February 19, 2002

Mr. Peter Collier

12294 Willow Valley Road

Nevada City, CA 95959

Dear Peter;

Thank you, Judy Hardin and Clive Sewell for taking time to meet with Lyn Zigman and me on January 31st. We had a beneficial discussion that I am summarizing in order to make certain we have a common understanding of the issues and decisions made in the meeting.

We started the meeting by wrapping up the results of the year 2000 audit. KPMG concluded the year 2000 audit and issued a clean opinion on the financial statements. Several issues that were discussed and resolved during the course of the audit centered around valuations for inventory, royalties and book returns. Encounter's financial records were maintained on a cash basis and were converted to accrual basis for the audited financial statements.

The next item of discussion was the current state of business. Encounter's publishing business has exceeded expectations. New staff members were added for marketing and production to keep up with the volume of business and publicity generated by new authors. The financials records related to the business activities are maintained on two systems. Book sales/inventory along with advances and royalties are maintained on "Cats Pajamas," a software system developed specifically for the publishing industry. Judy has not only a deep knowledge of the publishing industry, but is also expertly versed with Cats Pajamas. The remainder of the financial records are maintained at M&N Tax Consultants (M&N), with Clive Sewell as the main contact. M&N obtains financial information from Cats Pajamas, which is integrated into the remainder of the financial statements prepared by a bookkeeper. Other daily bookkeeping services are provided by M&N including processing payroll and approved bills for Encounter.

Inventory is housed in a warehouse in Michigan, for proximity to the printer. The warehouse is dedicated to book publishers maintaining the proper conditions for storing books, and is bonded and insured. Representatives, but not employees, of Encounter books visit the facility on an impromptu basis. Judy receives inventory listings from the warehouse and compares that to records kept internally. There are also other small distributions sites for international sales.

Calculating the valuation and reserves related to royalties and book returns accounts require analysis and established polices. Encounter is a young publisher without years of experience ratios to draw on for analysis. It is also a niche publisher in the industry and this must be considered when using industry standards. Unique individual contracts for authors, as opposed to one standard contract for all authors, complicates the calcuation for reserves for royalties. One methodolgy discussed was to set up a reserve at the begining of the year using a percentage of sales. Quarterly, Peter would evaluate authors for potential payments or writeoffs. Twice a year, this analysis will be completed in conjuction with the calcuation of actual payments made to authors. Based on this analysis, the reserve would be adjusted quarterly. Experience factors may be used after the business has had time to build a history. The final conclusion was that there is an expected increase to reserves for royalties in 2001.

Encounter's tax status changed from a public charity to a private foundation in 2002. This change in status will affect the reporting requirements to the Bradley Foundation. The IRS requires the Bradley Foundation to exercise expenditure responsibility with respect to the funds paid to Encounter. As part of expenditure responsibility, the Bradley Foundation will request reports detailing how funds have been spent. Encounter will engage a public accounting firm to conduct and independent audit. A copy of the audit report will be sent to the Bradley Foundation.

As a result of the meeting, the following steps will be taken:

1.	KPMG will be retained as the auditor for the year 2001 audit.

2.	M&N (Clive) will act as the main contact for audit, Judy will provide detail from Cats Pajamas.

3.	Encounter will provide accrual based financial statements to KPMG for the audit.

4.	M&N will be engage to establish an accounting manual, beginning with account definitions for the key accounts discussed above.

5.	Encounter, with Clive's assistance, will establish a methodology for determining the reserve and writeoffs for royalties and a methodology for allowance for book returns.

6.	Encounter is considering an audit of inventory at the Michigan warehouse.

7.	Encounter will send quarterly financial statements to the Bradley Foundation.

8.	Encounter will send the Bradley Foundation a copy of the new determination letter for private foundation status.

I appreciate any comments/clarifications you may have on my recollections above. I am available at any time except for the last week in February.

Very truly yours,

Cynthia K. Friauf

Controller

cc:	Robert N. Berkopec

Richard S. Gallagher, Foley & Lardner

Lynette M. Zigman, Foley & Lardner

Clive S. Sewell, M&N Tax Consultants