Removal of Manager by Members. The members may remove one or more managers with cause. A manager may be removed by the members only at a meeting called for the purpose of removing the manager and the meeting notice must state that the purpose, or one of the purposes, of the meeting is the removal of the manager.

4.8. Salaries. Managers may receive a salary or other compensation for services rendered to or on behalf of the LLC if approved by the members. A manager shall not be precluded from receiving a salary because the manager is also a member. Managers shall be reimbursed for out-of-pocket expenses incurred in performing their duties as managers of the LLC. Notwithstanding the foregoing, no compensation shall be paid at the time of execution hereof unless otherwise agreed by the members.

4.9. Other Agents. The managers may authorize any agent to enter into any lawful contract or to otherwise act on behalf of the LLC. Such authority may be general or be confined to specific instances.

4.10. Employment of Members or Affiliates. The manager may retain, employ, sell or lease any services of the members or affiliates of the members to the LLC, provided that such transaction is made on terms and conditions which are no less favorable to the LLC than if such transaction had been entered into with an independent third party, and such transaction is approved by the LLC. The members acknowledge and agree that shall provide construction services to the LLC on the terms and conditions set forth in that certain Development and Construction Agreement by and between the LLC and .

4.11. Tax Matters. Except as otherwise specifically provided herein or prohibited by law, the managers shall make any and all elections for federal and state income tax purposes, including, without limitation, any election, if permitted by applicable law to: i) adjust the basis of LLC property pursuant to Code '754, '734(b), and '743(b), or comparable provisions of state or local law, in connection with transfers of membership interests and LLC distributions; ii) extend the statute of limitations for assessment of tax deficiencies against members with respect to adjustments to the LLC's federal, state or local tax returns; and iii) represent the LLC before taxing authorities or courts of competent jurisdiction in tax matters affecting the LLC.

ARTICLE 5. ACTIONS WITHOUT NOTICE, WITHOUT MEETING OR BY TELEPHONE

5.1. Meeting of all Members or Managers. Notwithstanding any other provision of this operating agreement, if all of the members or all of the managers shall hold a meeting at any time and place, such meeting shall be valid without call or notice, and any lawful action taken at such meeting shall be the action of the members or managers, as the case may be.

5.2. Action Without Meeting. Any action required or permitted to be taken by the members or managers at a meeting may be taken without a meeting if a consent in writing, describing the action taken, is signed by all of the members or managers and is included in the minutes or filed with the LLC's records of meetings.

5.3. Meetings by Telephone. Meetings of the members or managers may be held by conference telephone or by any other means of communication by which all participants can hear each other simultaneously during the meeting, and such participation shall constitute presence in person at the meeting.

ARTICLE 6. ACCOUNTING AND RECORDS

6.1. Books of Account. The LLC's books and records, a register showing the names, addresses, and membership interests of the members, and this operating agreement shall be maintained by. Each manager and each member shall have access thereto at all reasonable times. shall keep books and records of the operation of the LLC which are appropriate and adequate for the LLC's business and for the carrying out of this agreement. A separate checking account will be opened for the LLC, and all records will be made available for all members as requested.

6.2. Fiscal Year. The fiscal year of the LLC shall be the calendar year.

6.3. Accounting Reports. At the end of each quarter, shall provide the members with quarterly financial reports of the activities of the LLC for the preceding quarter. Within 90 days after the close of each fiscal year, the manager shall cause each member to receive an unaudited report of the activities of the LLC for the preceding fiscal year, including a copy of a balance sheet of the LLC as of the end of such year and a statement of income or loss for such year.

6.4. Tax Returns. The manager shall cause all required federal and state income tax returns for the LLC to be prepared and timely filed with the appropriate authorities. Within 90 days after the end of each fiscal year, each member shall be furnished a statement suitable for use in the preparation of the member's income tax return, showing the amounts of any distributions, contributions, gains, losses, profits, or credits allocated to the member during such fiscal year.

6.5. Taxes of Taxing Jurisdictions. Each non-resident member of Idaho acknowledges that Idaho claims taxing jurisdiction over such member through such member's membership interest in the LLC. Such non-resident members shall make timely income tax payments to Idaho for income taxes attributable to the member's income, and interest, and penalties assessed by Idaho on such income. If the member fails to make such timely payments, or if the member so elects, the LLC shall withhold and pay over to Idaho the amount of tax, penalty and interest determined under the laws of Idaho with respect to such income. Any such payments made to Idaho with respect to the income of a member shall be treated as a distribution for purposes of Article 7. In addition, the LLC may, where permitted by the rules of any taxing jurisdiction, file a composite, combined or aggregate tax return reflecting the income of the LLC and pay the tax, interest and penalties of some or all of the members on such income to the taxing jurisdiction, in which case the LLC shall inform the members of the amount of such tax, interest and penalties so paid.
6.6. Tax Matters Partner. The manager shall be designated to act as the tax matters partner of the LLC pursuant to '6231(a)(7) of the Internal Revenue Code. Any member designated as tax matters partner shall take such action as may be necessary to cause each other member to become a notice partner within the meaning of '6223 of the Code. Any member who is designated tax matter partner may not take any action contemplated by ''6222 through 6232 of the Internal Revenue Code without the consent of the members.

ARTICLE 7. ALLOCATIONS AND DISTRIBUTIONS

7.1. Allocations Generally. Except as otherwise provided in this operating agreement, all items of income, gain, loss, deduction, and credit of the LLC shall be allocated among all members in proportion to their membership interests.
7.2. Allocations of Income from Sales. All gain attributable to a sale of all or a portion of the Property shall be allocated to the members in accordance with the distribution percentages set forth in Section 7.5.

7.3. Distributions. The LLC shall make distributions in such amounts and at such times as the manager shall determine in such manager’s discretion; provided, however, distributions of the LLC’s cash available for distribution shall occur at least annually at the end of the fiscal year.

7.4. Distribution of Cash from Operations. Distributions of the LLC’s cash available for distribution shall be made in the following order of priority:

7.4.1. Any cash available for distribution shall be distributed to the members until the members have received cash distributions which are returns of capital for the full value of the members= cash or agreed value contribution; and

7.4.2. Any cash available for distribution remaining after satisfaction of the return of capital shall be distributed to the members in proportion to their respective Membership Interests.

7.5. Distributions Upon Sale of Assets.

Upon the sale of all or any portion of the Property, the LLC’s proceeds from the sale shall be made in the following order of priority:

7.5.1. First, to pay off the balance of any construction financing for construction of any improvements on that portion of the Property sold;

7.5.2. Second, to the members until the members have received cash distributions which are returns of capital for the full value of the members’ cash or agreed value contributions; and

7.5.3. Third, to the members in accordance with their respective Membership Interests.

7.6. Shared Priorities. If there is more than one member who is entitled to the same priority of distribution and there is not enough cash available for distribution to cover all distributions in that priority category, the cash available for distribution shall be allocated and distributed to the members entitled to distribution within that priority category in the relationship which each of the member's respective claims in that priority category bear to the total claims of all members in that priority category.

7.7. Capital Accounts. An individual capital account shall be maintained for each member. Each member's capital account shall be (i) credited with all capital contributions by such member and the member's distributive share of all income and gain (including any income exempt from federal income tax); and (ii) charged with the amount of all distributions to such member and the member's distributive share of losses and deductions. Capital accounts shall be maintained in accordance with federal income tax accounting principles as set forth in Treas. Reg. 1.704 l(b)(2)(iv) or any successor provision.

7.8. Compliance with Section 704. The provisions of this Article 7 as they relate to the maintenance of capital accounts are intended, and shall be construed, and, if necessary, modified to cause the allocations of profits, losses, income, gain and credit pursuant to Article 7 to have substantial economic effect under the Regulations promulgated under '' 704(b) and 704(c) of the Code, in light of the distributions made pursuant to Articles 7 and 9 and the capital contributions made pursuant to Article 2.

7.9. Priority and Return of Capital. Except as may be expressly provided in Article 7, no member shall have priority over any other member, either as to the return of capital contributions or as to profits, losses, or distributions; provided that this Section shall not apply to loans (as distinguished from capital contributions) which a member has made to the LLC.

ARTICLE 8. TRANSFERS OF MEMBERSHIP INTERESTS

8.1. Restriction on Disposition. No member or assignee shall transfer, sell, gift, encumber, hypothecate, exchange or otherwise dispose of all or any portion of his membership interest without the express written consent of the remaining members, except as provided in this Section 8.1 or Section 8.3. The written consent of the members is not required to admit a deceased member's spouse, estate, devisee, heir or other beneficiary as a member. Each member hereby acknowledges the reasonableness of the restrictions on disposition imposed by this operating agreement in view of the LLC purposes and the relationship of the members. Accordingly, the restrictions on disposition contained herein shall be specifically enforceable.

8.2. Prohibited Transfers. Any purported transfer of all or any portion of a membership interest that does not satisfy the requirements of Section 8.1 or Section 8.3 shall be null and void and of no force or effect whatever; provided that, if the LLC is required to recognize a transfer that does not meet such requirements (or if the LLC, in its sole discretion, elects to recognize a transfer that does not satisfy such requirements), the membership interest transferred shall be strictly limited to the transferor's economic rights with respect to the transferred membership interests, which economic rights may be applied (without limiting any other legal or equitable rights of the LLC) to satisfy any debts, obligations, or liabilities for damages that the transferor or assignee of such membership interests may have to the LLC. In the case of a transfer or attempted transfer of membership interests that does not satisfy such requirements, the parties engaging or attempting to engage in such transfer shall indemnify, defend and hold harmless the LLC and the other members from all cost, liability, and damage that any of such indemnified persons may incur (including, without limitation, incremental tax liability and lawyers' fees and expenses) as a result of such transfer or attempted transfer and efforts to enforce the indemnity granted hereby.

8.3. Option to Purchase on Bankruptcy or Withdrawal. Upon the bankruptcy or withdrawal of a member (a "Triggering Event"), the LLC shall have the first option to purchase the membership interest subject to the Triggering Event. If the LLC exercises such option with respect to less than all of the membership interest, then the remaining members shall have the second option to purchase the remaining portion of such membership interest based upon the relative percentage interest owned by such member and the remaining members electing to purchase the membership interest. If the remaining members exercise their option with respect to less than all of the membership interest, then the remaining members who have elected to purchase a portion of such membership interest shall have the third option to purchase the remaining portion of such membership interest. The LLC shall give notice to the members within a reasonable time after learning of the occurrence of a Triggering Event. The option shall be exercised as follows:

8.3.1. The LLC shall give notice to the members of its decision to purchase all or a portion of the membership interest by giving notice to the remaining members within thirty (30) days of receiving notice of the Triggering Event.

8.3.2. If the LLC exercises its option with respect to less than all of the membership interest, then each remaining member shall have the second option to purchase a portion of the remaining portion of the membership interest by giving notice to the members of his or her decision to exercise his or her option as to all or a portion of the membership interest he or she may purchase within sixty (60) days of receiving notice of the occurrence of a Triggering Event. Each member electing to purchase all or a portion of the membership interest shall purchase in proportion to the membership interests of the members electing to purchase, unless such members agree on another allocation of such purchased membership interest.
8.3.3. If the remaining members exercise their option with respect to less than all of the membership interest, then the members who have elected to purchase a portion of such membership interest shall have the third option to purchase the remaining portion of the membership interest, pro rata based on membership interests, by giving notice to the LLC and the remaining members within ninety (90) days of the Triggering Notice. If some members purchase portions of the membership interest and others do not, the purchasing members may purchase the unpurchased portion pro rata based upon the membership interests of the purchasing members.

8.3.4. The price to be paid for the membership interest shall be sixty five percent (65%) of the fair market value of the membership interest as determined under Section 9.5.

8.3.5. The closing of the sale of the membership interest shall occur on a date and time mutually convenient to the parties; provided that the closing date shall occur no later than the sixtieth (60th) day following the day that the last notice given in subsections 8.3.1, 8.3.2 or 8.3.3 above. On the closing date, the parties shall execute such documents and instruments of conveyance as may be necessary or appropriate to confirm the sale of the membership interest, the withdrawal of the selling member as a member as of the date of the retiring event, and the assumption by the LLC of all liabilities with respect to the LLC.

8.3.6. The payment for the membership interest shall be made in installments ("Installment Payments") as follows: ten percent (10%) of the price shall be paid on the closing date. The remainder of the price shall be paid in equal annual installments on the next five (5) consecutive anniversaries of the closing date. The unpaid portion of the price shall bear interest at the prime rate of U.S. Bank on the closing date. The remaining amount of the purchase price may be prepaid at any time.

8.3.7. In the event the options to purchase are exercised with respect to less than all of the membership interest, so that less than all of the membership interest is purchased in accordance with the terms of this Section 8.3, the option shall lapse and the remaining members shall be deemed to have given consent to the transfer to the representative of the bankrupt member, subject to the application of Article 9. The membership interest shall remain subject to all of the terms, covenants, conditions and restrictions of this operating agreement, including this option. During the period in which payments are being made, the former member shall have no rights as a member in the LLC.

8.4. Admission of Assignees as Members. Subject to the other provisions of this Article 8, an assignee of membership interests may be admitted to the LLC as a member only upon the vote of the remaining members and the satisfaction of such other terms and conditions as the manager shall require.

8.5. Rights of Unadmitted Assignees. A person who acquires one or more membership interests but who is not admitted as a member pursuant to this Article 8 shall be entitled only to the economic rights with respect to such transferred membership interests in accordance with this operating agreement, and shall have no right to vote on any matters as a member, shall have no right to any information or accounting of the affairs of the LLC, shall not be entitled to inspect the books or records of the LLC, and shall not have any of the rights of a member under the Act or this operating agreement.

ARTICLE 9. WITHDRAWAL AND DISSOLUTION

9.1. No Withdrawal. Each member agrees not to withdraw from the LLC without the consent of two-thirds of the other members. A voluntary withdrawal in violation of this Section shall be effective after ninety (90) days written notice delivered to the manager, but such withdrawal shall constitute a breach of this operating agreement for which the LLC and other members shall have the remedies provided under applicable law or in equity. Upon such withdrawal, the member shall be required to offer its membership interest to the LLC and the other members pursuant to Section 8.3.
9.2. Events of Dissolution. Except as otherwise provided in this operating agreement, the LLC shall dissolve upon the earlier of: (a) the time for dissolution specified in the articles of organization; or (b) the approval of dissolution by a vote of the members.
9.3. Effect of Death of a Member. In the event of the death of a member, then the deceased member’s spouse, estate, devisee, heir or other beneficiary shall be admitted as a member.
9.4. Liquidation Upon Dissolution and Winding Up. Upon the dissolution of the LLC, the manager shall wind up the affairs of the LLC. A full account of the assets and liabilities of the LLC shall be taken. The assets shall be promptly liquidated and the proceeds distributed as follows:
9.4.1. First, to the payment and discharge of all of the LLC's debts and liabilities to creditors other than members;
9.4.2. Second, to the payment and discharge of all of the LLC's debts and liabilities to members;
9.4.3. Third, to the members to repay their cash or agreed value capital contributions;
9.4.4. The balance, if any, to the members in accordance with their capital accounts after giving effect to all contributions, distributions, and allocations for all periods.
With approval by vote of the members, the LLC may, in the process of winding up the LLC, elect to distribute certain property in kind.
9.5. Valuation of Member's Interest. Upon an election by the LLC to purchase the interest of a member pursuant to Section 8.3, within a reasonable time of the Triggering Event and the requirement for an appraisal, the LLC shall pay for an appraisal of the membership interest being purchased. Such appraisal shall be made by an MAI certified appraiser. The appraisal shall be completed within a reasonable time and shall constitute the basis for the price of the membership interest under Section 8.3.

9.6. Effect of Purchase of Member's Interest. A member shall cease to be a member upon the LLC's election to purchase the member's interest pursuant to Section 9.3 or 9.4. During the period in which the LLC is making payments, the former member shall have no rights as a member in the LLC.

ARTICLE 10. INDEMNIFICATION

10.1. Indemnification. The LLC shall indemnify each of its managers to the fullest extent permissible under Idaho law, as the same exists or may hereafter be amended, against all liability, loss and costs (including, without limitation, attorney fees) incurred or suffered by such person by reason of or arising from the fact that such person is or was a manager of the LLC, or is or was serving at the request of the LLC as a manager, director, officer, partner, trustee, employee, or agent of another foreign or domestic limited liability company, corporation, partnership, joint venture, trust, benefit plan, or other enterprise. The LLC may, by action of the members or managers, provide indemnification to employees and agents of the LLC who are not managers. The indemnification provided in this Section shall not be exclusive of any other rights to which any person may be entitled under any statute, bylaw, agreement, resolution of members or managers, contract, or otherwise.

10.2. Limitation of Liability. Managers of the LLC shall not be liable to the LLC or its members for monetary damages for conduct as managers except to the extent that the Act, as it now exists or may hereafter be amended, prohibits elimination or limitation of manager liability. No repeal or amendment of this Section or of the Act shall adversely affect any right or protection of a manager for actions or omissions prior to the repeal or amendment.

ARTICLE 11. AMENDMENTS

11.1. By Members. The members may amend or repeal the provisions of this operating agreement by majority vote set forth in writing or by action taken at a meeting of members called for that purpose, except that this operating agreement may not be amended adversely as to any member without the consent of such member. This operating agreement may not be amended or repealed by oral agreement of the members.
11.2. By Managers. The managers may amend or repeal the provisions of this operating agreement by majority vote set forth in writing or by action taken at a meeting of managers called for that purpose, except that this operating agreement may not be amended adversely as to any member without the consent of such member. This operating agreement may not be amended or repealed by oral agreement of the managers.
ARTICLE 12.
MISCELLANEOUS

12.1. Additional Documents. Each member shall execute such additional documents and take such actions as are reasonably requested by the managers in order to complete or confirm the transactions contemplated by this operating agreement.
12.2. Headings. Headings in this operating agreement are for convenience only and shall not affect its meaning.
12.3. Severability. The invalidity or unenforceability of any provision of this operating agreement shall not affect the validity or enforceability of the remaining provisions.
12.4. No Third Party Beneficiaries. The provisions of this operating agreement are intended solely for the benefit of the members and shall create no rights or obligations enforceable by any third party, including creditors of the LLC, except as otherwise provided by applicable law.
12.5. No Partnership Intended for Nontax Purposes. The members have formed the limited liability company under the Act, and expressly do not intend hereby to form a partnership under any Idaho statute. The members do not intend to be partners one to another, or partners as to any third party. To the extent any member, by word or action, represents to another person that any other member is a partner or that the limited liability company is a partnership, the member making such wrongful representation shall be liable to any other member who incurs personal liability by reason of such wrongful representation.
12.6. Partnership Intended for Tax Purposes. It is the express intention of the members that the LLC be treated as a partnership for purposes of federal and state taxation. The members agree to take such actions and make such elections as may be necessary or convenient to all the LLC to be treated as a partnership. If it is determined that the LLC is or will not be classified as a partnership under the Internal Revenue Code, then the operating agreement shall be considered amended to the smallest degree possible in whatever manner necessary to ensure that the LLC is or shall be treated as a partnership under the Code for purposes federal and state taxation.
12.7. Binding
Effect. Except as otherwise provided in this operating agreement, every covenant, term, and provision of this operating agreement shall be binding upon and inure to the benefit of the members and their respective heirs, legatees, legal representatives, successors, transferees, and assigns.
12.8. Construction. Every covenant, term, and provisions of this operating agreement shall be construed simply according to its fair meaning and not strictly for or against any member. The terms of this operating agreement are intended to embody the economic relationship among the members and shall not be subject to modification by, or be conformed with, any actions by the Internal Revenue Service except as this operating agreement may be explicitly so amended and except as may relate specifically to the filing of tax returns.

12.9. Time. Time is of the essence with respect to this operating agreement.
12.10. Governing Law. The laws of the State of Idaho shall govern the validity of this operating agreement, the construction of its terms, and the interpretation of the rights and duties of the members.
12.11. Waiver of Action for Partition; No Bill for Partnership Accounting. Each of the members irrevocably waives any right that he may have to maintain any action for partition with respect to any of the company property. To the fullest extent permitted by law, each member covenants (except with the consent of the managers) not to file a bill for limited liability company accounting.
12.12. Counterpart Execution. This operating agreement may be executed in any number of counterparts with the same effect as if all of the members had signed the same document. All counterparts shall be construed together and shall constitute one agreement.

12.13. Specific Performance. Each member agrees with the other members that the other members would be irreparably damaged if any of the provisions of this operating agreement are not performed in accordance with their specific terms and that monetary damages would not provide an adequate remedy in such event. Accordingly, it is agreed that, in addition to any other remedy to which the nonbreaching members may be entitled, at law or in equity, the nonbreaching members shall be entitled to injunctive relief to prevent breaches of the provisions of this operating agreement and specifically to enforce the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having subject matter jurisdiction thereof.

12.14. Notice. All notices, demands, requests and other communications required or permitted hereunder shall be in writ¬ing and shall be deemed delivered on the earlier of (i) three (3) days after the date of posting of registered or certified mail, addressed to the addressee at its address set forth herein or at such other address as such party may have specified theretofore by notice delivered in accordance with this Section, (ii) attempted delivery or refusal to accept delivery if sent by courier or other personal delivery service, or (iii) actual receipt by the addressee regardless of the method of giving notice. The addresses in this operating agreement, as amended from time to time, shall be used for purposes of giving notice to members.

12.15. Rights and Remedies Cumulative. The rights and remedies provided by this operating agreement are cumulative and the use of any one right or remedy by any party shall not preclude or waive the right to use any or all other remedies. Said rights and remedies are given in addition to any other rights the parties may have by law, statute, ordinance or otherwise.

12.16. Waivers. The failure of any party to seek redress for violation of or to insist upon the strict performance of any covenant or condition of this operating agreement shall not prevent a subsequent act, which would have originally constituted a violation, from having the effect of an original violation.
12.17. Attorney Fees. In the event any action is instituted to enforce or determine the parties' rights or duties arising out of the terms of this operating agreement, the prevailing party shall recover reasonable attorney fees and costs through all levels of any action incurred in such proceeding.
[end of text]

ADOPTED as of the ____ day of ____________, 2007, by the undersigned, constituting all of the members






____________________________


By:__________________________________________

Name:________________________________________

Its:___________________________________________

EXHIBIT A

Legal Description of Property

March 19, 2011 - Sales Agreement (Example)

Sales Agreement (Example)

Class Example

SALES AGREEMENT

This Wood Fiber Sales Agreement is made and entered into this _____ day of ____________, _______, by and between , Montana, hereinafter called “” and , Boise, Idaho, hereinafter called “Buyer”.

RECITALS



NOW THEREFORE, the parties hereto agree as follows:

I.
SALE

Seller agrees to sell and Buyer agrees to purchase at the above mentioned.

II.
PRICE



Buyer will pay promptly on or before the fifteenth (15th) day of each month for wood fiber received during the preceding one-month period.

III.
QUANTITY
Spot volume basis.

IV.
WEIGHING

Every load delivered to Buyer shall be weighed prior to removal from the plant. The weighing shall be performed on truck scales, and the scale tickets and/or fiber receipt tickets generated thereby shall be the sole and conclusive basis for invoicing payment.

V.
TERM

The term of this agreement shall commence on April 1, 2009 and shall continue bi-annually with automatic renewal unlessor Buyer, upon sixty (60) days written notice, wish to renegotiate the terms or prices of the contract, unless mutually agreed otherwise. This Agreement may be terminated by either party with or without cause upon (6) months written notice.

VI.
PERSONAL INJURY OR PROPERTY DAMAGES

MAKES NO GUARANTEE OR WARRANTY WHATSOEVER REGARDING THE AMOUNT PRODUCED AT THE MILL, THE MERCHANTABILITY, THE FITNESS FOR ANY PARTICULAR PURPOSE, AND HEREBY DISCLAIMS ALL IMPLIED WARRANTIES. BEING SOLD ON AN “AS IS, WHERE IS” BASIS WITH BUYER TO ASSUME ALL RISKS. Buyer agrees to indemnify and hold harmless against any claims for personal injury property damages made by any end user, and persons affected by the use, or by any person to whom is given or sold, as well as all claims, penalties, fines or cost recovery actions brought or assessed by any governmental agency. Buyer further agrees to indemnify and hold harmless from and against all liability, expense, damages and claims of whatever nature arising out of or related to this agreement which is caused in whole or in party by Buyer’s neglect or intentional acts or omissions.

VII.
WAIVER

Any waiver of the breach or default of any of the terms and conditions of this Agreement shall not constitute a continuing waiver.

VIII.
DEFAULT

If Buyer defaults in any of the terms or conditions of this Agreement, and fails to remedy such default within five (5) days of receiving notice from to do so, or in the even that Buyer files a petition for bankruptcy or has a petition of bankruptcy filed against it by its creditors or is placed into receivership, may terminate this agreement, without any further notice.

IX.
FORCE MAJEURE

Either party may request suspension of performance during the periods when performance is prevented due to a cause beyond the requesting party’s control including acts of God, government restrictions, wars, insurrections, civil disobedience or unrest, strikes, fires, earthquakes, floods, work stoppages, embargoes, and the like.

X.
ASSIGNMENT

This Agreement may not be assigned by Buyer in whole or in part without the prior written consent

XI.
LITIGATION COSTS

If either party initiates legal proceedings to enforce any of the terms or conditions of this agreement, the prevailing party in such legal proceeding shall be entitled to recover its expert fees, cost, and actual attorney fees, including those on appeal, in addition to statutory costs and disbursements.

XII.
NOTICES

Notices given pursuant to this Agreement shall be in writing and shall be delivered personally or sent by prepaid U.S. mail addressed to the parties as follows:


XIII.
COMPLETE CONTRACT

This Agreement contains the complete understanding of the parties and supersedes all prior understandings, written or oral. No modifications or amendment shall be valid unless it is made in writing and executed by both parties.

IN WITNESS WHEREOF, the parties hereto have executed this Wood Fiber Sales Agreement effective _____________, _____, _______.

March 19, 2011 - Development Agreement (Example)

Development Agreement (Example)

Class Example

DEVELOPMENT AND CONSTRUCTION AGREEMENT - COST PLUS

(Subdivision Development and Construction of Improvements)

THIS DEVELOPMENT AND CONSTRUCTION AGREEMENT ("Agreement") is made effective this 11th day of November, 2004, by and between __ (“Owner”) and d/b/a Construction, LLC (“Contractor”).

RECITALS:

A. Owner owns that certain real property located in the County of Canyon, State of Idaho, more particularly described on Schedule I attached hereto and incorporated herein (the "Property").

B. Owner desires to enter into an exclusive agreement with Contractor for the purpose of subdividing the Property into individual lots for commercial purposes as shown on the final plat of the Property ("Lots").

C. Owner further desires to enter into an exclusive agreement with Contractor to construct Commercial buildings and other on-site improvements and developments in connection therewith (“Improvements”) on the Property for sale or lease to third parties (the “Project”).

AGREEMENT

In consideration of the mutual covenants contained herein, and other good and valuable consideration, Owner and Contract hereby agree as follows:

1. Exclusive Land Development. Unless and until this Agreement is terminated as provided herein, Contractor shall have the exclusive right to subdivide the Property and prepare the Lots and Property for development in accordance with the plat therefore.

2. Exclusive Contractor. Unless and until this Agreement is terminated as provided herein, Contractor shall have the exclusive right to construct improvements on the Property and Owner shall enter into no agreements with any person or entity for the construction of improvements on the property other than Contractor, unless required by a third party purchaser or lessee and agreed to by both parties.

3. Third Party Contracts. Owner intends to enter into contracts with third parties for the purchase and sale or lease of the Improvements to be constructed by Contractor, which may include contracts between Owner and one or more members or affiliates of Owner as individuals ("Third Party Contracts"). Owner may request estimates of construction costs from Contractor in connection with Third Party Contracts which may be "fixed price" contracts. Any construction cost estimates provided by Contractor shall be done as an accommodation to Owner and shall not be binding upon Contractor in any manner whatsoever. Prior to commencement of construction of any Improvements, Owner shall furnish Contractor with a copy of the executed Third Party Contract for such Improvements together with a copy of a loan commitment, proof of funds or other evidence reasonably satisfactory to Contractor, evidencing such third parties' ability to perform under such Third Party Contract ("Source of Funds").

4. Construction Documents. As used in this Agreement, the term "Construction Documents" shall mean this Agreement, architectural drawings and specifications, as the case may be, ("Plans") approved in writing by Owner and any third party purchaser thereof, and any modifications or change orders issued after the approval of the Plans. The Construction Documents represent the entire and integrated agreement between the parties and supersede all prior negotiations, representations, or agreements, written or oral with respect to the subject matter contained therein.

5. Work.

5.1. Contractor shall furnish all necessary labor, supplies, tools and equipment (including safety equipment) necessary or required to complete the work described in the Construction Documents and to satisfy the requirements of all appropriate local governmental agencies or entities (the "Work").

5.2. Except as set forth in Section 5.3 hereof, any modifications or change orders to the Construction Documents must be agreed to in writing by the Contractor and Owner or relevant third party purchaser or lessee, and upon such agreement, such modifications or change orders shall become part of the Construction Documents.

5.3. Contractor shall execute any Work in any change orders required to comply with any law, rule, ordinance or regulation of any appropriate governmental agency as a result of field inspections or otherwise ("Required Change Orders") within a reasonable time after Contractor receives notice of additional Work requiring a Required Change Order. Contractor shall deliver a copy of such Required Change Order to Owner for Owner's approval. Upon receipt of a Required Change Order by Owner, Owner may elect to (i) approve the Required Change Order, or (ii) protest the Work required in the Required Change Order directly with the appropriate governmental agency. In the event Owner elects to protest the Work required in the Required Change Order, Owner shall give Contractor notice within two (2) business days after Owner's receipt thereof. Failure of Owner to give Contractor notice of its election to protest the Work required in a Required Change Order shall be conclusively deemed as Owner's approval thereof.

6. Relationship of the Parties.

6.1. This Agreement is not intended by the parties to constitute or create a joint venture, partnership or formal business organization of any kind. The rights and obligations of the parties shall be those expressly set forth herein.

6.2. Contractor accepts the relationship of trust and confidence established by
this Agreement and covenants with Owner to cooperate with Owner; to utilize Contractor's skill and efforts in furthering the interest of Owner; to furnish sufficient business administration and supervision; to use commercially reasonable efforts to furnish, at all times, an adequate supply of workers and materials; and to perform the Work in a commercially reasonable, expeditious and economic manner. Owner agrees to exercise its best efforts to enable Contractor to perform
the Work in the most expeditious and economical manner by furnishing and approving, in a timely manner, information required by Contractor and making payments to Contractor in accordance with the requirements of the Construction Documents.

7. Commencement and Completion. Commencement of construction of each Building shall begin as soon as reasonably practical after (i) the approval of Plans by Owner and the third party purchaser or lessee of the Improvements, and (ii) delivery to Contractor of a copy of the Third Party Contract and Source of Funds as set forth in Section 2 hereof. Prior to the commencement of construction, Contractor shall furnish Owner with a construction schedule setting forth the estimated construction time and completion date and shall use commercially reasonable efforts to comply with such construction schedule subject to adjustments in the construction time as provided in the Construction Documents.

8. Contract Price.

8.1. In consideration of Contractor’s complete performance of this Agreement, Owner agrees to obtain construction financing in an amount sufficient to pay Contractor’s Work Costs (as defined in Section 8.4 below).
8.2. Owner further agrees to pay Contractor a developer’s fee in the amount of eight percent (8%) of the total land development costs incurred in connection with the Project.

8.3. As used in this Agreement, the "Work Costs" shall mean the reasonable costs necessarily incurred by the Contractor in the proper performance of the Work. Such costs shall be at rates not higher than standard rates paid for labor, materials, and equipment at the place of the Project. The Work Costs shall include the following:

(a) Labor Costs. Wages of construction workers directly employed by Contractor to perform the Work.

(b) Subcontract Costs. Payment made by the Contractor to subcontractors in accordance with the requirements of subcontracts reasonable or necessary to perform the Work.

(c) Materials and Equipment Costs. Transportation of materials and equipment incorporated in the Work including reasonable allowance for removal of waste and installation, maintenance, dismantling and removal of materials for temporary facilities provided by Contractor at the Project.

(d) Contractor-owned Equipment Costs. Costs for use of Contractor owned equipment at a commercially reasonable rate on an hourly, daily, weekly or monthly intervals, whichever is the most efficient. In no event shall the rate chargeable for Contractor owned equipment exceed the cost of similar equipment available for rent from equipment rental companies within the area of the Project. Rental charges for temporary facilities, machinery and equipment rented from third parties by Contractor for use at the site plus costs of transportation, minor repairs and replacements.

(e) Miscellaneous costs.

(1) That portion of premiums for insurance and bonds directly attributable to the Project.
(2) Sales, use or similar taxes imposed by a governmental authority which are related to the Work and for which the Contractor is liable.
(3) Fees and assessments for the building permit, utility connection charges, impact fees and all other permits, licenses and inspections required by any and all appropriate local governmental authorities or agencies for the Project.
(4) Fees for testing laboratories for tests required by the Construction Documents, if any.
(5) Costs of removal of debris from the Project.
(6) Other costs incurred in the performance of the Work to the extent approved, in advance, by Owner.

8.4. Work Costs, shall not include, and Owner shall not be obligated to pay, the following general and administrative costs of land development:

(a) Rent, utilities and other occupancy expenses attributable to the general offices of Contractor.

(b) Administrative costs including wages and salaries of contractors, supervisory and administrative personnel, both when stationed at the Project and at Contractor's general office, and related costs paid or incurred by Contractor for employment related taxes, insurance, contributions, assessments, benefits required by law and customary benefits such as sick leave, medical and health benefits, holidays, vacations, and pensions or profit sharing for contractors, supervisory and administrative personnel.

(c) Costs of insurance not directly attributable to the Project.
(d) Office and miscellaneous expenses incurred in the general offices of the Contractor.

9. Payment. Contractor shall be entitled to receive payments under this Agreement pursuant to the terms of Construction financing obtained by Owner.

10. Subcontracts and Other Agreements. Portions of the Work-that the Contractor does not intend to perform with Contractor's own personnel shall be performed under subcontracts or by other appropriate agreements with Contractor. Contractor shall have full right and authority to select subcontractors and suppliers of materials and/or equipment. Subcontractors and suppliers of materials and/or equipment shall be selected on the basis of most economical overall cost to the Owner in the reasonable judgment of Contractor, taking into consideration the actual costs, quality of the subcontractor's work, time in which such work can be completed, and overall scheduling and efficiency of the Project. Subcontracts and other agreements shall incorporate the applicable provisions of the Construction Documents and shall not be awarded on a cost-plus-a-fee basis without the prior written consent of the Owner.

11. Indemnity of Liens. Contractor will promptly discharge any and all liens filed against the Lot and the Project by contractor’s subcontractors or suppliers and agents and persons employed by any of such persons. If liens are filed which, in good faith, contractor disputes, contractor may, in lieu of payment of such liens, furnish title insurance insuring over such liens, or such other indemnity or bond as may reasonably protect the Owner and Lender. In such event, the Owner shall not be entitled to withhold payments due hereunder

12. Accounting Records. Contractor shall keep full and detailed accounts and exercise such control as may be necessary for proper cost management satisfactory to Owner and provider of construction financing. Owner shall be afforded access to Contractor's records, books, correspondence, instructions, drawings, receipts, subcontracts, purchase orders, vouchers, memoranda, and other data related to the Project, and Contractor shall preserve all records for a period of three (3) years after final payment or for such longer period as may be required by law.

13. Liability of Contractor. Contractor shall use reasonable business judgment in performing its duties and obligations under the Construction Documents. Notwithstanding anything to the contrary contained herein or in other Construction Documents, Contractor shall not be liable to Owner except for acts or omissions of gross negligence or in bad faith.

14. Insurance. At all times during construction of the Improvements and prior to delivery of possession of such Improvements to Owner or any third party purchaser or lessee, Contractor shall maintain general liability insurance covering Contractor’s liability with respect to the construction of Improvements on the Property.

15. Default.

15.1. Default of the Contractor shall be defined as the occurrence of any of the following conditions:

(a) Contractor is adjudged bankrupt or makes a general assignment for the benefit of creditors, or a receiver is appointed to take over Contractor's business assets;

(b) Contractor fails to comply with any of the provisions of this Agreement, or fails to perform in accordance with the Construction Documents;

(c) Contractor fails to comply with any project schedule referred to
herein; or

(d) The Contractor becomes insolvent or is unable to, or fails to, pay its obligations as they mature.

15.2. Upon default by Contractor, Owner, upon forty-eight (48) hours written notice, shall have the right to terminate and cancel this Agreement. In that event, Owner may take over the Project and prosecute the same to completion, without liability for doing so, take possession of and utilize in completing the Work such materials, appliances, plans, and equipment and other property belonging to Contractor as may be on the Project site and necessary therefor. Owner may, at its discretion, do whatever is necessary to insure performance of the remaining Work and may take any action reasonably necessary therefor in Contractor's name. In case of default, Contractor shall be liable to Owner for any and all additional costs, expenses, attorney fees, and other damages, both liquidated and unliquidated, which directly or indirectly result from Contractor's default.

16. Attorney Fees and Costs. In the event either party to this Agreement takes legal action to enforce its rights hereunder, the prevailing party shall be entitled to recover its reasonable attorney fees and costs, including attorney fees and costs on any appeal, in addition to any and all other remedies.

17. Assignment. Contractor may, without Owner's consent, assign its right to receive payments under this Agreement for security purposes in connection with any loan or line of credit, the proceeds of which are intended to be used for the Project. Contractor may not delegate its duties or obligations to perform the Work under the Construction Documents without the prior written consent of Owner.
[end of text]

EXECUTED as of the day and year first above written.
OWNER:




By:


By:

CONTRACTOR:




By:





SCHEDULE I
Legal Description of Property

March 19, 2011 - NON-COMPETITION AGREEMENT (example)

NON-COMPETITION AGREEMENT (class example)

Between
*
and
*


THIS AGREEMENT is entered into this _____ day of ____________, ________, by and between *, an Idaho corporation, hereinafter referred to as “Employer,” and ____________________________________, hereinafter referred to as “Employee.”

1. RECITALS:

1.1 * is a duly organized and existing Idaho corporation authorized to do business in the State of Idaho.

1.2 Employee is currently employed by the Employer.

1.3 Employee acknowledges and agrees that, during Employee’s employment with Employer, Employee will learn certain information and techniques regarding Employer and Employer’s business and business relationships.

1.4 The parties desire to reduce to writing their understanding and agreement regarding Employee’s non-competition with Employer both during Employee’s employment with Employer and upon Employee’s cessation of employment with Employer in order to protect and maintain Employer’s business, goodwill, and long term confidential relationships with accounts, clients, customers and referral sources of Employer’s business.

NOW, THEREFORE, in consideration of the promises and the premises and agreements set forth herein, and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by both parties, the Employer and Employee agree to the following terms and conditions:

2. INCORPORATION OF RECITALS: The above recitals are contractual and binding and are incorporated herein as if set forth in full.

3. COVENANT NOT TO COMPETE:

3.1 During Employment. Employee agrees that during Employee’s employment by Employer, Employee will not engage in any other business or practice, duties or pursuits whatsoever, directly or indirectly, which would compete with the business of the Employer. Furthermore, Employee will not, directly or indirectly, be interested in any business or practice competing with or similar in nature to that of Employer and will not own or hold to any substantial degree, any securities in any business competing with Employer.

3.2 Cessation of Employment. For a period of _______ years, commencing with the last day Employee worked for Employer, Employee will not, within a _____ mile radius of Employer’s present place of business, own, manage, operate, control or be employed by any business similar to that conducted by Employer. Employee agrees to these restrictions within the specified period and the specified area and on a full time or part time basis, as an individual, associate, employee or partner.

3.3 Non-Solicitation. Employee shall not, at any time during the ____-year period commencing with the last day Employee worked for Employer, either personally or through any entity, solicit or induce (or attempt to solicit or induce), directly or indirectly, in any manner whatsoever (i) any past or present account, client or customer of Employer to refrain from seeking work on behalf of Employer; or (ii) any account, client or customer of Employer to refrain from referring any business to the Employer.

3.4 Non-Disclosure. Employee acknowledges that a list of the accounts, clients, customers and referral sources of Employer, as it may from time to time exist, is a valuable, special and unique asset and Employee shall not, at any time during or after termination of this Agreement, directly or indirectly, inadvertently or otherwise, disclose such list, or any part thereof, to any person, association, partnership, corporation or other entity for any reason or purpose whatsoever.

3.5 The restrictions described herein are each deemed to be independent of each other and any other provisions of this Agreement, and the existence of any claim or cause of action by Employee against Employer, whether predicated upon this Agreement or otherwise, shall not constitute a defense to their enforcement.

3.6 Employee acknowledges and agrees to the fairness and applicability of the above-mentioned scope and nature of said restrictions and that said covenants specify the fair, appropriate, minimum and reasonable time, scope of employment, distance and areas necessary to protect the reasonable needs of Employer.

3.7 Employee further agrees that damages alone cannot adequately compensate in the event of a violation of the foregoing restrictions, and thereby consents to Employer (in case of violation of any of the foregoing restrictions) having injunctive relief, without bond but upon due notice, in addition to such other relief as may be appropriate. Such injunctive relief is expressly agreed to be reasonable as against the Employee, Employer and the general public; that it is not against public policy and that any detriment to the public interest is more than offset by the public benefit arising out of preservation of freedom of contract. No waiver of any violation hereof shall be implied by Employer’s forbearance or failure to take action hereon. Employee acknowledges that her breach of any of these restrictive covenants would result in irreparable damages to Employer but that the precise extent of such damages would be difficult, if not impossible, to ascertain. Therefore, if Employee violates any portion of the herein described restrictions, Employee shall pay to Employer as liquidated damages, and not as a penalty, a per diem sum equal to the salary or income of the breaching party for the preceding twelve (12) months, divided by 365, until judgment is entered. In addition, Employee shall be responsible for the payment of all of Employer’s expenses, including reasonable attorney fees incurred in the enforcement of such covenants. Said remedies shall be in addition to Employer’s right to seek and obtain injunctive relief, as well as any other relief that a court deems appropriate.

3.8 Employee agrees to be bound by this Agreement, whether it is terminated by one of the parties or expires at the end of its term. This Agreement shall be operative during Employee’s employment with Employer as well as whenever and regardless of however and under whatever conditions exist that terminate Employee’s employment relationship with Employer, and regardless of whether the termination of Employee’s employment is voluntary or involuntary.

3.9 To the extent that any provision of the herein described restrictions is deemed unenforceable by virtue of its restrictiveness in terms of time, scope, distance or area, Employee and Employer agree that such reductions or limitations shall be made so that the same shall, nevertheless, be enforceable to the fullest extent permissible under the laws and public policies of the state of Idaho. Further, if any particular portion of the herein described restrictions is adjudicated invalid or unenforceable, such portion(s) shall be deleted without affecting the validity or enforceability of the liquidated damage provision and any other portions or provisions of this paragraph.

4. CONSIDERATION: The consideration for this Agreement shall be the sum of $______________, payable by Employer to Employee with the execution of this Agreement. Employee acknowledges that the consideration is sufficient and adequate.

5. NOTICES: All notices hereunder shall be in writing and shall be deemed to have been given at the time when mailed in any general or branch United States Post Office, enclosed in a registered or certified post-paid envelope addressed to the then current address of the respective parties to this Agreement.

6. WAIVER: No waiver or modification of this Agreement or of any covenant, condition or limitation herein contained shall be valid unless in writing and duly executed by the party to be charged therewith and no evidence of any waiver or modification shall be offered or received in evidence in any proceeding, arbitration or litigation between the parties hereto arising out of or affecting this Agreement, or the rights or obligations of any parties hereunder, unless such waiver or modification is in writing, duly executed as aforesaid. The parties further agree that the provisions of this paragraph may not be waived except as herein set forth.

7. REMEDY FOR BREACH: In the event of a breach by either party hereto of the terms and conditions of this Agreement, the non-defaulting party shall be entitled, if it so elects, to institute legal proceedings in any court of competent jurisdiction, either in law or in equity, and to obtain damages for any breach of this Agreement. Unless otherwise restricted under the terms of this Agreement, nothing herein contained shall be construed to prevent such remedy in the courts, in case of any breach of the provisions of this Agreement by Employee, as the non-defaulting party may elect to invoke.

The failure of either party at any time to require performance by the other party of any provisions expressed herein shall in no way affect that party’s right thereafter to enforce such provision, nor shall waiver by a party of any breach of any provision expressed herein be taken or held to be a waiver of any succeeding breach of any such provisions or as a waiver of a provision itself.

8. SEVERABILITY: It is intended and agreed that each covenant contained in this Agreement shall be a separate and distinct covenant. If any covenant and condition of this Agreement and/or the application thereof shall to any extent be declared invalid or unenforceable, the remainder of this Agreement or the application of the other covenants or conditions shall not be affected thereby. Each covenant and condition of this Agreement shall separately be valid and enforceable to the fullest extent permitted by law.

9. AGREEMENT: Any and all prior correspondence, conversations or memoranda are merged herein and replaced hereby and being without effect hereon; and no change, alteration or modification hereof may be made except in writing, signed by both parties hereto.

10. BENEFIT: This Agreement is personal in its nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder, except that Employer may assign or transfer this Agreement to a successor in the event of a transfer or sale of all or substantially all of either its patient charts and records or the assets of the business.

11. GOVERNING LAW: This Agreement is entered into in the State of Idaho and shall be governed by the laws of the State of Idaho.

12. ATTORNEY FEES: In the event it is necessary for either party to this Agreement to initiate legal action to enforce or interpret any of the provisions of this Agreement, the prevailing party in any such action shall be entitled to recover from the losing party all costs and reasonable attorney fees incurred, in addition to such other relief as may be granted.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

March 16, 2011 - Rules of the Racetrack in Business

RULES OF THE RACETRACK

1. nobody ever goes home after the first race
2. you don't have to make it back the way you lost it

March 16, 2011 - Development Agreement

Next week I will post non compete, development agreement (for real estate or any venture***), and LLC agreement to review in class.

March 16, 2011 - Quick note on our model

We will spend the first 10-15 minutes going over a few areas that need attention. I feel some of you are already building in debt or partners to get your business going -- for this class, we do not want any partners in our business nor do we carry any debt. Lawyers and accountants take huge fees to set up entities and leverage debt - but for some reason they are always absent from the bankruptcy proceedings when you can't pay your bills on the carry.

My belief: if you do not have any money today to pay for something what makes you think you will have any money tomorrow. Also, you are either getting into a partnership or getting out of a partnership -- stay away from them in hard line business, they are bad (please note: the professions use partners all the time (if you can't make it in hard line business, then look to the professions to pay the rent - dentistry I hear is an excellent profession that pays well and you have lots of time off) -- this is a class on developing hard line business). Keep away from promoters (they typically want to be a "partner" with you) please do not build them into your model - i.e., it amazes me that people who have made "zero" money in business want to advise business people (the actual creators of wealth) on how to invest and make money (if these promoters are so good at making all this money (they typically want a percentage of what you have) then why are they not out “doing it”? Keep your focus on operating on your own money, not somebody else's money. Remember our discussion on how to play your cards.

Therefore, all of the models (or businesses) we build must not take on any debt/partners/promoters -I will go over this in class.

This means we will start off very small and modest.

March 16, 2011 - Class Summary

Thus far, we have covered the basics to starting our businesses.

Now, we must tackle the market. We have a catalog sheet, BC, bank account, home office or office, et al. In small groups, discuss marketing strategy for a very small business - how do we get accounts?

More importantly, what traits do we look for in a "good account"?

We will discuss in class . . .

March 16, 2011 - Berkshire Hathaway Class Project

1. What is moral hazard?

Note:

Sleeping around, can actually be useful for large derivatives dealers because it assures them government aid if trouble hits. In other words, only companies having problems that can infect the entire neighborhood – I won’t mention names – are certain to become a concern of the state (an outcome, I’m sad to say, that is proper). From this irritating reality comes The First Law of Corporate Survival for ambitious CEOs who pile on leverage and run large and unfathomable derivatives books: Modest incompetence simply won’t do; it’s mindboggling screw-ups that are required for the government bailout.

2. What are the results for small business when the government goes "in terms of poker, all in"? Remember our class on government (especially state) contracts. In Idaho, is the honey pot the contract for real estate leases to state agencies (state never moves, you leverage the contract at the bank for financing and cash in on your building with taxpayer money - and escalate the rent every year) - Is this right?

3. "In God we trust, all others pay cash" - do you agree with this statement?

4. "Buyer of Choice" for businesses. Is it a good approach to build up your business and look for a buyer? Pros and cons? Then holding purchased companies through thick and thin, "preferring thicker and thicker". Remember our discussion on blue sky. Call of the question: exit strategy.

5. What is an LBO? New term: private equity. Pros and cons. What is their game, really? Note:

Their new label became “private equity,” a name that turns the facts upside-down: A purchase of a business by these firms almost invariably results in dramatic reductions in the equity portion of the acquiree’s capital structure compared to that previously existing. A number of these acquirees, purchased only two to three
years ago, are now in mortal danger because of the debt piled on them by their private-equity buyers. Much of the bank debt is selling below 70¢ on the dollar, and the public debt has taken a far greater beating. The private equity firms, it should be noted, are not rushing in to inject the equity their wards now desperately need. Instead, they’re keeping their remaining funds very private.

6. Define derivatives. Note:

Derivatives are dangerous. They have dramatically increased the leverage and risks in our financial system. They have made it almost impossible for investors to understand and analyze our largest commercial banks and investment banks. They allowed Fannie Mae and Freddie Mac to engage in massive misstatements of
earnings for years. So indecipherable were Freddie and Fannie that their federal regulator, OFHEO, whose more than 100 employees had no job except the oversight of these two institutions, totally missed their cooking of the books.

Improved “transparency” – a favorite remedy of politicians, commentators and financial regulators for averting future train wrecks – won’t cure the problems that derivatives pose. I know of no reporting mechanism that would come close to describing and measuring the risks in a huge and complex portfolio of derivatives.
Auditors can’t audit these contracts, and regulators can’t regulate them. When I read the pages of “disclosure” in 10-Ks of companies that are entangled with these instruments, all I end up knowing is that I don’t know what is going on in their portfolios (and then I reach for some aspirin).

March 16, 2011 - Leverage Labor

* * * This is a clinical discussion * * *

1.) How do we leverage labor? You hire somebody at $10.00 an hour and they bring in $20.00 an hour - you sit in the middle and make money - and they are doing all the work? Do you agree or disagree with this analysis? Discuss in small groups.

2.) The Bonus. Can it be used as a "tool"? For example, you pay lower wages, but give a "bonus" every Christmas. Employees rely on the "bonus" and believe if they leave they will miss their bonus for a new job even though the new job would actually pay more money in wages without the bonus. Discuss in small groups.

3.) 5% commission rule. Is it a good idea to use sales representatives? List two pros and two cons to this approach in small groups.

4.) List two ways to structure your financing (i.e., not sales which is dating and terms). It's easy to do for sales because you're in the driver's seat -- however, how can you structure financing? Asset backed financing (is that a good approach)? (hint: stock . . . but now you have a partner)

5.) After you have worked for a company - break away and start your own. Discussion about non-compete agreements, restraint of trade, et al.

6.) Inventory. Is the secret to a great business a great inventory? Or, should you carry very little inventory?

7.) Brokerage. If you don't have the cash to invest in the capital of a manufacturing firm, for example - then could you be a broker first, work for capital via commission or sales, then invest that capital into manufacturing for your business and hiring brokers?