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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO ______________
FRANKLIN COVEY CO.
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(Exact name of registrant as specified in its charter)
Utah 1-11107 87-0401551
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
2200 West Parkway Boulevard
Salt Lake City, Utah 84119-2331
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (801) 817-1776
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on Which
Title of Each Class Registered
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Common Stock, $.05 Par Value New York Stock Exchange
[ ] Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of
the Registrant on November 1, 2000, based upon the closing sale price of the
Common Stock of $8.25 per share on that date, was approximately $140,803,583.
Shares of the Common Stock held by each officer and director and by each person
who may be deemed to be an affiliate of the Registrant have been excluded.
As of November 1, 2000, the Registrant had 20,643,182 shares of Common
Stock outstanding.
Parts of the Registrant's Proxy Statement for the Registrant's Annual
Meeting of Shareholders, which is scheduled to be held on January 12, 2001, are
incorporated by reference in Part III of this Form 10-K.
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1
INDEX TO FORM 10-K
Page
PART I ................................................................................................ 3
Item 1. BUSINESS..................................................................................... 3
GENERAL ..................................................................................... 3
FRANKLIN COVEY PRODUCTS...................................................................... 5
Paper Planners ........................................................................... 5
Electronic Solutions .................................................................... 5
Agendas ................................................................................. 6
Binders .................................................................................. 6
Personal Development Products............................................................. 6
TRAINING, FACILITATION AND CONSULTING SERVICES............................................... 7
Training and Education Programs ...........................................................7
Personal Coaching .........................................................................8
SALES AND MARKETING.......................................................................... 9
Domestic Consumer Products ............................................................... 9
Domestic Training and Education Sales ....................................................10
International Operations .................................................................11
Other Revenues ...........................................................................11
STRATEGIC DISTRIBUTION ALLIANCES.............................................................12
CLIENTS .....................................................................................12
COMPETITION..................................................................................12
Training ................................................................................12
Consulting................................................................................12
Products ................................................................................12
MANUFACTURING AND DISTRIBUTION ..............................................................13
TRADEMARKS, COPYRIGHTS AND INTELLECTUAL PROPERTY.............................................14
EMPLOYEES....................................................................................14
Item 2. PROPERTIES...................................................................................14
Item 3. LEGAL PROCEEDINGS............................................................................15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........................................15
PART II ...............................................................................................16
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS.....................16
Item 6. SELECTED FINANCIAL DATA......................................................................16
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........17
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...................................31
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................................................32
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.........61
PART III ..............................................................................................61
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...........................................61
Item 11. EXECUTIVE COMPENSATION.......................................................................61
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT...............................61
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............................................61
PART IV ...............................................................................................62
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..............................62
(a) Documents Filed.......................................................................62
1. Financial Statements.............................................................62
2. Exhibit List.....................................................................62
(b) Reports on Form 8-K...................................................................64
(c) Exhibits..............................................................................64
(d) Financial Statement Schedule..........................................................64
SIGNATURES .............................................................................................65
2
PART I
Item 1. BUSINESS
GENERAL
Franklin Covey Co. (the "Company" or "Franklin Covey") is an international
learning and performance solutions company dedicated to helping individuals and
organizations to become measurably more effective. To achieve that goal, the
Company provides training and education programs, consulting services,
educational materials, publications, assessment and measurement tools,
implementation processes, application tools and products designed to help
individuals and organizations to be measurably more effective. Franklin Covey
focuses its efforts on providing solutions in five main areas: Productivity,
Leadership, Communications, Education and Sales. The Company provides training
and education, consulting services and products designed to improve
organizational effectiveness, leadership skills, written and oral business
communication skills, sales skills, student achievement and performance skills.
The Company also measures the impact of training investments. Effectiveness
solutions are delivered through Company owned retail stores, its own catalog
operations, training seminars, computer-based training and planning services,
its own Internet sites, clients' and partners' Intranet sites, sales to
educational institutions and through consulting services. To facilitate
implementation of the principles it teaches, the Company produces and/or markets
a number of tools and curricula such as the Franklin Planner(R), PALM(R) and
other handheld electronic organizers, Agendas, What Matters Most and 7 Habits of
Highly Effective People training seminars, CD ROM's, Personal Coaching and
custom projects.
One of the mainstay staple tools that assists clients in implementing
effectiveness training is the Franklin Planning System. The original Franklin
Planner consists of a paper-based, two-page per day Franklin Covey planning
system combined with a seven-ring binder, a variety of planning aids, weekly,
monthly and annual calendars and personal management sections. The Franklin
Planner can also be purchased in one-page per day or two-page per week versions.
The Company offers various forms and accessories that allow users to expand and
customize their Franklin Planner. Franklin Covey markets the Franklin Planner
and accessory products directly to organizations, through its catalog, its
retail stores, its e-commerce Internet site at www.franklincovey.com and through
third party channels. A significant percentage of the users of the original
Franklin Planner continue to purchase a renewal planner each year, creating
substantial recurring sales. The Company has also made the Franklin Planning
System available in desktop software and as an add-on to handheld organizers,
such as the popular PALM(R) Computing organizer and Compaq's(R) iPAQ(TM) Pocket
PC(R). The Company also provides an extension to Microsoft Outlook(R) that
incorporates Franklin Planning productivity principles into the Outlook calendar
system. An on-line version of the Franklin Planner has recently been introduced
at www.franklincoveyplanner.com that synchronizes voicemail, email, note-taking
and calendaring into both the paper-based system and the electronic handheld and
desktop versions of the system.
The principles taught in the Company's curriculum have also been published,
in many cases, in book and audio tape form. Books sold by the Company include
The 7 Habits of Highly Effective People, Principle-Centered Leadership, First
Things First, The 7 Habits of Highly Effective Families, Nature of Leadership
and Living the 7 Habits, all by Stephen R. Covey, The 10 Natural Laws of Time
and Life Management and What Matters Most by Hyrum W. Smith, The Power Principle
by Blaine Lee and The 7 Habits of Highly Effective Teens, by Sean Covey. These
books, as well as audio tape versions of many of these products, are sold
through general retail channels, as well as through the Company's own catalog,
its e-commerce web site www.franklincovey.com and its retail stores.
3
Domestic consumer product sales, consisting primarily of products relating
to the Franklin Planning System , accounted for 52 percent of the Company's
sales during the year ended August 31, 2000.
Franklin Covey provides its effectiveness solutions to business, industry,
educational institutions, government entities, communities and individuals. The
Company sells its services to the organizational market through its own direct
sales force. The Company delivers its training services to organizations in one
of four ways:
1. Franklin Covey consultants provide on-site consulting or training classes
for organizations. In these situations, the Franklin Covey consultant can
tailor the curriculum to the client's specific business and objectives.
2. The Company also conducts public seminars in more than 200 cities
throughout the United States, where organizations can send their employees
in smaller numbers. These public seminars are also marketed directly to the
public through the Company's catalog, e-commerce web-site, retail stores,
and by direct mail.
3. The Company's programs are also designed to be facilitated by licensed
professional trainers and managers in client organizations, reducing
dependence on the Company's professional presenters, and creating
continuing revenue as participant materials are purchased for trainees by
these facilitators.
4. Franklin Covey recently launched a new series of training modules known as
Productivity in the Digital Age Learning Library. These learning modules
are delivered in five ways: computer-based, on-line, in booklet form, audio
or live in new training centers installed in certain retail stores. They
are designed for individuals and to aid organizations in delivering
Franklin Covey effectiveness principles to individuals throughout their
organizations. The computer-based training provides on-demand modularized
learning and ties with the Company's personal productivity systems which
are integrated across various platforms and mediums.
In fiscal 2000, the Company provided products and services to 83 of the
Fortune 100 and more than 75 percent of the Fortune 500 companies. The Company
also provides its products and services to a number of U.S. and foreign
governmental agencies, including the U.S. Department of Defense, as well as
numerous educational institutions.
Domestic training and education sales accounted for 37 percent of the
Company's sales, representing approximately 560,000 individuals trained, during
the year ended August 31, 2000.
The Company also provides products, consulting and training services
internationally, either through directly operated offices, or through licensed
providers. At August 31, 2000, Franklin Covey had direct operations in Canada,
Japan, Australia, New Zealand, Mexico, Belgium, Brazil and the United Kingdom.
The Company also had licensed operations in 31 countries. During the year ended
August 31, 2000, the total sales of the direct operations and royalties from the
licensed operations were $50 million and accounted for 9 percent of total
Company revenues.
4
In January 1999, the Company acquired the assets of Khalsa Associates, a
leading sales training company. In July 1999, Microsoft(R) announced that it had
signed an agreement with Franklin Covey to train its world-wide sales force and
its 21,000 sales channel partners utilizing Franklin Covey's unique consultative
sales training program.
In September 1999, the Company acquired the assets of the Professional
Resources Organization (the Jack Phillips Group), a leading measurement
assessment firm specializing in measuring the impact and return on investment in
training and consulting.
In December 1999, Franklin Covey acquired a majority interest in
Daytracker.com, an on-line planning company. The Daytracker.com web-site has
been the basis for the current www.franklincoveyplanner.com planning web-site
the Company offers to its customers.
In February 2000, Franklin Covey sold assets of the commercial printing
division of Publishers Press to Mountain States Bindery of Salt Lake City, Utah.
The Company maintained the printing capabilities that print the Franklin Planner
and associated products.
In September 2000, the Company contributed the assets of Personal Coaching
to a new joint-venture entity called Franklin Covey Coaching, LLC. Franklin
Covey owns 50 percent of the new entity and will participate proportionately in
the revenues and earnings of the new partnership. The other 50 percent is owned
by AMS Direct, a major client of Franklin Covey Coaching, LLC.
Unless the context requires otherwise, all references to the "Company" or
to "Franklin Covey" herein refer to Franklin Covey Co. and each of its operating
divisions and subsidiaries. The Company's principal executive offices are
located at 2200 West Parkway Boulevard, Salt Lake City, Utah 84119-2331 and its
telephone number is (801) 817-1776.
FRANKLIN COVEY PRODUCTS
An important principle taught in Franklin Covey productivity training is to
have only one personal productivity system and to have all of one's information
in that system. Based upon that belief for effective time management, the
Franklin Planner has been developed as one of the basic tools for implementing
the principles of Franklin Covey's time management system. The original Franklin
Planner consists of a paper-based Franklin Covey planning system, a binder in
which to carry it, various planning aids, weekly, monthly and annual calendars
as well as personal management sections. Franklin Covey offers a broad line of
renewal planners, forms and binders for the Franklin Planner, which are
available in various sizes and styles. For those who lead with technology
productivity systems, Franklin Covey also offers a variety of electronic
solutions incorporating the same principles as the original Franklin Planner.
During the fiscal year ended August 31, 2000, domestic product sales, consisting
primarily of the Franklin Planner and related products, amounted to $302.9
million and accounted for 52 percent of Franklin Covey's sales during the
period.
PAPER PLANNERS. Paper planner renewals are available for the Franklin
Planner in five sizes and various styles and consist of daily or weekly formats,
appointment schedules, task lists, monthly calendars, daily expense records,
daily record of events, and personal management pages for an entire year. Annual
Renewal Planners range in price from $19.00 to $50.00. The Master Pack, which
includes personal management tabs and pages, a guide to using the planner, a
pagefinder and weekly compass cards completes a Franklin Planner. The Master
Pack price ranges from $6.00 to $7.00.
ELECTRONIC SOLUTIONS. The Company also offers its time and life management
methodology within a complete Personal Information Management ("PIM") system
through Franklin Planner Software program. This system can be used in
conjunction with the paper-based Franklin Planner, electronic handheld
organizers or used as a stand-alone planning and information management system.
The Franklin Planner Software permits users to generate and print data on
5
Franklin Covey paper that can be inserted directly into the Franklin Planner.
The program operates in the Windows(R) 95, 98, 2000 and NT operating systems.
Franklin Covey offers Franklin Planner Software at a retail price of $99.95,
which includes all necessary software, related tutorials and reference manuals.
The Company offers the software through nationwide retail software stores, as
well as in its own retail stores, catalog, and e-commerce Internet site.
The Company also recently introduced a version of its Franklin Planner
Software that is designed to operate as an extension to Microsoft's Outlook(R)
software. This is intended especially for companies that have already
standardized on Microsoft(R) for group scheduling, but wish to make the Franklin
Planning System available to their employees without creating the need to
support two separate systems. As this kind of extension proves its value in the
market, the Franklin Planner Software extension model will be expanded to other
platforms.
Franklin Covey is also an OEM provider of the PALM(R) Computing organizer
that includes the Franklin Planner Software when sold through Franklin Covey
channels. The PALM(R) has become another successful planning tool offered by the
Company through all of its channels. The Company has introduced products that
can add paper-based planning to the electronic planner as well as binders and
carrying cases specific to the PALM(R). The Company also offers other electronic
organizers with the Franklin Planner software such as the iPAQ Pocket PC from
Compaq(R).
The company also recently introduced a new series of products that are part
of its Productivity in the Digital Age initiative. This initiative includes both
tools and training designed to measurably increase individual and organizational
effectiveness. These products include learning modules designed to deliver
Franklin Covey effectiveness principles to individuals and organizations,
including interactive PDA's, desktop applications, on-line tools and software
all designed to synchronize information across platforms and systems.
AGENDAS. Franklin Covey markets through its Premier School Agendas division
agendas to schools and school districts in order to help teachers and students
enhance the learning process. Premier sold more than 17 million agendas in
fiscal 2000, mostly in the United States and Canada. Premier has a direct sales
force of 146 sales professionals. An agenda consists of a wire-bound notebook
with dated pages to help the student keep track of assignments and due dates,
and to encourage regular communication among the student, the parents and the
teacher. Most agendas are customized to include the individual school's rules,
regulations, administrators and scheduled events.
BINDERS. Franklin Covey offers binders and accessories (briefcases,
portfolios, wallets/purses, etc.) in a variety of materials, styles and Franklin
Planner sizes. These materials include high quality leathers, fabrics,
synthetics and vinyls in a variety of color and design options. Binder styles
include zipper closures, snap closures, and open formats with pocket
configurations to accommodate credit cards, business cards, checkbooks and
writing instruments. The Company's binder products range in price from $12.95 to
$275.00.
PERSONAL DEVELOPMENT PRODUCTS. To supplement its principal products,
Franklin Covey offers a number of accessories and related products, including
books, videotapes and audio cassettes focused on time management, leadership,
personal improvement and other topics. The Company also markets a variety of
content-based personal development products. These products include books, audio
learning systems such as multi-tape and workbook sets, CD-ROM software products,
calendars, posters and other specialty name brand items. The Company offers
numerous accessory forms through its Forms Wizard software, which allows
customization of forms, including check registers, spread sheets, stationery,
mileage logs, maps, menu planners, shopping lists and other information
management and project planning forms. The Company's accessory products and
forms are generally available in the Franklin Planner sizes.
6
TRAINING, FACILITATION AND CONSULTING SERVICES
Franklin Covey's training, facilitation and consulting services are
marketed and delivered in the United States by the Company's Professional
Services Group, which consists of talented consultants, selected through a
competitive and demanding process, and highly qualified sales professionals.
Franklin Covey currently employs 115 training consultants in major
metropolitan areas of the United States with an additional 18 training
consultants outside of the United States. Training consultants are selected from
a large number of experienced applicants. These consultants generally have
several years of training and/or consulting experience and excellent
presentation skills. Once selected, the training consultant goes through a
rigorous training program including multiple live presentations. The training
program ultimately results in the Company's certification of the consultant.
Franklin Covey believes that the caliber of its training consultants has helped
build its reputation of providing high quality seminars. The Company's
Professional Services Group can also help organizational clients diagnose
inefficiencies in their organization and design the core components of a
client's organizational solutions. The efforts of the consultants are enhanced
by several proprietary consulting tools the Company has designed for their use:
Organizational Health Assessment(TM) ("OHA"), used to assess client needs; the
Organizational Effectiveness Cycle(TM) ("OE-Cycle(TM)"), utilized for
organizational diagnosis and re-design; and the Principle-Centered
Organizational Change Process(TM) ("PCOC Process(TM)"), a rigorous methodology
for organizational change management.
Franklin Covey's Professional Services Group is organized in eight regional
sales teams in order to assure that both the consultant and the client sales
professional participate in the development of new business and the assessment
of client needs. Consultants are then entrusted with the actual delivery of
content, seminars, processes and other solutions. Consultants follow up
continuously with client service teams, working with them to develop lasting
client impact and ongoing business opportunities.
TRAINING AND EDUCATION PROGRAMS. Franklin Covey offers a range of training
programs designed to significantly and measurably improve the effectiveness of
individuals and organizations. The Company's workshops are oriented to address
each of the four levels of leadership needs: personal, interpersonal, managerial
and organizational. In addition, the Company believes each of its workshops
provides a stimulating and behavior changing experience which frequently
generates additional business. During fiscal year 2000, more than 560,000
individuals were trained using the Company's curriculum in its single and
multiple-day workshops and seminars.
Franklin Covey's single-day What Matters Most workshop competes in the time
management industry. This time management seminar is conducted by the Company's
training consultants for employees of clients and in public seminars throughout
the United States and in many foreign countries. This is the Company's single
most popular workshop, generating approximately 29 percent of the training
revenue for the Company. The Company offers a number of other single-day
seminars and workshops including Presentation Advantage(TM), a seminar helping
individuals and organizations make more effective business presentations;
Writing Advantage(R), a seminar that teaches effective business writing and
communication skills; and Project Management(TM), a seminar designed to help
individuals and organizations map and organize complex projects. The Company's
training consultants conduct these seminars and workshops for employees of
institutional clients and public seminar participants.
7
Franklin Covey also delivers multiple-day workshops, primarily in the
Leadership area. Included in these offerings is its three-day 7 Habits workshop
based upon the material presented in The 7 Habits of Highly Effective People.
The 7 Habits workshop provides the foundation for continued client relationships
and generates more business as the Company's content and application tools are
delivered deeper into the organization. Additionally, a three-day 4 Roles of
Leadership course is offered, which focuses on the managerial aspects of client
needs. Franklin Covey Leadership Week, which management believes is one of the
premier leadership programs in the United States, consists of a five-day session
focused on materials from Franklin Covey's The 7 Habits of Highly Effective
People and The 4 Roles of Leadership courses. Franklin Covey Leadership Week is
reserved for executive level management. As a part of the week's agenda,
executive participants design strategies for long-term implementation of the
Company's principles and content within their organizations. The courses offered
in the leadership area generate over 25 percent of the training revenue for the
Company.
In addition to providing consultants and presenters, Franklin Covey also
trains and certifies client facilitators to teach selected Company workshops
within the client's organization. Franklin Covey believes client-facilitated
training is important to its fundamental strategy to create recurring client
revenue streams. After having been certified, clients can purchase manuals,
profiles, planners and other products to conduct training workshops within their
organization, generally without the Company repeating the sales process. This
creates an annuity-type business, providing recurring revenue, especially when
combined with the fact that curriculum content in one course leads the client to
additional participation in other Company courses. Since 1988, Franklin Covey
has trained more than 19,000 client facilitators. Client facilitators are
certified only after graduating from one of Franklin Covey's certification
workshops and completing post-course certification requirements.
Franklin Covey regularly sponsors public seminars in cities throughout the
United States and in several foreign countries. The frequency of seminars in
each city or country depends on the concentration of Franklin Covey clients, the
level of promotion and resulting demand, and generally ranges from semi-monthly
to quarterly. Smaller institutional clients often utilize the public seminars to
train their employees.
The company also recently introduced a new series of products that are part
of its Productivity in the Digital Age initiative. This initiative includes both
tools and training designed to measurably increase individual and organizational
effectiveness. These products include learning modules designed to deliver
Franklin Covey effectiveness principles to individuals and organizations,
including interactive PDA's, desktop applications, on-line tools and software
all designed to synchronize information across platforms and systems.
PERSONAL COACHING. Franklin Covey offers post-seminar training in the form
of personal coaching through a recently formed entity called Franklin Covey
Coaching, LLC. The entity employs 41 coaches that interact with clients on the
telephone to help them implement the training from the seminar they have taken.
The entity offers personal coaching for some the Company's curriculum as well as
seminars offered by other training companies.
Sales of training and education services for the year ended August 31, 2000
were $214.6 million and accounted for 37 percent of Franklin Covey's total sales
during the period.
8
SALES AND MARKETING
The following table sets forth, for the periods indicated, the Company's
revenue and percentage of total revenue for each of its principal distribution
channels:
Year Ended August 31,
(dollars in thousands)
--------------------------------------------------------------------------------
2000 1999 1998
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Domestic Consumer Products $302,944 51.8% $264,333 47.6% $258,973 47.4%
Domestic Training and Education 214,646 36.7 210,621 38.0 207,015 37.9
International 49,995 8.5 50,535 9.1 45,068 8.2
All Other 17,654 3.0 29,434 5.3 35,556 6.5
--------------------------------------------------------------------------------
Total Sales 585,199 100.0% $554,923 100.0% $546,612 100.0%
================================================================================
DOMESTIC CONSUMER PRODUCTS SALES. Franklin Covey uses catalogs, retail
stores, its own Web site and other distribution channels to market its products
to organizations and individuals.
CATALOG. Franklin Covey periodically mails catalogs to its clients,
including a reference catalog, holiday catalog, catalogs timed to coincide with
planner renewals and catalogs related to special events, such as store openings
or new product offerings. Catalogs may be targeted to specific geographic areas
or user groups as appropriate. Catalogs are typically printed in full color with
an attractive selling presentation highlighting product benefits and features.
Franklin Covey maintains a client service department which clients may call
toll-free, 24 hours a day, Monday through Saturday, to inquire about a product
or to place an order. Through Franklin Covey's computerized order entry system,
client representatives have access to client preferences, prior orders,
billings, shipments and other information on a real-time basis. Each of the
Company's more than 350 customer service representatives has the authority to
immediately solve any client service problem.
Franklin Covey utilizes a zone picking system for processing orders. This
system enables the Company to respond rapidly to client orders. Client
information stored within the order entry system is also used for additional
purposes, including target marketing of specific products to existing clients
9
and site selection for Company retail stores. Franklin Covey believes that its
order entry system helps assure client satisfaction through both rapid delivery
and accurate order shipment.
RETAIL STORES. Beginning in late 1985, Franklin Covey began opening retail
stores in areas of high client density. The initial stores were generally
located in lower traffic destination locations. The Company has since adopted a
strategy of locating retail stores in high-traffic retail centers, primarily
large shopping malls, to serve existing clients and to attract increased numbers
of walk-in clients. Franklin Covey believes that higher costs associated with
locating retail stores in these centers have been offset by increased sales in
these locations. Franklin Covey's retail stores, which average approximately
2,000 square feet, are stocked almost entirely with Franklin Covey products. The
Company's retail stores strategy focuses on providing exceptional client service
at the point of sale. Franklin Covey believes this approach increases client
satisfaction as well as the frequency and volume of purchases. At August 31,
2000, Franklin Covey had 135 domestic retail stores located in 36 states and the
District of Columbia.
Franklin Covey attracts existing clients to its retail stores by informing
them of store openings through direct mail advertising. The Company believes
that its retail stores encourage walk-through traffic and impulse-buying and
that store clients are a source of participants for Franklin Covey's public
seminars. The stores have also provided the Company with an opportunity to
assess client reaction to new product offerings. Portions of Franklin Covey's
Productivity In The Digital Age training modules are taught within the stores.
Some of the retail stores have been remodeled to accommodate small groups taking
these modularized training programs.
Franklin Covey believes that its retail stores have a high-end image
consistent with its marketing strategy. Franklin Covey's products are generally
grouped in sections supporting the different sizes of the Franklin Planner.
Products are attractively presented and displayed with an emphasis on
integration of related products and accessories. Stores are staffed with a
manager, an assistant manager and additional sales personnel as needed. Franklin
Covey employees have been trained to use the original Franklin Planner, as well
as its various electronic versions, enabling them to assist and advise clients
in selection and use of the Company's products. During peak periods, additional
personnel are added to promote prompt and courteous client service.
OTHER CHANNELS. The Company has an alliance with the At-A-Glance group to
sell its products through the category contract stationer channel. At-A-Glance
wholesales other products to contract stationer businesses such as Boise
Cascade, Office Express and Staples, which in turn sell office products through
catalog order entry systems to businesses and organizations. The Company signed
an agreement to have At-A-Glance represent a selected Franklin Planner product
line through this office products channel. The Company believes that additional
revenues have more than offset the anticipated lower margins from selling
product through this channel.
DOMESTIC TRAINING AND EDUCATION SALES. Franklin Covey's sales professionals
market the Company's training, consulting and measurement services to
institutional clients and public seminar clients.
Franklin Covey employs 140 sales professionals located in eight major
metropolitan areas throughout the United States who sell training services to
institutional clients. Franklin Covey employs an additional 58 sales
professionals outside of the United States. Sales professionals must have
significant selling experience prior to employment by the Company and are
trained and evaluated at Franklin Covey and in their respective sales
territories during the first six months of employment. Sales professionals
typically call upon persons responsible for corporate employee training, such as
corporate training directors or human resource officers. Sales professionals
work closely with training consultants in their territories to schedule and
tailor seminars and workshops to meet specific objectives of institutional
clients.
10
Franklin Covey also employs 115 training consultants throughout the United
States who present institutional and public seminars in their respective
territories and an additional 18 training consultants outside of the United
States. Training consultants work with sales professionals and institutional
clients to incorporate a client's policies and objectives in seminars and
present ways that employee goals may be aligned with those of the institution.
Public seminars are planned, implemented and coordinated with training
consultants by a staff of marketing and administrative personnel at the
Company's corporate offices. These seminars provide training for the general
public and are also used as a marketing tool for attracting corporate and other
institutional clients. Corporate training directors are often invited to attend
public seminars to preview the seminar content prior to engaging Franklin Covey
to train in-house employees. Smaller institutional clients often enroll their
employees in public seminars when a private seminar is not cost effective. In
the public seminars, attendees are also invited to provide names of potential
persons and companies who may be interested in Franklin Covey's seminars and
products. These referrals are generally used as prospects for Franklin Covey's
sales professionals.
The Company markets through its Premier School Agendas division agendas to
schools and school districts in order to help teachers and students enhance the
learning process. Premier sold more than 17 million agendas in fiscal 2000,
mostly in the United States and Canada. Premier has a direct sales force of 146
sales professionals. An agenda consists of a wire-bound notebook with dated
pages to help the student keep track of assignments and due dates, and to
encourage regular communication among the student, the parents and the teacher.
Most agendas are customized to include the individual school's rules,
regulations, administrators and scheduled events.
INTERNATIONAL SALES OPERATIONS. The Company provides products, training and
printing services internationally through Company-owned and licensed operations.
Franklin Covey has Company-owned operations and offices in Australia, Brazil,
Belgium, Canada, Japan, Mexico, New Zealand and the United Kingdom. Mainland
Europe is represented by an affiliate and agent network. The Company also has
licensed operations in Bermuda, Indonesia, Ireland, Korea, Malaysia, India,
Egypt, Lebanon, Saudi Arabia, Turkey, UAE, Israel, Estonia, Nigeria,
Philippines, Singapore, China, Hong Kong, Taiwan, Thailand, South Africa, Chile,
Panama, Argentina, Colombia, Uruguay, Bahamas, Ecuador, Puerto Rico, Venezuela
and Trinidad/Tobago. Franklin Covey operates retail operations in Australia,
Canada, Japan, Hong Kong, Singapore, Taiwan and Mexico. Franklin Covey's seven
most popular books, The 7 Habits of Highly Effective People, Principle-Centered
Leadership, The 10 Natural Laws of Time and Life Management, First Things First,
The Power Principle, The 7 Habits of Highly Effective Families and The 7 Habits
of Highly Effective Teens are currently published in multiple languages.
The international operations of the Company generated $50.0 million in
revenue in the year ended August 31, 2000. Training and education services
generated 54 percent of the revenue, consumer product generated 44 percent, and
the balance came from publishing activities in Japan. After grossing up
royalties from licensed operations to their actual sales level, total sales
generated in the international area were $72.1 million.
OTHER REVENUES. Through the acquisition of Publishers Press in December
1994, Franklin Covey acquired greater control over printing of the materials for
the Franklin Planner and of other related products. Effective February 28, 2000,
the Company sold the commercial printing services of Publishers Press while
maintaining its in-house printing capabilities. Publishers Press provided book
and commercial printing to clients in the western United States. The commercial
printing operations accounted for substantially all of the $17.7 million of
other sales in fiscal year 2000.
11
STRATEGIC DISTRIBUTION ALLIANCES
Franklin Covey has pursued an aggressive strategy to create strategic
alliances with innovative and respected organizations in an effort to develop
effective distribution of its products and services. The principal distribution
alliances currently maintained by Franklin Covey are: Simon & Schuster and Saint
Martin's Press in publishing books for the Company; Wyncom to promote and
facilitate Dr. Covey's personal appearances and teleconferences;
Nightingale-Conant to market and distribute audio and video tapes of the
Company's book titles; At-A-Glance to market and distribute selected Franklin
Planners and accessories through catalog office supply channels; Franklin Covey
Coaching, LLC, a partnership with American Marketing Systems to deliver personal
coaching to clients; and PALM(R) Computing to serve as the official training
organization for their PALM(R) Computing products.
CLIENTS
Franklin Covey has developed a broad base of institutional and individual
clients. The Company has more than 8,000 institutional clients consisting of
corporations, governmental agencies, educational institutions and other
organizations. The Company believes its products, workshops and seminars
encourage strong client loyalty. Employees in each of Franklin Covey's
distribution channels focus on providing timely and courteous responses to
client requests and inquiries. Institutional clients may choose to receive
assistance in designing and developing customized forms, tabs, pagefinders and
binders necessary to satisfy specific needs.
COMPETITION
TRAINING. Competition in the performance skills organizational training
industry is highly fragmented with few large competitors. Franklin Covey
estimates that the industry represents more than $6 billion in annual revenues
and that the largest traditional organizational training firms have sales in the
$200 million range. Based upon Franklin Covey's fiscal 2000 domestic training
and education sales of approximately $214 million, the Company believes it is a
leading competitor in the organizational training market. Other significant
competitors in the leadership training market are Development Dimensions
International, Achieve Global (formerly Zenger Miller), Organizational Dynamics
Inc., Provant, Forum Corporation, EPS Solutions and the Center for Creative
Leadership.
CONSULTING. Franklin Covey's PCOC change management methodology, which it
initiated in 1996, is directly linked to organization and culture change.
Effective change is achieved through creating a principle-centered foundation
within an organization and by aligning systems and structures with that
foundation. Franklin Covey believes its approach to organization and culture
change is distinguishable from the approach taken by more traditional change
management and re-engineering firms, as Franklin Covey's approach complements
rather than competes with the offerings of such firms.
PRODUCTS. The paper-based time management and personal organization
products market is intensely competitive and subject to rapid change. Franklin
Covey competes directly with other companies that manufacture and market
calendars, planners, personal organizers, appointment books, diaries and related
products through retail, mail order and other direct sales channels. In this
market, several competitors have widespread name recognition. The Company
believes its principal competitors include DayTimer, At-A-Glance and Day Runner.
12
Franklin Covey also competes, to a lesser extent, with companies that market
substitutes for paper-based products, such as electronic organizers, software
PIMs and hand-held computers. The Company's Franklin Planner Software competes
directly with numerous other PIMs. Many of Franklin Covey's competitors have
significant marketing, product development, financial and other resources. An
emerging potential source of competition is the appearance of calendars and
event-planning services available at no charge on the Web. There is no
indication that the current level of features has proven to be attractive to the
traditional planner customer as a stand-alone service, but as these products
evolve and improve, they are likely to pose a competitive threat. In response,
Franklin Covey intends to combine on-line planning services with PALM(R)
Computing and Compaq's(R) iPAQ Pocket PC, Software, web-based and paper planners
to provide a competitive, complete planning solution to its clients.
Given the relative ease of entry in Franklin Covey's product markets, the
number of competitors could increase, many of whom may imitate the Company's
methods of distribution, products and seminars, or offer similar products and
seminars at lower prices. Some of these companies may have greater financial and
other resources than the Company. Franklin Covey believes that the Franklin
Planner and related products compete primarily on the basis of user appeal,
client loyalty, design, product breadth, quality, price, functionality and
client service. Franklin Covey also believes that the Franklin Planner has
obtained market acceptance primarily as a result of the concepts embodied in its
Franklin Planner, the high quality of materials, innovative design, the
Company's attention to client service, and the strong loyalty and referrals of
its existing clients. Franklin Covey believes that its integration of training
services with products has become a competitive advantage. Moreover, management
believes that the Company is a market leader in the United States among a small
number of integrated providers of time management products and services.
Increased competition from existing and future competitors could, however, have
a material adverse effect on the Company's sales and profitability.
MANUFACTURING AND DISTRIBUTION
The manufacturing and distribution operations of Franklin Covey consist
primarily of printing, collating, assembling, packaging, warehousing and
shipping components used in connection with the Franklin Covey product line.
Franklin Covey operates its central manufacturing and distribution services
out of Salt Lake City. At that location, the Company prints, packages and
distributes its products to its worldwide customers. By operating in this
fashion, Franklin Covey has gained greater control of production costs,
schedules and quality control of printed materials. The Company has also
developed partner printers, both domestically and internationally, who can meet
the Company's quality standards, thereby facilitating efficient delivery of
product in a global market. The Company believes this has positioned it for
greater flexibility and growth capacity. Automated production, assembly and
material handling equipment are used in the manufacturing process to insure
consistent quality of production materials and to control costs and maintain
efficiencies.
Binders used for Franklin Covey's products are produced from either
leather, simulated leather, tapestry or vinyl materials. These binders are
produced by multiple and alternative product suppliers. Franklin Covey believes
it enjoys good relations with its suppliers and vendors and does not anticipate
any difficulty in obtaining the required binders and materials needed in its
business. The Company has implemented special procedures to insure a high
standard of quality for its binders, most of which are manufactured by suppliers
in the United States, Europe, Canada, Korea, Mexico and China.
Franklin Covey also purchases numerous accessories, including pens, books,
videotapes, calculators and other products, from various suppliers for resale to
its clients. These items are manufactured by a variety of outside contractors
located in the United States and abroad. The Company does not believe that it is
dependent on any one or more of such contractors and considers its relationships
with such suppliers to be good.
13
TRADEMARKS, COPYRIGHTS AND INTELLECTUAL PROPERTY
Franklin Covey seeks to protect its intellectual property through a
combination of trademarks, copyrights and confidentiality agreements. The
Company claims rights for more 120 trademarks in the United States and has
obtained registration in the United States and many foreign countries for many
of its trademarks, including Franklin Covey, The 7 Habits of Highly Effective
People, Principle-Centered Leadership, What Matters Most, Franklin Planner,
Writing Advantage, and The Seven Habits. Franklin Covey considers its trademarks
and other proprietary rights to be important and material to its business. Each
of the marks set forth in italics above is a registered mark or a mark for which
protection is claimed.
Franklin Covey owns all copyrights on its planners, books, manuals, text
and other printed information provided in its training seminars, the programs
contained within Franklin Planner Software and its instructional materials, and
its software and electronic products, including audio tapes and video tapes.
Franklin Covey licenses rather than sells all facilitator workbooks and other
seminar and training materials in order to limit its distribution and use.
Franklin Covey places trademark and copyright notices on its instructional,
marketing and advertising materials. In order to maintain the proprietary nature
of its product information, Franklin Covey enters into written confidentiality
agreements with certain executives, product developers, sales professionals,
training consultants, other employees and licensees. Although Franklin Covey
believes its protective measures with respect to its proprietary rights are
important, there can be no assurance that such measures will provide significant
protection from competitors.
EMPLOYEES
As of August 31, 2000, Franklin Covey had 3,988 full and part-time
associates, including 1,491 in sales, marketing and training; 1,597 in customer
service and retail; 641 in production operations and distribution; and 259 in
administration and support staff. None of Franklin Covey's associates are
represented by a union or other collective bargaining group. Management believes
that its relations with its associates are good. Franklin Covey does not
currently foresee a shortage in qualified personnel needed to operate the
Company's business.
ITEM 2. PROPERTIES
Franklin Covey's principal business operations and executive offices are
located in Salt Lake City, Utah and Provo, Utah. The Company's Salt Lake City
facilities currently consist of seven buildings with approximately 860,000
available square feet, including approximately 551,000 square feet for
manufacturing, distribution, and warehousing, and approximately 309,000 square
feet for administration. Franklin Covey owns all of the Company's Salt Lake City
facilities, subject to mortgages of approximately $2.9 million as of August 31,
2000. The Company's Provo, Utah operations consisted of four buildings located
within a fifteen-mile area. As part of its restructuring plan, the Company
exited its leased office space located in two of the Provo buildings, totaling
approximately 119,000 square feet, during fiscal 2000. The Company entered into
a sublease agreement for the majority of the remaining life of the Company's
14
lease obligation on the office space. The sublease agreement specifies base
rental rates and requires the subleasee to pay all direct costs incurred by the
Company, including taxes and maintenance. The Company occupies all or a portion
of the remaining two buildings located in Provo, with total leased space of
approximately 54,000 square feet as of August 31, 2000. These two buildings
house a call center and additional office space used by certain divisions of the
Company. Lease contracts on the Provo buildings terminate intermittently through
the year 2009. Also in connection with its restructuring plan, the Company has
moved its sales and marketing functions for the training and education business
from the Provo facilities to eight leased regional sales offices located in New
York, Chicago, Los Angeles, San Francisco, Columbus, Ohio, Dallas, Atlanta, and
Washington, D.C. The regional offices were fully operational as of August 31,
2000.
Franklin Covey also currently operates 135 retail stores under operating
leases, with remaining terms of up to ten years. Certain of these store leases
include provisions for contingent rentals based on a percentage of sales.
In addition, the Company maintains sales, administrative and/or warehouse
facilities in or near Salt Lake City; Phoenix; Atlanta; Dallas; Washington,
D.C.; and Bellingham, Washington. The Company also has foreign offices and
facilities located in Cambridge, Calgary, Ottawa, Tokyo, London, Brussels,
Toronto, Vancouver, Montreal, Sydney, Brisbane, Mexico City, Guadalajara, and
Monterrey. The Toronto office is company owned, subject to a mortgage of $1.0
million at August 31, 2000. All other international offices are subject to
operating leases that expire intermittently through the year 2006. The Company
believes its facilities are adequate and suitable for its current business
needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property subject to, any
material pending legal proceedings, nor are any such proceedings known to the
Company to be contenplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended August 31, 2000.
15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's common stock is listed and traded on the New York Stock
Exchange ("NYSE") under the symbol "FC." The following table sets forth, for the
periods indicated, the high and low sale prices for the Company's common stock,
as reported on the NYSE Composite Tape, for the fiscal years ended August 31,
2000 and 1999, respectively.
High Low
--------- ----------
Fiscal Year Ended August 31, 2000:
Fourth Quarter....................... $ 8 1/4 $ 6 3/8
Third Quarter........................ 11 3/16 6 7/8
Second Quarter....................... 10 3/16 6 13/16
First Quarter........................ 8 11/16 7
Fiscal Year Ended August 31, 1999:
Fourth Quarter....................... $ 9 1/2 $ 6 1/16
Third Quarter........................ 13 1/16 9
Second Quarter....................... 18 3/4 11 7/8
First Quarter........................ 20 3/16 17 1/2
The Company did not pay or declare dividends on its common stock during the
fiscal years ended August 31, 2000 and 1999. The Company currently anticipates
that it will retain all available funds to finance its future growth and
business expansion. The Company does not presently intend to pay cash dividends
in the foreseeable future.
As of November 1, 2000, the Company had 20,643,182 shares of its common
stock outstanding, held by approximately 350 shareholders of record.
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL HIGHLIGHTS
August 31, 2000 1999 1998 1997 1996
- --------------------------------------- ------------------------------------------------------------------------------------
In thousands, except per share data
INCOME STATEMENT DATA:
Sales $ 585,199 $ 554,923 $ 546,612 $ 433,272 $ 332,006
Net Income (4,409) (8,772) 40,058 38,865 34,239
Income (loss) Available to Common
Shareholders (12,414) (10,647) 40,058 38,865 34,239
Diluted Earnings Per Share (0.61) (0.51) 1.62 1.76 1.53
BALANCE SHEET DATA:
Total Assets $ 592,479 $ 623,303 $ 597,277 $ 572,187 $ 268,445
Long-Term Obligations 65,790 6,543 126,413 94,144 5,500
Shareholders' Equity 374,053 378,434 341,654 355,405 231,835
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Franklin Covey Co. (the "Company") provides integrated learning and
performance solutions to organizations and individuals designed to increase
productivity and improve skills for leadership, sales, communication, and other
areas. Each solution set includes capabilities in training, consulting and
assessment, and various application tools available in electronic or paper-based
formats. The Company's products and services are available through professional
consulting services, public workshops, catalogs, retail stores, and the Internet
at www.franklincovey.com and www.franklincoveyplanner.com. The Company recently
released a new series of training curricula designed to enhance the productivity
of people who regularly use electronic communication tools such as e-mail, voice
mail, and the Internet. Each of the modules in the series can be taught in a
variety of environments, ranging from classes in the Company's new productivity
centers, located in certain retail stores, to computer-based and on-line
presentations. These new products are the latest additions to a variety of
products and services that include the Company's well known Franklin Planner and
the best-selling book, "The 7 Habits of Highly Effective People."
During the first quarter of fiscal 1999, the Company aligned its operations
into the following three Strategic Business Units ("SBUs"):
o Consumer Products
o Training and Education
o International
The Company is currently in the process of restructuring its operations and
expects to report financial information under the new structure in fiscal 2001.
Although the Company has substantially completed restructuring its operations,
the above SBUs represent the primary management measurement tool until the new
reporting structure is implemented. The consumer products SBU is responsible for
distribution of the Company's products through its retail stores, catalog
operations, wholesale channels (including contract stationers), government
channels, and the Internet. The training and education SBU, which includes
Premier Agendas and personal coaching, is responsible for training, consulting
and implementation services, and delivery of products to business, government,
and educational institutions. The international SBU is responsible for the
delivery of both products and services outside the United States. Other revenue
primarily consists of the Company's commercial printing operation, which was
sold during fiscal 2000, and the National Institute of Fitness, which was sold
during fiscal 1998. In addition, corporate functions, which consist primarily of
essential internal support services such as finance, legal, information systems,
and manufacturing and distribution, were aligned to support the operational
SBUs.
The following is a summary of recent business acquisitions by the Company:
In December 1999, the Company purchased a majority interest in
DayTracker.com, an on-line provider of scheduling and calendar services.
The total purchase price was $11.0 million in cash and notes payable. The
acquired web site and its on-line scheduling and organizational services
can be accessed on the Internet at www.franklincoveyplanner.com.
17
During September 1999, the Company acquired the assets of the
Professional Resources Organization (the Jack Phillips Group) for $1.5
million in cash. The Professional Resources Organization is a leading
measurement assessment firm specializing in measuring the impact and return
on investment of training and consulting programs.
In January 1999, the Company acquired the assets of Khalsa Associates
for $2.7 million. Khalsa Associates is a leading sales training company.
Effective April 1, 1998, the Company acquired King Bear, Inc. ("King
Bear"), a Tokyo, Japan based company. King Bear, a former Covey licensee,
provides leadership and time management training as well as publishing
services. The publishing division of King Bear translated and published The
7 Habits of Highly Effective People in Japanese. The cash purchase price
was $5.3 million with additional contingent payments to be made over the
following five years based upon the operating results of King Bear over
that same period. During fiscal 2000, the remaining earnout period was
canceled in consideration for $0.4 million in cash.
RESTRUCTURING
During the fourth quarter of fiscal 1999, the Company's Board of Directors
approved a plan to restructure the Company's operations, reduce its workforce
and formally exit the majority of its leased office space located in Provo,
Utah. These changes were intended to align the Company's products, services, and
channels in a manner that focuses Company resources on providing integrated
learning and performance solutions to both individuals and organizations. The
restructuring was also intended to lay strategic, operational, organizational,
and financial foundations for profitable growth. In connection with the
restructuring plan, the Company recorded a restructuring charge of $16.3
million, which is included in the Company's statement of income for the fiscal
year ended August 31, 1999. Included in the restructuring charge were costs to
provide severance and related benefits to former employees, as well as costs to
formally exit the leased office space. The restructuring plan was substantially
completed as of August 31, 2000.
As part of the restructuring, the Company provided severance and related
benefits to employees affected by the changes. The cost to provide these
benefits under the restructuring plan was estimated to be $11.7 million and
covered a reduction of approximately 600 employees across all areas of the
business. At August 31, 2000, the remaining accrued severance costs were
reviewed and reduced based upon estimates of remaining liability for the
severance program. The adjustment was primarily due to favorable economic
conditions that reduced the average time necessary for terminated employees to
find new employment. Remaining accrued severance costs are expected to be
sufficient for remaining payments related to the severance plan.
Also included in the restructuring provision was a charge to exit the
majority of the Company's leased office space in Provo, Utah. These facilities
contained sales, marketing, and other functions primarily aligned with the
training and education SBU. Before exiting the lease, sales and other sales
support functions located in Provo were moved to regional offices located in New
York, Chicago, Los Angeles, San Francisco, Columbus, Dallas, Atlanta and
Washington, D.C. Remaining business and support functions were moved to the
Company's corporate headquarters located in Salt Lake City, Utah. The Company
anticipated the costs to exit the facilities and sublease the space to be
approximately $4.6 million. During fiscal 2000, the office space was subleased
and the exit accrual was reduced by $0.4 million to reflect favorable building
transition costs. The remaining building exit accrual at August 31, 2000
represents the difference between base rental charges and the offsetting
expected sublease revenue receipts. The remaining accrual is expected to be
sufficient to complete the building exit plan.
18
RESULTS OF OPERATIONS
The following table sets forth consolidated income statement data and other
selected operating data expressed as percentages of total sales:
YEAR ENDED
AUGUST 31, 2000 1999 1998
- --------------------------- ------------ ---------- ----------
Sales 100.0% 100.0% 100.0%
Cost of sales 43.4 43.8 39.1
-------- ------- -------
Gross margin 56.6 56.2 60.9
-------- ------- -------
Operating expenses:
Selling, general and administrative 46.0 42.4 40.5
Stock option purchase and relocation costs 1.9
Depreciation and amortization 7.7 7.1 6.1
Restructuring costs (0.8) 2.9
Loss on impaired assets 3.0
-------- ------- -------
Total operating expenses 54.8 55.4 46.6
-------- ------- -------
Income from operations 1.8 0.8 14.3
-------- ------- -------
Interest income 0.3 0.2 0.4
Interest expense (1.1) (1.8) (1.5)
-------- ------- -------
Net interest expense (0.8) (1.6) (1.1)
-------- ------- -------
Income (loss) before provision
(benefit) for income taxes and change
in accounting principle 1.0 (0.8) 13.2
Provision (benefit) for income taxes 1.7 (0.8) 5.5
-------- ------- -------
(Loss) income before change in accounting
principle (0.7) (1.6) 7.7
Cumulative effect of change in accounting
principle, net of tax (0.4)
-------- ------- -------
Net (loss) income (0.7) (1.6) 7.3
Preferred dividends (1.4) (0.3)
-------- ------- -------
(Loss) income available to common
shareholders (2.1)% (1.9)% 7.3%
===== ===== ====
Sales Data:
Consumer Products 51.8% 48.5% 47.4%
Training and Education 36.7 37.1 37.9
International 8.5 9.1 8.2
Other 3.0 5.3 6.5
19
FISCAL 2000 COMPARED WITH FISCAL 1999
SALES
The Company's sales, by reportable segment, were as follows (in thousands):
YEAR ENDED AUGUST 31,
2000 1999 1998
- ------------------------- ----------- ------------ -----------
Consumer Products $ 302,944 $ 269,285 $ 258,973
Training and Education 214,646 205,669 207,015
International 49,955 50,513 45,068
Other 17,654 29,456 35,556
----------- ------------ -----------
$ 585,199 $ 554,923 $ 546,612
----------- ------------ -----------
Consumer product sales increased $33.7 million, or 13 percent, compared to
the prior year. Increased sales from the Company's retail stores, wholesale
channels, and the Internet were partially offset by decreased sales from the
catalog, mass markets, and government products channels. Retail store sales
increased as a result of 10 new stores and a 13 percent increase in comparable
store sales. At August 31, 2000, the Company was operating 135 stores compared
to 125 stores at August 31, 1999. Comparable store sales growth during the year
was primarily fueled by increased sales of handheld electronic devices, such as
the Palm V(TM) by Palm, Inc., bundled with the Company's Franklin Planner(TM)
software, as well as sales of related accessories. Sales of handheld electronic
devices and accessories represented a significantly larger percentage of total
consumer product sales during fiscal 2000. As the popularity of handheld
electronic devices continues to grow, the Company anticipates further sales
growth from these devices in future periods. However, future sales growth is
dependent upon a number of factors, including the availability of products from
manufacturers, changes in technology and consumer preferences, and the
introduction of new products from competitors. The Company also had increased
sales from its wholesale channels (including the contract stationer channel)
primarily due to increased demand from existing sales and marketing agreements,
the successful introduction of new products, and the addition of new marketing
and distribution agreements. Increased Internet sales were the result of
continued changes in general consumer buying habits, ongoing improvements to the
Company's electronic commerce infrastructure, and special promotions advertised
in the Company's catalogs and on its web site at www.franklincovey.com.
Increased sales in these channels were partially offset by decreased sales from
the catalog, mass markets and government products channel. The Company's catalog
operation continues to be adversely affected by increased Internet sales, which
the Company attributes to continuing changes in consumer buying preferences.
Although catalog sales declined during fiscal 2000, catalog sales combined with
Internet sales increased nine percent compared to the prior year. Sales through
the mass-market channel decreased due to the termination of an agreement with a
mass-market distributor. Government product sales continued to be adversely
affected by uncertainties surrounding the potential closure of GSA depots and
service centers.
20
Training and education sales increased by $9.0 million, or four percent,
compared to fiscal 1999. Increased sales from Premier Agendas, sales
effectiveness, and leadership programs were partially offset by decreased sales
from productivity seminars and personal coaching. Premier Agendas, which
provides leadership and productivity solutions to students and others in the
education market, increased sales by 20 percent over the prior year. The
increase was primarily due to an increase in the number of schools that use
Premier's products and services. Increased sales effectiveness revenue was due
to new contracts and increased demand for seminars taught by Khalsa Associates,
which was acquired by the Company during fiscal 1999. Increased leadership
program sales were primarily due to improved organizational sales, especially
for custom programs, and related business development program sales.
Productivity program sales decreased primarily due to the timing of specialized
product orders in the prior year and a decline in public seminar revenues.
During fiscal 2000, the Company restructured its public seminar operations,
which resulted in marketing and program delivery changes designed to improve
public seminar profitability. During fiscal 2000, training sales in general were
adversely affected by the relocation of certain sales associates to new regional
sales offices. Personal coaching sales were adversely affected by decreased
demand for coaching from one of its major clients. In response, the Company
entered into a joint venture with American Marketing Systems, Inc., a major
customer of the Personal Coaching division, effective September 1, 2000. The new
company, Franklin Covey Coaching, LLC, will continue to provide personal
coaching services for the Company and other existing clients. The Company
anticipates that the new venture will broaden the curriculum and services
currently offered in order to grow the personal coaching business over the
long-term while maintaining a substantial portion of the Company's earnings from
coaching activities in current periods.
International sales decreased $0.6 million, or one percent, compared to the
prior year. Increased sales in Canada, Mexico, and Brazil were offset by
decreased sales in Australia, Japan, the Middle East, and New Zealand. Sales in
Canada increased primarily due to improved training sales resulting from
additional sales personnel hired during fiscal 2000 to expand Company operations
in Canada. Increased sales in Mexico were primarily due to two new retail
stores, increased catalog sales, and the Company purchasing the Mexico licensee
and combining its operations with the Company's direct office already
established in Mexico. In May 2000, the Company opened a direct office in Brazil
and has since recognized increased sales in that country. Prior to May 2000, all
sales (primarily product sales) were serviced through the corporate office.
Decreased sales performance in Australia was due to decreased training sales at
one of Australia's largest customers, reorganization of the sales force, and the
timing of speaking engagements by Stephen R. Covey, which increased training
sales in the prior year. Sales in Japan decreased due to sales force
restructuring and declining book sales. In fiscal 1999, The 7 Habits of Highly
Effective Families book was released, while no new major publications were
released during fiscal 2000. Decreased sales in the Middle East were due to the
Company changing its business strategy in the region from a direct office to
licensee operations. As a result, the Company receives a royalty based upon a
percentage of the licensee's sales rather than recognizing 100 percent of sales
generated in the Middle East. Sales decreased in New Zealand due to closure of
the New Zealand office during fiscal 2000. Future sales and business activity in
New Zealand will be serviced through the Australian office.
Other sales, which consist primarily of the Company's commercial printing
and tabbing operations, decreased $11.8 million, or 40 percent, compared to
fiscal 1999. The decrease was due to the sale of the commercial printing
division of Publishers Press, which was effective February 28, 2000.
21
GROSS MARGIN
Gross margin consists of sales less cost of sales. The Company's cost of
sales includes materials used in the production of planners and related
products, assembly and manufacturing labor costs, commissions of training
consultants, direct costs of conducting seminars, freight, and certain other
overhead costs. Gross margin may be affected by, among other things, prices of
materials, labor rates, product mix, changes in product discount levels,
production efficiency, training consultant commissions, and freight costs. Gross
margin was 56.6 percent of sales compared to 56.2 percent in fiscal 1999. The
Company's gross margin improved primarily due to product write-offs related to
the restructuring plan which were expensed in fiscal 1999, and to new inventory
procurement and management procedures, which reduced the amount of product
write-offs during fiscal 2000. Partially offsetting these improvements were the
adverse effects of product mix changes, decreased sales of certain training
programs and increased wholesale channel sales. During fiscal 1999, the Company
began a restructuring plan that examined all aspects of the business. In
connection with this review, certain products and curricula were discontinued.
Additionally, the Company actively sought to optimize inventory levels through
improved policies and procedures. These improved procedures had a favorable
effect on the Company's gross margin during fiscal 2000. As previously
described, the Company experienced significantly increased sales of handheld
electronic devices during fiscal 2000. Although handheld electronic devices have
favorably affected sales performance, these electronic devices have gross
margins that are lower than the majority of the Company's other products and
services. As sales of handheld electronic devices continue to grow, and increase
as a percentage of total Company sales, further gross margin erosion may occur.
In addition, decreased sales of higher margin training program revenues,
primarily productivity programs and personal coaching, also adversely affected
the Company's gross margin. Increased sales through wholesale channels continues
to unfavorably affect the Company's gross margin through contracted pricing
terms that have produced increased sales volume, but at lower margins.
OPERATING EXPENSES
Selling, general and administrative ("SG&A") costs increased $34.3 million
to 46.0 percent of sales compared to 42.4 percent of sales during fiscal 1999.
Increased SG&A expenses were primarily due to ongoing development of
electronic-based products and services, electronic commerce channels, spending
to support expected growth in the Premier business, newly acquired businesses,
increased promotional expenses, the addition of 10 new retail stores, and
increased consulting costs associated with projects related to the Company's
restructuring plan. The increases were partially offset by a decrease in core
employee costs as a result of headcount reduction efforts. Throughout fiscal
2000, the Company aggressively invested in the development and marketing of new
electronic-based products, on-line training programs, and various application
tools. Due to the significant increase in handheld electronic devices and
related accessories, the Company increased its customer support services for
these products. Additionally, the Company continued to invest in improvements to
its electronic commerce infrastructure to meet changing consumer preferences and
committed significant resources to the development of its Internet web site and
other on-line products and services, such as www.franklincoveyplanner.com. The
Company believes that the development of on-line products and services, combined
with an efficient e-commerce base will enable it to achieve a competitive
advantage in the future by providing a variety of tools in various formats to
enable organizations and individuals to craft effective solutions to meet their
needs. Premier, which develops and produces planners and other solutions for the
educational market, increased its SG&A spending as a result of a new regional
office and additional headcount necessary to support expected growth in fiscal
2000 and beyond. The purchases of the Professional Resources Organization and
DayTracker.com, which were acquired during fiscal 2000, have also resulted in
increased total SG&A expenses compared to the prior year. The Company also
increased its promotional spending, primarily for catalogs and direct mailings,
to advertise new products and to improve public program sales. As part of the
Company's restructuring plan, consultants have been engaged to assist the
Company with projects such as improving brand recognition, improving accounts
receivable collections, expanding European operations, and other related
projects that are designed to position the Company for profitable growth in the
future.
22
Depreciation expense increased by $3.4 million compared to the prior year
primarily due to purchases of computer hardware and software, office furniture
and fixtures, manufacturing equipment, and the addition of leasehold
improvements in new stores and regional sales offices. Amortization charges
increased by $2.2 million primarily due to the amortization of goodwill related
to contingent earnout payments made to the former owners of Premier and Personal
Coaching, and the acquisition of DayTracker.com.
STOCK OPTION PURCHASE AND RELOCATION COSTS
During fiscal 2000, the Company expensed $11.2 million of additional costs
primarily to reacquire outstanding stock options and to relocate the majority of
its sales associates to new regional offices. In an effort to reduce the
potentially dilutive effect of outstanding options on the Company's capital
structure, the Company actively sought to reacquire outstanding stock options
from both current and former employees. The majority of option purchase costs
were incurred in connection with a tender offer made by the Company during its
third fiscal quarter to purchase all outstanding options with an exercise price
of $12.25 or higher. As a result of the tender offer and previous purchases of
option shares, the Company acquired 3,294,476 option shares for a total cost of
$8.7 million. The remaining $2.5 million was spent primarily to relocate certain
sales associates to new regional offices. At August 31, 2000 all regional sales
offices were operating and the Company expects to see increased training sales
in future periods from this new strategy. These costs have been included as a
separate expense component in the accompanying consolidated statement of income
for the fiscal year ended August 31, 2000.
INTEREST EXPENSE
Interest expense decreased $3.7 million primarily due to lower long-term
debt balances during fiscal 2000. Long-term debt decreased due to the retirement
of $85.0 million of notes payable during October 1999. The notes payable were
retired using existing cash balances and the Company's expanded lines of credit.
INCOME TAXES
The Company's effective income tax rate continues to be adversely affected
by non-deductible goodwill amortization, the effect of foreign losses, and the
magnified effects of other non-deductible items resulting from decreased taxable
income. Amortization of goodwill primarily generated from the merger with Covey
Leadership Center and certain other acquisitions is not deductible for income
tax purposes and had an adverse effect on the Company's effective tax rate.
During fiscal 2000, the effect of foreign losses was primarily comprised of
losses sustained in Japan, Australia, and New Zealand for which no offsetting
tax benefit could be recognized due to uncertain future taxable income to offset
such losses.
PREFERRED STOCK DIVIDENDS
In connection with the issuance of 750,000 shares of preferred stock in the
fourth quarter of fiscal 1999, the Company completed a subscription offering for
up to an additional 750,000 shares of preferred stock during fiscal 2000. The
subscription offering closed during the Company's second quarter of fiscal 2000
with 42,338 shares purchased under terms of the offering. As a result, the
increase in preferred stock dividends was due to the full-year impact of
previously issued shares and the subscription offering that closed during fiscal
2000.
23
FISCAL 1999 COMPARED WITH FISCAL 1998
SALES
Consumer products sales increased $10.3 million, or four percent, compared
to the prior year. Sales increases from the Company's retail stores, contract
stationer channels, and the Internet were offset by decreased sales from catalog
operations and government products. Retail store sales increased due to five
additional stores and a two percent increase in comparable store sales. At
August 31, 1999, the Company was operating 125 retail stores compared to 120
stores at August 31, 1998. Comparable store sales growth was primarily
attributable to increased sales of technology-related products, as well as the
introduction of limited edition planners such as the Hallmark(R) and Shoebox(R)
planners. The Company also had increased sales from contract stationer channels
due to increased demand from new marketing and distribution agreements. Sales
from the Internet channel have increased due to general changes in consumer
buying habits and ongoing enhancements to the Company's electronic commerce
infrastructure. Increased sales from these channels were partially offset by
decreased sales from the government products group and the Company's catalog
operations. Product sales to the U.S. government continued to be adversely
affected by changes in the government procurement process. Sales growth in other
distribution channels, including retail stores, contract stationers, and the
Internet, continue to have an adverse affect on catalog sales. Price increases
did not have a material effect on sales growth between the periods.
Training and education sales decreased by $1.3 million, or one percent,
compared to the prior year. Sales increases from Premier, personal coaching, and
direct product channels were offset by sales decreases in core training programs
and a decline in book royalties. Premier continues to expand its share of the
school agenda market and recognized a 22 percent increase in sales, primarily
from new customers. New business from both personal coaching and the
direct-products channel resulted in increased sales during fiscal 1999. These
increases in training and education sales were offset by decreased core training
sales, primarily from corporate/on-site and facilitated programs for leadership
training. In addition, book royalties decreased due to the decline in royalties
received from The 7 Habits of Highly Effective Families book that was released
in fiscal 1998.
International sales increased by $5.4 million, or 12 percent, compared to
the prior year. The increase was primarily due to the acquisition of a former
licensee in Japan, which occurred during the fourth quarter of fiscal 1998.
Partially offsetting this increase were decreased sales in Canada and the Middle
East. The Company's Canadian operations were adversely affected as a result of
labor disputes at one of its largest clients. Also during fiscal 1999, the
Company converted its Middle Eastern direct office into a licensee operation.
Although this conversion reduced expenses and certain other business risks, the
Company only receives licensee royalties on qualifying sales. Other geographic
regions recorded nominal sales fluctuations compared to the prior year.
Other sales, which consist of the Company's commercial printing services
and fitness training sales, decreased $6.1 million, or 17 percent, compared to
the prior year. The decrease was due to the sale of the Company's Institute of
Fitness, which recognized sales of $6.8 million during fiscal 1998, but was sold
during the fourth quarter of fiscal 1998. The decrease resulting from the
Institute of Fitness sale was partially offset by increased commercial printing
sales at Publishers' Press.
GROSS MARGIN
Gross margin was 56.2 percent of sales for fiscal 1999, compared to 60.9
percent in the prior year. The Company's gross margin was adversely affected
during fiscal 1999 by inventory write-offs, changes in product mix, channel
pricing, decreased core training volume, and declining book royalties. The
Company's product mix continues to be affected by an overall decrease in
high-margin planner sales and an increase in lower-margin technology-related
product sales. Increased sales from the contract stationer channel also
adversely affected gross margin due to contracted pricing terms that have
resulted in higher unit sales volume, but at reduced margins. Core training
programs offered by the Company have gross margins that are generally higher
than the Company's gross margin on product sales. Continued declining sales of
24
these higher-margin programs resulted in a lower total gross margin for the
Company during fiscal 1999. Additionally, book royalties received in the prior
year reflect the impact of The 7 Habits of Highly Effective Families, which was
released in fiscal 1998 and had declining sales during the year, thus directly
impacting the Company's gross margin in fiscal 1999.
OPERATING EXPENSES
Selling, general and administrative expenses increased $13.7 million, to
42.4 percent of sales, compared to 40.5 percent in the prior year. The increase
was primarily due to the development of electronic-based products and electronic
commerce channels, increased promotional spending during the fourth quarter, and
the acquisition of King Bear. In addition, SG&A expenses increased due to the
opening of five new stores during fiscal 1999. During the year, the Company
invested heavily to develop and market new electronic-based products, such as
the Franklin Planner for Microsoft Outlook(TM). The Company also spent
significant amounts to improve its electronic commerce infrastructure to meet
changing consumer preferences and committed significant resources to the
development of its Internet web site and other on-line products and services.
During the fourth quarter of fiscal 1999, the Company increased its promotional
spending, primarily for catalogs and direct mailings, to advertise new products,
such as the Millennium edition of the Franklin Planner, and to improve training
program sales performance. Increased SG&A expenses can also be attributed to the
acquisition of King Bear during fiscal 1998, which added $5.9 million of
incremental expenses to fiscal 1999. These increases were partially offset by
the sale of the Institute of Fitness, which recorded $3.8 million of SG&A
expenses prior to its sale in fiscal 1998.
Depreciation charges increased by $3.5 million over the prior year
primarily due to new computer software and hardware purchased in conjunction
with the Company's business transformation project and the addition of leasehold
improvements for new stores. Equipment and software purchased in connection with
the business transformation project are depreciated over estimated useful lives
of three to five years. Amortization charges increased by $3.0 million due to
amortization of contingent earnout payments made during the second quarter of
fiscal 1999 and the amortization of certain business transformation project
costs.
RESTRUCTURING COSTS
During the fourth quarter of fiscal 1999, the Company initiated a
restructuring plan designed to restructure the Company's operations, reduce its
workforce and formally exit the majority of its leased office space located in
Provo, Utah. As part of the restructuring plan, the Company intended to reduce
its workforce from 4,200 employees to approximately 3,600 employees. The cost to
provide severance and related benefits was estimated to be $11.7 million. Also
included in the restructuring provision is a charge to exit certain leased
office space in Provo, Utah. These facilities formerly accommodated sales,
marketing, and other functions primarily aligned with the training and education
SBU.
LOSS ON IMPAIRED ASSETS
At each balance sheet date, the Company reviews its goodwill, other
intangible assets, and other long-term assets to determine whether events or
circumstances may have occurred which indicate possible impairment. As part of
the restructuring plan initiated during the fourth quarter of fiscal 1999, all
programs, products, and curriculum were evaluated to determine their future
value in the restructured Company. As a result of this evaluation, certain
products, services, and curricula were discontinued. Other intangible and
long-term assets were also reviewed for future value using undiscounted cash
flows or other appropriate valuation methodologies. Based upon this analysis,
the Company recognized a $16.6 million loss on impaired long-lived assets for
the year ended August 31, 1999.
25
INTEREST EXPENSE
Interest expense increased $1.6 million, primarily due to increased
borrowing on the Company's long-term line of credit to purchase shares of the
Company's common stock during fiscal 1999.
INCOME TAXES
During fiscal 1999, the Company recognized income tax expense of $4.5
million. Although the Company had a loss before income taxes of $4.2 million,
non-deductible goodwill amortization from the merger with Covey Leadership
Center and other acquisitions, foreign income tax expense, and losses in foreign
countries resulted in a net taxable position for the year. The effect of foreign
losses is primarily comprised of losses sustained in Japan for which no
offsetting tax benefit could be recognized due to uncertain future taxable
income to offset such losses.
PREFERRED STOCK DIVIDENDS
During the fourth quarter of fiscal 1999, the Company issued 750,000 shares
of Series A Preferred Stock for $75.0 million in cash to a private investor. The
preferred stock dividends accrue at an annual rate of 10 percent and are payable
quarterly in cash or additional shares of preferred stock until July 1, 2002.
Accordingly, the Company accrued $1.9 million in preferred stock dividends as of
August 31, 1999. Subsequent to August 31, 1999, the Company paid the accrued
dividend with additional shares of preferred stock.
QUARTERLY RESULTS
The following tables set forth selected unaudited quarterly consolidated
financial data for the most recent eight quarters. The quarterly consolidated
financial data reflects, in the opinion of management, all adjustments necessary
to fairly present the results of operations for such periods. Results of any one
or more quarters are not necessarily indicative of continuing trends.
Quarterly Financial Information:
YEAR ENDED AUGUST 31, 2000
---------- ---------- ---------- ----------
Q1 Q2 Q3 Q4
---------- ---------- ---------- ----------
In thousands, except per share amounts
Sales $ 144,078 $ 145,023 $ 110,759 $ 185,339
Gross margin 85,053 83,098 57,710 105,130
Restructuring costs (402) (4,544)
Stock option purchase and
relocation costs 491 1,668 8,361 707
Income (loss) before
provision for income taxes 13,093 5,430 (27,701) 14,731
Net income (loss) 7,188 2,819 (18,834) 4,418
Preferred dividends 1,914 2,036 2,028 2,027
Income (loss) available to
common shareholders $ 5,274 $ 783 $(20,862) $ 2,391
Diluted income (loss) per share $ .26 $ .04 $ (1.02) $ .12
26
YEAR ENDED AUGUST 31, 1999
---------- ---------- ---------- ----------
Q1 Q2 Q3 Q4
---------- ---------- ---------- ----------
In thousands, except per share amounts
Sales $ 140,362 $137,089 $109,267 $168,205
Gross margin 86,431 79,128 58,522 87,710
Restructuring costs 16,282
Loss on impaired assets 16,559
Income (loss) before
provision for income taxes 18,815 11,305 (7,922) (26,424)
Net income (loss) 10,913 6,557 (4,595) (21,647)
Preferred dividends 1,875
Income (loss) available to
common shareholders $ 10,913 $ 6,557 $ (4,595) $(23,522)
Diluted income (loss) per share $ .50 $ .31 $ (.22) $ (1.15)
The Company's quarterly results of operations reflect seasonal trends that
are primarily the result of customers who renew their Franklin Planners on a
calendar year basis. Training and Education sales are moderately seasonal
because of the timing of corporate training, which is not typically scheduled
during holiday and vacation periods, and the timing of Premier Agenda's sales,
which occur primarily in the Company's fourth quarter. In the Company's
experience, catalog sales, retail store sales, and net income tend to be lower
during the third quarter of each fiscal year. The seasonal nature of the
Company's operations has historically resulted in higher sales and significantly
higher operating margins during the first, second, and fourth quarters, with
declines in sales and income occurring during the third quarter of each fiscal
year. The Company believes that the seasonal pattern of sales and earnings
during its fiscal year will continue as in the past, exclusive of restructuring
and other similar charges.
During fiscal 2000, the Company incurred and expensed $11.2 million for
other costs related to its restructuring plan which were not specific to
severance or leased office space exit costs. These costs were primarily
comprised of charges resulting from a stock option tender offer and other
purchases of outstanding stock options, and to relocate sales associates to new
regional sales offices. These costs have been classified as a separate component
of operating expenses. In an effort to reduce the potentially dilutive effect of
stock options on the Company's capital structure, the Company was actively
engaged in purchasing stock options from current and former employees. As part
of this strategy, the Company filed a tender offer statement with the SEC that
closed during the Company's third quarter of fiscal 2000. Under terms of the
offer, the Company paid cash for the outstanding option shares, which were
priced using a market value methodology. As a result of the tender offer and
previous purchases of option shares, the Company reacquired 3,294,476 option
shares for $8.7 million in cash. The remaining $2.5 million was primarily used
to relocate the Company's sales force to eight new regional offices that were
opened during fiscal 2000.
During the fourth quarter of fiscal 1999, the Company initiated a
restructuring plan that resulted in a $16.3 million charge to operations.
Included in the restructuring charge were costs necessary to reduce the
Company's workforce by approximately 600 employees and to exit the majority of
leased office space in Provo, Utah. The Company reassessed the severance portion
27
of the restructuring accrual during the fourth quarter of fiscal 2000 and
reduced the remaining accrual by $4.5 million. The adjustment was primarily due
to favorable economic conditions that allowed former employees to find new jobs
more quickly than expected and resulted in reduced severance costs. Also during
fiscal 2000, the Company exited the leased office space located in Provo, Utah
and obtained a subleasee for the property. After an assessment of the sublease
terms, the Company adjusted its restructuring accrual by $0.4 million during the
third quarter of fiscal 2000 to reflect lower than expected building transition
costs. As of August 31, 2000, accrued severance costs consisted of expected
remaining severance and benefit payments for affected employees. Remaining
accrued leased office space exit costs consisted of items such as the difference
between the base rental charge and sublease revenues over time and tenant
improvements. As of August 31, 2000, the restructuring plan was substantially
complete and the Company expects that the remaining restructuring accrual will
be sufficient to complete its restructuring plan.
As part of its restructuring plan, and upon review of certain goodwill,
intangibles, and other long-term assets, the Company recognized a loss on
impaired assets totaling $16.6 million during the fourth quarter of fiscal 1999.
Quarterly fluctuations may also be affected by other factors including the
addition of new institutional customers, the introduction of new products, the
timing of large institutional orders, and the opening of new retail stores.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of capital have been net cash
provided by operating activities, long-term borrowing, and line-of-credit
financing. Working capital requirements have also been financed through
short-term borrowing and line-of-credit financing. In addition to these sources,
the Company issued preferred stock to a private investor in the fourth quarter
of fiscal 1999, and to existing shareholders through a subscription offering
during fiscal 2000. The subscription offering closed on November 30, 1999 with
42,338 shares of preferred stock purchased under terms of the offering. The
preferred stock issued to shareholders was substantially identical to preferred
shares previously issued to the private investor. Net proceeds from the
subscription offering were $4.1 million.
Net cash provided by operating activities during fiscal 2000 and 1999 was
$50.6 million and $36.0 million, respectively. Adjustments to net loss for
fiscal 2000 included $48.5 million of depreciation and amortization charges. The
primary sources of cash from operations resulted from improved collections of
accounts receivable and reduced inventories. In contrast with recent fiscal
years, the collection of accounts receivable resulted in a net source of cash to
the Company in spite of continued fourth quarter sales growth at Premier
Agendas. During fiscal 2000, the Company implemented new accounts receivable
collection policies and procedures at its core operations, which reduced the
number of receivable days outstanding and improved cash flows. The Company also
implemented new inventory procedures designed to optimize inventory levels,
which contributed to reduced inventory levels compared with the prior year.
Additionally, the Company utilized certain income tax benefits and various tax
strategies to minimize required income tax payments throughout the year. The
primary uses of cash in fiscal 2000 were payments related to the Company's
restructuring plan for severance and building exit costs, and the purchase of
stock options and payments for sales associate relocation expenses. For the
fiscal year ended August 31, 1999, adjustments to net loss included $43.5
million of amortization and depreciation, $16.6 million for losses on impaired
assets and a net increase of $10.5 million in deferred tax assets. The change in
deferred taxes primarily represents an increase in current deferred tax assets
generated in fiscal 1999. The primary uses of cash for operational activities
were increases in inventory of $12.0 million and increased receivables totaling
$8.9 million. Inventories increased primarily due to an increase in the number
of Franklin Planner designs, new binder models in stock and higher costs
associated with electronic products. Accounts receivable increased due to
increased sales at Premier, which has seasonal sales that occur primarily during
the Company's fourth quarter. In connection with its restructuring plan, the
Company recorded a $16.2 million accrual in fiscal 1999 for expected costs to
reduce the workforce and exit certain leased office space, which is included as
a component of cash flows from operations. Cash used to pay income taxes is the
28
result of quarterly payments on expected taxable earnings that exceeded actual
taxable income for the year. The increase in payables and accrued liabilities is
primarily due to the timing of goods and services received and corresponding
payments.
Net cash used for investing activities during fiscal years 2000 and 1999
was $38.9 million and $40.7 million, respectively. For the year ended August 31,
2000, the Company used $24.5 million of cash to purchase computer hardware and
software, manufacturing equipment, leasehold improvements, and other property
and equipment. The Company used $16.3 million to pay contingent earnout payments
to the former owners of Premier Agendas and personal coaching. In addition, the
operations of Professional Resources Organization and Daytracker.com were
acquired during fiscal 2000 for $4.5 million in cash. The Company also sold the
assets of the commercial division of Publishers Press, a printing services
subsidiary, for $11.0 million in cash and a $2.4 million secured note
receivable. Net cash proceeds to the Company from the sale totaled $6.4 million.
During fiscal 1999, the Company paid $14.8 million in contingent earnout
payments and spent an additional $4.2 million to acquire other businesses during
the year, including Khalsa Associates, a sales training company. Capital
expenditures during fiscal 1999 totaled $23.0 million and consisted primarily of
an addition to one of the Company's buildings, new store leasehold improvements,
computer hardware and software, and other manufacturing equipment. The Company
also received $1.3 million in cash from the sale of certain land and a
non-business related building.
Net cash used for financing activities during fiscal 2000 was $18.0
million, compared to net cash proceeds of $2.4 million in fiscal 1999. The
primary source and use of cash was related to the expansion of the Company's
line of credit and the retirement of certain notes payable. At August 31, 1999,
the Company had $85.0 million of senior unsecured notes payable (the "Notes
Payable") outstanding. The Notes Payable required the Company to maintain
certain financial ratios and net worth levels until the Notes Payable were paid
in full. Due to restructuring charges in the fourth quarter of fiscal 1999, the
Company was not in compliance with the terms of the Notes Payable. The Company
did not obtain a waiver of the terms of the Notes Payable, and during the first
quarter of fiscal 2000, the Notes Payable were retired at par plus accrued
interest. Also during the first quarter of fiscal 2000, the Company obtained a
new line of credit from existing lenders that maintained the Company's $10.0
million short-term line of credit, but expanded the long-term line to $100.0
million. The $100.0 million long-term line was subsequently scaled back to $73.0
million as a result of the Company's guarantee related to the management stock
loan program. The Company used existing cash and its expanded line of credit to
retire the Notes Payable. During fiscal 1999, the Company used $40.7 million for
payments on long-term debt, primarily on its long-term line of credit. In
addition, the Company used $32.7 million to purchase 2,126,000 shares of its
common stock during fiscal 1999. The primary source of cash from financing
activities during fiscal 1999 was the issuance of 750,000 shares of preferred
stock to a private investor for $75.0 million.
At August 31, 2000, the Company had unsecured bank lines of credit
available for working capital needs totaling $103.0 million. The Company's lines
of credit consisted of a $10.0 million short-term line of credit, a $20.0
million short-term line of credit, and a $73.0 million long-term credit
facility. On August 31, 2000, the Company had $17.9 million outstanding on the
short-term lines of credit and $55.0 million outstanding on the long-term line
of credit. The line of credit agreements require the Company to maintain certain
financial ratios and working capital levels, excluding the impact of stock
option repurchases during fiscal 2000. At August 31, 2000, the Company was in
compliance with the terms of the line of credit agreements. The Company's line
of credit agreements expire on December 1, 2001.
29
During fiscal 2000, the Company announced the implementation of an
incentive based compensation program that includes a loan program from external
lenders to certain managers for the purpose of purchasing shares of the
Company's common stock. The program gives management of the Company the
opportunity to purchase shares of the Company's common stock on the open market,
and from shares purchased by the Company, by borrowing on a full-recourse basis
from the external lenders. The Company has facilitated the loans by providing a
guarantee to the lenders. The program will total approximately $33.0 million and
the Company has facilitated the purchase of open-market shares to ensure
compliance with appropriate SEC trading rules and regulations. As of August 31,
2000, the Company had facilitated the purchase of 3,559,000 shares with a cost
of $30.0 million for the loan program.
Going forward, the Company will continue to incur costs necessary for the
development of on-line products, electronic commerce channels, strategic
acquisitions and joint ventures, retail store buildouts and renovations,
regional office leasehold improvements, and other costs related to the growth of
the business. Cash provided by operations, available lines of credit, and other
financing alternatives will be used for these expenditures. Management
anticipates that its existing capital resources will be sufficient to enable the
Company to maintain its current level of operations and its planned internal
growth for the foreseeable future. The Company also continues to pursue
additional financing alternatives as it positions itself for future growth.
REGULATORY COMPLIANCE
The Company is registered in all states that have a sales tax and collects
and remits sales or use tax on retail sales made through its stores and catalog
sales. Compliance with environmental laws or regulations has not had a material
effect on the Company's operations. Inflation has not had a material effect on
the Company's operations. However, future inflation may have an impact on the
price of materials used in planners and related products, including paper and
leather materials. The Company may not be able to pass on such increased costs
to its customers.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
With the exception of historical information (information relating to the
Company's financial condition and results of operations at historical dates or
for historical periods), the matters discussed in this Management's Discussion
and Analysis of Financial Condition and Results of Operations and elsewhere are
forward-looking statements that necessarily are based on certain assumptions and
are subject to certain risks and uncertainties. Such uncertainties include, but
are not limited to, unanticipated developments in any one or more of the
following areas: the integration of acquired or merged businesses, management of
growth, unanticipated costs, delays or outcomes relating to the Company's
restructuring plan, availability of financing sources, dependence on products or
services, the rate and consumer acceptance of new product introductions,
competition, the number and nature of customers and their product orders,
pricing, pending and threatened litigation, and other risk factors which may be
detailed from time to time in the Company's press releases, reports to
shareholders and in filings with the Securities and Exchange Commission ("SEC").
While the Company has a broad customer base, it is subject to variables
over which it has no direct control such as innovations in competing products,
the general transition from paper-based products to electronic or internet based
products, changing corporate policies on the part of the Company's customers,
and competition from others in the industry. In addition, the Company is subject
to changes in costs of supplies necessary to produce its products and
distribution of those products. The Company's business is subject to seasonal
variations and including sales in non-United States countries. Sales outside the
United States potentially present additional risks such as political, social,
and economic instability.
30
The market price of the Company's common stock has been and may remain
volatile. In addition, the stock markets in general have recently experienced
increased volatility. Factors such as quarter to quarter variations in revenues
and earnings or the failure of the Company to meet analysts' expectations could
have a significant impact on the market price of the Company's common stock. In
addition, the price of the common stock can change for reasons unrelated to the
performance of the Company.
These forward-looking statements are based on management's expectations as
of the date hereof, and the Company does not undertake any responsibility to
update any of these statements in the future. Actual future performance and
results will differ and may differ materially from that contained in or
suggested by these forward-looking statements as a result of the factors set
forth in this Management's Discussion and Analysis of Financial Condition and
Results of Operations and elsewhere in the Company's filings with the SEC.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK OF FINANCIAL INSTRUMENTS
The Company has exposure to market risk from foreign currency exchange
rates and changes in interest rates. To manage the volatility related to
currency exchange rates, the Company entered into limited derivative
transactions to manage well-defined foreign exchange risks during fiscal 2000.
As of August 31, 2000 the Company had derivative instruments outstanding which
were used to hedge foreign exchange risks on certain receivable and payable
balances. The foreign exchange contracts were accounted for using existing
accounting standards and will be subject to the provisions of SFAS No. 133 and
related pronouncements in fiscal 2001. Corresponding gains and losses on these
and other derivative contracts were immaterial for the year ended August 31,
2000. As the Company continues to expand internationally, the Company's use of
foreign exchange contracts may grow in order to manage the foreign currency
risks to the Company. As of August 31, 2000, the Company had not entered into
derivative instruments to hedge its exposure to interest rate risk.
EURO CONVERSION
On January 1, 1999, the European Monetary Union ("EMU"), which is comprised
of 11 out of the 15 member countries of the European Union, introduced a new
common currency, the "Euro." During the transition period between January 1,
1999 and January 1, 2002, both the Euro and national currencies will coexist.
The national currencies will remain legal tender until at least January 1, 2002,
but not later than July 1, 2002. The Company currently transacts business in EMU
countries using the national currencies and translates the financial results of
those countries in accordance with current accounting pronouncements. Further,
the Company has not experienced, nor does it expect to experience, a material
adverse impact on its financial condition, results of operations, or liquidity
as a result of the Euro conversion.
31
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Franklin Covey Co.:
We have audited the accompanying consolidated balance sheets of Franklin Covey
Co. (a Utah corporation) and subsidiaries as of August 31, 2000 and 1999, and
the related consolidated statements of income and comprehensive income,
shareholders' equity and cash flows for each of the three years in the period
ended August 31, 2000. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Franklin Covey Co.
and subsidiaries as of August 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 2000 in conformity with accounting principles generally accepted in
the United States.
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
September 28, 2000
32
FRANKLIN COVEY CO.
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2000 1999
- -----------------------------------------------------------------------------------------------------------------
In thousands, except share data
ASSETS
Current assets:
Cash and cash equivalents $ 21,242 $ 26,781
Accounts receivable, less allowance for doubtful
accounts of $3,350 and $4,074, respectively 84,747 92,500
Inventories 53,599 59,780
Income taxes receivable 3,912
Deferred income taxes 12,916 16,357
Other assets 20,531 12,316
-------------- -------------
Total current assets 193,035 211,646
Property and equipment, net 121,556 127,863
Goodwill and other intangibles, net 258,475 267,185
Other assets 19,413 16,609
------------- -------------
$ 592,479 $ 623,303
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 17,884 $ 1,396
Accounts payable 28,251 33,038
Accrued compensation 13,598 10,414
Accrued acquisition earnouts 700 15,900
Accrued restructuring costs 5,160 16,200
Other accrued liabilities 42,046 35,992
Income taxes payable 4,645
Current portion of long-term debt 6,873 90,010
Current portion of capital lease obligations 540 558
-------------- --------------
Total current liabilities 119,697 203,508
Line of credit 55,000
Long-term debt, less current portion 7,125 5,624
Capital lease obligations, less current portion 380 919
Deferred compensation liability 3,285
Deferred income taxes 32,939 34,818
-------------- --------------
Total liabilities 218,426 244,869
============== ==============
Commitments and contingencies (Notes 6, 8, 10 and 20)
Shareholders' equity:
Preferred stock - Series A, no par value; convertible
into common stock at $14 per share; 4,000,000 shares
authorized, 811,088 shares and 750,000 shares issued,
respectively, at $100 per share 80,967 75,000
Common stock, $.05 par value; 40,000,000 shares
authorized, 27,055,894 shares issued 1,353 1,353
Additional paid-in capital 225,748 235,632
Retained earnings 186,711 199,125
Note receivable (894)
Restricted stock deferred compensation (58) (320)
Accumulated other comprehensive loss (122) (782)
Treasury stock at cost, 6,439,329 and 6,676,373 shares, respectively (119,652) (131,574)
-------------- --------------
Total shareholders' equity 374,053 378,434
-------------- --------------
$ 592,479 $ 623,303
============== ==============
See accompanying notes to consolidated financial statements.
33
FRANKLIN COVEY CO.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
YEAR ENDED AUGUST 31, 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
In thousands, except per share data
Sales $ 585,199 $ 554,923 $ 546,612
Cost of sales (exclusive of stock option purchase
costs totaling $2,113 in fiscal 2000) 254,208 243,132 213,888
------------- ------------- ------------
Gross margin 330,991 311,791 332,724
Selling, general and administrative (exclusive of stock option
purchase and relocation costs totaling $9,114 in fiscal 2000) 269,303 235,003 221,303
Stock option purchases and relocation costs 11,227
Depreciation and amortization 45,167 39,539 33,028
Restructuring costs (4,946) 16,282
Loss on impaired assets 16,559
------------- ------------- ------------
Income from operations 10,240 4,408 78,393
Interest income 1,665 1,278 1,954
Interest expense (6,178) (9,912) (8,316)
Other expense, net (174)
------------- ------------- ------------
Income (loss) before provision for income taxes
and cumulative effect of accounting change 5,553 (4,226) 72,031
Provision for income taxes 9,962 4,546 29,893
------------- ------------- ------------
(Loss) income before cumulative effect of accounting change (4,409) (8,772) 42,138
Cumulative effect of accounting change, net of tax (Note 16) (2,080)
------------- ------------- ------------
Net (loss) income (4,409) (8,772) 40,058
Preferred stock dividends 8,005 1,875
------------- ------------- ------------
Net (loss) income available to common shareholders $ (12,414) $ (10,647) $ 40,058
------------- ------------- ------------
(Loss) income from continuing operations per share:
Basic $ (.61) $ (.51) $ 1.75
Diluted (.61) (.51) 1.70
Cumulative effect of accounting change, net of tax, per share:
Basic (.09)
Diluted (.08)
------------- ------------- ------------
Net (loss) income per share:
Basic $ (.61) $ (.51) $ 1.66
Diluted (.61) (.51) 1.62
------------- ------------- ------------
Weighted average number of common and common equivalent shares:
Basic 20,437 20,881 24,091
Diluted 20,437 20,881 24,726
------------- ------------- ------------
COMPREHENSIVE INCOME:
Net (loss) income available to common shareholders $ (12,414) $ (10,647) $ 40,058
Foreign currency translation adjustments 660 1,468 (1,316)
------------- ---------------- -------------
Comprehensive (loss) income $ (11,754) $ (9,179) $ 38,742
------------- --------------- -------------
See accompanying notes to consolidated financial statements.
34
FRANKLIN COVEY CO.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUM-
SERIES A ULATED
PREFFERED STOCK COMMON STOCK OTHER TREASURY STOCK TOTAL
-------------- ------------ ADDITIONAL NOTES DEFERRED COMPRE- -------------- SHARE-
PAID-IN RETAINED RECEIV- COMPEN- HENSIVE HOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ABLE SATION LOSS SHARES AMOUNT EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
In thousands
Balance at August 31, 1997 $ 27,056 $ 1,353 $239,699 $169,714 $ $(1,495) $ (934) (2,373) $(52,932) $355,405
Tax benefit from exercise
of affiliate stock options 266 266
Issuance of common stock
from treasury (1,913) 247 5,515 3,602
Purchase of treasury shares (2,687) (57,013) (57,013)
Deferred compensation
amortization 652 652
Other comprehensive loss (1,316) (1,316)
Net income 40,058 40,058
---- ------ ------ ------- ------- -------- ------ ------- ------- ------ -------- -------
Balance at August 31, 1998 27,056 1,353 238,052 209,772 (843) (2,250) (4,813) (104,430) 341,654
Issuance of Series A
Preferred Stock 750 75,000 75,000
Preferred stock dividends (1,875) (1,875)
Tax benefit from exercise
of affiliate stock options 1,320 1,320
Issuance of common stock
from treasury (3,740) 263 5,566 1,826
Purchase of treasury shares (2,126) (32,710) (32,710)
Deferred compensation
amortization 523 523
Other comprehensive income 1,468 1,468
Net loss (8,772) (8,772)
---- ------ ------ ------ ------- -------- ------ ------- ------ ------ ------- -------
Balance at August 31, 1999 750 75,000 27,056 1,353 235,632 199,125 (320) (782) (6,676) (131,574) 378,434
Issuance of Series A
Preferred Stock 42 4,092 4,092
Preferred stock dividends (8,005) (8,005)
Tax benefit from exercise
of affiliate stock options 557 557
Issuance of common stock
from treasury (10,441) 925 17,404 6,963
Purchase of treasury shares (688) (5,482) (5,482)
Issuance of note receivable
from sale of common stock (894) (894)
Deferred compensation
amortization 262 262
Other comprehensive income 660 660
Dividends on preferred stock
paid with additional
shares of preferred stock 19 1,875 1,875
Net loss (4,409) (4,409)
----- ------- ------ ------- -------- -------- ------ ------ ------- ------ -------- -------
Balance at August 31, 2000 811 $80,967 27,056 $ 1,353 $225,748 $186,711 $ (894) $ (58) $ (122) (6,439)$(119,652) $374,053
===== ======= ====== ======= ======== ======== ====== ====== ======= ====== ======== =======
See accompanying notes to consolidated financial statements.
35
FRANKLIN COVEY CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED AUGUST 31, 2000 1999 1998
- ------------------------------------------------------------------ ----------- ----------- -----------
In thousands
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (4,409) $ (8,772) $ 40,058
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 48,510 43,547 38,626
Loss on impaired assets 16,559
Deferred income taxes 1,562 (10,503) 613
Restricted stock deferred compensation amortization 262 522 652
Loss on sale of assets 295 673 317
Changes in assets and liabilities, net of effects from
acquisitions:
Decrease (increase) in accounts receivable 4,639 (8,879) (9,995)
Decrease (increase) in inventories 3,943 (11,981) 8,061
Increase in other assets and other long-term liabilities (8,056) (3,868) (12,044)
Increase (decrease) in accounts payable
and accrued liabilities 5,804 10,966 (4,495)
Decrease) increase in accrued restructuring costs (11,040) 16,200
Increase (decrease) in income taxes payable 9,113 (8,491) 12,261
----------- ----------- -----------
Net cash provided by operating activities 50,623 35,973 74,054
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, including earnout payments (21,444) (19,025) (16,786)
Purchases of property and equipment, net of effects from
acquisitions (24,523) (22,996) (39,239)
Proceeds from sale of property and equipment 7,032 1,288 12,210
----------- ----------- -----------
Net cash used for investing activities (38,935) (40,733) (43,815)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term borrowings 16,488 (2,229) (889)
Proceeds from long-term debt and line of credit, net of effects
from acquisitions 76,308 1,142 119,969
Payments on long-term debt and capital lease obligations (109,502) (40,652) (87,221)
Proceeds from issuance of Series A Preferred Stock, net 4,092 75,000
Purchases of common stock for treasury (5,483) (32,710) (57,013)
Proceeds from issuance of treasury stock 6,069 1,826 3,602
Payment of preferred stock dividends (5,977)
------------ ----------- ----------
Net cash (used for) provided by financing activities (18,005) 2,377 (21,552)
------------ ----------- -----------
Effect of foreign exchange rates 778 1,404 (1,316)
------------ ----------- -----------
Net (decrease) increase in cash and cash equivalents (5,539) (979) 7,371
Cash and cash equivalents at beginning of the year 26,781 27,760 20,389
------------ ----------- -----------
Cash and cash equivalents at end of the year $ 21,242 $ 26,781 $ 27,760
------------ ----------- -----------
See accompanying notes to consolidated financial statements.
36
FRANKLIN COVEY CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Franklin Covey Co. (the "Company") provides integrated training and
performance solutions to organizations and individuals in productivity,
leadership, sales, communication, and other areas. Each solution set may include
components for training and consulting, assessment, and other application tools
available in electronic or paper-based formats. The Company's products and
services are available through professional consulting services, public
workshops, catalogs, retail stores, and the Internet at www.franklincovey.com
and www.franklincoveyplanner.com. The Company's best known products include the
Franklin Planner and the best-selling book, The 7 Habits of Highly Effective
People.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements, in conformity with accounting
principles generally accepted in the United States, requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of August
31, 2000, the Company had demand deposits at various banks in excess of the
$100,000 limit for insurance by the Federal Deposit Insurance Corporation.
INVENTORIES
Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out method. Elements of cost in inventories
include raw materials, direct labor, and manufacturing overhead.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation or
amortization. Depreciation or amortization is calculated using the straight-line
method over the expected useful lives of the assets as follows:
Description Useful Lives
- ----------------------------------------------------------------
Buildings 15-39 years
Computer hardware and software 3 years
Machinery and equipment 3-7 years
Furniture, fixtures and leasehold
improvements 5-7 years
37
Leasehold improvements are amortized over the lesser of the useful economic
life of the asset or the contracted lease period. Expenditures for maintenance
and repairs are charged to expense as incurred. Gains and losses on the sale of
property and equipment are recorded in current operations.
RESTRICTED INVESTMENTS
The Company's restricted investments are comprised of investments in mutual
funds that are held in a "Rabbi Trust" and are restricted for payment to the
participants of the Company's deferred compensation plan (Note 7). The Company
accounts for its restricted investments using Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The Company determines the proper classification of
investments at the time of purchase and reassesses such designations at each
balance sheet date. At August 31, 2000, the Company's restricted investments
were classified as trading securities and recorded in other long-term assets in
the accompanying fiscal 2000 consolidated balance sheet.
In accordance with SFAS No. 115, the unrealized loss, which was immaterial
for fiscal 2000, has been recognized in the accompanying consolidated income
statement for fiscal 2000 as a component of selling, general, and administrative
expense.
OTHER LONG-TERM ASSETS
The Company was recently involved in a business reengineering and
information systems implementation project (the "Project"). Certain costs of the
Project have been capitalized (Note 16). At August 31, 2000 and 1999, the
Company had $8.5 million and $10.6 million of net capitalized Project costs
classified as other long-term assets. Project costs are amortized over a
five-year period following completion of associated Project phases. As of August
31, 2000, all phases of the Project were completed.
LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment at each balance
sheet date for events or changes in circumstances that may indicate the book
value of an asset may not be recoverable. The Company uses an estimate of future
undiscounted net cash flows of the related asset or group of assets over the
remaining life in measuring whether the assets are recoverable. The Company
assesses the impairment of long-lived assets at the lowest level for which there
are identifiable cash flows that are independent of other groups of assets.
During the fourth quarter of fiscal 1999, the Company initiated a plan to
restructure its operations (Note 2). As part of the restructuring plan, all
programs, products, and curriculum were evaluated to determine their future
value in the restructured Company. As a result of this evaluation, certain
products, services, and curricula were discontinued which impacted the related
long-lived assets and goodwill. Based upon the results of this review, the
Company recognized a $16.6 million charge in the fourth quarter of fiscal 1999
for impaired assets related to the discontinued products and programs. The loss
on impaired assets for the year ended August 31, 1999 was comprised of the
following (in thousands):
Goodwill and other intangibles $ 8,234
Other long-term assets 6,772
Property and equipment 1,553
----------------
$ 16,559
=================
38
The Company has disposed of these assets, as the assets have no market
value or alternative uses to the Company. Impaired goodwill and other intangible
assets were primarily comprised of goodwill generated from previous acquisitions
whose products or services were discontinued. Impaired other long-term assets
primarily consisted of capitalized costs for Project modules that were
determined to have no future value. Impaired property and equipment was
comprised of purchased software written off because it was unusable and a
printing press that was unable to meet printing quality standards.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
The balance sheet accounts of the Company's foreign subsidiaries are
translated into U.S. dollars using the current exchange rate. Revenues and
expenses are translated using an average exchange rate. The resulting
translation gains or losses are recorded as accumulated other comprehensive
income or loss in shareholders' equity. Transaction gains and losses are
reported in current operations.
REVENUE RECOGNITION
Revenue is recognized upon shipment of product or presentation of training
seminars.
PRE-OPENING COSTS
Pre-opening costs associated with new retail stores are charged to expense
as incurred. These amounts were not significant for the periods presented in the
accompanying consolidated financial statements.
INCOME TAXES
The provision for income taxes has been determined using the asset and
liability approach of accounting for income taxes. Under this approach, deferred
taxes represent the future tax consequences expected to occur when the reported
amounts of assets and liabilities are recovered or paid. The provision for
income taxes represents income taxes paid or payable for the current year plus
the change in deferred taxes during the year. Deferred taxes result from
differences between the financial and tax bases of the Company's assets and
liabilities and are adjusted for changes in tax rates and tax laws when changes
are enacted.
COMPREHENSIVE INCOME
Comprehensive income includes charges and credits to equity accounts that
are not the result of transactions with shareholders. Comprehensive income is
comprised of net income or loss and other comprehensive income items. The
Company's comprehensive income and losses consist of changes in the cumulative
foreign currency translation adjustment account. The changes in the cumulative
foreign currency translation adjustment account are not adjusted for income
taxes as they relate to specific indefinite investments in foreign subsidiaries.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. In the
normal course of business, the Company provides credit terms to its customers.
Accordingly, the Company performs ongoing credit evaluations of its customers
and maintains allowances for possible losses which, when realized, have been
within the range of management's expectations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The book value of the Company's financial instruments approximates fair
value. The estimated fair values have been determined using appropriate market
information and valuation methodologies.
39
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards requiring that every derivative
instrument be recorded on the balance sheet as either an asset or liability
measured at fair value and that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. SFAS No. 133, as amended by SFAS No. 137, is effective for fiscal quarters
of fiscal years beginning after June 15, 2000. As a result, the Company will
adopt the provisions of SFAS No. 133 in the first quarter of fiscal 2001. The
Company expects that the implementation of SFAS No. 133 will not have a material
impact on the Company's results of operations and financial position.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 provides guidance on the recognition, presentation, and
disclosure of revenue in financial statements. In June of 2000, the SEC issued
SAB 101B, which extended the implementation date to the Company's fourth quarter
of fiscal 2001. The Company does not expect the adoption of SAB 101 to have a
material impact on the Company's results of operations, financial position, or
liquidity.
RECLASSIFICATIONS
Certain reclassifications have been made in the prior periods' consolidated
financial statements to conform with the current year presentation.
2. RESTRUCTURING COSTS
During the fourth quarter of fiscal 1999, the Company's Board of Directors
approved a plan to restructure the Company's operations, reduce its workforce,
and formally exit the majority of its leased office space located in Provo,
Utah. These changes were intended to align the Company's products, services, and
distribution channels in a manner that focuses Company resources on providing
integrated training and performance solutions to organizations and individuals.
The restructuring was also intended to lay strategic, operational,
organizational, and financial foundations for profitable growth. In connection
with the restructuring plan, the Company recorded a fourth quarter restructuring
charge of $16.3 million, which is included in the accompanying consolidated
statement of income for the fiscal year ended August 31, 1999. Included in the
restructuring charge were costs to provide severance and related benefits, as
well as costs to formally exit the leased office space. As of August 31, 2000,
the Company's restructuring plan was substantially completed. The components of
the accrued restructuring charge and the remaining accrual balances at August
31, 2000 were as follows (in thousands):
Leased
Office
Severance Space Exit
Costs Costs Total
----------- ------------ -----------
Accrued restructuring
costs at August 31,1999 $ 11,600 $ 4,600 $ 16,200
Restructuring costs paid (4,641) (1,453) (6,094)
Adjustments (4,544) (402) (4,946)
-------- --------- ---------
Accrued restructuring
costs at August 31, 2000 $ 2,415 $ 2,745 $ 5,160
======== ======== ========
40
As of August 31, 2000, accrued severance costs consisted of expected
remaining severance and benefit payments for terminated employees. Remaining
accrued leased office space exit costs represent the difference between base
rental charges and the offsetting expected sublease revenue receipts. The
Company expects that the remaining restructuring accrual will be sufficient to
complete its restructuring plan.
The cost to provide severance and related benefits covered a planned
reduction of identified employees across all areas of the business. The
following table shows the number of employees in each of the Company's operating
segments that have been terminated by the reduction plan:
Number of
Operating Segment Employees
- ------------------------------------------ ----------------
Consumer products 114
Training and education 173
International 57
Corporate support and other 226
----------------
570
================
The severance cost accrual was established based upon estimates of factors
such as expected time to find other employment, expected benefit payments, and
severance payment type. However, primarily due to favorable economic conditions
which decreased the average time necessary for terminated employees to find new
employment, the Company reassessed its potential liability for remaining
severance costs. Accordingly, the Company reduced the severance accrual during
the fourth quarter of fiscal 2000 by $4.5 million to reflect the estimated
remaining liability.
During fiscal 2000, the Company entered into a sublease agreement for the
majority of its leased office space in Provo, Utah. In connection with this
sublease agreement, the Company reduced its leased office space exit accrual by
$0.4 million due to less-than-expected building transition costs. The Company
will continue to monitor and adjust its remaining restructuring reserves as
necessary.
3. INVENTORIES
Inventories were comprised of the following (in thousands):
AUGUST 31,
- --------------------------------------------------------------
2000 1999
- --------------------------------------------------------------
Finished goods $ 38,363 $ 42,594
Work-in-process 2,803 4,186
Raw materials 12,433 13,000
--------------- ---------------
$ 53,599 $ 59,780
=============== ===============
41
4. PROPERTY AND EQUIPMENT
Property and equipment were comprised of the following (in thousands):
AUGUST 31,
- ----------------------------------------------------------------
2000 1999
- ----------------------------------------------------------------
Land and improvements $ 7,634 $ 7,616
Buildings 49,623 48,787
Computer hardware and software 69,261 57,305
Machinery and equipment 42,554 56,287
Furniture, fixtures and
leasehold improvements 50,994 50,209
------------- -------------
220,066 220,204
Less accumulated depreciation
and amortization (98,510) (92,341)
------------- -------------
$ 121,556 $ 127,863
============= =============
Certain land and buildings represent collateral for debt obligations(Note 6).
5. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following (in
thousands):
AUGUST 31,
- ---------------------------------------------------------------
2000 1999
- ---------------------------------------------------------------
Goodwill $ 142,755 $ 131,595
License rights 27,000 27,000
Curriculum rights 61,778 61,752
Trade names and other 92,517 94,777
------------- -------------
324,050 315,124
Less accumulated amortization (65,575) (47,939)
------------- -------------
$ 258,475 $ 267,185
============= =============
Goodwill, representing the excess of cost over the net tangible and identifiable
intangible assets of acquired businesses, and other intangible assets are
amortized on a straight-line basis over the following estimated useful lives:
Useful Lives
-----------------
Goodwill 5-30 years
License rights 40 years
Curriculum rights 14-30 years
Trade names and other 4-40 years
42
6. DEBT
LINES OF CREDIT
At August 31, 2000, the Company had unsecured bank lines of credit
available for working capital needs totaling $103.0 million, of which $30.1
million was available. The amounts outstanding under the Company's lines of
credit consisted of the following at August 31, 2000 (in thousands):
$10.0 million current line of credit with interest at the bank's
prime rate (9.5% at August 31, 2000) $ 6,159
$20.0 million current line of credit with interest at LIBOR plus
1.5% (8.1% at August 31, 2000) 11,725
-------------
Total current lines of credit $ 17,884
-------------
$73.0 million long-term credit facility with interest at
the lower of the prime rate or LIBOR plus 2.0% $ 55,000
=============
The weighted average interest rate on outstanding current line of credit
debt at August 31, 2000 and 1999 was 8.6 percent and 7.8 percent, respectively.
The weighted average interest rate on the long-term credit facility was 8.7
percent as of August 31, 2000.
The line of credit agreements require the Company to maintain certain
financial ratios and working capital levels. At August 31, 2000, the Company was
in compliance with the terms of the line of credit agreements. The Company's
line of credit agreements expire on December 1, 2001.
Commitment fees associated with the lines of credit were $0.7 million
during fiscal 2000.
43
LONG-TERM DEBT
Long-term debt was comprised of the following (in thousands):
AUGUST 31,
- ------------------------------------------------------------------------------------------------
2000 1999
- ------------------------------------------------------------------------------------------------
Note payable in annual installments of $3,000 plus
interest at 8% through December 2001, unsecured $ 6,000 $
Note payable in quarterly installments of $574 including interest
at 5.0% through April 2001, unsecured 1,679 3,822
Mortgage payable in monthly installments of $18 including interest at
8.5% through August 2016, secured by real estate 1,619 1,697
Note payable on demand, plus interest at 8.0%, unsecured 1,396 1,481
Mortgage payable in monthly installments of $14 CDN, including
interest at 7.2% through January 2015, secured by real estate 997
Note payable to bank, payable in monthly installments of $20,
including interest at 7.8% through August 2004, secured by equipment 802 976
Mortgage payable in monthly installments of $8 including interest at
9.9% through October 2014, secured by real estate 688 710
Note payable to bank, payable in monthly installments of $23, plus
interest at prime plus .5% payable through September 2002,
secured by real estate 587 869
Senior unsecured notes payable with interest at 6.6% due semi-annually,
paid in full 85,000
Note payable to a Japanese bank for YEN 60,000, payable in quarterly
installments of YEN 20,000, paid in full 548
Other mortgages and notes, payable in monthly installments, interest
ranging from 2.0% to 8.8%, due at various dates through 2002, secured
by equipment 230 531
------------ ------------
13,998 95,634
Less current portion (6,873) (90,010)
------------ ------------
Long-term debt, less current portion $ 7,125 $ 5,624
============ ============
As a result of restructuring and impaired asset charges, the Company was
not in compliance with certain terms of the $85.0 million senior unsecured notes
payable at August 31, 1999. The Company did not obtain a waiver on the terms of
the debt covenants, and during October 1999, the Company retired the $85.0
million notes payable at par plus accrued interest. The Company utilized
existing cash and its expanded long-term line of credit to retire the notes
payable. Accordingly, the $85.0 million notes payable were reported as a
component of the current portion of long-term debt in the accompanying fiscal
1999 consolidated balance sheet.
Future maturities of long-term debt at August 31, 2000 were as follows (in
thousands):
YEAR ENDING AUGUST 31,
- --------------------------------------------------------------
2001 $ 6,873
2002 3,697
2003 419
2004 386
2005 209
Thereafter 2,414
--------------
$ 13,998
==============
44
7. DEFERRED COMPENSATION LIABILITY
During fiscal 2000, the Company established a deferred compensation plan
for certain key officers and employees that provides the opportunity to defer a
portion of their compensation until a later date. Deferred amounts are held in a
"Rabbi Trust", which invests in various mutual funds and/or the Company's common
stock as directed by the participants. The trust assets are recorded as a
long-term asset in the accompanying fiscal 2000 consolidated balance sheet
because such amounts are subject to the claims of creditors. The corresponding
deferred compensation liability represents the amounts deferred by participants
plus any earnings on the trust assets.
8. LEASE OBLIGATIONS
CAPITAL LEASES
Future minimum lease payments for equipment held under capital lease
arrangements as of August 31, 2000 were as follows (in thousands):
YEAR ENDING AUGUST 31,
- --------------------------------------------------------------
2001 $ 592
2002 392
--------------
Total future minimum lease payments 984
Less amount representing interest (64)
--------------
Present value of future minimum lease payments 920
Less current portion (540)
--------------
$ 380
==============
Total assets held by the Company under capital lease arrangements were $4.0
million with accumulated amortization of $2.2 million as of August 31, 2000.
Amortization of capital lease assets is included in depreciation and
amortization expense in the accompanying consolidated income statements.
OPERATING LEASES
The Company leases certain retail store and office locations under
noncancelable operating lease agreements with remaining terms of one to ten
years. The following table summarizes future minimum lease payments under
operating leases at August 31, 2000 (in thousands):
YEAR ENDING
AUGUST 31,
- -------------------------------------------- -- --------------
2001 $ 12,702
2002 11,032
2003 10,231
2004 8,672
2005 5,610
Thereafter 13,980
--------------
$ 62,227
==============
45
Total rental expense for leases under operating lease agreements was $17.4
million, $17.6 million, and $16.8 million, for the years ended August 31, 2000,
1999, and 1998, respectively.
As part of its restructuring plan (Note 2), the Company exited certain
leased office space in Provo, Utah during fiscal 2000. In connection with
leaving the office space, the Company obtained a noncancelable sublease
agreement for the majority of the Company's remaining lease term on the
buildings. Future minimum lease payments due to the Company from the subleasee
as of August 31, 2000 were as follows:
YEAR ENDING
AUGUST 31,
- -------------------------------------------- -- --------------
2001 $ 1,792
2002 1,845
2003 1,901
2004 1,958
2005 2,017
Thereafter 3,309
--------------
$ 12,822
==============
9. ADVERTISING
Costs for newspaper, television, radio, and other advertising are expensed
as incurred. Direct response advertising costs consist primarily of printing and
mailing costs for catalogs and seminar mailers that are charged to expense over
the period of projected benefit, not to exceed twelve months. Total advertising
costs were $37.2 million, $33.0 million, and $26.7 million for the years ended
August 31, 2000, 1999, and 1998, respectively. Prepaid catalog and seminar
mailer costs reported in other current assets were $5.1 million and $5.7 million
at August 31, 2000 and 1999, respectively.
10. COMMITMENTS AND CONTINGENCIES
PURCHASE COMMITMENTS
At August 31, 2000, the Company had contracts with various builders,
totaling $3.2 million, for construction related to new and remodeled retail
stores.
The Company also has various purchase commitments for materials, supplies,
and other items incident to the ordinary conduct of business. In aggregate, such
commitments are immaterial to the Company's operations.
LEGAL MATTERS
The Company is the subject of certain legal actions, which it considers
routine to its business activities. As of August 31, 2000, management believes
that, after discussion with its legal counsel, any potential liability to the
Company under such actions will not materially affect the Company's financial
position or results of operations.
46
11. RELATED PARTY TRANSACTIONS
During the fiscal year ended August 31, 2000, the Company sold 121,250
shares of its common stock to a former CEO of the Company for $0.9 million. In
consideration for the common stock, the Company received a non-recourse
promissory note, due September 2003, bearing interest at 10.0 percent.
Additionally, all of the former CEO's stock options were canceled and the
issuance of common stock is being accounted for as a variable security, due to
its stock option characteristics. The note receivable from the sale of this
stock has been recorded as a reduction to shareholders' equity in the
accompanying fiscal 2000 consolidated balance sheet.
During fiscal 2000, the Company actively sought to reacquire outstanding
options to purchase the Company's common stock (Note 12). Included in the total
number of option shares reacquired, the Company purchased 150,000 option shares
from a Vice-Chairman of the Board of Directors for $0.4 million. In addition,
358,000 option shares were purchased from two officers and one former officer of
the Company for a total of $0.8 million. These options were reacquired using the
same valuation methodology as other stock options purchased by the Company.
As part of the preferred stock offering completed during fiscal 1999 (Note
12), an affiliate of the investor was named Chairman of the Board of Directors
and Chief Executive Officer. The new Chairman and CEO was previously a member of
the Company's Board. In addition, two affiliates of the investor were appointed
to the Board of Directors. In connection with the preferred stock offering, the
Company pays an affiliate of the investor a monitoring fee of $100,000 per
quarter.
Premier Agendas ("Premier"), a subsidiary of the Company, had trade
accounts payable to various companies which are partially owned by certain
former owners of Premier totaling $2.1 million and $3.3 million at August 31,
2000 and 1999, respectively. In addition, Premier had notes payable to key
employees and former key employees totaling $1.4 million and $1.5 million as of
August 31, 2000 and 1999, respectively (Note 6). The notes payable were used for
working capital, are due upon demand, and have interest rates which approximate
prevailing market rates.
The Company pays a Vice-Chairman of the Board of Directors a percentage of
the proceeds received for seminars that are presented by him. During the fiscal
years ended August 31, 2000, 1999, and 1998, the Company paid $3.3 million, $3.0
million, and $2.4 million, respectively, to the Vice-Chairman for such seminars.
The Company, under a long-term agreement, leases buildings from a
partnership that is partially owned by a Vice-Chairman of the Board of Directors
and certain officers of the Company. Rental expense paid to the partnership
totaled $2.1 million, $2.1 million, and $1.8 million, during the fiscal years
ended August 31, 2000, 1999, and 1998, respectively.
During fiscal years 2000 and 1998, the Company purchased 9,000 shares and
500,000 shares of its common stock for $0.1 million and $12.0 million in cash,
respectively, from a Vice-Chairman of the Board of Directors. All shares were
purchased at the existing fair market value on the dates of the transactions.
In January 1999, the Company issued 1,450 shares of its common stock to
each member of the Board of Directors for $17.25 per share. The purchase price
was to be paid in the form of secured promissory notes that were payable in
three annual installments. During fiscal 2000, the promissory notes were
canceled and the Company retained the shares of stock.
During the fiscal year ended August 31, 1999, the Company purchased 130,000
shares of its common stock for $2.3 million in cash, from an officer of the
Company. The shares were purchased at the existing fair market value on the date
of the transaction.
47
During the fiscal years ended August 31, 1999 and 1998, the Company
purchased 92,000 and 100,000 shares of its common stock for $1.2 million and
$2.5 million in cash, respectively, from a former officer and director of the
Company. The shares were purchased at the existing fair market value on the
dates of the transactions.
The Company purchased 194,000 shares of its common stock from a director of
the Company for $3.7 million in cash during the fiscal year ended August 31,
1998. Also during fiscal 1998, the Company purchased 57,094 shares of its common
stock from a former officer of the Company for $1.1 million. The shares were
purchased at the existing fair market value on the dates of the transactions.
During fiscal 1998, the Company sold one of its consulting units to a group
of former employees for $1.6 million. The amount is payable to the Company in
six annual installments from September 1998 through 2003. The Company also
granted certain employees the option to purchase another consulting unit of the
Company for $1.2 million payable to the Company in equal annual installments
over a ten-year period commencing January 2001. Such option becomes exerciseable
upon the achievement of certain financial thresholds. As of August 31, 2000, the
consulting unit had not yet reached planned financial thresholds and the Company
does not expect that the option will be exercised.
12. CAPITAL TRANSACTIONS
PREFERRED STOCK
During the fiscal year ended August 31 1999, the Company issued 750,000
shares of Series A Preferred Stock (the "Preferred Stock") for $75.0 million in
cash to a private investor. During fiscal 2000, and in connection with the
initial issuance of Preferred Stock, the Company filed a registration statement
with the SEC related to a subscription offering for up to an additional 750,000
shares of Preferred Stock. Common stock shareholders of record on November 8,
1999 received a non-transferable right to purchase one share of Preferred Stock
for every 27 common shares owned, at a subscription price of $100 per share. The
Preferred Stock shares offered to common shareholders were substantially
identical to the Preferred Stock issued during fiscal 1999 to the private
investor. The subscription offering closed on November 30, 1999 with 42,338
shares of Preferred Stock purchased under terms of the subscription offering.
Preferred Stock dividends accrue at an annual rate of 10 percent and are
payable quarterly in cash or additional shares of Preferred Stock until July 1,
2002. Subsequent to that date, Preferred Stock dividends must be paid in cash.
Accordingly, the Company accrued $2.0 million and $1.9 million of Preferred
Stock dividends at August 31, 2000 and 1999, respectively. Subsequent to August
31, 2000, the Company paid the accrued Preferred Stock dividend with cash while
the accrued dividend at August 31, 1999 was subsequently paid in additional
shares of Preferred Stock. The Preferred Stock is convertible at any time into
the Company's common stock at a conversion price of $14.00 per share and ranks
senior to the Company's common stock. Preferred Stock shareholders generally
have the same voting rights as common stock holders on an "as-converted" basis.
TREASURY STOCK
The Company sold 153,614, 263,100, and 247,069 shares of its common stock
held in treasury as a result of the exercise of incentive stock options and the
purchase of shares under the Company's employee stock purchase plan for the
fiscal years ended August 31, 2000, 1999, and 1998, respectively. These shares
were sold for a total of $1.0 million, $1.4 million, and $3.6 million and had a
cost of approximately $2.9 million, $5.6 million, and $5.5 million for the
fiscal years ended August 31, 2000, 1999, and 1998. Additionally, during fiscal
2000, the Company sold 650,000 shares of treasury stock to its management stock
loan program (Note 20) for $5.1 million, which was the fair market value of the
shares sold. As discussed in Note 11, the Company also sold 121,250 shares of
treasury stock to a former CEO of the Company for $0.9 million.
48
Through August 31, 2000, the Company's Board of Directors had approved
various plans for the purchase of up to 8,000,000 shares of the Company's common
stock. During fiscal years 2000, 1999, and 1998, the Company purchased 688,000
shares for $5.5 million, 2,126,000 shares for $32.7 million, and 2,687,000
shares for $57.0 million. The majority of the shares purchased during fiscal
2000 were subsequently sold to the Company's management stock loan program (Note
20). At August 31, 2000, the Company had approximately 307,000 shares remaining
under Board authorized purchase plans.
TAX BENEFIT FROM EXERCISE OF AFFILIATE STOCK OPTIONS
During the fiscal years ended August 31, 2000, 1999, and 1998, certain
employees exercised affiliate stock options (nonqualified stock options received
from principal shareholders of the Company) which resulted in tax benefits to
the Company of $0.6 million, $1.3 million, and $0.3 million, which were recorded
as increases to additional paid-in capital.
RESTRICTED STOCK DEFERRED COMPENSATION
Deferred compensation represents restricted stock granted to key
executives. The stock vests in full four years from the date of grant and was
recorded at the fair market value at the date of grant. Compensation expense is
recognized ratably over the corresponding four-year vesting period. Deferred
compensation is included as a reduction to shareholders' equity in the
accompanying consolidated balance sheets.
STOCK OPTIONS
The Company's Board of Directors has approved an incentive stock option
plan whereby shares of common stock are issued to key employees at a price not
less than the fair market value of the Company's common stock at the date of
grant. The term, not to exceed ten years, and exercise period of each incentive
stock option awarded under the plan are determined by a committee appointed by
the Company's Board of Directors. At August 31, 2000, approximately 570,000
shares were available for grant under the current incentive stock option plan.
A summary of nonqualified and incentive stock option activity is set forth
below:
Number of Weighted Avg.
Options Exercise Price
- ------------------------ ----------------- -------------------
Outstanding at August 31, 1997 3,901,928 $ 20.24
Granted 434,800 23.64
Exercised (200,024) 13.62
Forfeited (466,974) 23.72
------------
Outstanding at August 31, 1998 3,669,730 21.89
Granted 2,058,825 12.02
Exercised (231,931) 3.59
Forfeited (212,459) 18.89
-------------
Outstanding at August 31, 1999 5,284,165 19.05
Granted 354,685 7.59
Exercised (22,334) 4.38
Repurchased (3,294,476) 22.54
Forfeited (574,033) 15.69
-------------
Outstanding at August 31, 2000 1,748,007 $ 11.59
=============
49
The following table summarizes exerciseable option information for the
periods indicated:
AUGUST 31,
- ---------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------
Exerciseable options 757,656 2,683,966 2,261,935
Weighted average exercise
price per share $ 14.83 $ 23.87 $ 22.65
In an effort to reduce the potentially dilutive effect of outstanding
options on the Company's capital structure, the Company actively sought to
reacquire outstanding stock options from both current and former employees. The
majority of option purchase costs were incurred in connection with a tender
offer made by the Company during the third quarter of fiscal 2000 to purchase
all outstanding options with an exercise price of $12.25 or higher. The tender
offer expired on May 3, 2000 with a total of 2,319,000 option shares tendered.
Under terms of the offer, the Company paid cash for the outstanding options,
which were priced using a market valuation methodology. The total cost of the
tender offer was $6.9 million. As a result of the tender offer and previously
purchased option shares, the Company purchased 3,294,476 option shares for a
total cost of $8.7 million in cash.
The Company applies Accounting Principles Board ("APB") Opinion 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation expense has been recognized for its stock option plans or employee
stock purchase plan. Had compensation cost for the Company's stock option plans
and employee stock purchase plan been determined in accordance with the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net income (loss) and earnings per share would have been the pro forma
amounts indicated below (in thousands, except per share data):
YEAR ENDED
AUGUST 31,
- -----------------------------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------
Net (loss) income available to common
shareholders as reported $(12,414) $(10,647) $ 40,058
Net (loss) income available pro forma (11,404) (16,181) 34,978
Diluted (loss) earnings per share as
reported (.61) (.51) 1.62
Diluted (loss) earnings per share pro
forma (.57) (.80) 1.41
The following information applies to options outstanding at August 31,
2000:
o A total of 434,054 options outstanding have exercise prices between $2.78
and $6.88 per share, with a weighted average exercise price of $6.05 and a
weighted average remaining contractual life of 7.4 years. At August 31,
2000, 194,739 options were exercisable.
o Options outstanding for 271,300 shares have exercise prices between $7.00
and $9.50 per share, with a weighted average exercise price of $7.58 and a
weighted average remaining contractual life of 9.2 years of which 27,325
were exercisable at August 31, 2000.
o A total of 561,000 outstanding options have an exercise price of $9.69 per
share, with a weighted average remaining contractual life of 8.7 years. At
August 31, 2000, 147,375 options were exercisable.
o A total of 383,078 options outstanding have exercise prices between $11.83
and $24.38 per share, with a weighted average exercise price of $17.98 per
share and a weighted average remaining contractual life of 5.12 years of
which 292,142 were exercisable at August 31, 2000.
o The remaining 98,575 options outstanding have exercise prices between
$26.00 and $34.50 per share, with a weighted average exercise price of
$33.29 per share and a weighted average remaining contractual life of 4.0
years. At August 31, 2000, 96,075 shares were exercisable.
50
The weighted average fair value of option shares granted under the
Company's stock option plans during the fiscal years ended August 31, 2000,
1999, and 1998 was $3.03, $4.79, and $11.17, respectively.
The Black-Scholes option-pricing model was used to calculate the weighted
average fair value of options using the following assumptions for grants for
fiscal years 2000, 1999, and 1998:
YEAR ENDED AUGUST 31,
- ---------------------------------------------------------------
2000 1999 1998
- ---------------------------------------------------------------
Dividend yield None None None
Volatility 55.3% 55.8% 57.7%
Expected life (years) 4.4 4.3 5.2
Risk free rate of return 5.3% 5.3% 5.4%
The estimated fair value of options granted is subject to the assumptions
made and if the assumptions were to change, the estimated fair value amounts
could be significantly different. The weighted average fair value of options
exercised during fiscal years 2000, 1999, and 1998 was $8.40, $7.04, and $13.62,
respectively.
13. EMPLOYEE BENEFIT PLANS
PROFIT SHARING PLANS
The Company has defined contribution profit sharing plans that qualify
under Section 401(k) of the Internal Revenue Code. The plans provide retirement
benefits for employees meeting minimum age and service requirements.
Participants may contribute up to 15 percent of their gross wages, subject to
certain limitations. The plans provide for matching contributions by the
Company. The matching contributions expensed in the years ended August 31, 2000,
1999, and 1998, were $1.8 million, $1.7 million, and $1.7 million, respectively.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an employee stock purchase plan whereby shares of common
stock can be purchased by qualified employees at a price equal to 85 percent of
the fair market value of common stock at the time of purchase. During fiscal
2000, the Company's Board of Directors approved an additional 1,000,000 shares
of common stock for issuance through the employee stock purchase plan. A total
of 142,327, 66,019, and 46,934 shares were issued under this plan for the fiscal
years ended August 31, 2000, 1999, and 1998, respectively. Shares available for
issuance under this plan at August 31, 2000 were 874,438. The Company accounts
for its employee stock purchase plan under the provisions of APB Opinion 25 and
related interpretations.
14. STOCK OPTION PURCHASE AND RELOCATION COSTS
During fiscal 2000, the Company incurred expenses primarily comprised of
charges related to the stock option tender offer and other purchases of
outstanding stock options (Note 12), and to relocate certain sales associates to
eight new regional sales offices. These costs have been included as a separate
expense component on the accompanying consolidated income statement for the
fiscal year ended August 31, 2000.
51
15. INCOME TAXES
The provision for income taxes consists of the following (in thousands):
YEAR ENDED AUGUST 31,
- --------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------
Current:
Federal $ 7,131 $ 12,545 $ 24,620
State 1,698 2,046 4,067
Foreign 2,907 2,077 1,920
Deferred:
Federal (1,440) (10,422) (614)
State (334) (1,700) (100)
----------- ------------ -----------
$ 9,962 $ 4,546 $ 29,893
=========== ============ ===========
In connection with a change in accounting principle, the Company also
recognized a $1.5 million tax benefit in fiscal 1998.
The differences between income taxes at the statutory federal income tax
rate and income taxes reported in the consolidated statements of income are as
follows:
YEAR ENDED AUGUST 31,
- ----------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------
Federal statutory tax rate 35.0% (35.0)% 35.0%
State income taxes, net of
federal effect 4.9 (3.5) 3.5
Goodwill amortization 56.4 44.6 2.3
Effect of foreign losses
and tax rate differential 53.3 63.9
Other 29.8 37.6 .7
---------- ---------- ----------
179.4% 107.6% 41.5%
========== ========== ==========
Goodwill amortization consists of non-deductible goodwill generated by the
merger with Covey Leadership Center and certain other acquisitions. During the
fiscal years ended August 31, 2000 and 1999, the effect of foreign losses is
primarily comprised of losses sustained in Japan, Australia, and New Zealand for
which no offsetting tax benefit could be recognized due to uncertainties related
to future taxable income to offset such losses. Other items are comprised of
various non-deductible expenses that occur in the normal course of business, but
which had a magnified effect on the tax rate due to decreased taxable income in
fiscal years 2000 and 1999 compared to prior years.
52
Significant components of the Company's deferred tax assets and liabilities
are comprised of the following (in thousands):
AUGUST 31,
- ---------------------------------------------------------------
2000 1999
- ---------------------------------------------------------------
Deferred income tax assets:
Inventory and bad debt reserves $ 4,574 $ 4,897
Sales returns and contingencies 3,648 2,248
Restructuring cost accruals 2,058 6,239
Vacation and other accruals 2,495 2,559
Deferred compensation 1,310
Interest and other capitalization 362 855
Other 141 414
------------ ------------
Total deferred income tax assets
14,588 17,212
------------ ------------
Deferred income tax liabilities:
Intangibles and fixed
asset step-up (29,342) (30,896)
Depreciation and amortization (2,370) (1,537)
Other (2,899) (3,240)
------------ ------------
Deferred income tax l (34,611) (35,673)
------------ ------------
Net deferred income tax liabilities $ (20,023) $ (18,461)
============ ============
16. CHANGE IN ACCOUNTING PRINCIPLE
During fiscal 1998, the Emerging Issues Task Force (the "EITF") of the FASB
issued consensus ruling 97-13, which specified the accounting treatment of
certain business reengineering and information technology implementation costs.
EITF 97-13 requires that certain costs which were previously capitalized to now
be expensed as incurred. In addition, any previously capitalized costs that were
incurred, and are addressed by EITF 97-13, were required to be written off.
The Company was involved in a business reengineering and information system
implementation project that was principally completed during fiscal 1999. During
the Project, the Company capitalized certain costs in accordance with accounting
principles generally accepted in the United States. Certain previously
capitalized costs of the Project were written off in accordance with EITF 97-13
as a cumulative adjustment in the Company's first quarter of fiscal 1998. During
the remainder of fiscal 1998 and during fiscal 1999, the majority of the costs
associated with the implementation Project were capitalized in accordance with
EITF 97-13 and other related accounting standards.
17. EARNINGS PER SHARE
Basic EPS is calculated by dividing income from continuing operations by
the weighted-average number of common shares outstanding during the period.
Diluted EPS is calculated by dividing income from continuing operations by the
weighted-average number of common shares outstanding plus the assumed exercise
of all dilutive securities using the treasury stock method. During periods of
net operating loss, all common stock equivalents, including the effect of common
shares from the issuance of Preferred Stock on an "as converted" basis, are
53
excluded from the diluted EPS calculation. Significant components of the
numerator and denominator used for basic and diluted EPS are as follows (in
thousands, except per share amounts):
YEAR ENDED AUGUST 31,
- ------------------------------------------------------------------------------------------
2000 1999 1998
- ------------------------------------------------------------------------------------------
(Loss) income before accounting change $ (4,409) $ (8,772) $ 42,138
Cumulative effect of accounting change, net of tax (2,080)
----------- ----------- -----------
Net (loss) income (4,409) (8,772) 40,058
Preferred stock dividends 8,005 1,875
----------- ----------- ----------
(Loss) income available to common shareholders $(12,414) $(10,647) $ 40,058
=========== =========== ==========
Basic weighted-average shares outstanding 20,437 20,881 24,091
Incremental shares from the assumed exercise of
stock options 635
----------- ----------- ----------
Diluted weighted-average shares outstanding 20,437 20,881 24,726
=========== =========== ==========
(Loss) income from continuing operations per share:
Basic $ (.61) $ (.51) $ 1.75
Diluted (.61) (.51) 1.70
Cumulative effect of accounting change, net of tax,
per share:
Basic (.09)
Diluted (.08)
----------- ----------- -----------
Net (loss) income per share:
Basic $ (.61) $ (.51) $ 1.66
Diluted (.61) (.51) 1.62
========== ========== ==========
Due to their antidilutive effect, the following incremental shares from the
effect of the Preferred Stock on an "as converted basis" and options to purchase
common stock have been excluded from the EPS calculations:
YEAR ENDED
AUGUST 31,
- ----------------------------------------------------------------------------------------
2000 1999
- ----------------------------------------------------------------------------------------
Number of preferred shares on an "as converted" basis 5,793,529 1,339,286
Common stock equivalents from the assumed exercise of
stock options 82,144 171,929
---------- ----------
Total antidilutive shares excluded from the EPS calculation 5,875,673 1,511,215
========== ==========
54
Options to purchase 1,661,875 shares of common stock with exercise prices
ranging from $23.00 to $34.50 per share were outstanding during fiscal 1998 but
were excluded in the calculation of diluted EPS because the exercise price was
greater than the average market price of the common shares.
18. STATEMENTS OF CASH FLOWS
The following supplemental disclosures are provided for the consolidated
statements of cash flows (in thousands):
YEAR ENDED AUGUST 31,
- ------------------------------------------------------------------------------------------------
2000 1999 1998
- ------------------------------------------------------------------------------------------------
Cash paid for:
Income taxes $ (250) $ 22,701 $ 15,961
Interest 7,353 9,219 5,991
========= ========= =========
Fair value of assets acquired $ 21,444 $ 19,025 $ 18,943
Cash paid for net assets (21,444) (19,025) (16,786)
--------- --------- ---------
Liabilities assumed from acquisitions $ - $ - $ 2,157
========= ========= =========
Tax effect of exercise of affiliate stock options $ 557 $ 1,320 $ 266
========= ========= =========
NON-CASH INVESTING AND FINANCING ACTIVITIES
In connection with the acquisition of DayTracker.com in December 1999 (Note
21), the Company issued $6.0 million of notes payable. The notes payable are due
and payable in annual installments through December 2001 (Note 6).
During fiscal 2000, the Company sold 121,250 shares of its common stock to
the former CEO of the Company in consideration for a $0.9 million promissory
note.
At August 31, 2000 and 1999, the Company had accrued $0.7 million and $15.9
million, respectively, for earnout payments in connection with the acquisition
of certain entities.
As of August 31, 2000 and 1999, the Company had accrued $2.0 million and
$1.9 million of Preferred Stock dividends. Subsequent to August 31, 2000, the
Company paid the $2.0 million accrued dividend with cash. The accrued dividend
at August 31, 1999 was paid during fiscal 2000 with additional shares of
Preferred Stock.
During fiscal 1999, the Company financed the acquisition of certain
software licenses with a note payable to the software vendor for $5.9 million.
55
19. SEGMENT INFORMATION
REPORTABLE SEGMENTS
During fiscal 1999, the Company aligned its operations into the following
three operating segments or Strategic Business Units ("SBUs"):
o Consumer Products
o Training and Education
o International
Although the Company is currently in the process of restructuring its
operations, and expects to report segment data under the new structure in fiscal
2001, the above SBUs remain the primary management measurement tool until the
new reporting structure is completed and implemented. The consumer products SBU
is responsible for distribution of the Company's products through retail stores,
catalog sales, mass markets, government channels, wholesale channels (including
contract stationers), and the Internet. The training and education SBU, which
includes Premier Agendas and the Personal Coaching division, is responsible for
training, consulting and implementation services, and delivery of products to
corporations, business, government, and educational institutions. The
international SBU is responsible for the delivery of both products and services
outside the United States. The "All Others" group consists primarily of the
commercial sales of Publishers Press, which was sold in fiscal 2000, and the
Institute of Fitness, which was sold during fiscal 1998. Intersegment sales
consist primarily of paper planner sales from Publishers Press to the related
Franklin Covey entities, which prepare and package the planners for sale to
external customers. Corporate expenses consist primarily of essential internal
support services such as finance, legal, information systems, and manufacturing
and distribution and are allocated to the operational SBUs.
Each reportable segment is an operating division of the Company that has an
executive vice-president who reports directly to the Company's Chief Executive
Officer. The various corporate support departments are operated by an executive
vice-president who also reports directly to the CEO. The Company accounts for
its segment information on the same basis as the accompanying consolidated
financial statements.
56
SEGMENT INFORMATION
(in thousands)
Reportable Business Segments
----------------------------------------------------- Corporate,
Training Adjustments
Consumer and and
Year Ended August 31, 2000 Products Education International Total All Others Elimination Consolidated
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to external customers $ 302,944 $ 214,646 $ 49,955 $ 567,545 $ 17,654 $ $ 585,199
Intersegment sales 25,718 (25,718)
Gross margin 166,760 136,879 32,862 336,501 1,967 (7,477) 330,991
Depreciation and amortization 18,527 20,367 1,945 40,839 1,027 3,301 45,167
Segment earnings (loss) before
interest and taxes 23,116 (912) (1,398) 20,806 (1,547) (9,019) 10,240
Significant non-cash items:
Restructuring charge reversals (4,946) (4,946)
Capital expenditures 7,103 4,582 2,265 13,950 317 10,256 24,523
Segment assets 71,992 299,301 23,694 394,987 35,457 162,035 592,479
Year Ended August 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Sales to external customers $ 269,285 $ 205,669 $ 50,513 $ 525,467 $ 29,456 $ $ 554,923
Intersegment sales 33,669 (33,669)
Gross margin 151,061 131,748 30,900 313,709 2,099 (4,017) 311,791
Depreciation and amortization 11,090 18,741 2,062 31,893 1,395 6,251 39,539
Segment earnings (loss) before
interest and taxes 25,548 1,053 (2,809) 23,792 (3,481) (15,903) 4,408
Significant non-cash items:
Restructuring charge 16,282 16,282
Loss on impaired assets 3,628 2,588 2,180 8,396 653 7,510 16,559
Capital expenditures 3,238 1,812 2,749 7,799 492 14,705 22,996
Segment assets 73,158 302,224 22,213 397,595 44,158 181,550 623,303
Year Ended August 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Sales to external customers $ 258,973 $ 207,015 $ 45,068 $ 511,056 $ 35,556 $ $ 546,612
Intersegment sales 29,626 (29,626)
Gross margin 162,815 135,768 28,478 327,061 5,663 332,724
Depreciation and amortization 7,563 13,175 989 21,727 1,809 9,492 33,028
Segment earnings (loss) before
interest and taxes 47,741 25,316 5,539 78,596 (3,866) 3,663 78,393
Capital expenditures 3,988 1,406 2,019 7,413 11,681 20,145 39,239
Segment assets 57,853 289,726 25,037 372,616 55,593 169,068 597,277
57
The primary measurement tool in segment performance analysis is earnings
before interest and taxes ("EBIT"). Interest expense is primarily generated at
the corporate level and is not allocated to the reporting segments. Income taxes
are likewise calculated and paid on a corporate level (except for entities that
operate within foreign jurisdictions) and are not allocated to reportable
segments. Due to the nature of stock option purchase and relocation costs, they
were not charged to reportable segments during fiscal 2000. Likewise, the
restructuring charge recorded in fiscal 1999 was not allocated to the reporting
segments in order to enhance comparability between periods. A reconciliation of
reportable segment EBIT to consolidated EBIT is presented below (in thousands):
YEAR ENDED AUGUST 31,
- ------------------------------------------------------------------
2000 1999 1998
- ------------------------------------------------------------------
Reportable segment EBIT $ 20,806 $ 23,792 $ 78,596
All others EBIT (1,547) (3,481) (3,866)
Corporate items:
Stock option purchase
and relocation costs (11,227)
Restructuring charge (16,282)
Intercompany rent charges 6,652 6,844 6,772
Other (4,444) (6,465) (3,109)
----------- ------------ -----------
Consolidated EBIT $ 10,240 $ 4,408 $ 78,393
=========== ============ ===========
Corporate assets such as cash, accounts receivable, fixed assets, and other
assets are not generally allocated to reportable segments for business analysis
purposes. However, inventories, goodwill, and identifiable fixed assets
(primarily leasehold improvements in retail stores) are classified by segment. A
reconciliation of segment assets to consolidated assets is as follows (in
thousands):
YEAR ENDED AUGUST 31,
- ------------------------------------------------------------------
2000 1999 1998
- ------------------------------------------------------------------
Reportable segment assets $394,987 $397,595 $372,616
All others assets 35,457 44,158 55,593
Corporate assets 173,129 230,251 229,764
Intercompany accounts receivable (11,094) (48,701) (60,696)
----------- ------------ -----------
Consolidated assets $592,479 $623,303 $597,277
=========== ============ ===========
58
ENTERPRISE-WIDE INFORMATION
The Company's revenues are derived primarily from the United States.
However, the Company operates direct offices or contracts with licensees to
provide products and services to various countries throughout the world. The
Company's consolidated revenues and long-lived assets by geographic region are
as follows (in thousands):
YEAR ENDED AUGUST 31,
- ------------------------------------------------------------------
2000 1999 1998
- ------------------------------------------------------------------
Sales:
United States $535,245 $504,388 $501,544
Americas 17,984 15,844 16,587
Japan/Greater China 14,517 16,614 9,741
Europe/Middle East 8,015 8,084 8,265
Australasia 6,919 6,629 6,141
Others 2,519 3,364 4,334
----------- ----------- ------------
$585,199 $554,923 $546,612
=========== =========== ============
Long-Lived Assets:
United States $387,347 $400,989 $412,688
Americas 3,410 2,087 946
Japan/Greater China 7,038 6,346 5,046
Europe/Middle East 503 558 591
Australasia 1,146 1,677 2,713
----------- ----------- ------------
$399,444 $411,657 $421,984
=========== =========== ============
Amounts reported under the "Americas" caption include North and South
America except the United States. "Australasia" consists of Australia, New
Zealand, and neighboring countries such as Indonesia and Malaysia. Intersegment
sales are immaterial and eliminated upon consolidation.
20. MANAGEMENT COMMON STOCK LOAN PROGRAM
During fiscal 2000, the Company announced the implementation of an
incentive-based compensation program that includes a loan program from external
lenders to certain managers for the purpose of purchasing shares of the
Company's common stock. The program gives management of the Company the
opportunity to purchase shares of the Company's common stock on the open market,
and from shares purchased by the Company, by borrowing on a full-recourse basis
from the external lenders. The Company has facilitated the loans by providing a
guarantee to the lenders. The program will total approximately $33.0 million and
the Company has facilitated the purchase of open-market shares to ensure
compliance with appropriate SEC trading rules and regulations. As of August 31,
2000, the Company had facilitated the purchase of 3,559,000 shares at a cost of
$30.0 million for the loan program.
21. ACQUISITION AND DIVESTING ACTIVITIES
FISCAL 2000
Effective February 28, 2000, the Company sold the assets and substantially
all of the business of its commercial printing division of Publishers Press. The
Company has retained printing operations necessary for the production of its
planners and other related products (now "Franklin Covey Printing"). The final
sales price, after adjustments under terms of the purchase agreement, was $13.4
59
million and consisted of $11.0 million in cash and a $2.4 million note
receivable to the Company over five years. Net cash proceeds to the Company from
the sale totaled $6.4 million. The note receivable is secured by property and
other assets specified in the purchase agreement. The Company also recognized a
$0.3 million gain from the sale of these assets, which is included as a
component of net other expense in the accompanying consolidated statement of
income for the fiscal year ended August 31, 2000.
In December 1999, the Company purchased a majority interest in
DayTracker.com, an on-line provider of scheduling and calendar services. The
total purchase price was $11.0 million in cash and notes payable. The
acquisition was accounted for using the purchase method of accounting and
generated $9.0 million of intangible assets that are being amortized on a
straight-line basis over five years. The acquired web site and its on-line
scheduling and organizational services can be accessed on the Internet at
www.franklincoveyplanner.com.
During September 1999, the Company acquired the assets of the Professional
Resources Organization (the Jack Phillips Group) for $1.5 million in cash. The
Professional Resources Organization is a leading measurement assessment firm
specializing in measuring the impact and return on investment of training and
consulting programs. The acquisition was accounted for using the purchase method
of accounting and generated $1.5 million of intangible assets, which are being
amortized over ten years.
FISCAL 1999
In January 1999, the Company acquired the assets of Khalsa Associates for
$2.7 million in cash. Khalsa Associates is a leading sales training company. The
acquisition was accounted for using the purchase method of accounting and
generated $2.7 million of intangible assets, which are being amortized over ten
years.
Effective August 1, 1998, the Company sold its Institute of Fitness located
near St. George, Utah for $13.4 million in cash. During fiscal 1998, the Company
also sold certain consulting units and discontinued its operations at certain
international locations. The net impact of these divestitures was immaterial to
the consolidated financial statements of the Company.
FISCAL 1998
Effective April 1, 1998, the Company acquired King Bear, Inc. ("King
Bear"), a Tokyo, Japan based company. King Bear, a former Covey licensee,
provides leadership and time management training as well as publishing services.
The publishing division of King Bear translated and currently publishes 7 Habits
of Highly Effective People in Japanese. The cash purchase price was $5.3 million
with additional contingent payments to be made over the following five years
based upon the operating results of King Bear over that same period. During
fiscal 2000, the remaining earnout period was canceled for $0.4 million in cash.
The acquisition of King Bear was accounted for using the purchase method of
accounting and generated $4.3 million of intangible assets, which are being
amortized over 15 years.
22. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The unaudited quarterly financial information included on page 26 of the
annual report to shareholders is an integral part of the consolidated financial
statements.
60
23. SUBSEQUENT EVENT
Effective September 1, 2000, the Company entered into a joint venture with
American Marketing Systems, Inc. ("AMS"), a major customer of the Company's
Personal Coaching division. The new company, Franklin Covey Coaching, LLC, will
continue to provide personal coaching services for the Company's customers.
Under terms of the agreement, the Company and AMS will each own 50 percent of
Franklin Covey Coaching, LLC and will be equally represented in the management
of the new company. The Company contributed substantially all of the net assets
of the Personal Coaching division to form the new entity. The Company expects
that the new venture will broaden the curriculum and services currently offered
in order to grow the personal coaching business over the long-term while
maintaining a substantial portion of the Company's current earnings from
coaching activities.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to the
sections titled "Election of Directors," "Executive Officers" and "Executive
Compensation" in the Company's definitive Proxy Statement for the annual meeting
of shareholders which is scheduled to be held on January 12, 2001. The
definitive Proxy Statement will be filed with the Securities and Exchange
Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended.
ITEM 11. EXECUTIVE COMPENSATION
The information required by the Item is incorporated by reference to the
sections titled "Election of Directors - Director Compensation" and "Executive
Compensation" in the Company's definitive Proxy Statement for the annual meeting
of shareholders which is scheduled to be held on January 12, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
section titled "Principal Holders of Voting Securities" in the Company's
definitive Proxy Statement for the annual meeting of shareholders which is
scheduled to be held on January 12, 2001. The Company's definitive Proxy
Statement for the annual meeting of shareholders which is scheduled to be held
on January 12, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
section titled "Certain Relationships and Related Transactions" in the Company's
definitive Proxy Statement for the annual meeting of shareholders which is
scheduled to be held on January 12, 2001.
61
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents Filed
1. Financial Statements. The following Consolidated Financial
Statements of the Company and Report of Independent Public
Accountants for the year ended August 31, 2000, are included
herewith:
- Report of Arthur Andersen LLP, Independent Public
Accountants, for the years ended 2000, 1999 and 1998
- Consolidated Balance Sheets at August 31, 2000 and 1999
- Consolidated Statements of Income and Comprehensive Income for
the years ended August 31, 2000, 1999, and 1998
- Consoldated Statements of Shareholders' Equity for the years
ended August 31, 2000, 1999 and 1998
- Consolidated Statements of Cash Flows for the years ended
August 31, 2000, 1999 and 1998
- Notes to Consolidated Financial Statements
2. Exhibit List.
Exhibit Incorporated Filed
No. Exhibit by Reference Herewith
-------- --------------------------------------------------------------- ------------- ----------
3.1 Revised Articles of Incorporation of the Registrant (1)
3.2 Amended and Restated Bylaws of the Registrant (1)
3.3 Articles of Amendment to Revised Articles of Incorporation of (7)
the Registrant (filed) as Exhibit 2 to Schedule 13D).
4.1 Specimen Certificate of the Registrant's Common Stock, par (2)
value $.05 per share.
4.2 Stockholder Agreements, dated May 11, 1999 and June 2, 1999 (filed (7)
as Exhibits 1 and 3 to Schedule 13D).
4.3 Registration Rights Agreement, dated June 2, 1999 (filed as (7)
Exhibit 4 to Schedule 13D).
4.4 Subscription Offering of Nontransferrable Rights to Purchase up (8)
to 750,000 Series A Preferred Shares at $100 per share
10.1 Amended and Restated 1992 Employee Stock Purchase Plan (3)
10.2 First Amendment to Amended and Restated 1992 Stock Incentive (4)
Plan
10.3 Franklin 401(k) Profit Sharing Plan (1)
62
10.4 Forms of Nonstatutory Stock Options (1)
10.5 Lease Agreements, as amended and proposed to be amended, by (5)
and between Covey Corporate Campus One, LLC and Covey Corporate
Campus Two, LLC (Landlord) and Covey Leadership Center, Inc.
(Tenant) which were assumed by Franklin Covey Co. in the Merger
with Covey Leadership Center, Inc.
10.6 Notes Payable Purchase Agreement for $85.00 million of 6.6% (6)
unsecured senior notes payable due 2008
10.7 Jon H. Rowberry Promissory Note and Security Agreement, dated (10)
September 23, 1999
10.8 Credit Agreement with Bank One, NA and Zions First National (9)
Bank, dated October 8, 1999
10.9 Partnership Interest Purchase Agreement between the Company (10)
and DayTracker.com dated December 8, 1999
10.10 Amended and Restated 2000 Employee Stock Purchase Plan (11)
10.11 Asset Purchase Agreement by and Among Publishers Press, Inc., (12)
Franklin Covey Co., and Western Impressions Corporation,
dated as of February 15, 2000.
10.12 Sublease Agreement between Franklin Covey Co. and MyFamily.com, Inc. **
dated February 18, 2000. This sublease agreement is for office
space leased under the terms of Exhibit 10.5.
10.13 Limited Liability Company Agreement of Franklin Covey Coaching **
LLC, dated September 1, 2000.
10.14 Facility and Guaranty Agreement among Franklin Covey Co., Bank **
One, NA, as Agent and The Financial Institutions Signatory Hereto
dated March, 2000.
10.15 First Amendment to Facility and Guaranty Agreement among Franklin **
Covey Co., Bank One, NA, as Agent and The Financial Institutions
Signatory Hereto dated May, 2000.
10.16 Second Amendment to Facility and Guaranty Agreement among Franklin **
Covey Co., Bank One, NA, as Agent and The Financial Institutions
Signatory Hereto dated August, 2000.
10.17 First Amendment to Credit Agreement with Bank One, NA and Zions **
First National Bank, dated March, 2000.
10.18 Second Amendment to Credit Agreement with Bank One, NA and Zions **
First National Bank, dated May, 2000.
10.19 Third Amendment to Credit Agreement with Bank One, NA and Zions **
First National Bank, dated August, 2000.
10.20 Fourth Amendment to Credit Agreement with Bank One, NA and Zions **
First National Bank, dated August, 2000.
10.21 Employment Agreement between Franklin Covey Co. and Robert A. Whitman. **
21 Subsidiaries of the Registrant. **
23 Consent of Arthur Andersen LLP, Independent Public Accountants. **
63
27 Financial Data Schedule. **
99.1 Report of Arthur Andersen, LLP, Independent Public Accountants, on **
Consolidated Financial Statement Schedule for the years ended
August 31, 2000, 1999, and 1998.
99.2 Valuation and Qualifying Accounts and Reserves Schedule. Financial **
statements and schedules other than those listed are omitted for the
reason that they are not required or are not applicable, or the required
information is shown in the Financial Statements or Notes thereto, or
contained in this Report.
- -----------------------
(1) Incorporated by reference to Registration Statement on Form S-1 filed
with the Commission on April 17, 1992, Registration No. 33-47283.
(2) Incorporated by reference to Amendment No. 1 to Registration Statement
on Form S-1 filed with the Commission on May 26, 1992, Registration
No. 33-47283.
(3) Incorporated by reference to Form 10-K filed November 27, 1992, for
the year ended August 31, 1992.
(4) Incorporated by reference to Registration Statement on Form S-1 filed
with the Commission on January 3, 1994, Registration No. 33-73728.
(5) Incorporated by reference to Report of Form 10-K filed December 1,
1997, for the year ended August 31, 1997.
(6) Incorporated by reference to Report of Form 10-Q filed July 14, 1998,
for the quarter ended May 31, 1998.
(7) Incorporated by reference to Schedule 13D(CUSIP No. 3534691090 as
filed with the Commission on June 2, 1999.
(8) Incorporated by reference to Registration Statement on Form S-3 filed
with the Commission on October 22, 1999, Registration No. 333-89541.
(9) Incorporated by reference to Report on Form 10-K filed November 23,
1999, for the year ended August 31, 1999.
(10) Incorporated by reference to Report on Form 10-P filed January 11,
2000, for the quarter ended November 27, 1999.
(11) Incorporated by reference to Report on Form S-8 filed with the
Commission on May 31, 2000, Registration No. 333-38172.
(12) Incorporated by reference to Report on Form 10-Q filed April 11, 2000,
for the quarter ended February 26, 2000.
** Filed herewith and attached to this report.
(b) Reports on Form 8-K
-------------------
None.
(c) Exhibits
--------
Exhibits to this Report are attached following hereof.
(d) Financial Statement Schedule
----------------------------
See herein.
64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on November 27, 2000.
FRANKLIN COVEY CO.
By: /s/ ROBERT A. WHITMAN
--------------------------------
Robert A. Whitman, Chief Executive Officer
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ------- ------
/s/ ROBERT A. WHITMAN Chairman of the Board and November 27, 2000
- ----------------------------------------------- Chief Executive Officer
Robert A. Whitman
/s/ HYRUM W. SMITH Co-Chairman of the Board November 27, 2000
- ----------------------------------------------
Hyrum W. Smith
/s/ STEPHEN R. COVEY Co-Chairman of the Board November 27, 2000
- -----------------------------------------------
Stephen R. Covey
/s/ STEPHEN M. R. COVEY Executive Vice President and November 27, 2000
- ----------------------------------------------- Director
Stephen M. R. Covey
/s/ J. SCOTT NIELSEN Executive Vice President and November 27, 2000
- ----------------------------------------------- Chief Accounting Officer
J. Scott Nielsen
65
/s/ ROBERT H. DAINES Director November 27, 2000
- -----------------------------------------------
Robert H. Daines
/s/ E. J. "JAKE" GARN Director November 27, 2000
- -----------------------------------------------
E. J. "Jake" Garn
/s/ DENNIS G. HEINER Director November 27, 2000
- -----------------------------------------------
Dennis G. Heiner
/s/ BRIAN A. KRISAK Director November 27, 2000
- -----------------------------------------------
Brian A. Krisak
/s/ DONALD J. MCNAMARA Director November 27, 2000
- -----------------------------------------------
Donald J. McNamara
/s/ JOEL C. PETERSON Director November 27, 2000
- -----------------------------------------------
Joel C. Peterson
/s/ E. KAY STEPP Director November 27, 2000
- -----------------------------------------------
E. Kay Stepp
66
Exhibit
No. Exhibit Page No.
-------- --------------------------------------------------------------- -------------
3.1 Revised Articles of Incorporation of the Registrant
3.2 Amended and Restated Bylaws of the Registrant
3.3 Articles of Amendment to Revised Articles of Incorporation of
the Registrant (filed) as Exhibit 2 to Schedule 13D).
4.1 Specimen Certificate of the Registrant's Common Stock, par
value $.05 per share.
4.2 Stockholder Agreements, dated May 11, 1999 and June 2, 1999 (filed
as Exhibits 1 and 3 to Schedule 13D).
4.3 Registration Rights Agreement, dated June 2, 1999 (filed as
Exhibit 4 to Schedule 13D).
4.4 Subscription Offering of Nontransferrable Rights to Purchase up
to 750,000 Series A Preferred Shares at $100 per share
10.1 Amended and Restated 1992 Employee Stock Purchase Plan
10.2 First Amendment to Amended and Restated 1992 Stock Incentive
Plan
10.3 Franklin 401(k) Profit Sharing Plan
10.4 Forms of Nonstatutory Stock Options
10.5 Lease Agreements, as amended and proposed to be amended, by
and between Covey Corporate Campus One, LLC and Covey Corporate
Campus Two, LLC (Landlord) and Covey Leadership Center, Inc.
(Tenant) which were assumed by Franklin Covey Co. in the Merger
with Covey Leadership Center, Inc.
10.6 Notes Payable Purchase Agreement for $85.00 million of 6.6%
unsecured senior notes payable due 2008
10.7 Jon H. Rowberry Promissory Note and Security Agreement, dated
September 23, 1999
10.8 Credit Agreement with Bank One, NA and Zions First National
Bank, dated October 8, 1999
10.9 Partnership Interest Purchase Agreement between the Company
and DayTracker.com dated December 8, 1999
10.10 Amended and Restated 2000 Employee Stock Purchase Plan
10.11 Asset Purchase Agreement by and Among Publishers Press, Inc.,
Franklin Covey Co., and Western Impressions Corporation,
dated as of February 15, 2000.
67
Exhibit
No. Exhibit Page No.
-------- --------------------------------------------------------------- -------------
10.12 Sublease Agreement between Franklin Covey Co. and MyFamily.com, Inc. 69
dated February 18, 2000. This sublease agreement is for office
space leased under the terms of Exhibit 10.5.
10.13 Limited Liability Company Agreement of Franklin Covey Coaching 76
LLC, dated September 1, 2000.
10.14 Facility and Guaranty Agreement among Franklin Covey Co., Bank 115
One, NA, as Agent and The Financial Institutions Signatory Hereto
dated March, 2000.
10.15 First Amendment to Facility and Guaranty Agreement among Franklin 168
Covey Co., Bank One, NA, as Agent and The Financial Institutions
Signatory Hereto dated May, 2000.
10.16 Second Amendment to Facility and Guaranty Agreement among Franklin 171
Covey Co., Bank One, NA, as Agent and The Financial Institutions
Signatory Hereto dated August, 2000.
10.17 First Amendment to Credit Agreement with Bank One, NA and Zions 174
First National Bank, dated March, 2000.
10.18 Second Amendment to Credit Agreement with Bank One, NA and Zions 178
First National Bank, dated May, 2000.
10.19 Third Amendment to Credit Agreement with Bank One, NA and Zions 181
First National Bank, dated August, 2000.
10.20 Fourth Amendment to Credit Agreement with Bank One, NA and Zions 184
First National Bank, dated August, 2000.
10.21 Employment Agreement between Franklin Covey Co. and Robert A. Whitman. 187
21 Subsidiaries of the Registrant. 196
23 Consent of Arthur Andersen LLP, Independent Public Accountants. 197
27 Financial Data Schedule. 200
99.1 Report of Arthur Andersen, LLP, Independent Public Accountants, on 198
Consolidated Financial Statement Schedule for the years ended
August 31, 2000, 1999, and 1998.
99.2 Valuation and Qualifying Accounts and Reserves Schedule. Financial 199
statements and schedules other than those listed are omitted for the
reason that they are not required or are not applicable, or the
required information is shown in the Financial Statements or Notes
thereto, or contained in this Report.
68
EXHIBIT 10.12
SUBLEASE
1. PARTIES
This Sublease, dated as of February __, 2000, is made between FRANKLIN COVEY
CO., a Utah corporation ("Sublessor"), and MYFAMILY.COM, INC., a Utah
corporation ("Sublessee").
2. MASTER LEASE
a. Sublessor is the Tenant under a written lease dated January 1, 1996
("Building I Lease"), wherein Covey Corporate Campus One, L.L.C. ("CCC1")
leased to Sublessor the real property located at 360 West 4800 North
(identified in the Building I Lease as approximately 360 West 4800 North,
and in the Amendments as 300 West 4800 North), in the city of Provo, State
of Utah, generally described as Riverwoods Building I, and more
particularly described in Exhibit B to the Master Lease ("Building I").
Building I Lease has been amended by the Amendment to Lease Agreement dated
May 24, 1996 and the Second Amendment to Lease Agreement (Building No. 1)
dated March 21, 1997 (collectively "Building I Amendments").
b. Sublessor is the Tenant under a written lease dated October 29, 1996
("Building II Lease"), wherein Covey Corporate Campus Two, L.L.C. ("CCC2")
leased to Sublessor the real property located at 466 West 4800 North, in
the city of Provo, State of Utah, (identified in the Building II Lease as
350 West 4800 North, Provo, Utah) generally described as Riverwoods
Building II ("Building II"), and more particularly described in Exhibit B
to the Building II Lease. Said Building II Lease has been amended by the
Amendment to Lease Agreement (Building No. 2) dated March 21, 1997
("Building II Amendment").
c. Building I Lease, together with Building I Amendments, and Building II
Lease, together with Building II Amendment, are herein collectively
referred to as the "Master Leases" and are attached hereto as Exhibit "A."
d. CCC1 and CCC2 are herein collectively referred to as "Landlord."
e. For purposes of this Sublease, the term "Premises" includes all of
Building I and Building II and the real property more particularly
described in Exhibit A to the Master Leases.
f. Sublessee agrees to assume and perform all obligations of the Tenant
under the Master Leases; provided, however, that if any provision of the
Master Leases conflicts with any provision of this Sublease, the provision
of this Sublease shall prevail.
3. PREMISES
Sublessor hereby subleases to Sublessee on the terms and conditions set forth in
this Sublease the Premises, consisting of approximately 119,161 gross rentable
square feet, subject to adjustment upon final calculation of Sublessor's
architect (the "Premises").
4. WARRANTY BY SUBLESSOR
Sublessor warrants and represents to Sublessee that the Lease has not been
amended or modified except as expressly set forth herein, that Sublessor is not
now, and as of the commencement of the Term hereof (as set forth below) will not
be, in default or breach of any of the provisions of the Lease, and that
Sublessor has no knowledge of any claim by Lessor that Sublessor is in default
or breach of any of the provisions of the Lease.
69
5. TERM
The initial term of this Sublease ("Initial Term") shall be for a period of
approximately seven (7) years, commencing as follows:
a. For Building II, on the earlier to occur of (i) substantial completion
of the Sublessee Improvements to Building II; (ii) the date Sublessee
occupies any portion of Building II for the purpose of conducting its
business, or (iii) April 1, 2000 ("Building II Commencement Date").
b. For Building I, on the earlier to occur of (i) substantial completion of
the Sublessee Improvements to Building I; (ii) the date Sublessee occupies
any portion of Building I for the purpose of conducting its business, or
(iii) June 1, 2000 ("Building I Commencement Date").
The Initial Term (for both Building I and Building II) shall expire on May
31, 2007 ("Termination Date"), unless otherwise sooner terminated in
accordance with the provisions of this Sublease or if for any reason the
Master Leases are terminated. In the event the Initial Term commences prior
to April 1, 2000 for Building II, and prior to June 1, 2000 for Building I,
Sublessor and Sublessee shall execute a memorandum setting forth the actual
dates of commencement of the Initial Term. Sublessor shall deliver
possession of the Premises ("Possession") in broom clean condition;
provided that Sublessor shall clean all carpets prior to delivery of
Possession.
Notwithstanding the foregoing, on or after February 20, 2000, Sublessee may
enter upon Building II, and on or after May 15, 2000, Sublessee may enter
upon Building I, for the purpose of constructing Sublessee's Improvements,
subject to Sublessee's observance and performance of all of the obligations
contained in this Sublease (excluding the payment of Base Rent).
6. OPTION TO RENEW
Subject to earlier termination of the Master Leases as provided in
Paragraph 5, above, Sublessee shall have the option to renew this Sublease
as follows:
a. Provided Sublessee is not then in default under this Sublease, Sublessee
shall have the option to renew this Sublease for one (1) additional term
("1st Renewal Term") for a period commencing April 1, 2007, and ending
December 31, 2009 (1st Option to Renew). Sublessee shall exercise the 1st
Option to Renew by giving written notice to Sublessor no later than ninety
(90) days prior to the Termination Date.
b. Provided Sublessor has exercised its options to renew the Master Leases,
as provided therein, and provided further that Sublessee is not then in
default under this Sublease, Sublessee shall have the option to renew this
Sublease for one (1) additional term ("2nd Renewal Term") for a period
commencing January 1, 2009, and ending March 31, 2013 (2nd Option to
Renew"). Sublessee shall exercise the 2nd Option to Renew by giving written
notice to Sublessor no later than September 1, 2009.
c. Base Rent for any Renewal Term shall increase three percent (3%)
annually over the preceding lease year's Base Rent.
7. RENT
a. Base Rent. Sublessee shall pay to Sublessor as base rent ("Base Rent"),
without deduction, setoff, notice or demand, at 2200 West Parkway
Boulevard, Salt Lake City, Utah, 84119, Attn: Mike Fitch, or at such other
place as Sublessor shall designate from time to time by notice to
Sublessee, Base Rent in the amount of $14.85 per square foot with 3% annual
70
increases. Subject to any adjustment in the actual square footage of the
Premises as determined by Sublessor's architects, as provided for in
Section 3, above, Sublessee shall pay Base Rent in monthly installments as
follows:
Minimum Monthly Base
For the Period of: Rent:
------------------ -----
Building II Commencement Date through Building I Commencement Date: $77,858.55
Building I Commencement Date through March 31, 2001 $147,461.74
April 1, 2001 through March 31, 2002 $151,885.59
April 1, 2002 through March 31, 2003 $156,442.12
April 1, 2003 through March 31, 2004 $161,135.38
April 1, 2004 through March 31, 2005 $165,969.44
April 1, 2005 through March 31, 2006 $170,948.52
April 1, 2006 through March 31, 2007 $176,076.98
Each monthly payment shall be made in advance on the first day of each month of
the Initial Term. If the Building II Commencement Date or the Building I
Commencement Date begin on a day other that the first day of a month, the rent
for the partial months shall be prorated on a per diem basis.
It is the intent of both parties that the Base Rent herein specified shall be
absolutely net to Sublessor throughout the Initial Term or any Renewal Term, and
that all costs, expenses and obligations relating to the Premises which may
arise or become due during the Initial Term or any Renewal Term shall be paid by
Sublessee in the manner hereafter provided.
b. Direct Costs. Sublessee shall pay to Sublessor as additional rent 100%
of the amounts payable by Sublessor for Direct Costs incurred during the
Term. Such additional rent shall be payable as and when Direct Costs are
payable by Sublessor to Landlord. The Master Leases provide for the payment
by Sublessor of Direct Costs on the basis of an estimate thereof. Any
adjustments between estimated and actual Direct Costs shall be made
pursuant to the provisions of the Master Leases. If any such adjustments
shall occur after the expiration or earlier termination of the Term, then
the obligations of Sublessor and Sublessee under this Subsection 7b shall
survive such expiration or termination. Sublessor shall, upon request by
Sublessee, furnish Sublessee with copies of all statements submitted by
Lessor of actual or estimated Direct Costs during the Term.
c. Interest and Late Charges. If Sublessee fails to pay within ten (10)
days of the date due any rent or other amount or charges which Sublessee is
obligated to pay under the terms of this Sublease, the unpaid amount shall
bear interest at the rate of ten (10%) per annum. In addition to interest,
if any such installment is not made by Sublessee within ten (10) days from
the date it is due, Sublessee shall pay Sublessor to partially reimburse
Sublessor for the additional cost of handling such payment a late charge
equal to five percent (5%) of such installment. Acceptance of any interest
or late charge shall not constitute a waiver of Sublessee's default with
respect to such nonpayment by Sublessee nor prevent Sublessor from
exercising any other rights or remedies available to Sublessor under this
Sublease.
71
8. SECURITY DEPOSIT
Sublessee shall deposit with Sublessor upon execution of this Sublease, the sum
of $294,923.46, which consists of $147,461.73 prepayment of rent and $147,461.73
as security for Sublessee's faithful performance of Sublessee's obligations
hereunder ("Security Deposit"). If Sublessee fails to pay rent or other charges
when due under this Sublease, or fails to perform any of its obligations
hereunder, Sublessor may use or apply all or any portion of the Security Deposit
for the payment of any rent or other amount when due hereunder and unpaid, for
the payment of any other sum for which Sublessor may become obligated by reason
of Sublessee's default or breach, or for any loss or damage sustained by
Sublessor as a result of Sublessee's default or breach. If Sublessor so uses any
portion of the Security Deposit, Sublessee shall, within ten (10) days after
written demand by Sublessor, restore the Security Deposit to the full amount
originally deposited, and Sublessee's failure to do so shall constitute a
default under this Sublease. Sublessor shall not be required to keep the
Security Deposit separate from its general accounts, and shall have no
obligation or liability for payment of interest on the Security Deposit. In the
event Sublessor assigns its interest in this Sublease, Sublessor shall deliver
to its assignee so much of the Security Deposit as is then held by Sublessor.
Provided Sublessee is not then in default of any of its obligations hereunder,
Sublessor shall apply a portion of the Security Deposit in an amount equal to
Sublessee's obligation for the last month's Base Rent and any additional rent
occurring during the Initial Term or any Renewal Term; and within ten (10) days
after the Initial Term has expired, or Sublessee has vacated the Premises, or
any final adjustment pursuant to Subsection 7b hereof has been made, whichever
shall last occur, and provided Sublessee is not then in default of any of its
obligations hereunder, so much of the Security Deposit as had not theretofore
been applied by Sublessor, shall be returned to Sublessee or to the last
assignee, if any, of Sublessee's interest hereunder.
9. SUBLESSEE IMPROVEMENTS
Sublessee agrees to sublease the Premises in "as is" condition. Sublessor shall
reimburse Sublessee for Sublessee's actual costs incurred in making improvements
to the Premises, not to exceed $3.00 per rentable square foot, as determined by
Landlord's architect pursuant to Paragraph 3, above ("Sublessee Improvements").
Upon completion of Sublessee Improvements, Sublessee shall submit to Sublessor
(i) a written statement, certified by an officer of Sublessee setting forth the
actual expenses incurred in completing Sublessee Improvements, together with
copies of all applicable invoices, and (ii) copies of releases of lien from all
suppliers of materials or services used in making Sublessee Improvements. Within
30 days of Sublessor's receipt of all necessary documentation, Sublessor shall
pay to Sublessee an amount equal to the actual costs incurred in making
Sublessee Improvements, not to exceed $3.00 per rentable square foot, or at
Sublessor's option, credit said amount to Sublessee as an equivalent amount of
free rent. Upon execution of this Sublease, Sublessee shall provide to Sublessor
written plans and specifications for all Sublessee Improvements. Sublessor shall
immediately submit said plans and specifications to the Landlord for approval.
Landlord shall approve or request modifications to the plans and specifications
within three (3) days of its receipt of the same. Sublessee shall not cause any
Sublessee Improvements to be made to the Premises until written approval of the
plans and specifications is received from Landlord under the Lease. All
Sublessee Improvements and other improvements by Sublessee to the Premises shall
conform to all applicable governmental ordinances and regulations, including but
not limited to required permits and approvals, and shall become part of the
realty upon installation thereof. At the end of the Term or any renewal thereof,
Sublessee shall remove from the Premises, at Sublessee's cost, all of
Sublessee's equipment, fixtures and personal property, and repair any damage to
the Premises caused by such removal.
72
10. SIGNAGE
Sublessee may, at its sole expense, install signage upon the Premises pursuant
to the terms of the Master Leases and upon obtaining necessary approvals from
Riverwoods Research and Business Park Owners Association and the proper
governmental authorities in Utah County, State of Utah.
11. USE OF PREMISES
The Premises shall be used and occupied only for general office use, and for no
other use or purpose. Sublessee may use the Premises twenty-four (24) hours a
day, seven (7) days a week.
12. FURNITURE AND EQUIPMENT
Sublessee shall have the right, exercisable by giving written notice to
Sublessor not later than February 20, 2000, to purchase all or a portion of the
furniture and equipment described in the attached Exhibit B, at the prices set
forth on Exhibit B. All furniture and equipment currently located on the
Premises that is not listed on Exhibit B or that Sublessee elects not to
purchase shall be removed by Sublessor and Sublessor shall repair any damage to
the Premises caused by such removal.
13. CONDITION OF PREMISES
Notwithstanding the provisions of Paragraph 12, above, Sublessor shall not
remove the UPS systems, existing cabling, wiring and security systems installed
upon the Premises, and Sublessee shall have the right to use said UPS systems,
the existing cabling, wiring and security systems as Sublessee reasonably
determines is necessary for the conduct of its business from the Premises.
Further, Sublessor shall cause to remain on the Premises for Sublessee's use the
existing common area reception furniture, executive conference table and common
area murals.
14. ASSIGNMENT AND SUBLETTING
Sublessee shall not assign this Sublease or further sublet all or any part of
the Premises without the prior written consent of the Sublessor (and the consent
of Landlord, if such is required under the terms of the Lease). Sublessor will
not unreasonably withhold permission to sublet space to a mutually agreed
subtenant.
15. QUIET ENJOYMENT
Subject to the provisions of this Sublease and the Master Leases and conditioned
upon performance of all of the provisions to be performed by Sublessee hereunder
and thereunder, Sublessor and Landlord shall secure to Sublessee during the Term
the quiet and peaceful possession of the Premises and all rights and privileges
appertaining thereto.
16. OTHER PROVISIONS OF SUBLEASE
All applicable terms and conditions of the Master Leases are incorporated into
and made a part of this Sublease as if (i) Sublessee were the tenant thereunder
and (ii) Sublessor were the landlord thereunder. Sublessee assumes and agrees to
perform the Tenant's obligations under the Master Leases during the Initial Term
or any Renewal Term to the extent that such obligations are applicable to the
Premises, except that the obligation to pay rent to Landlord under the Master
Leases shall be considered performed by Sublessee to the extent and in the
amount rent is paid to Sublessor in accordance with Section 7 of this Sublease.
Sublessee shall not commit or suffer any act or omission that will violate any
of the provisions of the Master Leases. Sublessor shall exercise due diligence
in attempting to cause Landlord to perform its obligations under the Master
Leases for the benefit of Sublessee. If the Master Leases terminate as a result
of a default or breach by Sublessor or Sublessee under this Sublease and/or the
Master Leases, then the defaulting party shall be liable to the nondefaulting
party for the damage suffered as a result of such termination. Notwithstanding
the foregoing, if the Master Leases give Sublessor any right to terminate the
Master Leases in the event of the partial or total damage, destruction, or
condemnation of the Premises, the exercise of such right by Sublessor shall not
constitute a default or breach hereunder.
73
17. ATTORNEY'S FEES
If Sublessor or Sublessee shall commence an action against the other arising out
of or in connection with this Sublease, the prevailing party shall be entitled
to recover its costs of suit and reasonable attorney's fees.
18. NOTICES
All notices and demands that may or are to be required or permitted to be given
by either party on the other hereunder shall be in writing. All notices and
demands by the Sublessor to Sublessee shall be sent by United States Mail,
postage prepaid, addressed to the Sublessee at the Premises, and to the address
herein below, or to such other place as Sublessee may from time to time
designate in a notice to the Sublessor. All notices and demands by the Sublessee
to Sublessor at the address set forth herein, and to such other person or place
as the Sublessor may from time to time designate in a notice to the Sublessee.
To Sublessor: Franklin Covey Co.
2200 West Parkway Boulevard
Salt Lake City, Utah 84119
Attn: Val John Christensen
Executive Vice President/General Counsel
To Sublessee: MyFamily.com, Inc.
360 West 4800 North
Provo, Utah 84604
Attn: Peter W. Clark, Chief Financial Officer
19. CONSENT BY LANDLORD
This Sublease shall be of no force or effect unless consented to by Landlord as
required under the terms of the Master Leases.
20. COMPLIANCE
The parties hereto agree to comply with all applicable federal, state, and local
laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this Agreement,
including, but not limited to, the 1964 Civil Rights Act and all amendments
thereto, the Foreign Investment in Real Property Tax Act, the Comprehensive
Environmental Response Compensation and Liability Act, and the Americans with
Disabilities Act.
Sublessor: Sublessee:
FRANKLIN COVEY CO. MYFAMILY.COM, INC.
By By
------------------------------------------ -------------------------------------------
Title Title
--------------------------------------- ---------------------------------------
Date: Date
---------------------------------------- -----------------------------------------
74
LANDLORD'S CONSENT TO SUBLEASE
The undersigned landlord ("Landlord") under the Building I Lease, hereby
consents to the foregoing Sublease without waiver of any restriction in the
Building I Lease concerning further assignment or subletting. Landlord certifies
that, as of the date of Landlord's execution hereof, Sublessor is not in default
or breach of any of the provisions of the Building I Lease, and that the
Building I Lease has not been amended or modified except as expressly set forth
in the foregoing Sublease. Landlord shall enter into a separate non-disturbance
agreement in favor of Sublessee in the event the Building I Lease is terminated
for any reason prior to the end of the Initial Term or any Renewal Term thereof.
COVEY CORPORATE CAMPUS ONE, L.L.C.
By
--------------------------------------------------
Title
-----------------------------------------------
Date
------------------------------------------------
The undersigned landlord ("Landlord") under the Building II Lease, hereby
consents to the foregoing Sublease without waiver of any restriction in the
Building II Lease concerning further assignment or subletting. Landlord
certifies that, as of the date of Landlord's execution hereof, Sublessor is not
in default or breach of any of the provisions of the Building II Lease, and that
the Building II Lease has not been amended or modified except as expressly set
forth in the foregoing Sublease. Landlord shall enter into a separate
non-disturbance agreement in favor of Sublessee in the event the Building II
Lease is terminated for any reason prior to the end of the Initial Term or any
Renewal Term thereof.
COVEY CORPORATE CAMPUS TWO, L.L.C.
By
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Title
-----------------------------------------------
Date
------------------------------------------------
75
EXHIBIT 10.13
LIMITED LIABILITY COMPANY AGREEMENT
OF
FRANKLIN COVEY COACHING, L. L. C.
76
TABLE OF CONTENTS
Page
------
1. DEFINITIONS.........................................................80
1.1 Adjusted Capital Account Deficit....................................80
1.2 Affiliate...........................................................80
1.3 Agreement...........................................................80
1.4 AMS ...............................................................80
1.5 AMS Preference Return...............................................80
1.6 AMS Programs........................................................80
1.7 AMS Program Income..................................................81
1.8 AMS Program Share...................................................81
1.9 Auditors............................................................81
1.10 Bankrupt............................................................81
1.11 Bankruptcy Code.....................................................81
1.12 Business............................................................81
1.13 Buy Out Amount......................................................81
1.14 Capital Account.....................................................81
1.15 Capital Call........................................................81
1.16 Cash Flow...........................................................82
1.17 Certificate.........................................................82
1.18 Class A Member......................................................82
1.19 Class A Membership Interests........................................82
1.20 Code ...............................................................82
1.21 Communication.......................................................82
1.22 Company.............................................................82
1.23 Company Act.........................................................82
1.24 Company's Office....................................................82
1.25 Confidential Information............................................82
1.26 Control.............................................................82
1.27 Deadlock............................................................82
1.28 Deemed Delivery.....................................................82
1.29 Effective Date......................................................82
1.30 Excepted Transfer...................................................83
1.31 Fair Market Value...................................................83
1.32 Fiscal Year.........................................................83
1.33 Franklin Covey......................................................83
1.34 Franklin Covey Preference Return....................................83
1.35 Franklin Covey Programs.............................................83
1.36 Franklin Covey Program Income.......................................83
1.37 Franklin Covey Program Share........................................83
1.38 Gross Asset Value...................................................83
1.39 Management Board....................................................84
1.40 Manager.............................................................84
1.41 Member..............................................................84
1.42 Membership Interest.................................................84
1.43 Modified Fair Market Value..........................................84
1.44 Net Profits or Losses...............................................84
1.45 Non-Contributing Member.............................................84
1.46 Officer.............................................................84
1.47 Operating Margin....................................................84
1.48 Organization Transactions...........................................84
1.49 Percentage Interest.................................................84
1.50 Person..............................................................84
1.51 Profits.............................................................84
1.52 Program Contribution Threshold......................................85
77
1.53 Regulations.........................................................85
1.54 Securities Act......................................................85
1.55 Total Member Program Income.........................................85
1.56 Transfer............................................................85
1.57 Unit 7
2. FORMATION, PURPOSES AND DURATION....................................85
2.1. Formation and Name..................................................85
2.2. Purposes of the Company.............................................86
2.3. Scope of the Members' Authority.....................................86
2.4. Principal Place of Business.........................................86
2.5. Title to Company Properties.........................................86
2.6. Term 8
2.7. Assumed Name Certificate............................................86
2.8. Other Business Activities; Waive....................................86
3. CERTAIN MATTERS RELATING TO THE BUSINESS............................86
3.1. Business Opportunities..............................................86
3.2. Noncompetition; Confidential Information............................87
4. MEMBERSHIP INTERESTS, CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS.......88
4.1. Membership Interests................................................88
4.2. Initial Capital Contribution........................................88
4.3. Capital Accounts....................................................89
4.4. Limitation on Members' Liabilities..................................90
4.5. Distributions of Net Cash Flow......................................90
4.6. Time of Determination and Distribution of Cash Flow.................90
4.7. Additional Operating Funds..........................................90
4.8. Preemptive Rights...................................................91
5. MANAGEMENT OF THE COMPANY...........................................91
5.1. Members; No Control of Business or Right to Act for Company.........91
5.2. The Management Board................................................91
5.3. Officers............................................................92
5.4. Bylaws..............................................................92
5.5. Major Decisions.....................................................92
6. ACCOUNTING AND TAXES................................................93
6.1. Books and Records...................................................93
6.2. Rights of Inspection................................................93
6.3. Bank Accounts.......................................................93
6.4. Financial Statements................................................93
6.5. Other Accounting Decisions..........................................93
6.6. Preparation of Tax Returns..........................................93
6.7. Allocation of Profits, Gains and Losses.............................93
6.8. Tax Decisions Not Specified.........................................94
6.9. Notice of Tax Audit.................................................94
6.10. Tax Matters Partner.................................................94
7. SALE OR TRANSFER....................................................94
7.1. General.............................................................94
7.2. Offered Interests On Transfer.......................................94
7.3. Securities Law Limitations..........................................96
7.4. Agreement with Transferees..........................................96
7.5. Transfer in the Event of Contribution Shortfall.....................97
7.6. Transfer in the Event of Deadlock...................................97
7.7. Retrieval of Proprietary Coaching Business..........................98
78
8. DEFAULTS AND DISSOLUTION............................................98
8.1. Events of Default...................................................98
8.2. Remedies............................................................99
8.3. Causes of Dissolution...............................................99
8.4. Procedure in Dissolution and Liquidation............................99
8.5. Distribution of Contributed Assets.................................100
9. AMENDMENT..........................................................100
9.1. Amendment..........................................................100
10. DISPUTES...........................................................100
10.1. Escalation.........................................................100
10.2. Mediation..........................................................100
10.3. Arbitration........................................................101
11. GENERAL PROVISIONS.................................................102
11.1. Entire Agreement...................................................102
11.2. Notices............................................................102
11.3. Validity...........................................................102
11.4. Attorneys' Fees....................................................102
11.5. Survival of Rights.................................................102
11.6. No Strict Construction.............................................103
11.7. Governing Law; Jurisdiction........................................103
11.8. No Partition.......................................................103
11.9. Waiver.............................................................103
11.10. Waiver of Notice...................................................103
11.11. Remedies Not Exclusive.............................................103
11.12. Construction.......................................................103
11.13. Incorporation by Reference.........................................104
11.14. Counterparts.......................................................104
11.15. Further Assurances.................................................104
11.16. No Broker's Fees...................................................104
11.17. No Third Party Rights..............................................104
79
LIMITED LIABILITY COMPANY AGREEMENT
OF
FRANKLIN COVEY COACHING, L.L.C.
This Limited Liability Company Agreement (this "Agreement") is made as of
September 1, 2000 (the "Effective Date") by and among those parties who, from
time to time, execute this Agreement as members and are listed on attached
Exhibit A. Such signatories to this Agreement are collectively called the
"Members," and each is sometimes individually called a "Member."
Agreement
NOW, THEREFORE, in consideration of the mutual promises, terms and
conditions contained herein, the receipt and sufficiency of which are hereby
acknowledged, the Members hereby agree as follows:
1. DEFINITIONS
The following words, terms or phrases have the respective meanings set
forth thereafter:
1.1. "Adjusted Capital Account Deficit" shall mean, with respect to any Member,
the deficit balance, if any, in such Member's Capital Account as of the end of
any Fiscal Year after giving effect to the following adjustments: (i) credit to
such Capital Account the sum of (A) any amount which such Member is obligated to
restore to such Capital Account pursuant to any provision of this Agreement,
plus (B) an amount equal to such Member's share of Partnership Minimum Gain as
determined under Section 1.704-2(g)(1) of the Regulations and such Member's
share of Partner Nonrecourse Debt Minimum Gain as determined under Section
1.704-2(i)(5) of the Regulations, plus (C) any amounts which such Member is
deemed to be obligated to restore pursuant to Section 1.704-l(b)(2)(ii)(c) of
the Regulations; and (ii) debit to such Capital Account the items described in
Sections 1.704-l(b)(2)(ii)(d)(4), (5) and (6) of the Regulations.
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Section 1.704-1(b)(2)(ii)(d) of the Regulations
and shall be interpreted consistently therewith.
1.2. "Affiliate" shall mean, with respect to any Person, any Person Controlled
by, under common Control with or Controlled or managed by such Person.
1.3. "Agreement" shall mean this Limited Liability Company Agreement as the same
may be amended or supplemented from time to time in accordance with the
provisions hereof.
1.4. "AMS" shall mean AMS Direct, Inc., a Delaware corporation.
1.5. "AMS Preference Return" means, with respect to any period, the product of
(i) 0.45, multiplied by (ii) the amount by which AMS Program Income for such
period exceeds the Program Contribution Threshold for such period.
1.6. "AMS Programs" means all coaching programs and other services and materials
provided by the Company with respect to (i) proprietary programs now or
hereafter developed, produced and/or marketed by AMS or its Affiliates (other
than the Company), and/or (ii) any AMS or third party programs previously tested
for AMS by Franklin Covey's personal coaching division or its predecessor.
80
1.7. "AMS Program Income" means, for any period, the Operating Margin generated
by AMS Programs during such period, minus the AMS Program Share of all remaining
operating expenses (other than those included in AMS' Operating Margin) incurred
by the Company during such period.
1.8. "AMS Program Share" means, for any period, the percentage equivalent of a
fraction, the numerator of which shall be the total revenue from AMS Programs
during such period, and the denominator of which shall be the total revenue of
the Company during such period.
1.9. "Auditors" shall mean such firm of independent certified public accountants
as from time to time may be engaged for the Company by the Management Board.
1.10. "Bankrupt" shall mean, with respect to any Member, the occurrence of any
one or more of the following: (i) the making by such Member of an assignment for
the benefit of creditors; (ii) the filing against such Member of an involuntary
petition seeking an adjudication of bankruptcy under Chapter 7 of the Bankruptcy
Code, which filing is not dismissed within sixty (60) days of the filing; (iii)
the filing of a voluntary petition by such Member under Chapter 7 of the
Bankruptcy Code; (iv) the entry of an order of relief against such Member under
Chapter 7 of the Bankruptcy Code; (v) the filing of a voluntary or involuntary
petition by or against such Member under Chapters 11 or 13 of the Bankruptcy
Code which is not dismissed within sixty (60) days of the filing; (vi) the entry
of an order, judgment or decree by a court of competent jurisdiction providing
for the liquidation of the assets of such Member or appointing a receiver,
trustee or other administrator of such Member's assets which continues in effect
and unstayed for a period of sixty (60) days; (vii) the confirmation of any plan
of reorganization under either Chapter 11 or 13 of the Bankruptcy Code providing
for the liquidation of substantially all of such Member's assets or (viii) a
written admission by such Member of inability to pay debts.
1.11. "Bankruptcy Code" shall mean Title 11 of the United States Code, as now in
effect or as hereafter amended.
1.12. "Business" shall mean, as of any date, developing, marketing, and/or
providing, in person or through any form of communication or media, personalized
coaching programs and/or services, involving one-on-one interaction, of the same
general type and nature as those provided by the Company as of such date;
provided, that Business shall not include any proprietary businesses of AMS or
Franklin Covey that are not related specifically to coaching and shall not
include seminar training or product sales, public or corporate training
programs, works of authorship, intellectual property development or the
licensing or sale of any other goods or services provided by any division of AMS
or Franklin Covey other than the Franklin Covey personal coaching division as of
the date of execution of this Agreement.
1.13. "Buy Out Amount" shall mean an amount equal to the Modified Fair Market
Value multiplied by a fraction, the numerator of which is the number of
Membership Interests being purchased, and the denominator of which is the total
number of Membership Interests then outstanding; or if at the time of Redemption
Notice, AMS has the right pursuant to Section 7.5 hereof to trigger a purchase
or sale of its Membership Interests, the Buy Out Amount shall mean the Modified
Fair Market Value multiplied by a fraction, the numerator of which is the
Program Income of the Defaulting Member during the most recently completed
Fiscal Year and the denominator of which is Total Member Program Income during
such Fiscal Year.
1.14. "Capital Account" shall mean the record of a Member's contributions,
distributions, allocable share of income, gain, loss and deduction maintained by
the Company in accordance with the capital account rules of Section 1.704-1(b)
of the Regulations. The Company shall adjust Capital Accounts to reflect the
fair market value of Company property in accordance with Section
1.704-1(b)(2)(iv)(f) of the Regulations in connection with any events described
in Section 1.704-1(b)(2)(iv)(f)(5) of the Regulations.
1.15. "Capital Call" shall have the meaning given such term in Section 4.7(b)
hereof.
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1.16. "Cash Flow" shall mean any and all cash receipts from any source
whatsoever except contributions to capital and proceeds from financings,
borrowings or other extensions of credit after deducting (i) all cash
expenditures and capital expenditures made during such period and (ii) such
reserves as the Managers reasonably determine to be necessary or appropriate for
anticipated cash needs of the Company.
1.17. "Certificate" shall mean the Certificate of Formation of the Company, duly
filed and amended in accordance with the laws of the State of Delaware.
1.18. "Class A Member" shall mean a holder of Class A Membership Interests who
has been accepted as a Member of the Company pursuant to this Agreement.
1.19. "Class A Membership Interests" shall mean those Class A Membership
Interests in the Company described more fully in Section 4.1.
1.20. "Code" shall mean the Internal Revenue Code of 1986, as now in effect or
as hereafter amended including, but not limited to, any successor or substitute
federal tax codes or legislation.
1.21. "Communication" shall mean any and all notices, requests, demands,
elections and other communications given in connection with this Agreement.
1.22. "Company" shall mean Franklin Covey Coaching, L.L.C., a Delaware limited
liability company.
1.23. "Company Act" shall mean the Limited Liability Company Act of the State of
Delaware, as amended from time to time.
1.24. "Company's Office" shall have the meaning given to such term in Section
2.4.
1.25. "Confidential Information" shall have the meaning given to such term in
Section 3.2(b).
1.26. "Control" shall mean, with respect to a Person (i) direct or indirect
ownership of fifty percent (50%) or more of the total combined voting power of
all classes of equity interests in the controlled entity entitled to vote, or
(ii) being an officer, director, manager, trustee or general partner of the
controlled entity (or an officer, director, manager, general partner or trustee
of a manager, trustee or general partner of the controlled entity).
1.27. "Deadlock" shall mean the Managers are deadlocked in the management of the
Company's affairs, including if the Members are unable to break the deadlock in
regard to any Major Decision after the parties have followed the dispute
resolution mechanisms set forth in Sections 10.1 and 10.2.
1.28. "Deemed Delivery" shall mean, with respect to a written Communication sent
to a recipient Member or the Company (the "Recipient"), the earlier of (a) the
date it shall be delivered to the address of the Recipient on the records of the
Company (the "Recipient's Address"), (b) the date delivery shall have been
refused at the Recipient's Address, (c) with respect to a Communication sent by
mail, the date as of which the postal service shall have indicated such
Communication to be undeliverable at the Recipient's Address, or (d) with
respect to a Communication sent by facsimile to the facsimile number of the
Recipient on the records of the Company and in respect of which a facsimile
receipt confirmation statement is printed, (i) the next business day after
receipt, if the Communication is received at or after five (5) p.m. in the time
zone of the Recipient, or (ii) the day of receipt if the Communication is
received before five (5) p.m. in the time zone of the Recipient.
1.29. "Effective Date" shall have the meaning given such term in the preamble
hereto.
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1.30. "Excepted Transfer" shall mean any Transfer by a Member of a Membership
Interest to a controlled subsidiary or affiliate of such member; provided that
the transferee first agrees to become a party to this Agreement and bound hereby
and provided that no such Transfer shall relieve the transferring Member of its
obligations hereunder without the prior written consent of the other Members.
1.31. "Fair Market Value" shall have the meaning ascribed to such term in
Section 7.2(d).
1.32. "Fiscal Year" shall mean the period from September 1 to August 31 of each
year.
1.33. "Franklin Covey" shall mean Franklin Covey Co., a Utah corporation.
1.34. "Franklin Covey Preference Return" means, with respect to any period, the
product of (i) 0.45, multiplied by (ii) the amount by which Franklin Covey
Program Income for such period exceeds the Program Contribution Threshold for
such period.
1.35. "Franklin Covey Programs" means all coaching programs and other services
and materials provided by the Company with respect to (i) proprietary coaching
programs now or hereafter developed, produced and/or marketed by Franklin Covey
or its Affiliates (other than the Company), and/or (ii) any of the third party
programs identified on Exhibit D attached hereto.
1.36. "Franklin Covey Program Income" means, for any period, the Operating
Margin generated by Franklin Covey Programs during such period, minus the
Franklin Covey Program Share of all remaining operating expenses (other than
those included in Franklin Covey's Operating Margin) incurred by the Company
during such period.
1.37. "Franklin Covey Program Share" means, for any period, the percentage
equivalent of a fraction, the numerator of which shall be the total revenue from
Franklin Covey Programs during such period, and the denominator of which shall
be the total revenue of the Company during such period.
1.38. "Gross Asset Value" shall mean, with respect to any Company asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
a. The initial Gross Asset Value of an asset contributed by a Member to
the Company shall be the gross fair market value of such asset as of
the date of contribution.
b. The Gross Asset Values of all Company assets shall be adjusted to
equal the assets' respective gross fair market values, as determined
by the Company using such reasonable and uniform methods of valuation
as it may adopt, as of the following times: (i) the acquisition of
additional Membership Interests in the Company by any new or existing
Member in exchange for more than a de minimus capital contribution, or
the distribution by the Company of more than a de minimus amount of
money or other property to a Member as consideration for all or part
of its Membership Interests in the Company; and (ii) the liquidation
of the Company within the meaning of Section 1.704-1(b)(2)(ii)(g) of
the Regulations.
c. The Gross Asset Value of any Company asset distributed to a Member
shall be the gross fair market value of such asset on the date of
contribution.
d. The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Sections 734(b) or 743(b), but only to the
extent such adjustments are taken into account in determining Capital
Accounts pursuant to Section 1.704-1(b)(2)(iv)(m) of the Regulations.
e. In the event of dissolution or liquidation, the Gross Asset Value of
any Company asset distributed to a Member shall be the gross fair
market value of such asset on the date of distribution.
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If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subsections a., b., c. or d., above, such Gross Asset Value shall
thereafter be adjusted by the depreciation, cost recovery or amortization taken
into account with respect to such asset for purposes of computing Profits or
Losses. Such items shall be computed in accordance with Section
1.704-1(b)(2)(iv)(g)(3) of the Regulations.
1.39. "Management Board" shall mean the Management Board of the Company
described in Section 5.2.
1.40. "Manager" shall have the meaning given such term in Section 5.2(b) hereof.
1.41. "Member" shall have the meaning given such term in the preamble hereto.
1.42. "Membership Interest" shall mean a Member's entire ownership interest in
the Company, including the Member's interest in the capital, Profits, gains and
credits of the Company (whether expressed in terms of the Member's Percentage
Interest, Units or otherwise) and all rights and obligations with respect to the
Company under this Agreement and the Company Act, including, but not limited to,
the right to receive distributions from the Company.
1.43. "Modified Fair Market Value" shall mean the fair market value of the
Company determined in a manner consistent with Section 7.2(d) (except that the
Persons entitled to mutually determine fair market value or designate
independent appraisers, and the Persons who shall share appraisal expenses, are
the purchasing and selling Members only); provided, however, that Total Member
Program Income shall be excluded for purposes of such determination.
1.44. "Net Profits or Losses" shall mean the Profits or Losses for the Fiscal
Year computed under the accrual method of accounting.
1.45. "Non-Contributing Member" shall have the meaning given such term in
Section 4.7(c) hereof.
1.46. "Officer" shall mean those Persons appointed by the Management Board
pursuant to Section 5.3 herein.
1.47. "Operating Margin" means, during any period with respect to the AMS
Programs and Franklin Covey Programs, respectively, the total revenue generated
by such Programs during such period, minus the costs directly attributable to
such Programs (including without limitation, business promotion costs of such
Program) during such period.
1.48. "Organization Transactions" shall mean all transactions in connection with
the contribution to and/or acquisition by the Company of (a) Franklin Covey's
coaching services business and all related assets and liabilities, pursuant to
that certain Contribution Agreement of even date herewith between the Company
and Franklin Covey, and (b) AMS' contributed assets pursuant to that certain
Contribution Agreement of even date herewith between the Company and AMS.
1.49. "Percentage Interest" shall mean a Member's percentage interest in the
Profits, cash flow, Losses, gains and tax credits and distributions of the
Company represented by such Member's Class A Membership Interest in the Company.
The initial Percentage Interests shall be as set forth on Exhibit A attached
hereto and shall be changed from time to time as provided in this Agreement.
Notwithstanding the foregoing, if a Member's Percentage shall change, a Member's
voting percentage shall not change.
1.50. "Person" shall mean an individual, general partnership, limited
partnership, limited liability company, corporation, joint venture, trust,
estate, business trust, cooperative or association and their heirs, executors,
administrators, legal representatives, successors, and assigns of such Person
where the context so permits.
1.51. "Profits" or "Losses" shall mean, for each Fiscal Year or other period, an
amount equal to the Company's taxable income or loss for such Fiscal Year or
period, determined in accordance with Section 703(a) of the Code (all items of
income, gain, loss or deduction required to be stated separately pursuant to
Section 703(a)(1) of the Code being included in taxable income or loss for this
purpose), with the following adjustments;
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a. Any income of the Company described in Section 705(a)(1)(B) of the
Code that is exempt from federal income tax and not otherwise taken
into account in computing Profits or Losses shall be added to such
taxable income or subtracted from such taxable loss.
b. Any expenditures of the Company described in Section 705(a)(2)(B) of
the Code or treated as Section 705(a)(2)(B) expenditures pursuant to
Section 1.704-1(b)(2)(iv)(i) of the Regulations and not otherwise
taken into account in computing Profits or Losses shall be subtracted
from such taxable income or added to such taxable loss.
c. In the event the Gross Asset Value of any Company asset is adjusted
upon the occurrence of any of the events specified in clauses (c) or
(d) of the definition of "Gross Asset Value" herein the amount of such
adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Profits or Losses.
d. Gain or loss resulting from any disposition of an asset with respect
to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of such asset.
In lieu of the depreciation, amortization and other cost recovery deductions
taken into account in computing such taxable income or loss, there shall be
taken into account depreciation, cost recovery or amortization computed in
accordance with Section 1.704-1(b)(2)(iv)(g)(3) of the Regulations. The Members
agree that, to the extent permissible under the Code and Regulations, the sum of
the book depreciation and amortization for each period attributable to the
properties contributed by AMS shall be calculated by multiplying the total book
value of such properties by a percentage equal to the sum of the total book
depreciation and amortization for such period attributable to the properties
contributed by Franklin Covey divided by the total book value of the properties
contributed by Franklin Covey.
1.52. "Program Contribution Threshold" shall be an amount equal to the total AMS
Program Income generated by Franklin Covey's personal coaching division with
respect to AMS Programs during the fiscal year ended August 31, 2000. In
calculating the Program Contribution Threshold, the Company shall not deduct for
depreciation, amortization of intangibles or payments to the predecessor owners
of the coaching division. Promptly following the date hereof, the Company shall
calculate and communicate the Program Contribution Threshold to the Members. If
any Member objects to the calculation in good faith, the Members shall resolve
such dispute in accordance with Article 10.
1.53. "Regulations" shall mean the federal income tax regulations promulgated by
the Department of the Treasury under the Code, including temporary (but not
proposed) regulations, as such regulations shall be in effect from time to time.
1.54. "Securities Act" shall mean the Securities Act of 1933, as amended.
1.55. "Total Member Program Income" for any period means the sum of all AMS
Program Income and Franklin Covey Program Income for such period.
1.56. "Transfer" shall mean the sale, assignment, conveyance, gift, pledge or
other transfer or encumbrance of Membership Interests.
1.57. "Unit" shall mean a divisible portion of a Member's Membership Interests
carrying with it a proportionate amount of each aspect of the rights,
privileges, duties and obligations of the Member relating to such Member's
Membership Interests. Initially, each one percent (1%) of Membership Interest of
a given class shall be comprised of one (1) Unit of such class.
2. FORMATION, PURPOSES AND DURATION
2.1. Formation and Name.
a. The Members agree to and hereby form a company pursuant to the Company
Act to be known as "Franklin Covey Coaching, L.L.C."
b. The business of the Company shall be conducted under the name
indicated in
Section 2.1.a, or such other name as the Company may from time to time
adopt, and all assets of the Company shall be held under such name except
as provided in Section 2.5.
c. The ownership interests, rights and obligations of the Members as
members in the Company shall be as provided in the Company Act, except
and to the extent otherwise provided in this Agreement.
d. The Company shall bear the expenses directly incident to its
formation, including, but not limited to, filing and recording fees,
taxes and legal and accounting fees incident to the formation and
operation of the Company.
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2.2. Purposes of the Company. The purposes of the Company shall be:
a. To engage in the Business, and any and all other business and
activities that the Managers may in their discretion determine; and
b. To perform any and all lawful acts incidental to the foregoing purpose
or reasonably necessary to the fulfillment of the foregoing purpose.
2.3. Scope of the Members' Authority. Except as otherwise expressly and
specifically provided in this Agreement, no Member shall have any authority in
such capacity to bind or act for, or assume any obligation or responsibility on
behalf of, the Company or any other Member or the Company. Neither the Company
nor any Member shall be responsible or liable for any indebtedness or obligation
of any other Member or otherwise relating to the Company property, except as to
those responsibilities, liabilities, indebtedness or obligations incurred by
separate agreement or instrument or incurred on or after the date hereof
pursuant to and as limited by the terms of this Agreement.
2.4. Principal Place of Business. The Company shall have its principal place of
business at 2650 South Decker Lake Boulevard, 2nd Floor, Salt Lake City, Utah
84119 (the "Company's Office") or such other place as determined by the
Management Board from time to time.
2.5. Title to Company Properties. Legal title to all Company properties shall be
taken and at all times held in the name of the Company, except that any real
estate held by the Company may alternatively be held in the name of a trustee
for the Company, provided that the Company is specifically designated by name as
sole beneficiary or principal under a written trust agreement executed by any
such trustee.
2.6. Term. The term of the Company shall commence on the date of the filing of
the Articles with the appropriate authorities of the State, and shall be
perpetual until the Company is dissolved in accordance with the provisions of
this Agreement or the Company Act.
2.7. Assumed Name Certificate. The Officers shall execute, file and publish an
assumed name certificate, if necessary, and such other certificates and
documents as may be required by applicable law with respect to the Company, in
Delaware, Utah and all other states in which the Company engages in business.
2.8. Other Business Activities; Waiver. Subject to Section 3.2., below, any
Member or any officer, manager, director, employee, partner, shareholder, member
or other Person holding a legal or beneficial interest in any entity which is a
Member or any Affiliate of a Member may engage in, broker, or possess an
interest in other business ventures of every nature and description other than
the Business, independently or with others, and neither the Company nor the
Members shall have any right by virtue of this Agreement in or to such
independent ventures or to the income or profits derived therefrom except those
rights, if any, in and to any New Business Opportunity as defined in Section 3.1
below.
3. CERTAIN MATTERS RELATING TO THE BUSINESS
3.1. Business Opportunities. It is the express intent of the Members that the
Company shall be the exclusive vehicle to develop and provide all personal
coaching and related programs and services relating to the proprietary programs
and materials of each Member. Therefore, neither Member shall at any time when
such Person is a Member, without the prior unanimous consent of the Managers,
(i) directly or indirectly (including through any contract, license or other
arrangement with third parties) develop, market, or provide any personal
coaching, training or personal interactive learning program or service related
thereto of the same or similar nature as the Business ("Scope" and any such
proposed service offering or program within such Scope being a "New Business
86
Opportunity") with or for any Person other than the Company; (ii) license or
otherwise provide any program content or materials for use in any New Business
Opportunity to any Person other than the Company; or (iii) sell or license any
customer lists, inquiry lists, or other information relating to customers or
potential customers, and/or any marketing rights relating thereto ("Leads") to
any Person for the purpose, in whole or in part, of having such Person provide
and/or offer to provide any products or services with respect to such New
Business Opportunity or otherwise within the Scope to such Leads; other than to
or through the Company
3.2. Noncompetition; Confidential Information.
a. Subject to Section 7.7, at all times while a Person is a Member (and
for eighteen (18) months after such Person is no longer a Member)
neither such Person nor any Affiliate of such Person may (1) engage,
directly or indirectly, in the Business, (2) contact, solicit, or
direct any Person to contact or solicit, any of the customers of the
Company for the purpose of providing any services that are the same or
similar to those offered by the Company, or (3) solicit, or accept if
offered to it with or without solicitation, the services of any
individual who is an Officer or employee of the Company at the time of
such solicitation or acceptance or has been an employee of the Company
within the one year prior to such solicitation or acceptance. The
provisions of this Section 3.2.a. shall not apply to Members in the
event of dissolution or liquidation of the Company.
b. The Company has furnished to each Member certain information which is
either non-public, confidential, or proprietary in nature. The Company
may also impart to the Members from time to time additional
non-public, confidential, or proprietary information, including,
without limitation, one or more business plans and other procedures,
concepts, methods, trade secrets, documentation, diagrams, manuals,
handbooks, training or processing materials, marketing techniques or
development plans, financial and pricing information, and the like,
whether oral or written. All such material heretofore or hereafter
furnished to the Members which at the time of disclosure was or is
marked with a suitable legend, such as "Confidential," together with
any analysis, compilations, studies, summaries, or documents prepared
for review by the Members, their agents, or their employees, is
hereinafter referred to as the "Confidential Information." If
Confidential Information is disclosed orally or visually, the Company
agrees to identify the same as "Confidential" at the time of
disclosure. The Confidential Information also includes any information
described above which the Company obtains from third parties and which
the Company treats as confidential or proprietary, regardless of
whether such information is owned or developed by the Company.
Confidential Information shall not include information that: (i) is in
or comes into the public domain without any breach of any obligation
of confidentiality owed to the Company; (ii) was in a Member's
possession prior to the Effective Date without the breach or existence
of any obligation of confidentiality to the Company; (iii) is
independently developed by or comes into the possession of a Member at
any time hereafter without reference to any information from the
Company and without any breach of any obligation of confidentiality
owed to the Company; or (iv) is required to be disclosed under or by
applicable law, regulation or lawful court order.
c. Each Member agrees (at all times while a Member and for two years
thereafter) to maintain the Confidential Information in secrecy and
confidence and not to, directly or indirectly, without the prior
written consent of the Company, disclose or cause to be disclosed, or
use or make known, or suffer or permit any former, current, or
prospective employee or agent of such Member or any Affiliate of such
Member to disclose or cause to be disclosed, or use or make known, any
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of the Confidential Information, except in connection with the conduct
of the Company's business, and except under a license from the Company
pursuant to Section 7.7.
d. Each Member agrees that any material violations of this Section 3.2.
would cause irreparable harm to the Company and its Members.
Therefore, each Member consents and agrees that if such Member
materially violates the terms of this Section 3.2., the Company shall
be entitled, in addition to any other rights and remedies that it may
have (including monetary damages), to apply to any court of competent
jurisdiction for specific performance and/or injunctive or other
relief in order to enforce, or prevent any continuing or threatened
violation of, the provisions of this Section 3.2 by such Member. If
the Company shall institute any action or proceeding to enforce the
provisions of this Section 3.2, each Member hereby waives the claim or
defense that this is an adequate remedy at law, and each Member agrees
in any such action or proceeding not to interpose the claim or defense
that such remedy exists at law.
3.3. Development, Testing and Coaching Services. The Company shall use its best
efforts to provide all curriculum development, scripting, testing and related
development services that are requested by a Member ("Development and Testing
Services") with respect to new coaching programs and curricula that such Member
proposes for the Company to develop ("New Programs"). The Company will provide
all Development and Testing Services , and all coaching services for each New
Program that is offered to the public, pursuant to a Statement of Work mutually
acceptable to the Company and the proposing Member. The proposing Member shall
pay, at the Company's normal and customary rates (which will be the same for
each Member), for all Development and Testing Services provided by the Company
with respect to the New Programs proposed by such Member. No Member shall
receive any royalty or other compensation with respect to any New Program other
than distributions as a Member under this Agreement; provided, that the Company
may be required, as specified in a particular statement of work, to directly pay
or reimburse the proposing Member for the actual third party royalties or other
amounts payable to third party authors or owners of intellectual property
comprising all or any part of a New Program who are not Affiliates of such
Member. The proposing Member shall retain title to all intellectual property
rights with respect to the content forming any part of the New Program; provided
that, subject to Section 7.7, the Company and the proposing Member shall have
joint and equal rights and title to any coaching specific materials and other
derivative works created by the Company with respect to such content.
4. MEMBERSHIP INTERESTS, CAPITAL CONTRIBUTIONS AND DISTRIBUTIONS
4.1. Membership Interests.
a. The Company shall initially have one class of Membership Interests.
b. The Percentage Interest, and corresponding number of Units, of each
initial Member shall be set forth on Exhibit A attached hereto:
4.2. Initial Capital Contribution.
a. Each Member has or shall contribute the property and/or rights
indicated opposite such Member's name on Exhibit A in consideration
for such Member's Membership Interests.
b. The Capital Account of each of the Members shall be credited with the
current total of all capital contributions by such Member to the
Company less any distributions to such Member.
c. No Member shall be entitled to any interest on such Member's capital
contributions to the Company.
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4.3. Capital Accounts.
a. A Capital Account shall be established and maintained for each Member
in accordance with the Code and with the Regulations and shall be
subject to adjustment as provided in Section 4.3.b.
b. In accordance with and subject to the Regulations, the Capital Account
of each Member shall from time to time be:
(1) Increased by (i) the amount of cash and the Gross Asset Value of
property contributed by such Member, (ii) such Member's share of
the Profits, determined pursuant to Section 6.7 for Capital
Account purposes, whether or not distributed, and (iii) the
amount of any Company liabilities assumed by such Member or which
are secured by any Company property distributed to such Member;
(2) Decreased by (i) the amount of cash and the Gross Asset Value of
property distributed to such Member, (ii) such Member's share of
Losses, determined pursuant to Section 6.7 for Capital Account
purposes, and (iii) the amount of any liabilities of such Member
assumed by the Company or which are secured by any property
contributed by such Member to the Company; and
(3) Increased or decreased, as the case may be, to reflect the fair
market value of Company property in accordance with Section
1.704-1(b)(2)(iv)(f) of the regulations in connection with any
events described in Section 1.704-1(b)(2)(iv)(f)(5) of the
regulations.
c. Except as otherwise provided in this Agreement, whenever it becomes
necessary to ascertain the balance of any Member's Capital Account,
such a determination shall be made after giving effect to all
allocations of Profits and Losses and other applicable adjustments for
the current taxable year and all distributions for such year in
respect of transactions effected prior to the date as of which such
determination is to be made. No Member shall be entitled to (i) make
any withdrawal from its Capital Account or to receive any distribution
from the Company, except as expressly provided in this Agreement, or
(ii) make any additional capital contribution to the Company other
than as provided herein.
d. Any dispute between the Members with respect to determination of
Capital Accounts or otherwise with respect to the manner or method of
accounting by the Company shall be resolved by an independent third
party accounting firm mutually acceptable to the Members in question.
e. In the event that property is distributed by the Company to a Member
(including distributions in liquidation of the Company), the Capital
Accounts of the Members shall be adjusted immediately before such
distribution, in accordance with the applicable allocation of Profits
and Losses, to reflect the Profits or Losses and other applicable
adjustments that would have been realized by the Company if the
distributed property had been sold on the date of its distribution for
its fair market value. Notwithstanding anything in this Agreement to
the contrary, to the extent the distribution of property is in
connection with the liquidation of the Company and is property that
was originally contributed by the Member pursuant to such Member's
Contribution Agreement and as such is being distributed to such Member
in accordance with Section 8.5, the profits or losses that would have
been realized by the Company if such distributed property had been
sold on the date of its distribution for its fair market value shall
be specially allocated to such Member receiving the distribution
pursuant to Section 8.5.
f. The Capital Account of any transferee Member shall include the
appropriate portion of the Capital Account of the Member from whom the
transferee's Membership Interest was obtained.
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4.4. Limitation on Members' Liabilities. A Member shall not be bound by, or be
personally liable for, the expenses, liabilities or obligations of the Company,
and the liability of each Member shall be limited solely to the amount of such
Member's contribution to the capital of the Company, except as otherwise
required by the laws of the State of Delaware.
4.5. Distributions of Net Cash Flow.
a. The Cash Flow shall be distributed in respect of each Fiscal Year or
portion of a Fiscal Year after (i) payment of all expenses, debts and
obligations of the Company then due and payable, including those due
to the Managers and Officers, and (ii) the establishment of any
reserves by, or increase of any reserves established by, the
Management Board, including reserves for capital investments, business
expansion and anticipated operating expenses to AMS an amount equal to
the AMS Preference Return, if any, and any undistributed AMS
Preference Return for any prior period, and to Franklin Covey an
amount equal to the Franklin Covey Preference Return, if any, and any
undistributed Franklin Covey Preference Return for any prior period
(in the event there is insufficient cash to pay both Preference
Returns in any period, cash shall be distributed to AMS or Franklin
Covey to cover Preference Returns on a pari passu basis)and the
remainder to each of the Members pro rata according to the Members'
respective Percentage --- ---- Interests.
b. For the purposes of this provision, the Members expressly agree that
the respective Percentage Interests of the Members have been
established to be in proportion to the respective initial Capital
Accounts of all Members, based upon the agreed-upon respective fair
market values of each Member's contribution to the capital of the
Company.
4.6. Time of Determination and Distribution of Cash Flow. Cash Flow shall,
except as otherwise provided in this Agreement, be determined by the Management
Board, and shall be distributed from time to time by the Officers pursuant to
the directions of the Management Board. Unless otherwise agreed, Cash Flow shall
be distributed at least twice per fiscal year of the Company.
4.7. Additional Operating Funds.
a. The Members acknowledge that the business of the Company may require
additional capital and/or the borrowing of certain additional sums.
b. If the Management Board determines that additional capital is
reasonably necessary or appropriate to the operation of the Company's
business, the Management Board shall cause a notice to be sent to all
the Members of its intent to make a request to the Members for such
additional capital (a "Capital Call") and such notice shall set forth
all terms of the Capital Call including: (1) the total amount of
capital requested, (2) the purpose for which the capital is being
requested, (3) the terms of the additional capital contribution,
including the date on which such contribution shall be due to the
Company (which date shall not be less than thirty (30) days after the
Capital Call), and (4) each Member's proportionate share of the total
capital contribution.
c. If a Member fails to contribute such Member's proportionate share of
the Capital Call pursuant to its terms (a "Non-Contributing Member"),
the other Members (the "Contributing Members") shall have the option
to pay the unpaid amount of the Non-Contributing Member's portion of
the Capital Call (the "Unpaid Contribution"), and, in such event, the
Management Board shall reasonably and in good faith determine the
preferences, return or other economic arrangements to be made with the
Contributing Members and any economic consequences to the
Non-Contributing Member. Notwithstanding the foregoing, a Member's
voting percentage in the Company shall not be reduced or otherwise
modified by virtue of any adjustment to such Member's Percentage
Interest pursuant to this Section 4.7.
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4.8. Preemptive Rights.
a. Except for issuances of Units (i) to the Company's employees pursuant
to an option plan approved by the Management Board, or (ii) as a Unit
split or Unit dividend on all outstanding Units, if the Company
authorizes the issuance or sale of any Membership Interests or any
securities containing options or rights to acquire any Membership
Interests, the Company shall first offer to sell to each Member a
portion of such Membership Interests equal to the then outstanding
Percentage Interest of such Member. Each Member shall be entitled to
purchase such Membership Interests or securities at the same price and
on the same terms as such Membership Interests or securities are to be
offered to any other Persons. The purchase price for all Membership
Interests offered to the Members shall be payable in cash.
b. In order to exercise its purchase rights hereunder, a Member must,
within thirty (30) days after receipt of written notice from the
Company describing in reasonable detail the Units or securities being
offered, the purchase price thereof, the payment terms, and such
Member's percentage allotment, deliver a written notice to the Company
describing its election hereunder. Payment for the Membership
Interests or other securities being issued by the Company shall be
made by the Member exercising its rights pursuant to this Section 4.8
at the same time as payment for such Membership Interests or other
securities is to be made to the Company by Persons other than the
Member.
c. Upon the expiration of the offering periods described above, the
Company shall be entitled to sell such Membership Interests or
securities which the Members have not elected to purchase during the
ninety (90) days following such expiration on terms and conditions no
more favorable to the purchasers thereof than those offered to the
Members. Any Membership Interests or securities offered or sold by the
Company after such ninety (90) day period must be reoffered to the
Members pursuant to the terms of this Section 4.8.
5. MANAGEMENT OF THE COMPANY
5.1. Members; No Control of Business or Right to Act for Company. Other than as
otherwise provided in this Agreement, a Member shall take no part (in such
capacity) in the management, conduct or control of the business of the Company
and shall have no right or authority (in such capacity) to act for or to bind
the Company.
5.2. The Management Board.
a. Subject to Section 5.5, the overall management and control of the
business and affairs of the Company shall be vested in the Management
Board, which shall have all the powers and authority of managers under
the Company Act, or necessary or advisable in connection, or
consistent, therewith. All actions approved by the Management Board
(including through its appointed Officers) shall be binding on the
Company and each of the Members. In this regard, all actions taken by
any Managers or Officers in connection with the Organization
Transactions shall be deemed to be and treated for all purposes as
actions approved by the Management Board.
b. The Management Board shall be composed of five (5) individuals (the
"Managers"), who shall be determined as follows:
(1) Two (2) persons designated in writing from time to time by AMS or
the holders of a majority of the Membership Interests issued to
AMS (the "AMS Majority Holders").
(2) Two (2) persons designated from time to time in writing by
Franklin Covey or the holders of a majority of the Membership
Interests issued to Franklin Covey (the "Franklin Covey Majority
Holders").
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(3) One (1) person jointly designated in writing from time to time by
the Franklin Covey Majority Holders and the AMS Majority Holders.
5.3. Officers. The Management Board shall elect officers for the Company. The
officers of the Company, effective as of the date hereof, shall be the persons
identified as such on attached Exhibit B. The authority and specific
responsibilities of each of the Company's officers are set forth in the Bylaws
and shall be limited to the express authority contained therein or in
resolutions adopted from time to time by the Management Board.
5.4. Bylaws. The procedures for the regulation and management of the business
and affairs of the Company are set forth in the Company's Bylaws, which are set
forth in Exhibit C, attached hereto and incorporated herein by this reference.
The Bylaws may contain any provision, not inconsistent with the Company Act or
this Agreement, relating to the business of the Company, the conduct of its
affairs, and its rights or powers or the rights or powers of its Members,
Managers, officers or employees as the Management Board deems to be in the
Company's best interests.
5.5. Major Decisions. No act shall be taken, sum expended, decision made or
obligation incurred by or on behalf of the Company with respect to a matter
within the scope of any of the issues enumerated below (each a "Major
Decision"), unless and until the same has been approved by the vote or written
consent of Members holding at least eighty percent (80%) of the Percentage
Interests then outstanding. The Major Decisions are as follows:
a. Incurrence of Indebtedness or the making of any single or series of
related capital expenditures, in either case in excess of $100,000;
b. The sale, lease, pledge or other disposition or encumbrance, other
than in the ordinary course of business, in any Fiscal Year, of more
than twenty percent (20%) of the property or assets of the Company in
any single or series of related transactions;
c. Requesting additional capital from the Members pursuant to Section
4.7;
d. Commencing, joining or settling any litigation, arbitration or other
proceeding involving a claim in excess of $100,000 or any litigation,
arbitration or proceeding between the Company and any Member or
Affiliate thereof, or in which an adverse holding would materially
affect the business and prospects of the Company;
e. Amending or entering into any agreement with a Member, Manager,
Officer, or any Affiliate of any of the foregoing;
f. Setting management compensation;
g. Hiring and dismissing any officer or other management level employees;
h. Consenting to a Transfer as provided in Section 7.1;
i. Authorizing or issuing any Membership Interests;
j. Authorizing a merger, recapitalization or reorganization, or the
liquidation, of the Company;
k. Authorizing the acquisition of all or any material interest in another
business or Person;
l. Authorizing the repurchase of any Membership Interests; and
m. Any other action or decision outside of the ordinary course of
business of the Company and involving a sum in excess of $100,000.
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6. ACCOUNTING AND TAXES
6.1. Books and Records.
a. At all times during the term hereof, the Management Board shall use
its best efforts to cause accurate books and records of account to be
maintained in which are to be entered all matters relating to the
business and operations of the Company, including all income,
expenditures, assets and liabilities thereof. The Company's financial
records shall be maintained on an accrual basis in accordance with
generally accepted accounting principles.
b. Such books and records of account should be maintained on the accrual
basis and shall be adequate to provide each Member with all such
financial information as may be needed by such Member for purposes of
satisfying the financial reporting obligations of such Member.
c. Each Member is entitled to any information reasonably necessary for
the preparation of such Member's federal or state tax returns.
6.2. Rights of Inspection. Each Member and/or its authorized representatives
shall have the right to inspect, examine and copy (at such Member's expense) the
books, records, files, securities and other documents of the Company during the
regular business hours of the Company upon giving reasonable notice.
6.3. Bank Accounts. All funds of the Company, including, without limitation, all
funds representing capital contributions to the Company, and the proceeds of all
borrowings of the Company, shall be deposited in such "Operating Accounts" of a
type, in a form and in a bank or banks selected by the Management Board. All
Company expenses and distributions are to be paid from such Operating Accounts.
6.4. Financial Statements. The Company shall retain independent certified
accountants independent from the audit firm of either Member. Within forty-five
(45) days after the end of each of the first three quarters of each Fiscal Year,
the Company shall send to the Members unaudited statements of operations and
cash flows for such fiscal quarter and for the period from the beginning of such
Fiscal Year to the end of such fiscal quarter and an unaudited balance sheet as
of the close of such fiscal quarter. As soon as practicable after the end of
each Fiscal Year ending on or after the Effective Date, but not later than
ninety (90) days after the beginning of the following Fiscal Year, the Company
shall provide to each Member audited statements of operations, Member's equity
and cash flows, for such ended Fiscal Year, and an audited balance sheet
(including a breakdown of each Member's Capital Account and a statement of
allocations to each Member of its respective portion of the Company's taxable
income for such Fiscal Year) as of the close of such ended Fiscal Year,
including appropriate notes to such financial statements, audited by the
Auditors, all of which shall be prepared in accordance with generally accepted
accounting principles and/or requirements for tax accounting pursuant to the
Regulations.
6.5. Other Accounting Decisions. All accounting decisions for the Company (other
than those specifically provided for in any other Section of this Agreement)
shall be made by the Management Board.
6.6. Preparation of Tax Returns. Upon being provided by the Members with all
information required for their preparation, the Management Board or its agents
shall, on behalf of the Company, use their best efforts to cause all federal,
state and local income tax returns of the Company to be prepared. The Management
Board will use its best efforts to cause copies of all tax returns of the
Company to be made available for review by the Members at least thirty days
prior to the statutory date for filing, including extensions thereof, if any.
6.7. Allocation of Profits, Gains and Losses. Except as otherwise provided in
this Agreement, net profits, net gains, net losses, deductions and Federal tax
credits, if any, for any Fiscal Year shall be allocated among the Members in
accordance with Regulations under ss.704(b) as follows:
93
a. a gross income allocation to AMS to the extent of the AMS Preference
Return for the period;
b. a gross income allocation to Franklin Covey to the extent of the
Franklin Covey Preference Return for the period;
c. depreciation, cost recovery and amortization for the period shall be
allocated between the parties in an amount equal to the deduction
attributable to each party as determined under Section 1.48 above; and
d. in accordance with Percentage Interests.
6.8. Tax Decisions Not Specified. Tax decisions and elections for the Company
not provided for herein shall be made in the discretion of the Management Board.
6.9. Notice of Tax Audit. The Company will use its best efforts to give prompt
notice to the Members upon receipt of advice that the Internal Revenue Service
intends to examine Company income tax returns for any Fiscal Year.
6.10. Tax Matters Partner. Franklin Covey will be the initial tax matters
partner (the "Tax Matters Partner") for purposes of Sections 6221-6231 of the
Code and the Regulations. The Tax Matters Partner agrees to use its best efforts
to comply in good faith with all provisions of the Code concerning a tax matters
partner and to take all actions necessary to make each Member a notice partner
under the Code. The Tax Matters Partner will use its best efforts to give each
Member copies of all notices or other material communications delivered to or by
him with respect to federal, state or local tax matters, negotiations,
decisions, settlements or other events. The Tax Matters Partner may not initiate
or take material action with respect to any litigation without the prior consent
of the Members in accordance with Section 5.5.
7. SALE OR TRANSFER
7.1. General. Except for any Transfer which is an Excepted Transfer, no Member
shall (i) Transfer all or any part of its Membership Interests, or (ii) contract
to Transfer all or any part of its Membership Interests, whether voluntarily or
by operation of law, without in each instance obtaining the prior written
consent of the majority of the non-transferring Members, which consent may be
withheld in the sole discretion of the majority of the non-transferring Members.
Any attempt to Transfer Membership Interests without the required consent shall
be void. The giving of consent in connection with one or more Transfers shall
not limit or waive the need for such consent in connection with any other
Transfers.
7.2. Offered Interests On Transfer. In addition to the requirements of Section
7.1, if any Member is permitted to Transfer all or any part of its Membership
Interests to any third party, other than to a majority controlled subsidiary, it
will be obligated, before proceeding with any such transaction, to offer its
Membership Interests to the other Member(s) as set forth in this Section 7.2.
a. Notice of Transfer. If a Member (the "Offering Member") desires to
make a bona fide lifetime Transfer of its Membership Interests or any
interest therein (the "Offered Membership Interests") to any person or
entity, the Offering Member shall give at least forty-five (45) days
prior written notice to the Company and the other Members (the
"Remaining Members") of its intention to so Transfer its Membership
Interests (the "Notice"). The Notice shall state (i) the number of
Offered Membership Interests; (ii) the name, business and residence
address of the proposed transferee (the "Transferee"); (iii) whether
or not the Transfer is for valuable consideration and, if so, the
consideration (the "Offered Price"); (iv) the date upon which the
proposed Transfer to the Transferee is to be consummated; and (v) all
other material terms of the proposed Transfer. A copy of any written
agreement (whether executed or not) shall be attached to the Notice.
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b. Option. From and after the date of the Notice ("Notice Date"), the
Company and the Remaining Members shall have options to purchase the
Offered Membership Interests upon the terms and conditions provided in
the Notice except with respect to Purchase Price and payment terms,
exercisable in the order of priority and within the time periods set
forth below.
(i) Within thirty (30) days after the date that the Purchase Price is
determined pursuant to Section 7.2.d. (the "Company's Option
Period") the Company shall have the option to acquire all or any
portion of the Offered Membership Interests (the "Company's
Option"). The Company shall exercise the Company's Option, if at
all, by giving written notice to that effect to the Offering
Member, and the Remaining Members within the Company's Option
Period.
(ii) Within fifteen (15) days following the first to occur of (i) the
expiration of the Company's Option Period without the Company
exercising its option to purchase all of the Offered Membership
Interests or (ii) the Company's written notice to the Offering
Member and the Remaining Members that it will not purchase all of
the Offered Membership Interests (the "Remaining Members' Option
Period"), the Remaining Members shall have the option to acquire
all, but not less than all, of the Offered Membership Interests
not being purchased by the Company (the "Remaining Members'
Option"). The Remaining Members shall exercise the Remaining
Members' Option, if at all, by giving written notice to that
effect to the Company within the Remaining Members' Option
Period. Each Remaining Member may purchase the Offered Membership
Interests in proportion to his, her or its respective Percentage
Interests or in such proportion as all Remaining Members who
exercise the Remaining Members' Option may otherwise agree in
writing. Any acceptance of less than all of the Offered
Membership Interests shall be deemed a rejection of such Offered
Membership Interests.
c. Failure to Exercise the Company's and Remaining Members' Options. If
the Company and/or the Remaining Members fail to exercise their
respective Options, in accordance with Section 7.2(b), to purchase in
the aggregate all of the Offered Membership Interests, the Offering
Member may Transfer the Offered Membership Interests to the Transferee
as provided in the Notice at any time up to thirty (30) days after the
expiration of the Remaining Members' Option Period. If the Transfer
does not occur in accordance in all material respects with the terms
disclosed in the Notice within the foregoing thirty (30) day period,
such Transfer shall be automatically null and void without any further
action being required on the part of the Company or the Remaining
Members, and any attempt to Transfer the Offered Membership Interests
thereafter without first complying with the terms of this Section 7
shall be deemed a wrongful transfer within the meaning of Section 7.1
hereof.
d. Purchase Price of Membership Interests. The purchase price to be paid
for Membership Interests to be purchased by the Company and/or the
Remaining Members pursuant to this Section 7.2 shall be the lower of
(x) the price set forth in the Notice and (y) an amount equal to the
"Fair Market Value" of the Company, multiplied by a fraction, the
numerator of which is the number of Units being purchased and the
denominator of which is the number of Units outstanding as of the
applicable valuation date pursuant to Section 7.2(e) hereof (the
"Purchase Price").
(i) Subject to the provisions of Section 7.2.d.(ii), the Fair Market
Value of the Company shall be mutually determined by the Offering
Member, on the one hand, and the Company and the Remaining
Members who are eligible and interested in exercising its, his or
their Option(s) (collectively, the "Purchaser"), on the other
hand, within thirty (30) days following the Notice Date (the
"Mutual Agreement Period"). If the parties are unable in good
95
faith to mutually agree upon the Fair Market Value within the
Mutual Agreement Period, the Fair Market Value shall be
determined in accordance with the provisions of Section
7.2.d.(ii).
(ii) If the Offering Member and the Purchaser are unable to agree upon
the Fair Market Value within the Mutual Agreement Period, then
the Offering Member and the Purchaser (if there is more than one
Purchaser, the selection shall be determined by holders of the
majority of the Percentage Interests held by such Purchasers)
shall, within fifteen (15) days following the expiration of the
Mutual Agreement Period each designate a separate, independent
appraiser who shall determine the Fair Market Value of the
Company within forty-five (45) days following the expiration of
the Mutual Agreement Period (the "Initial Appraisal Period"). If
the amounts of the Fair Market Value determined by the two (2)
independent appraisals shall be within ten percent (10%) of each
other, the average of the two appraisals shall be the Fair Market
Value as at the applicable Valuation Date. If the amounts of the
Fair Market Value determined by the two (2) independent
appraisals shall not be within ten percent (10%) of each other,
then the two (2) independent appraisers shall, within ten (10)
days following the expiration of the Initial Appraisal Period,
jointly select a third independent appraiser, and the average of
the two closest appraisals shall be the Fair Market Value on the
applicable Valuation Date. All costs of the appraisal of the Fair
Market Value of the Company shall be shared equally by the
Offering Member and the Purchaser, and pro rata among the
Purchasers (in proportion to the number of Membership Interests
being purchased by each such Purchaser) in the case of more than
one Purchaser.
e. Valuation Date. The Purchase Price shall be determined in the
case of a purchase and sale of Membership Interests as of the
last day of the month in which the Notice Date occurs. The
Closing shall take place within sixty (60) days after
determination of the Purchase Price.
f. Payment. The Purchase Price for the Membership Interests
purchased under this Section 7.2 hereof shall be paid in full in
cash at the closing
7.3. Securities Law Limitations. Notwithstanding anything in this Agreement, no
Membership Interests may be Transferred except as permitted under the Securities
Act and applicable state securities laws or exemption therefrom. Further, no
Transfer of any Membership Interests or portions thereof shall be permitted
without the Member first having presented to the Company or its counsel both (a)
a written opinion of securities counsel, retained and compensated by the Member
but reasonably satisfactory to counsel for the Company, describing the proposed
Transfer and stating such counsel's opinion that the Transfer will not violate
any of the registration provisions of the Securities Act, any applicable state
securities law or the respective rules thereunder, and (b) such additional
documents or written assurances as the Company may reasonably request to support
the Member's request for Transfer.
7.4. Agreement with Transferees. In the event that, pursuant to the provisions
of this Section 7, without regard as to whether any prior written consent of the
majority of the non-transferring Members as set forth in Section 7.1. is
required, any Member (as "Transferor") shall Transfer any Membership Interests
to any Person (a "Transferee"), no such Transfer shall be made or shall be
effective to make such Transferee a Member or entitle such Transferee to any
benefits or rights hereunder until the proposed Transferee agrees in writing to
(i) assume and be bound by all of the terms and provisions of this Agreement and
all of the obligations of the transferring Member, and (ii) be subject to all
the restrictions to which the transferring Member is subject under the terms of
this Agreement and any further agreements with respect to the Company property
or as contemplated by this Agreement to which the Transferor is then subject or
is then required to be a party.
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7.5. Transfer in the Event of Contribution Shortfall. If either (a) the Franklin
Covey Program Income achieved for the second Fiscal Year of the Company does not
equal or exceed 50% of the Program Contribution Threshold, (b) the Franklin
Covey Program Income achieved for the third Fiscal Year of the Company does not
equal or exceed 75% of the Program Contribution Threshold, or (c) the Franklin
Covey Program Income achieved for the fourth Fiscal Year of the Company does not
equal or exceed 100% of the Program Contribution Threshold, then AMS shall have
the right, upon delivery of written notice to the Company and Franklin Covey
(the "Shortfall Buyout Notice"), to either (i) purchase Franklin Covey's
Membership Interest or (ii) require Franklin Covey to purchase AMS' Membership
Interest, in each case upon the terms set forth below. The purchase price of a
Member's Membership Interest pursuant to this Section 7.5 shall equal the
product of (x) the Modified Fair Market Value of the Company multiplied by (y)
the result of a fraction, the numerator of which shall be the Program Income of
the selling Member during the most recently completed Fiscal Year of the
Company, and the denominator of which shall be the Total Member Program Income
during such Fiscal Year. The provisions of Section 7.7 shall apply in connection
with a purchase and sale of Membership Interests pursuant to this Section 7.5.
The closing of the transactions contemplated by this Section 7.5 shall occur no
later than ninety (90) days following the date of delivery of the Shortfall
Buyout Notice. The purchase price for the Membership Interests purchased under
this Section 7.5 shall be paid in full in cash at the closing.
7.6. Transfer in the Event of Deadlock.
a. Notwithstanding anything in this Agreement to the contrary, at any
time from and after the occurrence and during the continuance for at
least sixty (60) days of a Deadlock, each Member shall have the right
either to purchase all, but not less than all, of the Membership
Interests of the other Member and any successors or permitted
transferees (the "Right to Purchase") or to sell all, but not less
than all, of the Membership Interests held by it, its successors and
permitted assigns to the other Member (the "Right to Sell"). A Member
(the "Exercising Member") may elect to exercise either the Right to
Purchase or the Right to Sell by delivering written notice of such
election (the "Election Notice") to the other Member (the
"Non-Exercising Member") which Election Notice must make specific
reference to this Section 7.6; provided, however, that such Election
Notice shall be without effect if the Exercising Member has received
an Election Notice from the Non-Exercising Member prior to the time
that the Non-Exercising Member has received the Election Notice from
the Exercising Member and such prior Election Notice then remains in
effect. In addition, the provisions of this Section 7.6 cannot be
invoked by any Member at any time during which the provisions of
Section 7.2 or Section 7.5 are in process or at any time during which
such Member is a Defaulting Member (as defined in Section 8.1). The
Election Notice shall state the price per Membership Interest at, and
the terms and conditions upon which, the Exercising Member is
exercising the Right to Purchase or the right to Sell.
b. The Non-Exercising Member shall, within thirty (30) days of receipt of
an Election Notice setting forth the Exercising Member's intent to
purchase all Membership Interests either (i) deliver to such
Exercising Member a signed, written election (the "Response Purchase
Election") to purchase all the Membership Interests held by the
Exercising Member at the price per Membership Interest and upon the
terms and conditions set forth in the Election Notice or (ii) be
deemed to have accepted the Exercising Member's offer to purchase and
be obligated to sell all Membership Interests held by such
Non-Exercising Member at the price per Membership Interest and upon
the terms and conditions set forth in such Election Notice. The
Exercising Member shall be obligated pursuant to any Response Purchase
Election to sell all of such Member's Membership Interests to such
Non-Exercising Member at the price and otherwise upon the terms and
conditions set forth in the Election Notice.
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c. The Non-Exercising Member shall, within thirty (30) days of receipt of
an Election Notice setting forth the Exercising Member's intent to
sell all Membership Interests, either (i) deliver to such Exercising
Member a signed, written election (the "Response Sale Election") to
sell all Membership Interests held by such Non-Exercising Member, its
successors and permitted assigns at the price per Membership Interest
and otherwise upon the terms and conditions set forth in such Election
Notice or (ii) be deemed to have accepted the Exercising Member's
offer to sell and be obligated to purchase all Membership Interests
held by the Exercising Member at the price per Membership Interest and
upon the terms and conditions set forth in such Election Notice. The
Exercising Member shall be obligated pursuant to any Response Sale
Election to purchase all of such Membership Interests of such
Non-Exercising Member at the price and otherwise upon the terms and
conditions set forth in the Election Notice.
d. The provisions of Section 7.7 hereof shall apply in connection with
any purchase and sale of Membership Interests pursuant to this Section
7.6, and all Election Notices, Response Purchase Elections, and
Response Sale Elections (and the purchase prices set forth therein)
shall account for the effect of Section 7.7.
e. The closing of the transactions contemplated by Subsections 7.6 above
shall occur no later than ninety (90) days following the date of
delivery of the Election Notice.
7.7. Retrieval of Proprietary Coaching Business. In connection with any sale by
a Member of 100% of its Membership Interests, including, but not limited to, a
transaction pursuant to Sections 7.2, 7.5, 7.6 or 8.2, or in the event of a
dissolution under Section 8.3, Company shall reconvey to the selling Member (or
each respective Member, in the case of dissolution), and such Member shall
assume exclusive operation and control over, all of the business activities and
related intellectual property rights relating to the proprietary programs of the
selling Member (the "Retrieved Business"). The Company shall provide the selling
Member with all reasonable assistance necessary to effect an orderly conveyance
and transition of the Retrieved Business over to the operation and control of
the selling Member and/or its designated coaching vendor. The Company shall
grant each Member a non-exclusive, perpetual, worldwide, royalty free license
and right to use, own and enjoy all software, technology and other Confidential
Information of the Company in connection with servicing the Retrieved Business
and other business activities and programs of the selling Member. The above
license shall not be assignable except in connection with the sale by a Member
of its business or as necessary to facilitate any contract servicing arrangement
for coaching with a third party. Any new developments and/or derivative works
created after a Member has taken back Retrieved Business under this Section 7.7
shall be the exclusive property of the developing party.
8. DEFAULTS AND DISSOLUTION
8.1. Events of Default. The occurrence of any of the following events shall
constitute an event of default (an "Event of Default") hereunder on the part of
the Member with respect to whom such event occurs (a "Defaulting Member") if (i)
the default arises solely from the non-payment of monies and remains uncured for
thirty (30) days following receipt of written notice of such default from an
Officer or Manager unless terms for payment of the amount due have otherwise
been mutually agreed upon by the Defaulting Member and the Company, or (ii) if
the default arises from something other than the non-payment of money and
remains uncured for a period of sixty (60) days following receipt of written
notice of such default from the Management Board (provided, however, that a
non-monetary default shall not constitute an Event of Default if it is not
reasonably curable within such sixty (60) day period and the Defaulting Member
commences curative action within such sixty (60) day period and thereafter
diligently proceeds to cure such default within a period not to exceed one
hundred twenty (120) days from the date of its receipt of the original notice of
default):
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a. the violation by a Member of any of the restrictions set forth in
Sections 3.1, 3.2, or 7 of this Agreement, or any other material
obligation of such Member under this Agreement Member;
b. such Member becomes Bankrupt
c. attachment, execution or other judicial seizure of all or any
substantial part of a Member's assets or of a Member's Membership
Interests, or any part thereof, if such attachment, execution or
seizure remains in effect after the cure period;
d. default in the timely performance of, or any failure to timely comply
with, any agreement, obligation or undertaking of a Member set forth
in this Agreement; and
e. written withdrawal from the Company by any Member except as permitted
under the terms hereof.
8.2. Remedies. Upon the occurrence of an Event of Default, the Company shall
have the right (but not the obligation), within sixty (60) days after the Event
of Default, to elect to purchase all, but not less than all, of the Membership
Interests held by the Defaulting Member at a price equal to the Buy Out Amount.
The Company may exercise this right by the Deemed Delivery of written notice to
the Defaulting Member (a "Redemption Notice") stating the Company's desire to
purchase the Defaulting Member's Membership Interests pursuant to this Section.
If such Redemption Notice is given, the Defaulting Member shall sell all of the
Membership Interests then held by the Defaulting Member for the Buy Out Amount.
The Company's redemption right as provided in this Section 8.2 is in addition to
any other rights of the Company or the Members under this Agreement or
otherwise, and the exercise by the Company's of its redemption right will not be
an election of remedies. The Purchase Price for the Membership Interests
purchased under this Section 8.2 hereof shall be paid in full in cash at the
closing.
8.3. Causes of Dissolution. The Company shall be dissolved only in the event:
a. Of the death, removal, liquidation, dissolution, withdrawal or
bankruptcy of the final Member (each a "Member's Withdrawal Event");
b. That all or substantially all of the Company's property, other than
cash and other liquid assets, is sold or otherwise transferred to any
Person which is not Controlled by the Company;
c. That the Members holding at least eighty percent (80%) of the
Percentage Interests vote to terminate the Company;
d. That there is a general assignment of the assets of the Company for
the benefit of its creditors, or the adjudication of the Company as
Bankrupt; or
e. That the Company is dissolved by operation of law.
8.4. Procedure in Dissolution and Liquidation.
a. Except as provided in Section 10.1, herein, upon dissolution of the
Company pursuant to Section 8.3, the Management Board shall
immediately commence to wind up the affairs of and shall proceed with
reasonable promptness to liquidate the business of the Company.
b. During the period of the winding up of the affairs of the Company, the
rights and obligations of the Management Board set forth herein with
respect to the management of the Company shall continue.
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c. The assets of the Company shall be applied or distributed in
liquidation in the following order of priority:
(1) In payment of debts and obligations of the Company owed to third
parties;
(2) In payment of debts and obligations of the Company to any Member
made in accordance with the terms of this Agreement;
(3) To each Member, pro rata, in an amount equal to their respective
unpaid Preference Return amounts;
(4) To the Members pro rata, in accordance with positive Capital
Account balances, except as provided in Section 8.5 below; and
(5) Any excess to the Members in proportion to their respective
Percentage Interests.
8.5. Distribution of Contributed Assets. Notwithstanding any other provision of
this Agreement, in the event of dissolution of the Company, each tangible or
intangible asset of the Company originally contributed by the Members pursuant
to their Contribution Agreements (other than coaching know-how, software and
other intellectual property and Confidential Information, the disposition of
which is governed by Section 7.7) shall be distributed to and become the
exclusive property of the Member that originally contributed said assets to the
Company. Such distributed assets shall be valued at their respective Fair Market
Value as of the date of distribution and shall credited towards the distribution
priorities set forth in Section 8.4
9. AMENDMENT
9.1. Amendment. This Agreement may not be amended, altered or modified except by
a writing signed by Members holding at least eighty percent (80%) of the total
number of Percentage Interests.
10. DISPUTES
10.1. Escalation. Any dispute or controversy between the Members arising out of
this Agreement or any document, instrument or agreement executed and delivered
pursuant hereto (a "Dispute"), shall first be referred to the Management Board
for discussion and resolution. Each party shall bear its own costs in connection
with such discussions. If the Management Board is unable to resolve the dispute
in fifteen (15) business days, then the matter shall be submitted to the
respective Chief Executive Officers of each Member for resolution. If the Chief
Executive Officers are unable to resolve the matter within ten (10) business
days, then the matter will be handled pursuant to Sections 10.1 and, if
necessary 10.2.
10.2. Mediation. In the event a Dispute is not resolved by the Members following
the procedures in Section 10.1, upon the demand of either Member, the matter
shall be submitted to non-binding mediation in the State of Delaware, or such
other location as the parties may agree, under the mediation rules of the
American Arbitration Association. Each party shall bear its own costs in
connection with such mediation and shall bear one-half of the cost of the
American Arbitration Association and the mediator.
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10.3. Arbitration.
a. In the event that a Dispute is not resolved by non-binding mediation
pursuant to Section 10.2 above, such dispute shall be submitted to binding
arbitration in the State of Delaware, or such other location as the parties
may agree.
b. Either party requesting arbitration shall serve a written demand for
arbitration on the other party by registered or certified mail. The demand
shall set forth a statement of the nature of the dispute, the amount
involved and the remedies sought. Each party shall have the right to be
represented by counsel and shall have the right only to such expedited
discovery as the arbitrator may authorize upon a showing of good cause.
Except as specifically provided herein, the arbitration shall be conducted
by and in accordance with the commercial rules of the American Arbitration
Association, and the arbitrator's ruling shall be in accordance with law
and the terms of this Agreement. The arbitrator shall not have the power to
amend this Agreement in any respect.
c. No later than twenty (20) calendar days after a demand for arbitration is
served, the Members shall jointly select and appoint a disinterested person
to act as the arbitrator. In the event that the Members do not agree on the
selection of an arbitrator, each Member shall select an arbitrator within
ten (10) days after the date on which the Members do not agree on the
selection of a sole arbitrator and the two arbitrators so selected shall
select a third arbitrator within ten (10) days after the Members select
their arbitrators; the provisions set forth herein regarding the single
arbitrator shall apply to the three arbitrators so selected. Any arbitrator
designated hereunder shall not now or in the three years preceding such
arbitration be an employee, consultant, officer, director or shareholder of
any party hereto or any Affiliate of any Member or have now or in the three
years preceding such arbitration any business relationship with any Member
or any Affiliate of any Member.
d. No later than ten (10) calendar days after the arbitrator is appointed, the
arbitrator shall schedule the arbitration for a hearing to commence on a
mutually convenient date. The hearing shall commence no later than thirty
(30) calendar days after the arbitrator is appointed and shall continue
from day to day until completed.
e. Each Member shall direct the arbitrator to use his or her best efforts to
rule on each disputed issue within 30 days after the completion of the
hearings described in paragraph (d) above. The determination of the
arbitrator as to the resolution of any dispute shall be binding and
conclusive upon all Members; provided, that the arbitrator may not award
any punitive damages. All rulings of the arbitrator shall be in writing,
shall set forth the basis for the decision and shall be delivered to the
Members.
f. The prevailing Member in any arbitration shall be entitled to an award of
reasonable attorneys' fees incurred in connection with the arbitration and
the disputed issues with respect thereto. The non-prevailing Member shall
pay such fees, together with the fees of the arbitrator and the costs and
expenses of the arbitration. For purposes hereof, a Member seeking payment
of any amount in arbitration shall be deemed to be the prevailing Member if
it is determined that such party is entitled to receive at least 75% of the
payment initially claimed by it to be due to such Member in such
arbitration, and the Member from which such payment is sought shall be
deemed to be the "prevailing Member" if the other Member is not so deemed
to be the prevailing Member.
g. Judgment on any arbitration award may be entered by any court having
jurisdiction over the parties and subject matter. Notwithstanding anything
herein to the contrary, no award of the arbitrator shall preclude either
Member from invoking the provisions of Section 7.6.
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11. GENERAL PROVISIONS
11.1. Entire Agreement. This Agreement constitutes the entire agreement among
the Members, and supersedes all agreements, representations, warranties,
statements, promises and understandings, whether oral or written, with respect
to the subject matter hereof. None of the Members shall be bound by nor charged
with any oral or written agreements, representations, warranties, statements,
promises or understandings with respect to the subject matter hereof not
specifically set forth in this Agreement or the exhibits hereto.
11.2. Notices.
a. Communications given in connection with this Agreement shall be deemed
adequately given only if in writing to the Person for whom such
Communications are intended and sent by (1) personal delivery, (2)
first class registered or certified mail, postage prepaid, return
receipt requested, (3) facsimile, (4) nationally recognized overnight
delivery service or (5) other means at least as fast and reliable as
first class mail. The addresses and facsimile numbers required by this
Agreement, unless changed pursuant to Section 12.2.c, are:
(1) To the Company or the Management Board:
c/o Franklin Covey Coaching, L.L.C.
2200 West Parkway Blvd. Second Floor
Salt Lake City, Utah 84119
(2) To Members:
As set forth on Exhibit A hereto.
b. All Communications shall be effective upon such Communication's Deemed
Delivery only.
c. By giving to the Company at least ten (10) days' written notice
thereof, Persons shall have the right from time to time and at any
time during the term of this Agreement to change their respective
addressee, address and/or facsimile number for notices, and each shall
have the right to specify as its address and/or facsimile number for
notices any other address and/or facsimile number.
11.3. Validity. In the event that any provision of this Agreement shall be held
to be invalid or unenforceable, the same shall not affect in any respect
whatsoever the validity or enforceability of the remainder of this Agreement.
11.4. Attorneys' Fees. Should any arbitration or litigation be commenced by the
Company against any Member or between the Members hereto or their
representatives, or should any Member institute any proceeding in a bankruptcy
or similar court which has jurisdiction over any other Member hereto or any or
all of such Member's property or assets concerning any provision of this
Agreement or the rights and duties of any Person or entity in relation thereto,
the party or parties prevailing in such litigation shall be entitled, in
addition to such other relief as may be granted, to a reasonable sum as and for
its or their attorneys' fees and court costs in such litigation which shall be
determined by the court in such litigation or in a separate action brought for
that purpose.
11.5. Survival of Rights. Except as provided herein to the contrary, this
Agreement shall be binding upon and inure to the benefit of the Members
signatory hereto, and their respective permitted successors and assigns.
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11.6. No Strict Construction. The language used in this Agreement will be deemed
to be the language chosen by the Members hereto to express their collective
mutual intent. This Agreement shall be construed as if drafted jointly by the
Members hereto, and no rule of strict construction will be applied against any
Person.
11.7. Governing Law; Jurisdiction. The Agreement shall be governed by and
construed exclusively in accordance with laws of the State of Delaware without
regard to the conflicts of law principles thereof.
11.8. No Partition. No Member shall have the right to, and each Member hereby
covenants that it will not, bring any action to dissolve, terminate or liquidate
the Company, except as provided in this Agreement, and no Member at any time
shall have the right to petition or to take any action to subject the Company
assets or any part thereof to the authority of any court of bankruptcy,
insolvency, receivership or similar proceeding, unless the same is approved by a
vote of Members.
11.9. Waiver. No consent or waiver, express or implied, by a Member to or of any
breach or default by another Member in the performance by such other Member of
its obligations hereunder shall be deemed or construed to be a consent or waiver
to or of any other breach or default in the performance by such other Member of
the same or any other obligations of such other Member hereunder. A failure on
the part of a Member to complain of any act or failure to act on the part of
another Member or a failure to declare the other Member in default, irrespective
of how long such failure continues, shall not constitute a waiver by such Member
of its rights hereunder unless such default is cured prior to the date upon
which the non-defaulting Member declares such default. The giving of consent by
a Member in any one instance shall not constitute a waiver by such Member in any
other instance and shall not limit or waive the necessity to obtain such
Member's consent in any future instance.
11.10. Waiver of Notice. Whenever any notice whatever is required to be given to
any Person under the provisions of this Agreement or under the provisions of the
Articles or under the Company Act, a waiver thereof in writing, signed by the
Person or Persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
Attendance at any meeting shall constitute waiver of notice thereof unless the
Person at the meeting objects to the holding of the meeting because proper
notice was not given.
11.11. Remedies Not Exclusive. The rights and remedies of the Members and the
Company hereunder shall not be mutually exclusive, i.e., the exercise of one or
more of the provisions hereof shall not preclude the exercise of any other
provisions hereof. Each of the Members confirms that damages at law will be an
inadequate remedy for a breach or threatened breach of this Agreement and agrees
that, in the event of a breach or threatened breach of any provision hereof, the
respective rights and obligations hereunder shall be enforceable by specific
performance, injunction or other equitable remedy, but nothing herein contained
is intended to, nor shall it, limit or affect any rights at law or by statute or
otherwise of any Member aggrieved as against another for a breach or threatened
breach of any provision hereof, it being the intention of this Section to make
clear the agreement of the Members that the respective rights and obligations of
the Members hereunder shall be enforceable in equity as at law or otherwise.
11.12. Construction. All personal pronouns used in this Agreement, whether used
in the masculine, feminine or neuter gender, shall include all other genders;
and the singular shall include the plural and vice versa. Titles of Sections and
Subsections are for convenience only, and neither limit nor amplify the
provisions of this Agreement itself. References to Sections or Subsections shall
refer to Sections or Subsections of this Agreement, unless otherwise indicated.
The use herein of the word "including," when following any general statement,
term or matter, shall not be construed to limit such statement, term or matter
to the specific items or matters set forth immediately following such word or to
103
similar items or matters, whether or not non-limiting language (such as "without
limitation," or "but not limited to," or words of similar import) is used with
reference thereto, but rather shall be deemed to refer to all other items or
matters that could reasonably fall within the broadest possible scope of such
general statement, term or matter. For the purposes of this Agreement, "and/or"
means one or the other or both, or anyone or more or all, of the things or
Persons in connection with which the conjunction is used.
11.13. Incorporation by Reference. Any exhibits referred to herein are those
attached to this Agreement and shall be deemed to be incorporated as a part of
this Agreement.
11.14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
shall constitute one and the same agreement.
11.15. Further Assurances. Each party hereto agrees to do all acts and things,
and to make, execute and deliver such written instruments, as shall from time to
time be reasonably required to carry out the terms and provisions of this
Agreement.
11.16. No Broker's Fees. No broker's fees or other such fees or commissions
shall be payable by the Company with respect to this Agreement or any of the
transactions pursuant to which the Members make their initial capital
contributions to the Company, and each Member agrees to and shall indemnify and
hold harmless the Company against and from any such obligations to which the
Member has committed itself or the Company.
11.17. No Third Party Rights. This Agreement shall not (directly, indirectly,
contingently or otherwise) confer or be construed as conferring any rights or
benefits on any Person that is not a named Member, the holder directly or
indirectly of Membership Interests or a permitted Transferee of a Member
hereunder.
IN WITNESS WHEREOF, this Agreement is executed as of the date first stated
above.
AMS DIRECT, INC. FRANKLIN COVEY CO.
By: /s/ MARK S. HOLECEK By: /s/ VAL JOHN CHRISTENSEN
---------------------------------- -------------------------------------
Mark S. Holecek, President Val John Christensen, Executive
Vice President/General Counsel
The following Persons hereby join in and agree to be bound (to the same
extent as the Affiliate of such Person who is a Member) by Sections 3.1 and 3.2
of this Agreement:
FRANKLIN COVEY CLIENT SALES, INC.
By:
-------------------------------------------------
Title:
----------------------------------------------
AMERICAN MARKETING SYSTEMS, INC.
By:
-------------------------------------------------
Title
-----------------------------------------------
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EXHIBIT A
MEMBERS
THIS SCHEDULE MAY BE AMENDED FROM TIME TO TIME WITH THE REQUIRED CONSENT OF THE
MEMBERS, IF ANY, TO REFLECT THE ADDITION OF NEW MEMBERS, THE ISSUANCE OF NEW
MEMBERSHIP INTERESTS, THE SALE OR EXCHANGE OF MEMBERSHIP INTERESTS, OR OTHER
SHIFTS OF MEMBERSHIP INTERESTS PROVIDED ALL SUCH CHANGES ARE PURSUANT TO THE
AGREEMENT OR A CHANGE OF ADDRESS OR FACSIMILE NUMBER OF A PERSON FOR WHICH
NOTICE WAS GIVEN TO THE COMPANY PURSUANT TO THIS AGREEMENT.
Facsimile Initial Units Percentage
Name and Address Number Capital Contribution Interest
- ---------------- -------------- -------------------- ------- ---------
AMS Direct (630) 382-3282 Those certain customer lists 50 50%
7020 High Grove Boulevard and related exclusive
Burr Ridge, Illinois 60521 marketing rights as provided
in that certain Amended
and Restated Marketing
Agreement between AMS
and the Company as
provided in that
certain Contribution
Agreement between
Franklin Covey and the
Company
Franklin Covey Co. (801) 817-8723 That certain training 50 50%
2200 West Parkway Boulevard program and coaching
Salt Lake City, Utah 84119 services business and all
(801) 975-1776 related assets and
liabilities (as
reflected in the
financial statements of
Franklin Covey's
personal coaching
division for the year
ending 8/31/00), as
provided in that
certain Contribution
Agreement between
Franklin Covey and the
Company
Total 100 100%
=== ====
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EXHIBIT B
OFFICERS
Chairman and Chief Executive Officer -
-----------------------------------
President .................. -
-----------------------------------
Chief Operating Officer............. -
-----------------------------------
Vice Presidents .................. -
-----------------------------------
..................
Secretary .................. -
-----------------------------------
Treasurer .................. -
-----------------------------------
Assistant Secretary................. -
-----------------------------------
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EXHIBIT C
BYLAWS
This Exhibit C sets forth the Bylaws of Franklin Covey Coaching, L.L.C. (the
"Company") and shall constitute additional provisions under that certain Limited
Liability Company Agreement of the Company to which it is attached (the
"Agreement"). Capitalized terms used but not defined herein shall have the
meanings ascribed thereto in the Agreement.
ARTICLE I
1. MEETINGS OF MEMBERS
1.1 Meetings of Members. Meetings of the Members may be held at such place,
either within or without the State of Utah, as provided in resolutions of the
Management Board. In the absence of any such resolution, all meetings shall be
held at the registered office of the Company in the State of Utah.
1.2 Annual Meeting. An annual meeting of the Members shall be held on or before
October 31st of each year beginning with the year 2000 for the purpose of
electing any new Managers and for the transaction of such other business as may
come before the meeting. Until such time as all Members agree otherwise, and
notwithstanding any other provision to the contrary, the Management Board shall
be comprised of those persons and appointees as set forth in Section 5.2(b) of
the Agreement. If the election of the Managers shall not be held on or before
the day designated herein for any annual meeting, or at any adjournment thereof,
the Management Board shall cause the election to be held at a special meeting of
the Members called as soon thereafter as may be convenient.
1.3 Notice. Written notice stating the place, day and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called, shall be delivered not less than ten (10) nor more than sixty (60)
days before the date of the meeting, or in the case of a merger, consolidation,
Unit exchange, dissolution or sale, lease or exchange of all or substantial all
of the Company's assets, not less than twenty (20) nor more than sixty (60) days
before the date of the meeting, by or at the direction of the Management Board
to each Member of record entitled to vote at such meeting.
1.4 Fixing of Record Date. For the purpose of determining Members entitled to
notice of or to vote at any meeting of Members, or Members entitled to receive
payment of any distribution, or in order to make a determination of Members for
any other proper purpose, the Management Board may fix in advance a date as the
record date for any such determination of Members, such date in any case to be
not more than sixty (60) days immediately preceding the date of the meeting or
payment, and, for a meeting of Members, not less than ten (10) days, or, in the
case of a merger, consolidation, Unit exchange, dissolution or sale, lease or
exchange of all or substantially all of the Company's assets, not less than
twenty (20) days immediately preceding such meeting. If no record date is fixed
for the determination of Members entitled to notice of or to vote at a meeting
of Members, or Members entitled to receive payment of a distribution, the date
on which notice of the meeting is mailed or the date on which the resolution of
the Management Board declaring such distribution is adopted, as the case may be,
shall be the record date for such determination of Members. When a determination
of Members entitled to vote at any meeting of Members has been made as provided
in this Section 1.4, such determination shall apply to any adjournment thereof.
1.5 Voting Lists. The Officer or agent having charge of the transfer books and
records for Units of the Company shall make, within twenty (20) days after the
record date for a meeting of Members or ten (10) days before such meeting,
whichever is earlier, a complete list of the Members entitled to vote at such
meeting, arranged in alphabetical order, with the address of and the number of
Units held by each, which list, for a period of ten (10) days prior to such
meeting, shall be kept on file at the Company's Office and shall be subject to
inspection by any Member, and to copying at the Member's expense, at any time
during usual business hours. Such list shall also be produced and kept open at
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the time and place of the meeting and shall be subject to the inspection of any
Member during the whole time of the meeting. The original transfer book, or a
duplicate thereof kept in the State, shall be prima facie evidence as to who are
the Members entitled to examine such list or transfer book, or to vote at any
meeting of Members. Failure to comply with the requirements of this Section 1.5
shall not affect the validity of any action taken at such meeting.
1.6 Act of Members. The act of the Members holding a majority of the Percentage
Interests held by Members entitled to vote on the issue present at a meeting at
which a quorum is present shall be the act of the Members, except where
otherwise provided by law or by the Articles or by the Agreement. A "quorum" for
such purposes shall be the presence, in person, by communication equipment, or
by proxy, of Members holding a majority of the Percentage Interests in the
Company which have been issued at the time of the meeting.
1.7 Participation by Communication Equipment. Members may participate in and act
at any meeting of the Members through the use of a conference telephone or other
communication equipment by means of which all Persons participating in the
meeting can hear and communicate with each other. Participation in such meeting
by communication equipment shall constitute attendance and the presence in
person at the meeting of the Person or Persons so participating.
1.8 Proxies. A Member may appoint a proxy to vote or otherwise act for it by
signing an appointment form and delivering it to the Person so appointed. No
proxy shall be valid after the expiration of eleven (11) months from the date
thereof unless otherwise provided in the proxy. Every proxy continues in full
force and effect until revoked by the Member executing it prior to the vote
pursuant thereto, except as otherwise provided in this Section 1.8. Such
revocation may be effected by a writing delivered to the Company stating that
the proxy is revoked or by a subsequent proxy executed by, or by attendance at
the meeting and voting in person by, the Member executing the proxy. The dates
contained on the forms of proxy presumptively determine the order of execution,
regardless of any postmark dates on envelopes in which they are mailed. An
appointment of a proxy is revocable by the Member unless the appointment form
conspicuously states that it is irrevocable and the appointment is coupled with
an interest. Unless the appointment of a proxy contains an express limitation on
the proxy's authority, the Company may accept the proxy's vote or other action
as that of the Member making the appointment.
1.9 Action by Consent. Any action required to be taken at a meeting of the
Members or any other action which may be taken at a meeting of the Members may
be taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by (a) all of the Members entitled to vote with respect
to the subject matter thereof, or (b) the Members having not less than the
number of votes that would be necessary to authorize or take such action at a
meeting at which all Members entitled to vote thereon were present and voting.
Such consents may be given in writing on and/or by facsimiles, copies or other
reproduction or counterpart of the resolution stating the action to which
consent is given.
1.10 Voting. Each Member shall have a number of votes equal to such Member's
Percentage Interest.
ARTICLE II
MEETINGS OF MANAGERS
2.1 Election and Term of Office. The Managers shall be elected by the Members by
written action taken and/or meetings held for such purpose, in each case subject
to Section 5.2 of the Agreement. A Manager shall hold office until his or her
successor shall have been duly elected and shall have qualified, until his or
her death or until he or she shall resign or shall have been removed in the
manner hereinafter provided. Election or appointment of a Manager shall not of
itself create contract rights.
108
2.2 Removal. Any Manager may be removed at any time, with or without cause, but
only by the class of Members that originally appointed such Manager.
2.3 Vacancies. A vacancy in any Manager position because of death, resignation,
removal, disqualification, or otherwise, may only be filled by the class of
Members that originally appointed such Manager.
2.4 Meetings of Managers. Meetings of the Management Board may be held at such
place, either within or without the State. Unless otherwise provided in a
meeting notice, all meetings shall be held at the registered office of the
Company in the State.
2.5 Annual Meeting. An annual meeting of the Management Board shall be held
immediately following the annual meeting of the Members.
2.6 Notice. Written notice stating the place, day and hour of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called, shall be delivered not less than ten (10) nor more than sixty (60)
days before the date of the meeting, or in the case of a merger, consolidation,
Unit exchange, dissolution or sale, lease or exchange of all or substantial all
of the Company's assets, not less than twenty (20) nor more than sixty (60) days
before the date of the meeting, to each Member of record entitled to vote at
such meeting.
2.7 Act of Managers. The act of the majority of the Managers entitled to vote on
the issue present at a meeting at which a quorum is present shall be the act of
the Management Board, except where otherwise provided by law or by the Articles
or by the Agreement. A "quorum" for such purposes shall be the presence, in
person, by communication equipment, or by proxy, of a majority of the Managers.
When the phrases "approved by the Management Board", "approval of the Management
Board" or "with the consent of the Management Board" are used in the Agreement,
such phrases shall mean approval at a Management Board meeting in which the
Managers may attend in person or telephonically or in writing by a majority of
the Managers. In the event of any need for approval or other action by the
Management Board in the absence of a meeting, Managers shall use their best
efforts to respond within a reasonable period of time under the circumstances
for which the approval is being sought. Decisions other than Major Decisions may
also, but need not, be submitted to the Management Board by any Manager.
2.8 Participation by Communication Equipment. Managers may participate in and
act at any meeting of the Management Board through the use of a conference
telephone or other communication equipment by means of which all Persons
participating in the meeting can hear and communicate with each other.
Participation in such meeting by communication equipment shall constitute
attendance and the presence in person at the meeting of the Person or Persons so
participating.
2.9 Action by Consent. Any action required to be taken at a meeting of the
Management Board or any other action which may be taken at a meeting of the
Managers may be taken without a meeting if a consent in writing, setting forth
the action so taken, shall be signed by (a) all of the Managers entitled to vote
with respect to the subject matter thereof, or (b) the Managers having not less
than the number of votes that would be necessary to authorize or take such
action at a meeting at which all Managers entitled to vote thereon were present
and voting. Such consents may be given in writing on and/or by facsimiles,
copies or other reproduction or counterpart of the resolution stating the action
to which consent is given.
2.10 Committees of Managers. The Management Board may, by resolution passed by a
majority of Managers, designate one or more committees, each committee to
consist of one or more of the Managers, which, to the extent provided in the
resolution and not otherwise restricted by statute or the Agreement, shall have
and may exercise all the powers and authority of the Management Board in the
management of the business and affairs of the Company. Each committee shall keep
109
regular minutes of its meetings and report the same to the Board of Directors
when required. No committee of the Management Board shall be authorized to
approve a Major Decision unless expressly so authorized by the Management Board
in writing.
2.11 Compensation. No Manager shall receive compensation from the Company.
ARTICLE III
OFFICERS
3.1 Appointment of Officers. The Management Board may select such Officers as
its deems necessary or desirable for the effective management of the Company and
the pursuit of the Company's business.
3.2 Number. The Officers of the Company may be a Chairman and Chief Executive
Officer, President, Chief Operating Officer, one or more Vice-Presidents (the
number thereof to be determined by the Management Board), a Secretary, and a
Treasurer, and such Assistant Secretaries, Assistant Treasurers or other
Officers as may be elected or appointed by the Management Board. Any two or more
offices may be held by the same Person. All Officers and agents of the Company
shall have such express authority and perform such duties in the management of
the property and affairs of the Company as may be provided herein, or as may be
determined by resolution of the Management Board not inconsistent with this
Agreement, and such implied authority as is recognized by the common law from
time to time.
3.3 Election and Term of Office. The Officers of the Company shall be elected by
the Management Board by written action taken and/or meetings held for such
purpose; provided, however, that the Chairman of the Management Board shall be
elected for two year terms. An Officer shall hold office until his or her
successor shall have been duly elected and shall have qualified, until his or
her death or until he or she shall resign or shall have been removed in the
manner hereinafter provided. Election or appointment of an Officer or agent
shall not of itself create contract rights.
3.4 Removal. Any Officer or agent elected or appointed by the Management Board
may be removed by the Management Board whenever in its judgment the best
interests of the Company would be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the Person so removed.
Removal of the President may be accomplished with the affirmative vote of a
majority of the Managers.
3.5 Vacancies. A vacancy in any office because of death, resignation, removal,
disqualification, or otherwise, or because of the creation of an office, may be
filled by the Management Board for the unexpired portion of the term; provided,
however, that a vacancy in the office of Chairman may only be filled by the
Members that appointed such Chairman.
3.6 The Chairman of the Board and Chief Executive Officer. The Chairman of the
Board shall preside at all meetings of the Management Board and shall see that
orders and resolutions of the Management Board are carried into effect. The
Chairman and Chief Executive Officer shall be the principal executive officer of
the Company and shall in general supervise and control all of the business and
affairs of the Company subject to the direction of the Management Board and
shall perform such other duties as may be assigned by the Management Board. The
Chairman of the Board shall also be the Chief Executive Officer and have a
two-year term. He or she may sign, with the Secretary or any other Officer of
the Company thereunto authorized by the Management Board, contracts or other
instruments which the Management Board has authorized to be executed on behalf
of the Company, except in cases where the signing and execution thereof shall be
expressly delegated by the Management Board or by this Agreement to some other
Officer or agent of the Company or to the Chairman and Chief Executive Officer
110
alone, or shall be required by law to be otherwise signed or executed; and in
general shall perform all duties incident to the office of Chairman and Chief
Executive Officer and such other duties as may be prescribed by the Management
Board from time to time.
3.7 The President. The President shall be an executive Officer of the Company
and, subject to the direction of the Chairman and Chief Executive Officer and
the control of the Management Board, shall in general supervise and control all
of the business and affairs of the Company. He or she may sign, with the
Secretary or any other Officer of the Company thereunto authorized by the
Management Board, contracts or other instruments which the Management Board has
authorized to be executed on behalf of the Company, except in cases where the
signing and execution thereof shall be expressly delegated by the Management
Board or by this Agreement to some other Officer or agent of the Company or to
the President alone, or shall be required by law to be otherwise signed or
executed; and in general shall perform all duties incident to the office of
President and such other duties as may be prescribed by the Management Board
from time to time.
3.8 The Chief Operating Officer. The Management Board shall designate whether
the President or some other party shall be the Chief Operating Officer of the
Company. If the President has not been designated as Chief Operating Officer,
the Chief Operating Officer shall have such duties and responsibilities, under
the general supervision of the President, as the President or Management Board
may from time to time prescribe.
3.9 The Vice-Presidents. In the absence of the President or in the event of his
or her inability or refusal to act, the Vice-President (or in the event there be
more than one Vice-President, the Vice-Presidents in the order designated, or in
the absence of any designation, then in the order of their election) shall
perform the duties of the President, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the President. Any
Vice-President may perform such other duties as from time to time may be
assigned to him or her by the President or by the Management Board.
3.10 The Secretary. The Secretary shall: (a) keep, or supervise and be
responsible for the keeping of, the minutes and records of all meetings and
official actions of the Members and of the Management Board, and any committees
of the Management Board in one or more books provided for that purpose; (b) see
that all notices of such meetings are duly given or waivers of notice obtained
in accordance with the provisions of this Agreement or as required by law; (c)
be custodian of the Company records; (d) keep a register of the post office
address of each Member which shall be furnished to the Secretary by such Member;
(e) have the authority to certify the Agreement, resolutions of the Management
Board and committees thereof, and other documents of the Company as true and
correct copies thereof; and (f) in general perform all duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him or her by the President or by the Management Board.
3.11 The Treasurer. If required by the Management Board, the Treasurer shall
give a bond for the faithful discharge of his or her duties in sum and with such
surety or sureties as the Management Board shall determine. He or she shall: (a)
have charge and custody of and be responsible for all funds and securities of
the Company; (b) receive and give receipts for moneys due and payable to the
Company from any source whatsoever, and deposit all such moneys in the name of
the Company in such banks, trust companies or other depositaries as shall be
selected by the Management Board; and (c) in general perform all the duties
incident to the office of Treasurer and such other duties as from time to time
may be assigned to him or her by the President or by the Management Board.
3.12 Assistant Secretaries and Assistant Treasurers. The Assistant Secretaries
as thereunto authorized by the Management Board may sign with the President or a
Vice-President certificates for Units of the Company, the issuance of which
shall have been authorized by a resolution of the Management Board. The
Assistant Treasurers shall respectively, if required by the Management Board,
give bonds for the faithful discharge of their duties in such sums and with such
sureties as the Management Board shall determine. The Assistant Secretaries and
111
Assistant Treasurers, in general, shall perform such duties and exercise such
authority as shall be assigned or granted to them by the Secretary or the
Treasurer, respectively, or by the President or the Management Board.
3.13 Compensation. Except as otherwise provided in any written employment
agreement duly executed on behalf of the Company and except as otherwise set
forth below, the compensation (including salaries and benefits) of the Officers
shall be fixed from time to time by resolution of the Management Board and no
Officer shall be prevented from receiving such compensation by reason of the
fact that he or she is also a Manager of the Company.
ARTICLE IV
INDEMNIFICATION
4.1 Indemnification of the Managers and Officers.
a. The Company shall indemnify, to the extent allowable by law, any
Manager or Officer and may indemnify any other person who was or is a
party, or is threatened to be made a party, to any threatened,
pending, or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative (other than an action by or
in the right of the Company), by reason of the fact that the Manager,
Officer or other person is or was a Manager, Officer, employee, or
agent of the Company, or is or was serving at the request of the
Company as a director, manager, officer, trustee, employee, or agent
of another limited liability company, corporation, partnership, joint
venture, trust, or other enterprise, against expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred by the Manager, Officer or other
person in connection with the action, suit, or proceeding, if the
person acted in good faith and in a manner the Manager, Officer or
other person reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or
proceeding, had no reasonable cause to believe the Manager, Officer or
other person's conduct was unlawful. The termination of any action,
suit, or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent shall not, of itself,
create a presumption that the Manager, Officer or other person did not
act in good faith and in a manner that the Manager, Officer or other
person reasonably believed to be in or not opposed to the best
interests of the Company or, with respect to any criminal action or
proceeding, that the Manager, Officer or other person had reasonable
cause to believe that the Manager, Officer or other person's conduct
was unlawful.
b. The Company may indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending, or
completed action or suit, by or in the right of the Company to procure
a judgment in its favor by reason of the fact that the person is or
was a Manager, Officer, employee, or agent of the Company, or is or
was serving at the request of the Company as a director, manager,
officer, trustee, employee, or agent of another limited liability
company, corporation, partnership, joint venture, trust, or other
enterprise, against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection with the defense or
settlement of the action or suit, if the person acted in good faith
and in a manner the person reasonably believed to be in or not opposed
to the best interests of the Company, provided that no indemnification
shall be made in respect of any claim, issue, or matter as to which
the person shall have been adjudged to be liable for negligence or
misconduct in the performance of the person's duty to the Company,
unless, and only to the extent that, the court in which the action or
suit was brought shall determine upon application that, despite the
112
adjudication of liability, but in view of all the circumstances of the
case, the person is fairly and reasonably entitled to indemnity for
those expenses as the court shall deem proper.
c. To the extent that a Person has been successful, on the merits or
otherwise, in the defense of any action, suit, or proceeding referred
to in Subsection 4.1(a) or 4.1(b), or in defense of any claim, issue,
or matter therein, the person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by the
Person in connection therewith.
d. Any indemnification under Subsection 4.1(a) or 4.1(b) (unless ordered
by a court) shall be made by the Company only as authorized in the
specific case, upon a determination that indemnification of the Person
is proper in the circumstances because the Person has met the
applicable standard of conduct set forth in Subsection 4.1(a) or
4.1(b). The determination shall be made (a) by Managers by a majority
vote of a quorum consisting of Managers who were not parties to the
action, suit, or proceeding, or (b) if a quorum is not obtainable, or
even if obtainable, if a quorum of disinterested Managers so directs,
by independent legal counsel in a written opinion or (c) by the
Members.
e. Expenses incurred in defending a civil or criminal action, suit, or
proceeding may be paid by the Company in advance of the final
disposition of the action, suit, or proceeding, as authorized by the
Managers or Members in the specific case, upon receipt of an
undertaking by or on behalf of the Person to repay that amount, unless
it shall ultimately be determined that the Person is entitled to be
indemnified by the Company as authorized in this Section.
f. The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which those seeking indemnification
may be entitled under the Articles, or any agreement, vote of Members
or disinterested Managers, or otherwise, both as to action in the
Person's official capacity and as to action in another capacity while
holding office, and shall continue as to a Person who has ceased to
serve in such capacity, and shall inure to the benefit of the heirs,
executors, and administrators of the Person.
g. The Company may purchase and maintain insurance on behalf of any
Person who is or was a Manager, Officer, employee, or agent of the
Company, or who is or was serving at the request of the Company as a
director, manager, officer, trustee, employee, or agent of another
limited liability company, corporation, partnership, joint venture,
trust, or other enterprise, against any liability asserted against the
Person and incurred by the person in any capacity, or arising out of
the Person's status as such, whether or not the Company would have the
power to indemnify the Person against the liability under the
provisions of this Section.
h. If the Company has paid indemnity or has advanced expenses to a
Person, the Company shall report the indemnification or advance in
writing to the Members with or before the notice of the next Members'
meeting.
i. For purposes of this Section 4.1, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of
the Company" shall include any service as a Manager, Officer,
employee, or agent of the Company that imposes duties on, or involves
services by the Manager, Officer, employee, or agent with respect to,
an employee benefit plan, its participants, or beneficiaries. A Person
113
who acted in good faith and in a manner the Person reasonably believed
to be in the best interests of the participants and beneficiaries of
an employee benefit plan shall be deemed to have acted in a manner
"not opposed to the best interest of the Company" as referred to in
this Section.
j. Neither the Managers nor the Officers shall be liable to the Members
because any taxing authorities disallow or adjust income, deduction or
credits in the Company tax returns. Furthermore, neither the Managers
nor the Officers shall have any liability for the repayment of the
capital contributions of the Members.
k. The foregoing indemnification is limited to the assets of the Company,
and nothing contained herein is intended to create personal liability
for any Member.
l. The foregoing indemnification is intended to provide the maximum allowable
indemnification to Managers and Officers allowable under the Company Act and
this Section 4.1 shall be interpreted in accordance with such intent.
EXHIBIT D
Franklin Covey Programs
Current Programs
o Zig Ziglar Corporation
o Zig Ziglar Network
o Denis Waitley Inc. / International Learning Technologies Inc.
o Home Mortgage Network
o Tom Hopkins International
o Brian Tracy
o Inc. Magazine, Inc. Consulting
o National Association of Realtors
o Personal Selling Power
Pending Contracts
o Money / Time Inc. Brand Licensing
o Norman Vincent Peale Foundation / Guideposts
o Great Life Network
o teachmetotrade.com
114
EXHIBIT 10.14
FACILITY AND GUARANTY AGREEMENT
AMONG
FRANKLIN COVEY CO.
BANK ONE, NA,
as Agent
and
THE FINANCIAL INSTITUTIONS SIGNATORY HERETO
DATED AS OF
MARCH , 2000
115
TABLE OF CONTENTS
<
Page
----
ARTICLE I DEFINITIONS..............................................119
1.01 Definitions..............................................119
ARTICLE II AMOUNTS AND TERMS OF THE LOANS...........................128
2.01 The Loans................................................128
2.02 Notes....................................................129
2.03 Disbursement of Funds....................................130
2.04 Distribution of Payments.................................130
2.05 Funding Indemnity........................................130
2.06 Changes in Capital Adequacy Regulations..................132
ARTICLE III CONDITIONS PRECEDENT.....................................133
3.01 Conditions to Obligations to Make Initial Loans..........133
3.02 Conditions to All Loans..................................134
3.03 Additional Conditions to Incremental Loans...............134
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY............135
4.01 Representations and Warranties of the Company............135
ARTICLE V COVENANTS OF THE COMPANY.................................139
5.01 Covenants................................................139
ARTICLE VI PROGRAM EVENTS OF DEFAULT; ACCELERATION..................145
6.01 Program Events of Default................................145
6.02 Acceleration.............................................146
ARTICLE VII GUARANTY.................................................147
7.01 Guaranty of Payment......................................147
7.02 Acceptance of Guaranty; No Setoffs.......................147
7.03 Nature of Guaranty; Continuing, Absolute and
Unconditional............................................147
7.04 Dealings With Borrowers..................................149
7.05 Subrogation..............................................149
7.06 Rights To Payments, Etc..................................149
7.07 Taxes....................................................149
7.08 Sale and Release of Pledged Shares.......................150
7.09 Miscellaneous............................................152
ARTICLE VIII THE AGENT................................................153
8.01 Appointment; Nature of Relationship......................153
8.02 Powers...................................................153
8.03 General Immunity.........................................153
8.04 No Responsibility for Loans, Recitals, etc...............153
8.05 Action on Instructions of Lenders........................154
8.06 Employment of Agents and Counsel.........................154
8.07 Reliance on Documents; Counsel...........................154
8.08 Agent's Reimbursement and Indemnification................154
8.09 Notice of Default........................................154
8.10 Rights as a Lender.......................................155
8.11 Lender Credit Decision...................................155
8.12 Successor Agent..........................................155
8.13 Notes....................................................155
8.14 Agent's Fee..............................................156
8.15 Delegation to Affiliates.................................156
ARTICLE IX RATABLE PAYMENTS.........................................156
9.01 Ratable Payments.........................................156
116
ARTICLE X BENEFIT OF AGREEMENT; ASSIGNMENTS;
PARTICIPATIONS...........................................156
10.01 Successors and Assigns...................................156
10.02 Participations...........................................156
10.03 Assignments..............................................157
10.04 Dissemination of Information.............................158
10.05 Tax Treatment............................................158
ARTICLE XI NOTICES..................................................158
11.01 Giving Notice............................................158
11.02 Change of Address........................................158
ARTICLE XII MISCELLANEOUS............................................158
12.01 Amendments...............................................158
12.02 Preservation of Rights...................................159
12.03 Survival of Representations..............................159
12.04 Governmental Regulation..................................159
12.05 Headings.................................................159
12.06 Entire Agreement.........................................159
12.07 Several Obligations; Benefits of this Agreement..........160
12.08 Expenses; Indemnification................................160
12.09 Numbers of Documents.....................................161
12.10 Severability of Provisions...............................161
12.11 Nonliability of Lenders..................................161
12.12 CHOICE OF LAW............................................162
12.13 CONSENT TO JURISDICTION..................................162
12.14 WAIVER OF JURY TRIAL.....................................162
12.15 Disclosure...............................................162
12.16 Withholding Tax Exemption................................162
12.17 Execution in Counterparts................................163
117
EXHIBITS
--------
Exhibit A Promissory Note
Exhibit B Letter of Direction
Exhibit C-1 Notice of Borrowing
Exhibit C-2 Notice of Borrowing (Conversion Date)
Exhibit D Compliance Certificate
SCHEDULES
---------
Schedule I Commitments
Schedule 1.01 Quarterly Dates
Schedule 2.05(A) Fixed Reference Rates
Schedule 2.05(B) Zero Coupon Methodology
Schedule 4.01(h) Subsidiaries and Investments
Schedule 5.01(j) Indebtedness and Contingent Obligations
Schedule 5.01(n) Liens
118
FACILITY AND GUARANTY AGREEMENT
THIS FACILITY AND GUARANTY AGREEMENT, dated as of March , 2000, is by and
among FRANKLIN COVEY CO., a Utah corporation (the "Company"), the financial
institutions named herein (the "Lenders") and BANK ONE, NA, a national banking
association with its principal office in Chicago, Illinois, individually and as
Agent for the Lenders hereunder.
R E C I T A L S:
A. The Company has requested the Lenders to make advances to certain
managers, executives, board members, and other key employees of the Company and
its Subsidiaries "Eligible Persons" in the aggregate principal amount of up to
$15,000,000, the proceeds of which will be used by the Eligible Persons to
purchase Common Stock pursuant to the Stock Purchase Program. The Company has
also requested the Lenders to make Incremental Loans to Eligible Persons.
B. By virtue of the Eligible Persons' services to the Company and its
Subsidiaries, the Company has derived and will continue to derive substantial
benefits. The Company believes that the ownership of Common Stock by the
Eligible Persons which will be facilitated by the Loans will provide incentive
to the Eligible Persons in performing their jobs so as to more closely align the
interests of the Eligible Persons with those of the stockholders of the Company
and thus confer significant benefits upon the Company.
C. It is a condition precedent to the obligation of the Lenders to make
advances to the Eligible Persons that the Company shall have executed and
delivered this Agreement, thereby guaranteeing the Loans.
D. The Company desires to execute this Agreement to satisfy the condition
described in the preceding paragraph and to induce the Lenders to make the Loans
contemplated hereby, and the Lenders desire to make the Loans to the Eligible
Persons only on the terms and subject to the conditions set forth herein and in
the other Loan Documents.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS
1.01 DEFINITIONS. As used in this Agreement, the following terms shall have the
following meanings:
"Acquisition" means any transaction, or any series of related transactions,
consummated on or after the date of this Agreement, by which the Company or any
of its Subsidiaries (i) acquires any going business or all or substantially all
of the assets of any firm, corporation or limited liability company, or division
thereof, whether through purchase of assets, merger or otherwise or (ii)
directly or indirectly acquires (in one transaction or as the most recent
transaction in a series of transactions) at least a majority (in number of
votes) of the securities of a corporation which have ordinary voting power for
the election of directors (other than securities having such power only by
reason of the happening of a contingency) or a majority (by percentage or voting
power) of the outstanding ownership interests of a partnership or limited
liability company.
119
"Advance" means, with respect to any Lender, such Lender's Pro-rata portion
of any Loan.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
"Agent" means Bank One in its capacity as agent for the Lenders pursuant to
Article VIII hereof, and not in its individual capacity as a Lender, and any
successor Agent appointed pursuant to Article VIII hereof.
"Aggregate Commitment" means the aggregate of the Commitments of all the
Lenders.
"Agreement" means this Facility and Guaranty Agreement as from time to time
amended, supplemented, restated or otherwise modified and in effect.
"Agreement Accounting Principles" means generally accepted accounting
principles as in effect from time to time, applied in a manner consistent with
that used in preparing the financial statements referred to in Section 4.01(d).
"Authorized Officer" means any of the following Persons: Val John
Christensen or J. Scott Nielsen, acting singly.
"Bank One" means Bank One, NA, a national banking association formerly
known as The First National Bank of Chicago and having its principal place of
business in Chicago, Illinois, in its individual capacity, and its successors.
"Borrower Amount" means, with respect to a Borrower, the maximum
aggregate principal amount of Loans (other than Incremental Loans) which may be
made to such Borrower, as specified by the Company pursuant to the second
sentence of Section 2.01(a), as from time to time reduced pursuant to the third
sentence of such Section.
"Borrower Collateral Percentage" shall mean, as to any Borrower, a
fraction, the numerator of which is equal to the principal amount of the Loan
made to such Borrower then outstanding and the denominator of which is equal to
the aggregate principal amount of the Loans to all Borrowers then outstanding.
"Borrower Event of Repayment" has the meaning set forth in Section 5 of the
Note.
"Borrowers" has the meaning set forth in Section 2.01(a).
"Business Day" means a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago, Illinois for the conduct of substantially all of
their commercial lending activities and on which dealings in United States
Dollars are carried on in the London interbank market.
"Capital Expenditures" means, without duplication, any expenditures for any
purchase or other acquisition of any asset which would be classified as a fixed
or capital asset on a consolidated balance sheet of the Company and its
Subsidiaries prepared in accordance with Agreement Accounting Principles
excluding (i) the cost of assets acquired with Capitalized Lease Obligations,
and (ii) expenditures of insurance proceeds to rebuild or replace any asset
after a casualty loss.
"Capitalized Lease" of a Person means any lease of Property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
120
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"Cash Equivalent Investments" means (i) short-term obligations of, or fully
guaranteed by, the United States of America, (ii) commercial paper rated A-1 or
better by S&P or P-1 or better by Moody's, (iii) demand deposit accounts
maintained in the ordinary course of business, and (iv) certificates of deposit
issued by and time deposits with commercial banks (whether domestic or foreign)
having capital and surplus in excess of $100,000,000; provided in each case that
the same provides for payment of both principal and interest (and not principal
alone or interest alone) and is not subject to any contingency regarding the
payment of principal or interest.
"Change in Control" means the acquisition by any Person, or two or more
Persons acting in concert, of beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Securities Exchange
Act of 1934) of 20% or more of the outstanding shares of voting stock of the
Company.
"Closing Date" means March 30, 2000.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Collateral" has the meaning set forth in the Pledge Agreements.
"Collateral Ratio" shall mean, as to any Borrower, the ratio of (a) the sum
of the Loan Value of Direct Collateral of such Borrower plus the Borrower
Collateral Percentage of the Loan Value of Indirect Collateral to (b) the
aggregate principal amount of the Loan of such Borrower then outstanding.
"Commitment" means, for each Lender, the commitment of such Lender to make
Loans pursuant hereto not in the aggregate exceeding the amount set forth
opposite such Lender's name on Schedule I hereto.
"Common Stock" means the Company's common stock, par value $0.05 per share.
"Company" has the meaning set forth in the introduction hereto.
"Consolidated Capital Expenditures" means, with reference to any period,
the Capital Expenditures of the Company and its Subsidiaries calculated on a
consolidated basis for such period.
"Consolidated EBITDA" means Consolidated Net Income plus, to the extent
deducted from revenues in determining Consolidated Net Income, (i) Consolidated
Interest Expense, (ii) expense for taxes paid or accrued, (iii) depreciation,
(iv) amortization, (v) extraordinary losses incurred other than in the ordinary
course of business, and (vi) compensation expense, not to exceed 10,000,000 in
the aggregate, incurred in connection with the vesting and redemption of
employee stock options in the fiscal quarter ending May 27, 2000, minus, to the
extent included in Consolidated Net Income, extraordinary gains realized other
than in the ordinary course of business, all calculated for the Company and its
Subsidiaries on a consolidated basis and adjusted, on a one time basis, for a
charge actually taken on August 31, 1999 in an amount not to exceed
$27,000,000.00.
"Consolidated Funded Indebtedness" means at any time the aggregate dollar
amount of Consolidated Indebtedness which has actually been funded and is
outstanding at such time, whether or not such amount is due or payable at such
time.
"Consolidated Indebtedness" means at any time the Indebtedness of the
Company and its Subsidiaries calculated on a consolidated basis as of such time.
121
"Consolidated Interest Expense" means, with reference to any period, the
interest expense of the Company and its Subsidiaries calculated on a
consolidated basis for such period.
"Consolidated Net Income" means, with reference to any period, the net
income (or loss) of the Company and its Subsidiaries calculated on a
consolidated basis for such period.
"Consolidated Net Worth" means at any time the consolidated stockholders'
equity of the Company and its Subsidiaries calculated on a consolidated basis as
of such time.
"Consolidated Rentals" means, with reference to any period, the Rentals of
the Company and its Subsidiaries calculated on a consolidated basis for such
period.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement, take-or-pay contract or the obligations of any such Person as general
partner of a partnership with respect to the liabilities of the partnership.
"Controlled Group" means all members of a controlled group of corporations
or other business entities and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any of
its Subsidiaries, are treated as a single employer under Section 414 of the
Code.
"Conversion Date" has the meaning set forth in Section 2.02(b).
"Determination Date" has the meaning set forth in Section 2.02(b).
"Direct Collateral" shall mean, with respect to any Borrower, all property,
assets and/or rights on or in which a Lien is now or hereafter granted by such
Borrower to the Agent (or to any agent, trustee or other party acting on behalf
of the Agent) for the benefit of the Lenders, pursuant to the Pledge Agreement
and any other instruments or documents provided for herein or therein or
delivered hereunder or thereunder or in connection herewith or therewith.
"Dollars" and the sign $ each means lawful currency of the United States of
America.
"Early Payment Fee" has the meaning set forth in Section 2.05(a).
"Eligible Assignee" means any Lender or Affiliate or subsidiary of a
Lender, and any other commercial bank, financial institution or "accredited
investor" (as defined in Regulation D of the Securities and Exchange Commission)
that is either a bank organized or licensed under the laws of the United States
of America or any State thereof or that has agreed to provide the information
listed in Section 12.16 to the extent that it may lawfully do so and that is
reasonably acceptable to the Agent and the Company; provided, however, that
neither the Company nor an Affiliate of the Company shall qualify as an Eligible
Assignee.
"Eligible Persons" means any officer, director or employee of the Company
qualified to acquire Common Stock under the Stock Purchase Program.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
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orders, decrees, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and other governmental restrictions relating to (i) the
protection of the environment, (ii) the effect of the environment on human
health, (iii) emissions, discharges or releases of pollutants, contaminants,
hazardous substances or wastes into surface water, ground water or land, or (iv)
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, hazardous substances or
wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any rule or regulation issued thereunder.
"Existing Credit Agreement" means that certain Credit Agreement dated as of
October 8, 1999 among the Company, Bank One and Zions First National Bank, as
co-agents, and the lenders signatory thereto, as amended or restated and in
effect from time to time.
"Final Payment Date" means the date which is five years after the Closing
Date.
"GAAP" means generally accepted accounting principles in the United States
applied on a consistent basis and subject to Section 1.02 hereof.
"Governmental Authority" means any Federal, state, local or foreign court
or governmental agency, authority, instrumentality or regulatory body.
"Guaranty" means the provisions of Article VII hereof and the rights and
obligations of the Company thereunder.
"Guaranteed Debt" has the meaning set forth in Section 7.01.
"Incremental Loan" means, with respect to a Borrower, the Loans to such
Borrower described in the second sentence of Section 2.01(a) in an amount not in
excess of such Borrower's Shortfall Amount, and "Incremental Loans" means all
such Loans collectively.
"Indebtedness" of a Person means such Person's (i) obligations for borrowed
money, (ii) obligations representing the deferred purchase price of Property or
services (other than accounts payable arising in the ordinary course of such
Person's business payable on terms customary in the trade), (iii) obligations,
whether or not assumed, secured by Liens or payable out of the proceeds or
production from Property now or hereafter owned or acquired by such Person, (iv)
obligations which are evidenced by notes, acceptances, or other instruments, (v)
obligations of such Person to purchase securities or other Property arising out
of or in connection with the sale of the same or substantially similar
securities or Property, (vi) Capitalized Lease Obligations, (vii) any
liabilities for accrued and unpaid earnout or similar obligations associated
with Acquisitions, (viii) Contingent Obligations, (ix) the dollar amount of any
revolving securitization of trade or notes receivable, and (x) any other
obligation for borrowed money or other financial accommodation which in
accordance with Agreement Accounting Principles would be shown as a liability on
the consolidated balance sheet of such Person.
"Indirect Collateral" shall mean any assets of the Company which, as
determined by the Agent in its sole discretion exercised in good faith, shall be
deemed to "indirectly secure" the Obligations pursuant to Regulation U as a
result of the negative pledge agreement and/or other covenants of the Company
set forth in this Agreement.
"Interest Rate" means the rate of interest applicable to the Loans on and
after the Conversion Date. Such rate shall be the fixed rate of interest agreed
upon by the Company and the Lenders pursuant to the first sentence of Section
2.02(b) unless no such rate is agreed upon, in which case the Interest Rate
shall be the floating rate of interest set forth in the third sentence of
Section 2.02(b).
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"Investment" of a Person means any loan, advance (other than commission,
travel and similar advances to officers and employees made in the ordinary
course of business), extension of credit (other than accounts receivable arising
in the ordinary course of business on terms customary in the trade) or
contribution of capital by such Person; stocks, bonds, mutual funds, partnership
interests, notes, debentures or other securities owned by such Person; any
deposit accounts and certificate of deposit owned by such Person; and structured
notes, derivative financial instruments and other similar instruments or
contracts owned by such Person.
"Lenders" means the lending institutions listed on the signature pages to
this Agreement and their respective successors and assigns.
"Lending Installation" means with respect to a Lender or the Agent, any
office, branch, subsidiary or affiliate of such Lender or the Agent.
"Letter of Direction" means a letter of direction to the Agent in the form
of Exhibit B hereto executed by a Borrower.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"Loan" means the sum of the amounts advanced to a Borrower by the Lenders
pursuant to Section 2.01 and "Loans" means all such Loans collectively.
"Loan Documents" means this Agreement, each Note, each Pledge Agreement,
each Letter of Direction, each Securities Control Agreement, each securities
account agreement and any and all other documents or agreements executed in
connection with this Agreement and contemplated hereby or thereby and executed
by the Company or any Borrower in favor of the Agent or any Lender, as the same
may be amended, supplemented, restated or otherwise modified from time to time
and in effect.
"Loan Value of Direct Collateral" shall mean, with respect to any Borrower,
(a) 50% of the current market value of the Common Stock of the Company pledged
by such Borrower to the Agent, for the benefit of the Lenders, under the
applicable Pledge Agreement, plus (b) without duplication, 50% of the current
market value of any other Direct Collateral constituting Margin Stock pledged by
such Borrower to the Agent, for the benefit of the Lenders, under any Loan
Document, plus (c) without duplication, the maximum loan value of all Direct
Collateral of such Borrower not constituting Margin Stock, it being understood
that the maximum loan value of Direct Collateral shall be its good faith loan
value (i.e., the value of such Direct Collateral as determined from time to time
by the Agent (with the concurrence of the Required Lenders) exercising sound
banking judgment) without regard to such Borrower's assets securing any
unrelated transactions. The Agent and/or the Required Lenders shall have the
right at any time in their sole discretion to recompute the Loan Value of Direct
Collateral.
"Loan Value of Indirect Collateral" shall mean, with respect to any
Borrower, the sum of the maximum loan value of Indirect Collateral under
Regulation U, after taking into account any other Indebtedness of the Company
"indirectly secured" (as set forth in Regulation U and the interpretations
thereof) by the assets of the Company, it being understood that (a) the maximum
loan value of Indirect Collateral constituting Margin Stock shall be 50% of its
current market value and (b) the maximum loan value of Indirect Collateral not
constituting Margin Stock shall be its good faith loan value (i.e., the value of
such Indirect Collateral as determined from time to time by the Agent (with the
concurrence of the Required Lenders) exercising sound banking judgment), in each
case without regard to the Company's assets securing any unrelated transactions.
Until further notice from the Agent to the Company, the Loan Value of Indirect
Collateral shall be deemed to be $558,049,000, it being understood that the
Agent and/or the Required Lenders shall have the right at any time in their sole
discretion to recompute the Loan Value of Indirect Collateral.
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"Maintenance Capital Expenditures" means for any fiscal period Capital
Expenditures for the repair or maintenance of existing assets of the Company or
a Subsidiary in the normal course of business during such fiscal period, with
such amount being automatically deemed to be 4% of sales of the Company and its
Subsidiaries for such fiscal period.
"Margin Stock" has the meaning ascribed to it by Regulation U.
"Material Adverse Effect" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of operations,
or prospects of the Company and its Subsidiaries taken as a whole, (ii) the
ability of the Company to perform its obligations under the Loan Documents, or
(iii) the validity or enforceability of any of the Loan Documents or the rights
or remedies of the Agent or the Lenders thereunder.
"Maturity Date" means, with respect to a Note, the earliest to occur of (a)
the Final Payment Date, (b) the occurrence of a Change of Control and (c) the
acceleration of such Note pursuant to Section 5 thereof.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Company or any member
of the Controlled Group is a party to which more than one employer is obligated
to make contributions.
"Note" means a master promissory note in the form of Exhibit A hereto
executed by a Borrower in an original principal amount equal to such Borrower's
Borrower Amount, and "Notes" means, collectively, all such promissory notes, in
each case as the same may be amended, supplemented, restated or otherwise
modified from time to time and in effect.
"Notice of Assignment" has the meaning set forth in Section 10.03(b).
"Notice of Borrowing" means a notice of borrowing in the form of Exhibit
C-1 or C-2 hereto.
"Obligations" means all unpaid principal of and accrued and unpaid interest
on the Notes, all accrued and unpaid fees and Early Payment Fees and all
expenses, reimbursements, indemnities and other obligations of the Company or
any Borrower to the Lenders or any Lender, the Agent or any indemnified party
hereunder or under any Loan Document if such expense, reimbursement, indemnity
or obligation arises under or pursuant to such Loan Documents.
"Off-Balance Sheet Liability" of a Person means (i) any repurchase
obligation or liability of such Person with respect to accounts or notes
receivable sold by such Person, (ii) any liability under any Sale and Leaseback
Transaction which is not a Capitalized Lease, (iii) any liability under any
so-called "synthetic lease" transaction entered into by such Person, or (iv) any
obligation arising with respect to any other transaction which is the functional
equivalent of or takes the place of borrowing but which does not constitute a
liability on the balance sheets of such Person, but excluding from this clause
(iv) Operating Leases.
"Operating Lease" of a Person means any lease of Property (other than a
Capitalized Lease) by such Person as lessee which has an original term
(including any required renewals and any renewals effective at the option of the
lessor) of one year or more.
"Operating Lease Obligations" means, as at any date of determination, the
amount obtained by aggregating the present values, determined in the case of
each particular Operating Lease by applying a discount rate (which discount rate
shall equal the discount rate which would be applied under Agreement Accounting
Principles if such Operating Lease were a Capitalized Lease) from the date on
which each fixed lease payment is due under such Operating Lease to such date of
determination, of all fixed lease payments due under all Operating Leases of the
Company and its Subsidiaries.
"Participants" has the meaning provided in Section 10.02(a) hereof.
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"PBGC" means the Pension Benefit Guaranty Corporation established under
ERISA, and any successor thereto.
"Person" means any individual, partnership, joint venture, firm,
corporation, association, limited liability company, trust or other enterprise
(whether or not incorporated) or any government or political subdivision or any
agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by Title
IV of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Company or any member of the Controlled Group may have any
liability.
"Pledge Agreement" means a stock pledge agreement in form reasonably
satisfactory to the Agent executed by a Borrower in favor of the Agent, for the
benefit of the Lenders, pursuant to which Common Stock acquired by a Borrower
pursuant to the Stock Purchase Program are pledged to secure the Obligations of
such Borrowers, and "Pledge Agreements" means, collectively, all such pledge
agreements, in each case as the same may be amended, supplemented, restated or
otherwise modified from time to time and in effect.
"Pledged Shares" has the meaning set forth in the Pledge Agreements.
"Property" of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased or
operated by such Person.
"Pricing Information" has the meaning set forth in Section 2.02(b).
"Program Event of Default" has the meaning set forth in Section 6.01.
"Pro-rata" means when used with respect to a Lender, and any described
aggregate or total amount, an amount equal to said Lender's pro-rata share or
portion based on its percentage of the aggregate outstanding principal amount of
outstanding Notes, or, if no such principal amount is outstanding, based on its
percentage of the Aggregate Commitment.
"Purchaser" has the meaning set forth in Section 10.03(a).
"Quarterly Date" each of the dates set forth on Schedule 1.01 attached
hereto following the Conversion Date.
"Rentals" of a Person means the aggregate fixed amounts payable by such
Person under any Operating Lease.
"Reportable Event" means a reportable event as defined in Section 4043
of ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC has by regulation waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event, provided, however, that a failure to meet the
minimum funding standard of Section 412 of the Code and of Section 302 of ERISA
shall be a Reportable Event regardless of the issuance of any such waiver of the
notice requirement in accordance with either Section 4043(a) of ERISA or Section
412(d) of the Code.
"Reportable Event" means a "reportable event" as defined in Section 4043 of
ERISA with respect to which the notice requirements to the PBGC have not been
waived.
"Regulation T" means Regulation T of the Board of Governors of the Federal
Reserve System as from time to time in effect and shall include any successor or
other regulation or official interpretation of such Board of Governors relating
to the extension of credit by securities brokers and dealers for the purpose of
purchasing or carrying margin stocks.
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"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks or other Persons for the purpose of purchasing or
carrying margin stocks.
"Regulation X" means Regulation X of the Board of Governors of the Federal
Reserve System as from time to time in effect and shall include any successor or
other regulation or official interpretation of said Board of Governors relating
to the extension of credit by the specified lenders for the purpose of
purchasing or carrying margin stocks.
"Reimbursement Agreement" means an agreement entered into between the
Company and a Borrower in connection with his/her Loans relating to his/her
obligation to reimburse the Company for amounts paid to the Lenders in respect
of such Borrower pursuant to the Guaranty, as from time to time amended in the
sole discretion of the Company.
"Reimbursement Obligations" means, with respect to any Borrower, all
obligations of such Borrower to the Company which now exist or may arise out of
or in connection with the Guaranty or the performance by the Company of its
obligations thereunder, including all such obligations under his/her
Reimbursement Agreement.
"Required Lenders" means Lenders in the aggregate having at least 66-2/3%
of the then aggregate unpaid principal amount of all Loans or, if no such
principal amount is then outstanding, Lenders in the aggregate holding at least
66-2/3% of the Aggregate Commitment.
"S&P" means Standard and Poor's Ratings Services, a division of The McGraw
Hill Companies, Inc.
"Sale and Leaseback Transaction" means any sale or other transfer of
Property by any Person with the intent to lease such Property as lessee.
"Securities Control Agreement" means a securities control agreement in the
form of Exhibit A to the Pledge Agreement executed by a Borrower, and
"Securities Control Agreements" means, collectively, all such securities control
agreements, in each case as the same may be amended, supplemented, restated or
otherwise modified from time to time and in effect..
"Senior Unsecured Notes" means the $85,000,000.00 of senior unsecured notes
issued by the Company, due in 2008, bearing interest at a rate per annum of
6.64% and having principal repayments beginning in 2004, together with all
amendments, modifications, extensions or replacements thereof.
"Shortfall Amount" means, with respect to any Borrower, the amount of
interest which has accrued on such Borrower's Loans up to but excluding the
Conversion Date less the amount of all payments made in respect of such accrued
interest on or prior to the Business Day next following the Determination Date.
"Single Employer Plan" means a Plan maintained by the Company or any member
of the Controlled Group for employees of the Company or any member of the
Controlled Group.
"Stock Purchase Program" means the Franklin Covey Co. Management Stock
Purchase Loan Program adopted by the Board of Directors of the Company on
January 28, 2000, entitling certain managers and executives of the Company to
purchase Common Stock of the Company, as such Stock Purchase Program may be
amended, supplemented, restated or otherwise modified from time to time in the
sole discretion of the Company.
"Subordinated Indebtedness" of a Person means any Indebtedness of such
Person the payment of which is subordinated to payment of the Obligations to the
written satisfaction of the Required Lenders.
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"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, limited liability company, association, joint venture or
similar business organization more than 50% of the ownership interests having
ordinary voting power of which shall at the time be so owned or controlled.
Unless otherwise expressly provided, all references herein to a "Subsidiary"
shall mean a Subsidiary of the Company.
"Substantial Portion" means, with respect to the Property of the Company
and its Subsidiaries, Property which (i) represents more than 10% of the
consolidated assets of the Company and its Subsidiaries as would be shown in the
consolidated financial statements of the Company and its Subsidiaries as at the
beginning of the twelve-month period ending with the month in which such
determination is made, or (ii) is responsible for more than 10% of the
consolidated net sales or of the consolidated net income of the Company and its
Subsidiaries as reflected in the financial statements referred to in clause (i)
above.
"Transferee" has the meaning set forth in Section 10.04.
"Unfunded Liabilities" means the amount (if any) by which the present value
of all vested and unvested accrued benefits under all Single Employer Plans
exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans using PBGC actuarial assumptions for single employer plan terminations.
"Unmatured Default" means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Program Event of Default.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the
outstanding voting securities of which shall at the time be owned or controlled,
directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries
of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of
such Person, or (ii) any partnership, limited liability company, association,
joint venture or similar business organization 100% of the ownership interests
having ordinary voting power of which shall at the time be so owned or
controlled.
The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms. The words "herein," "hereof" and words of
similar import as used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision in this Agreement. References to
"Articles," "Sections," "subsections," "paragraphs," "Exhibits", "clauses" and
"Schedules" in this Agreement shall refer to Sections, subsections, paragraphs,
Exhibits, clauses and Schedules of this Agreement unless otherwise expressly
provided; references to Persons include their respective permitted successors
and assigns or, in the case of governmental Persons, Persons succeeding to the
relevant functions of such persons.
ARTICLE II
AMOUNTS AND TERMS OF THE LOANS
2.01 THE LOANS.
(a) Each Lender severally (and not jointly) agrees, on the terms and
conditions set forth in this Agreement, to make Loans from time to
time on and after the Closing Date to and including the Conversion
Date to individual Eligible Persons (such Eligible Persons who request
and obtain a Loan hereunder are referred to as a "Borrower"
individually and as the "Borrowers" collectively), severally and not
jointly, in amounts not to exceed in the aggregate the amount of its
respective Commitment. Each Lender also severally (and not jointly)
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agrees, on the terms and conditions set forth in this Agreement, to
make a Loan to each Borrower on the Conversion Date in an amount not
in excess of such Lender's Pro-rata share of the Shortfall Amount of
such Borrower; provided, however, that the aggregate amount of all
Loans (other than Incremental Loans) shall not exceed $16,000,000 and
the aggregate amount of all Incremental Loans shall not exceed
$500,000. Each of the Borrowers and the Borrower Amount of such
Borrower shall be identified in a writing separately delivered by the
Company to the Agent at least five Business Days prior to the Closing
Date (or such lesser number of days as agreed to by the Agent). No
amount of the Loans which are repaid or prepaid by the Borrowers may
be reborrowed hereunder.
(b) All Loans shall be made in accordance herewith and with the terms of
the Notes in multiple draws prior to the Conversion Date and, with
respect to Incremental Loans, a single draw on the Conversion Date. No
Lender shall be obligated to make a Loan to a Borrower unless the
Borrower Amount of such Borrower is equal to or greater than $50,000.
The Loans to a Borrower hereunder shall consist of Loans made to such
Borrower from the several Lenders on a Pro-rata basis.
2.02 NOTES.
(a) The Loan made to each Borrower, and such Borrower's obligation to
repay such Loan, shall be evidenced by a single Note issued by such
Borrower to the Agent (for the benefit of all of the Lenders sharing
in the Loan to such Borrower), which shall provide, among other
things, that (i) such Note shall mature, and the outstanding principal
amount thereof and the unpaid accrued interest thereon shall be due
and payable, on the Maturity Date, (ii) such Borrower shall pay
interest on the unpaid principal amount of the Loan made to such
Borrower at the rates as provided in the Note from the date of the
Loan until such principal amount is paid in full, payable to the
Agent, for the benefit of the Lenders, in arrears on the Maturity
Date, (iii) such Note shall be prepayable only to the extent provided
in the Note and (iv) any such prepayments shall be subject to the
payment of an Early Payment Fee and related fees as and to the extent
set forth in the Note. All interest payments and prepayments in
respect of any Loan shall be applied by the Agent among the Lenders on
a Pro-rata basis (based on each Lender's Pro-rata share of the
outstanding principal amount thereof).
(b) Promptly after the earlier to occur of (i) the date designated as the
"Determination Date" by the Company in a writing to the Agent
delivered on or prior to such designated date or (ii) September 29,
2000 (such earlier date hereinafter being referred to as the
"Determination Date"), the Lenders and the Company shall confer and in
good faith seek to agree within three Business Days after the
Determination Date upon the fixed rate of interest at which the Notes
shall accrue interest on and after the Conversion Date (which rate
shall be the rate reasonably determined by Bank One to be the simple
interest rate which is approximately equivalent to the market yield to
the Maturity Date, as agreed to by the Company and the Agent) and the
rates and dates to be inserted into Schedule 2.05(A) (the "Pricing
Information"). Subject to the following sentence, the date designated
as the "Conversion Date" by the Agent, which date shall be no more
than three Business Days after the date on which such fixed interest
rate and the Pricing Information are agreed upon, is hereinafter
referred to as the "Conversion Date". In the event that the Agent and
the Company do not reach agreement on such fixed interest rate and the
Pricing Information within three Business Days after the Determination
Date, then, from and after the fourth Business Day after the
Determination Date, the rate of interest applicable to the Notes shall
be a floating rate of interest equal to the Alternate Base Rate (as
defined in the Note) per annum and such fourth Business Day shall be
the "Conversion Date". Upon the determination of the Conversion Date,
the Interest Rate and the Pricing Information pursuant to this
Section, the Company shall promptly give notice of same to the
Borrowers.
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(c) Upon the occurrence and during the continuance of any Program Event of
Default, the Agent may (and at the request of any Lender, the Agent
shall) request that the Borrowers execute and deliver amended and
restated Notes for each Lender in replacement of the existing master
Notes.
2.03 DISBURSEMENT OF FUNDS. Pursuant to the Letters of Direction of the
Borrowers, (a) the proceeds of all Loans (other than Incremental Loans)
will be disbursed as directed therein to Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") for the account of the applicable
Borrower and (b) the proceeds of all Incremental Loans will be disbursed
directly to the Lenders for the account of the Borrowers in payment of the
Shortfall Amount of the Borrowers.
2.04 DISTRIBUTION OF PAYMENTS. All payments to the Agent from or on behalf of
the Borrowers or the Company, as applicable, shall (except as the Lenders
may otherwise agree) be paid to the Lenders pursuant to the terms of
Section 3 of the Notes. The Lenders acknowledge and agree that all
administrative fees payable under Section 2(b) of the Notes shall be for
the account of Bank One and not for the benefit of any other Lender.
2.05 FUNDING INDEMNITY.
(a) The Early Payment Fee payable under each Note to Bank One in respect
of any portion of the principal amount thereof paid during the period
from the Conversion Date to (but not including) the Maturity Date,
calculated with respect to the principal amount of such Note to be
prepaid, or, with respect to Section 2.05(d), not borrowed on the
Conversion Date, shall be an amount equal to (i) the sum of (A) an
amount equal to the positive difference, if any, between the Present
Value of the remaining fixed rate payments under the Reference Swap
(exclusive of accruals to but excluding the Break Date) minus the
Present Value of the fixed rate payments under the Redeployment Swap;
provided, however, that if the value of (i)(A) is negative, such
amount shall not exceed the amount of interest owed on such Note plus
(B) if the Break Date is not a Quarterly Date, an amount equal to the
positive difference, if any, between the Present Value of the Current
Floating Rate payment under the Redeployment Swap minus the Present
Value of the Current Floating Rate payment under the Reference Swap
(exclusive of accruals to but excluding the Break Date), or (ii) if
the Zero Coupon Rate cannot be determined, the amount of all Losses of
Bank One MINUS, in the case of either clause (i) or clause (ii), the
amount of interest on the principal amount of the Note accrued during
the period from the Conversion Date to (but not including) the
Maturity Date paid prior to the Final Payment Date accrued at the
Interest Rate for the period from and including the Conversion Date
such principal amount was outstanding (the amount calculated by
reference to clause (i) or (ii) above which relates to any Note or
prepayment thereof being referred to, relative to such Note or
prepayment, as the "Early Payment Fee"). Notwithstanding the
foregoing, no Early Payment Fee shall be payable in respect of any
prepayment of any Loan prior to the Conversion Date or, if and only if
a fixed rate of interest has not become applicable to the Notes
pursuant to Section 2.02(b), any prepayment of any Loan on or after
the Conversion Date.
(b) For purposes of this Section 2.05, the following terms shall have the
following meanings:
"Break Date" means, with respect to any Break Event, the date on which
such Break Event occurs.
"Break Event" means any voluntary or mandatory (whether as a result of
acceleration, Change of Control or otherwise) repayment of all or any
portion of any Loan during the period from the Conversion Date to (but
not including) the Maturity Date.
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"Current Floating Rate" means, with respect to the Reference Swap,
LIBOR determined two London banking days prior to the Quarterly Date
next preceding the Break Date, and with respect to the Redeployment
Swap, LIBOR referred to in the definition of Redeployment Swap.
"LIBOR" means the London interbank offered rate appearing as of 11:00
a.m. (London time) on Telerate Page 3750.
"Loss" means, with respect to Bank One, an amount equal to the total
amount required by Bank One, as determined in good faith by Bank One
as of the Break Date, to compensate it for any losses, costs and
expenses that it may incur as a result of the occurrence of the Break
Event, including, without limitation, loss of bargain and any costs of
maintaining, terminating, hedging or deploying any fixed rate or
floating rate funding arrangements or commitments and/or any
transactions employed to hedge differences arising between the
Interest Rate of the Loans and the floating rate cost of funds, as
determined with reference to market interest rates or prices available
or existing at or about the time of such Break Event.
"Present Value" means, in respect of any amount, the value of the
amount on the Break Date after discounting such amount to present
value from its respective due date at the Zero Coupon Rate in the case
of fixed rate payments or at the Current Floating Rate of the
Redeployment Swap in the case of floating rate payments.
"Redeployment Swap" means, with respect to a Break Event, an interest
rate swap entered into at a rate per annum equal to the fixed rate a
swap dealer would bid to enter into as a fixed rate payor, determined
by Bank One in good faith (as of 2:00 p.m., Chicago time, two days
prior to the Break Date) on the basis of the quotation Bank One would
provide as a fixed rate payor to another swap dealer (or if Bank One
declines to provide such quotation for whatever reason, then on the
basis of what a leading interest rate swap dealer selected by Bank One
in good faith is willing to bid as a fixed rate payor to enter into
the Redeployment Swap as quoted to Bank One on such date of
determination) that (a) commences on the Break Date and terminates on
the Final Payment Date, (b) has equal fixed payments and (c) has an
initial floating rate payment calculated at LIBOR plus 1.75% per annum
determined on the Break Date for U.S. Dollar deposits having a
maturity equal to the period from such Break Date to the next
succeeding Quarterly Date, or, if there exists no LIBOR rate for U.S.
Dollar deposits of such maturity maturing immediately before or
immediately after such maturity, whichever is higher. If the
Redeployment Swap has a notional amount less than $5,000,000, then the
Redeployment Swap will be deemed to have a notional amount of
$5,000,000 for the sole purpose of obtaining any such quotation.
"Reference Swap" means an interest rate swap (i) deemed to have been
entered into no later than two London banking days prior to the
Conversion Date (and confirmed in writing to the Company) and
commencing on the Conversion Date, (ii) having a notional amount at
any time equal to that part of the aggregate principal amount of the
Loans originally scheduled to be outstanding on the Conversion Date
and which has become subject to the Break Event, (iii) maturing on the
Final Payment Date and (iv) obligating the floating rate payor to make
payments on each Quarterly Date after the Conversion Date at LIBOR
determined two London banking days before the next preceding Quarterly
Date for three-month U.S. Dollar deposits plus 1.75% per annum,
calculated for actual days elapsed on a 360-day year basis, in
exchange for receiving fixed rate payments from a fixed rate payor on
such dates calculated at such rates as set forth on Schedule 2.05(A)
(each such rate, the "Reference Fixed Rate", which the parties agree
was the swap market rate when the Interest Rate was set), calculated
for actual days elapsed on a 360-day year basis.
"Telerate Page 3750" means the display designated as "Page 3750" on
the Telerate Service (or such other page as may replace Page 3750 on
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that service or such other service as may be nominated by the British
Bankers' Association as the information vendor for the purpose of
displaying British Bankers' Association Interest Settlement Rates for
U.S. Dollar deposits).
"Zero Coupon Rate" means the rate of interest charged for a future
single payment assuming no interest payments prior to the payment
date. Each fixed payment will be discounted using the Zero Coupon
Methodology. The Zero Coupon Rate for each fixed payment date will be
determined using the appropriate LIBOR rate and the rates implied by
the "90 Day Euro$" futures contracts at the Chicago Mercantile
Exchange (IMM) at IMM Settlement (2:00 p.m. Chicago time) two days
prior to the Break Date as appropriate to the respective payment
dates.
"Zero Coupon Methodology" means the discounting methodology set forth
on Schedule 2.05(B) hereto.
(c) If for any reason any Early Payment Fee is not recoverable in full
from a Borrower or the Company pursuant to the terms of the applicable
Note or Article VII, the Company agrees, as its independent primary
obligation, to pay such amount to the applicable Lender (without
duplication of amounts otherwise paid) upon demand as additional
consideration for entering into this Agreement and funding the Loans.
(d) In the event that any Incremental Loan referenced in a Notice of
Borrowing delivered by the Company is not made on the Conversion Date
for any reason (other than a breach by a Lender of its obligations
hereunder), the Company will indemnify each Lender upon demand for any
loss or cost incurred by it resulting therefrom, including, without
limitation, any loss or cost incurred in liquidating or employing
deposits acquired to fund or maintain its Loan or in terminating or
unwinding any interest rate exchange or similar arrangement entered
into by such Lender in connection with such Loan. Such loss or cost,
in the case of Bank One only, will be calculated in accordance with
Section 2.05(a).
2.06 CHANGES IN CAPITAL ADEQUACY REGULATIONS.
(a) If a Lender determines the amount of capital required or expected to
be maintained by such Lender, any Lending Installation of such Lender
or any corporation controlling such Lender is increased as a result of
a Change (as defined below), then within fifteen (15) days of demand
by such Lender, the Company shall pay such Lender the amount necessary
to compensate for any shortfall in the rate of return on the portion
of such increased capital which such Lender determines is attributable
to any Borrower's Note or its Loan to any Borrower (after taking into
account such Lender's policies as to capital adequacy). "Lending
Installation" means, with respect to a Lender, any office, branch,
subsidiary or affiliate of such Lender. "Change" means (a) any change
after the date hereof in the Risk Based Capital Guidelines (as defined
below), or (b) any adoption of or change in any other law,
governmental or quasi governmental rule, regulation, policy,
guideline, interpretation, or directive (whether or not having the
force of law) after the date hereof which affects the amount of
capital required or expected to be maintained by any Lender or any
Lending Installation or any corporation controlling any Lender. "Risk
Based Capital Guidelines" means (i) the risk based capital guidelines
in effect in the United States of America on the date hereof and (ii)
the corresponding capital regulations promulgated by regulatory
authorities outside the United States of America implementing the July
1988 report of the Basle Committee on Banking Regulation and
Supervisory Practices entitled "International Convergence of Capital
Measurements and Capital Standards" including transition rules, and
any amendments to such regulations adopted prior to the date hereof.
Before making any demand for payment pursuant to this Section, each
Lender shall, if possible, designate a different Lending Installation
if such designation will avoid the need for making such demand and is
not disadvantageous to such Lender.
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(b) Each Lender shall promptly notify the Company, with a copy to the
Agent, upon becoming aware that the Company may be required to make
any payment pursuant to this Section. When requesting payment pursuant
to this Section, each Lender shall provide to the Company, with a copy
to the Agent, a certificate signed by an officer of such Lender,
setting forth the amount required to be paid by the Company to such
Lender and the computations made by such Lender to determine such
amount.
ARTICLE III
CONDITIONS PRECEDENT
3.01 CONDITIONS TO OBLIGATIONS TO MAKE INITIAL LOANS. The obligations of the
Lenders to make the initial Loans to the Borrowers shall be subject to the
fulfillment of each of the following conditions precedent and receipt by
the Agent, with sufficient copies for each Lender, of each of the following
(each such document to be in form and substance reasonably satisfactory to
the Agent and its counsel):
(a) Agreement. An executed original of this Agreement, which shall be in
full force and effect, together with all schedules, exhibits,
certificates, instruments, opinions, documents and financial
statements required to be delivered pursuant hereto.
(b) Notes. A Note duly executed by each Borrower evidencing the Loan to
such Borrower, dated the Closing Date, and payable to the order of the
Agent, for the benefit of all of the Lenders.
(c) Pledge Agreement. A Pledge Agreement duly executed by each Borrower
accompanied by such stock certificates, stock powers, third party
control agreements and other documents as the Agent may request in
connection therewith.
(d) Securities Control Agreement. A Securities Control Agreement duly
executed by each Borrower and the Securities Intermediary (as defined
therein).
(e) Borrower Information. Each Borrower shall have delivered to the Agent
a personal financial statement in form satisfactory to the Agent.
(f) Legal Opinions. Written opinions of (i) Parr, Waddoups, Brown, Gee and
Loveless counsel to the Company and (ii) in-house counsel to the
Company, each in form and substance satisfactory to the Agent.
(g) Letter of Direction. A Letter of Direction executed by each Borrower.
(h) Charter Documents. Copies of the articles of incorporation of the
Company, together with all amendments thereto, both certified by the
appropriate governmental officer in its jurisdiction of incorporation,
together with a certificate of existence issued by the Secretary of
State of Utah and such other jurisdictions as shall be requested by
the Agent.
(i) Secretary's Certificate. A certificate, executed by the Secretary or
Assistant Secretary of the Company, which shall (i) identify by name
and title and bear the signature of the officers of the Company
authorized to sign the Loan Documents upon which certificate the Agent
and the Lenders shall be entitled to rely until informed of any change
in writing by the Company and (ii) attach and certify copies of the
Company's bylaws and its Board of Directors' resolutions authorizing
the execution, delivery and performance of the Loan Documents to which
the Company is a party.
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(j) Officer's Certificate. A certificate, dated the Closing Date, signed
by the treasurer of the Company, stating that (i) no Unmatured Default
or Event of Default has occurred and is continuing under the Existing
Credit Agreement, (ii) no Program Event of Default or Unmatured
Default has occurred and is continuing, (iii) the representations and
warranties contained in Article IV are true and correct on and as of
the Closing Date, and (iv) since November 30, 1999, there has been no
material adverse change in the financial condition, business or
prospects of the Company and its Subsidiaries taken as a whole.
(k) List of Borrowers and Loan Amounts. Five Business Days prior to the
Closing Date (or such lesser number of days as agreed to by the
Agent), a list identifying each anticipated Borrower and the Borrower
Amount of such Borrower.
(l) Customer Account Agreements. The Agent shall have received a completed
customer account agreement and such other supporting documentation
from each Borrower sufficient to open a securities account with the
Securities Intermediary.
(m) Form U-1. The Agent shall have received a Federal Reserve Form U-1
duly executed by each Borrower and the Company, the statements made in
which shall be such as to permit the transactions contemplated by the
Loan Documents in accordance with Regulation U.
(n) Other Documents. Such other documents as the Agent or its counsel may
reasonably request.
Subject to the following sentence, if each of the conditions precedent set
forth in this Section 3.01 has not been fully satisfied or waived on the Closing
Date, then this Agreement and the other Loan Documents shall automatically
terminate and be of no further force and effect without any further action by
any party hereto or thereto, provided that all indemnification provisions set
forth in the Loan Documents shall survive such termination. If all of the above
conditions are satisfied on or before the Closing Date, except with respect to
one or more Borrowers (each a "Deficient Borrower") any condition set forth in
Section 3.01(b), (c), (d),(e), (g), (1) or (m) is not satisfied, the Lenders
shall not be obligated to make Loans to the Deficient Borrowers but shall remain
obligated to make Loans to the other Borrowers. Solely for purposes of Sections
3.01(b), (c), (d), (e), (g), (1) or (m) only, required delivery shall be deemed
to have been made to the Agent if arrangements for the delivery thereof have
been made which are satisfactory to the Agent.
3.02 CONDITIONS TO ALL LOANS. The Lenders shall not be required to make any Loan
unless on the applicable borrowing date:
(a) There exists no Program Event of Default or Unmatured Default and none
would result from the Loans requested for such borrowing date.
(b) The representations and warranties contained in Article IV are true
and correct as of such borrowing date except to the extent any such
representation or warranty is stated to relate solely to an earlier
date, in which case such representation or warranty shall be true and
correct on and as of such earlier date.
(c) The Collateral Ratio for each of the Borrowers, after giving effect to
a Loan made to such Borrower, is greater than 1.0 and the Company has
delivered to the Agent such evidence of such fact as the Agent may
reasonably request.
Each Notice of Borrowing with respect to each such Loan shall constitute a
representation and warranty by the Company that the conditions contained in
Sections 3.02(a) and (b) have been satisfied.
3.03 ADDITIONAL CONDITIONS TO INCREMENTAL LOANS. The Lenders shall not be
required to make an Incremental Loan to any Borrower unless on or prior to
the Conversion Date the applicable Borrower has executed and delivered to
the Agent an amendment to the Note, in form reasonably satisfactory to the
Agent, reflecting an increase in the principal amount of the Note equal to
the amount of the Incremental Loan.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.01 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Agent and to each Lender as follows:
(a) Existence and Standing. Each of the Company and its Subsidiaries is a
corporation, partnership (in the case of Subsidiaries only) or limited
liability company duly and properly incorporated or organized, as the
case may be, validly existing and (to the extent such concept applies
to such entity) in good standing under the laws of its jurisdiction of
incorporation or organization and has all requisite authority to
conduct its business in each jurisdiction in which its business is
conducted.
(b) Authorization and Validity. The Company has the power and authority
and legal right to execute and deliver the Loan Documents and to
perform its obligations thereunder. The execution and delivery by the
Company of the Loan Documents and the performance of its obligations
thereunder have been duly authorized by proper corporate proceedings,
and the Loan Documents to which the Company is a party constitute
legal, valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally and
subject also to the availability of equitable remedies if equitable
remedies are sought.
(c) No Conflict; Government Consent. Neither the execution and delivery by
the Company of the Loan Documents, nor the consummation of the
transactions therein contemplated, nor compliance with the provisions
thereof will violate (i) any law, rule, regulation, order, writ,
judgment, injunction, decree or award binding on the Company or any of
its Subsidiaries or (ii) the Company's or any Subsidiary's articles or
certificate of incorporation, partnership agreement, certificate of
partnership, articles or certificate of organization, by-laws, or
operating or other management agreement, as the case may be, or (iii)
the provisions of any indenture, instrument or agreement to which the
Company or any of its Subsidiaries is a party or is subject, or by
which it, or its Property, is bound, or conflict with or constitute a
default thereunder, or result in, or require, the creation or
imposition of any Lien in, of or on the Property of the Company or a
Subsidiary pursuant to the terms of any such indenture, instrument or
agreement. No order, consent, adjudication, approval, license,
authorization, or validation of, or filing, recording or registration
with, or exemption by, or other action in respect of any governmental
or public body or authority, or any subdivision thereof, which has not
been obtained by the Company or any of its Subsidiaries, is required
to be obtained by the Company or any of its Subsidiaries in connection
with the execution and delivery of the Loan Documents, the borrowings
under this Agreement, the payment and performance by the Company of
the Obligations or the legality, validity, binding effect or
enforceability of any of the Loan Documents.
(d) Financial Statements. The November 30, 1999 consolidated financial
statements of the Company and its Subsidiaries heretofore delivered to
the Lenders were prepared in accordance with generally accepted
accounting principles in effect on the date such statements were
prepared and fairly present the consolidated financial condition and
operations of the Company and its Subsidiaries at such date and the
consolidated results of their operations for the period then ended.
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(e) Material Adverse Change. Since November 30, 1999 there has been no
change in the business, Property, prospects, condition (financial or
otherwise) or results of operations of the Company and its
Subsidiaries which could reasonably be expected to have a Material
Adverse Effect.
(f) Taxes. The Company and its Subsidiaries have filed all United States
federal tax returns and all other tax returns which are required to be
filed and have paid all taxes due pursuant to said returns or pursuant
to any assessment received by the Company or any of its Subsidiaries,
except such taxes, if any, as are being contested in good faith and as
to which adequate reserves have been provided in accordance with
Agreement Accounting Principles and as to which no Lien exists. No tax
liens have been filed and no claims are being asserted with respect to
any such taxes. The charges, accruals and reserves on the books of the
Company and its Subsidiaries in respect of any taxes or other
governmental charges are adequate.
(g) Litigation and Contingent Obligations. There is no litigation,
arbitration, governmental investigation, proceeding or inquiry pending
or, to the knowledge of any the chief executive officer of the Company
or any of the Authorized Officers, threatened against or affecting the
Company or any of its Subsidiaries which could reasonably be expected
to have a Material Adverse Effect or which seeks to prevent, enjoin or
delay the incurrence of the Guaranty or the other transactions
contemplated by this Agreement. Other than any liability incident to
any litigation, arbitration or proceeding which could not reasonably
be expected to have a Material Adverse Effect, the Company has no
material contingent obligations not provided for or disclosed in the
financial statements referred to in Section 4.01(d).
(h) Subsidiaries. Schedule 4.01(h) contains an accurate list of all
Subsidiaries of the Company as of the date of this Agreement, setting
forth their respective jurisdictions of organization and the
percentage of their respective capital stock or other ownership
interests owned by the Company or other Subsidiaries. All of the
issued and outstanding shares of capital stock or other ownership
interests of such Subsidiaries have been (to the extent such concepts
are relevant with respect to such ownership interests) duly authorized
and issued and are fully paid and non-assessable.
(i) ERISA. There are no Unfunded Liabilities under any Single Employer
Plans. Each Plan complies in all material respects with all applicable
requirements of law and regulations, no Reportable Event has occurred
with respect to any Plan, neither the Company nor any other member of
the Controlled Group has withdrawn from any Plan or initiated steps to
do so, and no steps have been taken to reorganize or terminate any
Plan.
(j) Accuracy of Information. No information, exhibit or report furnished
by the Company or any of its Subsidiaries to the Agent or to any
Lender in connection with the negotiation of, or compliance with, the
Loan Documents contained any material misstatement of fact or omitted
to state a material fact or any fact necessary to make the statements
contained therein not misleading.
(k) Regulation U. Margin Stock constitutes less than 25% of the value of
those assets of the Company and its Subsidiaries which are subject to
any limitation on sale, pledge, or other restriction hereunder.
(l) Material Agreements. Neither the Company nor any Subsidiary is a party
to any agreement or instrument or subject to any charter or other
corporate restriction which could reasonably be expected to have a
Material Adverse Effect. Neither the Company nor any Subsidiary is in
default in the performance, observance or fulfillment of any of the
136
obligations, covenants or conditions contained in (i) any agreement to
which it is a party, which default could reasonably be expected to
have a Material Adverse Effect or (ii) any agreement or instrument
evidencing or governing Indebtedness. The Lenders hereby acknowledge
that they have previously been informed of the possible existence of a
default under the Senior Unsecured Notes and that the existence of
such a default shall not constitute a breach of the representation and
warranty set forth herein.
(m) Compliance With Laws. The Company and its Subsidiaries have complied
with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any
instrumentality or agency thereof having jurisdiction over the conduct
of their respective businesses or the ownership of their respective
Property.
(n) Ownership of Properties. Except as set forth on Schedule 5.01(n), on
the date of this Agreement, the Company and its Subsidiaries will have
good title, free of all Liens other than those permitted by Section
5.01(n), to all of the Property and assets reflected in the Company's
most recent consolidated financial statements provided to the Agent as
owned by the Company and its Subsidiaries.
(o) Plan Assets; Prohibited Transactions. The Company is not an entity
deemed to hold "plan assets" within the meaning of 29 C.F.R. ss.
2510.3-101 of an employee benefit plan (as defined in Section 3(3) of
ERISA) which is subject to Title I of ERISA or any plan (within the
meaning of Section 4975 of the Code), and neither the execution of
this Agreement nor the making of Credit Extensions hereunder gives
rise to a prohibited transaction within the meaning of Section 406 of
ERISA or Section 4975 of the Code.
(p) Environmental Matters. In the ordinary course of its business, the
officers of the Company consider the effect of Environmental Laws on
the business of the Company and its Subsidiaries, in the course of
which they identify and evaluate potential risks and liabilities
accruing to the Company due to Environmental Laws. On the basis of
this consideration, the Company has concluded that Environmental Laws
cannot reasonably be expected to have a Material Adverse Effect.
Neither the Company nor any Subsidiary has received any notice to the
effect that its operations are not in material compliance with any of
the requirements of applicable Environmental Laws or are the subject
of any federal or state investigation evaluating whether any remedial
action is needed to respond to a release of any toxic or hazardous
waste or substance into the environment, which non-compliance or
remedial action could reasonably be expected to have a Material
Adverse Effect.
(q) Investment Company Act. Neither the Company nor any Subsidiary is an
"investment company" or a company
"controlled" by an "investment company", within the meaning of the
Investment Company Act of 1940, as amended.
(r) Public Utility Holding Company Act. Neither the Company nor any
Subsidiary is a "holding company" or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
(s) Subordinated Indebtedness. The Obligations of the Company constitute
senior indebtedness which is entitled to the benefits of the
subordination provisions of all outstanding Subordinated Indebtedness.
(t) Insurance. The certificate signed by the president or chief financial
officer of the Company, that attests to the existence and adequacy of,
and summarizes, the property and casualty insurance program carried by
the Company with respect to itself and its Subsidiaries and that has
been furnished by the Company to the Agent and the Lenders, is
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complete and accurate. This summary includes the insurer's or
insurers' name(s), policy number(s), expiration date(s), amount(s) of
coverage, type(s) of coverage, exclusion(s), and deductibles. This
summary also includes similar information, and describes any reserves,
relating to any self-insurance program that is in effect.
(u) Existing Credit Agreement. There exists no Default or Event of Default
(as defined in the Existing Credit Agreement) and (ii) all
representations and warranties contained therein are true and correct
in all material respects with the same effect as though such
representations and warranties had been made on the date hereof (it
being understood and agreed that any representation or warranty which
by its terms is made as of a specified date shall be required to be
true and correct in all material respects only as of such specified
date).
(v) Copy to Borrowers. The Company has furnished a copy of this Agreement
to each Borrower.
(w) Adoption of the Stock Purchase Program. The Stock Purchase Program has
been duly adopted, and the Stock Purchase Program and the purchase of
the Common Stock pursuant thereto have been duly approved, by all
requisite corporate action on behalf of the Company.
(x) Borrower Event of Repayment. To the best knowledge of the Company, no
event has occurred and is continuing or would result from the making
of the Loans, that constitutes a Borrower Event of Repayment with
respect to any Borrower or would constitute a Borrower Event of
Repayment with respect to any Borrower but for the requirement that
notice be given or time elapse or both.
(y) Regulation T, U and X. No part of the proceeds of any Loan will be
used in a manner which would violate, or result in a violation of,
Regulation T, Regulation U or Regulation X. Neither the making of any
Loan hereunder, the providing of the Guaranty by the Company, the use
of the proceeds thereof, nor any other aspect of the transactions
contemplated hereby will violate or be inconsistent with the
provisions of Regulation T, Regulation U or Regulation X. No Margin
Stock has been or will be pledged by any Borrower or by any other
Person to secure the Reimbursement Obligations of such Borrower. No
Reimbursement Obligations of any Borrower are or will be "indirectly
secured" (as defined in Regulation U) by any Margin Stock. Neither the
Company nor any third party acting on behalf of the Company has taken
or will take possession of any Borrower's Margin Stock to secure,
directly or indirectly, any of the Reimbursement Obligations of such
Borrower. The Company does not and will not have any right to prohibit
any Borrower from selling, pledging, encumbering or otherwise
disposing of any Margin Stock owned by such Borrower so long as this
Agreement is in effect or any of the Reimbursement Obligations of such
Borrower remain outstanding. None of the Borrowers have granted or
will grant the Company or any third party acting on behalf of the
Company the right to accelerate repayment of any of the Obligations of
such Borrower if any of the Margin Stock owned by such Borrower is
sold by such Borrower or otherwise. There is no agreement or other
arrangement between any Borrower and the Company or any third party
acting on behalf of the Company (and no such agreement or arrangement
shall be entered into so long as this Agreement is in effect or any of
the Obligations of such Borrower or the Company under this Agreement
or any of the Loan Documents remain outstanding) under which the
Margin Stock of such Borrower would be made more readily available as
security to the Company than to other creditors of such Borrower.
(z) True and Complete Disclosure. All factual information (taken as a
whole) heretofore or contemporaneously furnished by or on behalf of
the Company or any of its Subsidiaries to the Agent or any Lender
(including, without limitation, all information contained in the Loan
Documents) for purposes of or in connection with this Agreement or any
transaction contemplated herein is true and accurate in all material
respects on the date as of which such information is dated and not
incomplete by omitting to state any material fact necessary to make
such information (taken as a whole) not misleading at such time in
light of the circumstances under which such information was provided.
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ARTICLE V
COVENANTS OF THE COMPANY
5.01 COVENANTS. So long as any Note or any Obligation shall remain unpaid (or
any commitment which could give rise to any Obligations shall exist),
unless the Required Lenders shall otherwise consent in writing:
(a) Financial Reporting. The Company will maintain, for itself and each
Subsidiary, a system of accounting established and administered in
accordance with generally accepted accounting principles, and furnish
to the Lenders:
(i) Within 90 days after the close of each of its fiscal years,
an unqualified audit report certified by independent certified
public accountants acceptable to the Lenders, prepared in
accordance with Agreement Accounting Principles on a consolidated
and consolidating basis (consolidating statements need not be
certified by such accountants) for itself and its Subsidiaries,
including balance sheets as of the end of such period, related
profit and loss and reconciliation of surplus statements, and a
statement of cash flows, accompanied by (a) any management letter
prepared by said accountants, and (b) a certificate of said
accountants that, in the course of their examination necessary
for their certification of the foregoing, they have obtained no
knowledge of any Program Event of Default or Unmatured Default,
or if, in the opinion of such accountants, any Program Event of
Default or Unmatured Default shall exist, stating the nature and
status thereof.
(ii) Within 45 days after the close of the first three quarterly
periods of each of its fiscal years, for itself and its
Subsidiaries, consolidated and consolidating unaudited balance
sheets as at the close of each such period and consolidated and
consolidating profit and loss and reconciliation of surplus
statements and a statement of cash flows for the period from the
beginning of such fiscal year to the end of such quarter, all
certified by its chief financial officer.
(iii)Together with the financial statements required under Sections
5.01(a)(i) and (ii), a compliance certificate in substantially
the form of Exhibit D signed by its chief financial officer
showing the calculations necessary to determine compliance with
this Agreement and stating that no Program Event of Default or
Unmatured Default exists, or if any Program Event of Default or
Unmatured Default exists, stating the nature and status thereof.
(iv) Within 270 days after the close of each fiscal year, a statement
of the Unfunded Liabilities of each Single Employer Plan,
certified as correct by an actuary enrolled under ERISA.
(v) As soon as possible and in any event within 10 days after the
Company knows that any Reportable Event has occurred with respect
to any Plan, a statement, signed by the chief financial officer
of the Company, describing said Reportable Event and the action
which the Company proposes to take with respect thereto.
(vi) As soon as possible and in any event within 10 days after receipt
by the Company, a copy of (a) any notice or claim to the effect
that the Company or any of its Subsidiaries is or may be liable
to any Person as a result of the release by the Company, any of
its Subsidiaries, or any other Person of any toxic or hazardous
waste or substance into the environment, and (b) any notice
alleging any violation of any federal, state or local
environmental, health or safety law or regulation by the Company
or any of its Subsidiaries, which, in either case, could
reasonably be expected to have a Material Adverse Effect.
139
(vii) Promptly upon the furnishing thereof to the shareholders of the
Company, copies of all financial statements, reports and proxy
statements so furnished.
(viii) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular
reports which the Company or any of its Subsidiaries files with
the Securities and Exchange Commission.
(ix) As soon as available, but in any event within 90 days after the
beginning of each fiscal year of the Company, a copy of the plan
and forecast (including a projected consolidated and
consolidating balance sheet, income statement and funds flow
statement) of the Company for such fiscal year, broken down on a
fiscal quarter by fiscal quarter basis.
(x) Such other information (including non-financial information) as
the Agent or any Lender may from time to time reasonably request.
(b) Notice of Default. The Company will, and will cause each Subsidiary
to, give prompt notice in writing to the Lenders of the occurrence of
any Program Event of Default or Unmatured Default and of any other
development, financial or otherwise, which could reasonably be
expected to have a Material Adverse Effect.
(c) Conduct of Business. The Company will, and will cause each Subsidiary
to, carry on and conduct its business in substantially the same manner
and in substantially the same fields of enterprise as it is presently
conducted and do all things necessary to remain duly incorporated or
organized, validly existing and (to the extent such concept applies to
such entity) in good standing as a domestic corporation, partnership
or limited liability company in its jurisdiction of incorporation or
organization, as the case may be, and maintain all requisite authority
to conduct its business in each jurisdiction in which its business is
conducted.
(d) Taxes. The Company will, and will cause each Subsidiary to, timely
file complete and correct United States federal and applicable
foreign, state and local tax returns required by law and pay when due
all taxes, assessments and governmental charges and levies upon it or
its income, profits or Property, except those which are being
contested in good faith by appropriate proceedings and with respect to
which adequate reserves have been set aside in accordance with
Agreement Accounting Principles.
(e) Insurance. The Company will, and will cause each Subsidiary to,
maintain with financially sound and reputable insurance companies
insurance on all their Property in such amounts and covering such
risks as is consistent with sound business practice, and the Company
will furnish to any Lender upon request full information as to the
insurance carried.
(f) Compliance with Laws. The Company will, and will cause each Subsidiary
to, comply with all laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject
including, without limitation, all Environmental Laws.
(g) Maintenance of Properties. The Company will, and will cause each
Subsidiary to, do all things necessary to maintain, preserve, protect
and keep its Property in good repair, working order and condition, and
make all necessary and proper repairs, renewals and replacements so
that its business carried on in connection therewith may be properly
conducted at all times.
(h) Inspection. The Company will, and will cause each Subsidiary to,
permit the Agent and the Lenders, by their respective representatives
and agents, to inspect any of the Property, books and financial
records of the Company and each Subsidiary, to examine and make copies
of the books of accounts and other financial records of the Company
and each Subsidiary, and to discuss the affairs, finances and accounts
of the Company and each Subsidiary with, and to be advised as to the
same by, their respective officers at such reasonable times and
intervals as the Agent or any Lender may designate.
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(i) Dividends. The Company will not, nor will it permit any Subsidiary to,
declare or pay any dividends or make any distributions on its capital
stock (other than dividends payable in its own capital stock) or
redeem, repurchase or otherwise acquire or retire any of its capital
stock at any time outstanding, except that: (i) any Subsidiary may
declare and pay dividends or make distributions to the Company or to a
Wholly-Owned Subsidiary, and (ii) so long as there does not exist a
Program Event of Default or an Unmatured Default and the same would
not exist following the making of such payment, the Company may pay
dividends on preferred stock in a face amount not to exceed
$150,000,000.00.
(j) Indebtedness. The Company will not, nor will it permit any Subsidiary
to, create, incur or suffer to exist any Indebtedness, except:
(i) The Loans and Reimbursement Obligations (as such terms are
defined in the Existing Credit Agreement).
(ii) Indebtedness existing on the date hereof and described in
Schedule 5.01(j).
(iii)Other Indebtedness which when added to the Indebtedness
outstanding and permitted under clause (ii) above does not exceed
$10,000,000.00.
(k) Merger. The Company will not, nor will it permit any Subsidiary to,
merge or consolidate with or into any other Person, except that a
Subsidiary may merge into the Company or a Wholly-Owned Subsidiary.
(l) Sale of Assets. The Company will not, nor will it permit any
Subsidiary to, lease, sell or otherwise dispose of its Property to any
other Person, except:
(i) Sales of inventory in the ordinary course of business.
(ii) Leases, sales or other dispositions of its Property that,
together with all other Property of the Company and its
Subsidiaries previously leased, sold or disposed of (other than
inventory in the ordinary course of business) as permitted by
this Section during the twelve-month period ending with the month
in which any such lease, sale or other disposition occurs, do not
constitute a Substantial Portion of the Property of the Company
and its Subsidiaries.
(m) Investments and Acquisitions. The Company will not, nor will it permit
any Subsidiary to, make or suffer to exist any Investments (including
without limitation, loans and advances to, and other Investments in,
Subsidiaries), or commitments therefor, or to create any Subsidiary or
to become or remain a partner in any partnership or joint venture, or
to make any Acquisition of any Person, except:
(i) Cash Equivalent Investments.
(ii) Existing Investments in Subsidiaries and other Investments in
existence on the date hereof and described in Schedule 4.01(h).
(iii)Other Investments and Acquisitions made during any consecutive
twelve-month period, tested as of the end of each fiscal quarter,
for a total consideration which when added to Capital
Expenditures in excess of Maintenance Capital Expenditures during
such period does not exceed: (a) for any single or series of
related transactions, 10% of Consolidated Net Worth as of the
date of consummation of such Investment or Acquisition, or (b)
for all such transactions, 20% of Consolidated Net Worth as of
the date of consummation of the most recent of such Investment or
Acquisition.
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(n) Liens. The Company will not, nor will it permit any Subsidiary to,
create, incur, or suffer to exist any Lien in, of or on the Property
of the Company or any of its Subsidiaries, except:
(i) Liens for taxes, assessments or governmental charges or levies on
its Property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in
good faith and by appropriate proceedings and for which adequate
reserves in accordance with Agreement Accounting Principles shall
have been set aside on its books.
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary
course of business which secure payment of obligations not more
than 60 days past due or which are being contested in good faith
by appropriate proceedings and for which adequate reserves shall
have been set aside on its books.
(iii)Liens arising out of pledges or deposits under worker's
compensation laws, unemployment insurance, old age pensions, or
other social security or retirement benefits, or similar
legislation.
(iv) Utility easements, building restrictions and such other
encumbrances or charges against real property as are of a nature
generally existing with respect to properties of a similar
character and which do not in any material way affect the
marketability of the same or interfere with the use thereof in
the business of the Company or its Subsidiaries.
(v) Liens existing on the date hereof and described in Schedule
5.01(n).
(o) Capital Expenditures. The Company will not, nor will it permit any
Subsidiary to, expend, or be committed to expend, for Capital
Expenditures during any fiscal period that dollar amount which would
cause the Company to be in violation of the provisions of Section
5.01(m)(iii) above.
(p) Affiliates. The Company will not, and will not permit any Subsidiary
to, enter into any transaction (including, without limitation, the
purchase or sale of any Property or service) with, or make any payment
or transfer to, any Affiliate except in the ordinary course of
business and pursuant to the reasonable requirements of the Company's
or such Subsidiary's business and upon fair and reasonable terms no
less favorable to the Company or such Subsidiary than the Company or
such Subsidiary would obtain in a comparable arms-length transaction.
(q) Amendments to Agreements. The Company will not, and will not permit
any Subsidiary to, amend, extend or otherwise modify the Senior
Unsecured Notes or any document relating thereto (it being expressly
agreed and understood by the parties hereto that the prepayment of the
Senior Unsecured Notes at par shall not constitute a violation of this
Section 5.01(r)).
(r) Subordinated Indebtedness. The Company will not, and will not permit
any Subsidiary to, make any amendment or modification to the
indenture, note or other agreement evidencing or governing any
Subordinated Indebtedness, or directly or indirectly voluntarily
prepay, defease or in substance defease, purchase, redeem, retire or
otherwise acquire, any Subordinated Indebtedness.
(s) Sale of Accounts. The Company will not, nor will it permit any
Subsidiary to, sell or otherwise dispose of any notes receivable or
accounts receivable, with or without recourse.
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(t) Sale and Leaseback Transactions and other Off-Balance Sheet
Liabilities. The Company will not, nor will it permit any Subsidiary
to, enter into or suffer to exist any (i) Sale and Leaseback
Transaction or (ii) any other transaction pursuant to which it incurs
or has incurred Off-Balance Sheet Liabilities.
(u) Contingent Obligations. The Company will not, nor will it permit any
Subsidiary to, make or suffer to exist any Contingent Obligation
(including, without limitation, any Contingent Obligation with respect
to the obligations of a Subsidiary), except (i) by endorsement of
instruments for deposit or collection in the ordinary course of
business, (ii) the Reimbursement Obligations (as defined in the
Existing Credit Agreement) and (iii) Contingent Obligations set forth
on Schedule 5.01(j) hereto.
(v) Financial Covenants.
(i) Fixed Charge Coverage Ratio. The Company will not permit the
ratio, determined as of the end of each of its fiscal quarters
for the then most-recently ended four fiscal quarters, of (i)
Consolidated EBITDA plus Consolidated Rentals and minus
Maintenance Capital Expenditures, expenses for taxes paid or
accrued and cash dividends paid or accrued, to (ii) Consolidated
Interest Expense, plus Consolidated Rentals, plus current
maturities of Indebtedness (including the principal portion of
Capitalized Lease Obligations but excluding the current portion
of the Obligations under the Existing Credit Agreement), all
calculated for the Company and its Subsidiaries on a consolidated
basis, to be less than 1.75 to 1.0.
(ii) Leverage Ratio. The Company will not permit the ratio, determined
as of the end of each of its fiscal quarters, of (i) Consolidated
Funded Indebtedness to (ii) Consolidated EBITDA for the then
most-recently ended four fiscal quarters to be greater than 2.0
to 1.0.
(iii)Minimum Net Worth. The Company will at all times maintain
Consolidated Net Worth of not less than the sum of (a) 80% of its
Consolidated Net Worth at August 31, 1999, plus (b) 40% of
Consolidated Net Income earned in each fiscal quarter beginning
with the quarter ending November 30, 1999 (without deduction for
losses), and plus (c) 80% of the net proceeds of any equity
offering consummated after August 31, 1999.
(w) Subordinated Debt. If at any time hereafter the Company shall incur
any Indebtedness which is contractually subordinated in right of
payment to the obligations of the Company under the Existing Credit
Agreement or any successor agreement to the Existing Credit Agreement,
the Company shall cause such subordinated obligations to also be
subordinated in right of payment to the Obligations of the Company
under this Agreement to the same extent as such subordinated
obligations are subordinated to the obligations of the Company under
the Existing Credit Agreement or any successor agreement thereto.
(x) Collateral Security. In the event that the Existing Credit Agreement
or any other agreement which refinances or otherwise replaces the
Existing Credit Agreement becomes secured by any assets or property,
or is guarantied by any Person, then the Company shall cause the
Obligations to be equally and ratably secured by such assets or
property and equally and ratably guarantied by such Person pursuant to
documentation satisfactory to the Required Lenders.
(y) Margin Regulations. The Company will not permit any Reimbursement
Obligation of any Borrower to be secured or "indirectly secured"
(within the meaning of Regulation U) by any Margin Stock. The Company
shall take such actions and execute and deliver such instruments or
documents from time to time as the Agent shall reasonably request to
maintain continuous compliance with Regulation U.
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(z) Information Reporting. Upon the request of Banc One Securities
Corporation, the Company shall provide to the Agent and Banc One
Securities Corporation any and all information with respect to the
shares of Common Stock of the Company acquired by Merrill Lynch
pursuant to the Stock Purchase Program.
(aa) Limitation on Additional Purpose Credit/Sale of Assets.
Notwithstanding any other provision of this Agreement to the contrary,
the Company will not, and will not permit any of its Subsidiaries to
(a) incur or assume any Indebtedness which constitutes "purpose
credit" secured "directly or indirectly" as defined in Regulation U by
Margin Stock or (b) sell, transfer or otherwise dispose of any of its
assets (other than as permitted in Section 5.01(l)) unless in the case
of both clauses (a) and (b) the Agent shall have been given at least
10 days' prior written notice thereof and either:
(i) in the case of a disposition of assets, either (a) if permitted
by the Existing Credit Agreement, an amount equal to the net cash
proceeds received by the Company, such Subsidiary, as the case
may be, in connection with any such disposition of assets shall
be promptly applied to repay, Pro-rata, the principal amount of
the Loans made to the Borrowers (together with any interest
accrued thereon); provided that to the extent the net cash
proceeds of any such disposition exceed the amount of the Loans,
or the Loans shall have been paid in full, such net cash proceeds
shall be applied to repay any remaining Obligations or (b) the
Borrowers shall prepay their respective Obligations hereunder in
an amount equal to the product of (x) the net cash proceeds
received by the Company and/or such Subsidiary, as the case may
be, in connection with such disposition of assets, multiplied by
(y) a fraction, the numerator of which is the Obligations of such
Borrower and the denominator of which is the aggregate of all
Obligations of all the Borrowers; or
(ii) (a) no Borrower Event of Repayment exists and no Program Event of
Default shall result therefrom; (b) the Required Lenders have
determined, in their sole and absolute discretion, that such
proposed incurrence of Indebtedness or proposed disposition of
assets, as the case may be, will not in any way violate,
contravene or conflict with Regulation U (and the Agent shall
have received such information from the Company as may be
requested by the Agent to make such determination, including a
calculation of the "good faith loan value" of the assets
comprising the Indirect Collateral remaining after giving effect
to such incurrence of Indebtedness and/or disposition of assets);
(c) if requested by the Agent, the Lenders shall have received
(x) a certificate of an Authorized Officer setting forth a
calculation of the Collateral Ratio (which calculation shall
reflect any adjustment in the "good faith loan value" of the
Indirect Collateral as determined by the Required Lenders
pursuant to clause (b) above) and/or (y) an opinion of counsel
satisfactory to the Agent and its counsel to the effect that such
proposed incurrence of Indebtedness or disposition of assets, as
the case may be, will not in any way violate, contravene or
conflict with Regulation U addressing such other legal matters as
reasonably requested by the Agent; and (d) after giving effect to
the incurrence of such Indebtedness and/or the disposition of
such assets, the Collateral Ratio shall be at least 2.0 to 1.0.
(bb) Provision of Collateral Ratio Information. Upon the request of the
Agent or the Required Lenders, the Company shall provide to the Agent,
for the benefit of the Lenders, a computation of the Collateral Ratio
certified by an Authorized Officer. Nothing contained in this Section
5.01(bb) shall be deemed to limit in any way whatsoever the Agent's
right, on behalf of the Lenders, to calculate the Loan Value of Direct
Collateral or the Loan Value of Indirect Collateral or the Collateral
Ratio at any time it deems appropriate or necessary. If after making
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such calculation, the Agent or the Required Lenders determine that the
amount of such Collateral Ratio is different from the Collateral Ratio
most recently provided by the Company or the Agent, as the case may
be, the Agent shall deliver written notice of such amount to the
Company (on behalf of the Borrowers); provided that the Agent's
failure to deliver such notice shall not prejudice the rights of the
Agent and the Lenders or the Obligations of the Company or the
Borrowers under this Agreement or the other Loan Documents.
Furthermore, the Company shall provide to the Agent and the Lenders
such information as may be reasonably requested from time to time by
the Agent or the Required Lenders to permit the Agent or the Required
Lenders, as the case may be, to determine the "maximum good faith loan
value" (as defined in Regulation U) of the Indirect Collateral and do
such other acts and execute such other documentation to continue to
comply with Regulation U.
ARTICLE VI
PROGRAM EVENTS OF DEFAULT; ACCELERATION
6.01 PROGRAM EVENTS OF DEFAULT. Each of the following events shall constitute a
"Program Event of Default":
(a) Any representation or warranty made by or on behalf of the Company to
the Lenders or the Agent under or in connection with this Agreement
shall prove to have been incorrect in any material respect when made;
(b) The Company shall fail to perform or observe any term, covenant or
agreement set forth in Article V or Article VII;
(c) The Company shall fail to perform or observe any other term, covenant
or agreement contained in this Agreement (other than those referred to
in Sections 6.01(a) or (b)) or any other Loan Document to which it is
a party on its part to be performed or observed if the failure to
perform or observe such term, covenant or agreement set forth therein
shall remain unremedied for five (5) days after written notice thereof
shall have been given to the Company by the Agent or any Lender;
(d) Any Loan Document shall fail to be in full force and effect or to give
the Agent and/or the Lenders the rights, powers and privileges
purported to be created thereby;
(e) Failure of the Company or any of its Subsidiaries to pay when due any
other Indebtedness, including, without limitation, the Senior
Unsecured Notes or the default by the Company or any of its
Subsidiaries in the performance (beyond the applicable grace period
with respect thereto, if any) of any term, provision or condition
contained in any agreement under which any such Indebtedness was
created or is governed, or any other event shall occur or condition
exist, the effect of which default or event is to cause, or to permit
the holder or holders of such Indebtedness to cause, such Indebtedness
to become due prior to its stated maturity; or any Indebtedness of the
Company or any of its Subsidiaries shall be declared to be due and
payable or required to be prepaid or repurchased (other than by a
regularly scheduled payment) prior to the stated maturity thereof; or
the Company or any of its Subsidiaries shall not pay, or admit in
writing its inability to pay, its debts generally as they become due;
(f) The Company or any of its Subsidiaries shall (i) have an order for
relief entered with respect to it under the Federal bankruptcy laws as
now or hereafter in effect, (ii) make an assignment for the benefit of
creditors, (iii) apply for, seek, consent to, or acquiesce in, the
appointment of a receiver, custodian, trustee, examiner, liquidator or
similar official for it or any Substantial Portion of its Property,
(iv) institute any proceeding seeking an order for relief under the
Federal bankruptcy laws as now or hereafter in effect or seeking to
adjudicate it a bankrupt or insolvent, or seeking dissolution, winding
up, liquidation, reorganization, arrangement, adjustment or
composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors or fail to file an
answer or other pleading denying the material allegations of any such
proceeding filed against it, (v) take any corporate or partnership
action to authorize or effect any of the foregoing actions set forth
in this Section 6.01(f); or (vi) fail to contest in good faith any
appointment or proceeding described in Section 6.01(g);
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(g) Without the application, approval or consent of the Company or any of
its Subsidiaries, a receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Company or any of its Subsidiaries
or any Substantial Portion of its Property, or a proceeding described
in Section 6.01(f)(iv) shall be instituted against the Company or any
of its Subsidiaries and such appointment continues undischarged or
such proceeding continues undismissed or unstayed for a period of 60
consecutive days;
(h) Any court, government or governmental agency shall condemn, seize or
otherwise appropriate, or take custody or control of, all or any
portion of the Property of the Company and its Subsidiaries which,
when taken together with all other Property of the Company and its
Subsidiaries so condemned, seized, appropriated, or taken custody or
control of, during the twelve-month period ending with the month in
which any such action occurs, constitutes a Substantial Portion;
(i) The Unfunded Liabilities of all Single Employer Plans shall
exceed in the aggregate $5,000,000.00 or any Reportable Event
shall occur in connection with any Plan;
(j) The Company or any of its Subsidiaries shall fail within 30 days to
pay, bond or otherwise discharge one or more (i) judgments or orders
for the payment of money in excess of $5,000,000.00 (or the equivalent
thereof in currencies other than U.S. Dollars) in the aggregate, or
(ii) non-monetary judgments or orders which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse
Effect, which judgment(s), in any such case, is/are not stayed on
appeal or otherwise being appropriately contested in good faith;
(k) The Guaranty shall fail to remain in full force or effect or any
action shall be taken by the Company, any of its Subsidiaries or any
Governmental Authority to discontinue or to assert the invalidity or
unenforceability thereof, or the Company denies that it has any
further liability hereunder, or gives notice to such effect; or
(l) There shall occur a Change of Control.
6.02 ACCELERATION. If any Program Event of Default described in Section 6.01(f)
or (g) occurs with respect to the Company, the Obligations shall become
immediately due and payable and all obligations of the Lenders to make
Loans shall immediately terminate without any election or action on the
part of the Agent or any Lender. If any other Program Event of Default
occurs and is continuing, the Agent, at the direction of the Required
Lenders, may (i) by notice to the Company and the Borrowers, declare the
Notes, all interest thereon and all Obligations to be forthwith due and
payable, whereupon the Notes, all such interest and all Obligations shall
become and be forthwith due and payable, without presentment, demand,
protest, or further notice of any kind, or terminate or suspend the
obligations of the Lenders to make Loans, or both and (ii) enforce any and
all rights and interests created and existing under the Loan Documents,
including, without limitation, all rights of set-off.
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ARTICLE VII
GUARANTY
7.01 GUARANTY OF PAYMENT.
(a) The Company hereby absolutely, irrevocably and unconditionally
guarantees prompt, full and complete payment when due, whether at
stated maturity, upon acceleration or otherwise, and at all times
thereafter, of (i) the principal of and interest on the Loans made by
the Lenders to the Borrowers and (ii) all other fees (including Early
Payment Fees), reimbursements, indemnities and other obligations
(including, without limitation, reasonable out-of-pocket costs and
expenses (including reasonable attorneys' fees and disbursements)
incurred in connection with any enforcement of or collection under the
Guaranty) of the Borrowers from time to time owing to the Lenders or
the Agent pursuant to the Notes (collectively, the "Guaranteed Debt").
This Guaranty constitutes a guaranty of payment when due and not of
collection, and the Company specifically agrees that, it shall not be
necessary or required that any Lender or any holder of any Loan
exercise any right, assert any claim or demand or enforce any remedy
whatsoever against any Borrower or any other obligor (or any other
Person) before the performance of, or as a condition to, the
obligations of the Company hereunder.
(b) The Company agrees that, in the event of a Borrower Event of Repayment
described in Section 5(b) of any Note or a Program Event of Default
set forth in Section 6.01(f) or (g) hereof, and if such event shall
occur at a time when any of the Obligations of such Borrower may not
then be due and payable, the Company will pay to the Lenders
forthwith:
(i) in the event of such Borrower Event of Repayment, the full amount
which would be payable hereunder by the Company if all
Obligations of such Borrower were then due and payable; and
(ii) in the event of such Program Event of Default, the full amount
which would be payable hereunder by the Company if all the
Obligations of all Borrowers were then due and payable.
7.02 ACCEPTANCE OF GUARANTY; NO SETOFFS. The Company waives notice of the
acceptance of this Guaranty and of the extension or incurrence of the
Guaranteed Debt or any part thereof. The Company further waives all setoffs
and counterclaims and presentment, protest, notice, filing of claims with a
court in the event of receivership, bankruptcy or reorganization of any
Borrower, demand or action on delinquency in respect of the Guaranteed Debt
or any part thereof, including any right to require the Agent or the
Lenders to sue any Borrower, any other guarantor or any other person
obligated with respect to the Guaranteed Debt or any part thereof, or
otherwise to enforce payment thereof against any collateral securing the
Guaranteed Debt or any part thereof.
7.03 NATURE OF GUARANTY; CONTINUING, ABSOLUTE AND UNCONDITIONAL. The Company
hereby agrees that, to the fullest extent permitted by law, (a) its
obligations hereunder shall be continuing, absolute and unconditional under
any and all circumstances and not subject to any reduction, limitation,
impairment, termination, defense (other than indefeasible payment in full),
setoff, counterclaim or recoupment whatsoever (all of which are hereby
expressly waived by it to the fullest extent permitted by law), whether by
reason of any claim of any character whatsoever, including, without
limitation, any claim of waiver, release, surrender, alteration or
compromise and (b) the validity and enforceability of this Guaranty shall
not be impaired or affected by any of the following: (i) any extension,
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modification or renewal of, or indulgence with respect to, or substitution
for, the Guaranteed Debt or any part thereof or any agreement relating
thereto at any time; (ii) any failure or omission to perfect or maintain
any lien on, or preserve rights to, any security or collateral or to
enforce any right, power or remedy with respect to the Guaranteed Debt or
any part thereof or any agreement relating thereto, or any collateral
securing the Guaranteed Debt or any part thereof; (iii) any waiver of any
right, power or remedy or of any default with respect to the Guaranteed
Debt or any part thereof or any agreement relating thereto or with respect
to any collateral securing the Guaranteed Debt or any part thereof; (iv)
any release, surrender, compromise, settlement, waiver, subordination or
modification, with or without consideration, of any collateral securing the
Guaranteed Debt or any part thereof, any other guaranties with respect to
the Guaranteed Debt or any part thereof, or any other obligations of any
person or entity with respect to the Guaranteed Debt or any part thereof;
(v) the enforceability or validity of the Guaranteed Debt or any part
thereof or the genuineness, enforceability or validity of any agreement
relating thereto or with respect to any collateral securing the Guaranteed
Debt or any part thereof; (vi) the application of payments received from
any source to the payment of indebtedness other than the Guaranteed Debt,
any part thereof or amounts which are not covered by this Guaranty even
though the Lenders might lawfully have elected to apply such payments to
any part or all of the Guaranteed Debt or to amounts which are not covered
by this Guaranty; (vii) the death, insolvency, bankruptcy or any other
change in the legal status of any Borrower; (viii) any change in, or the
imposition of, any law, decree, regulation or other governmental act which
does or might impair, delay or in any way affect the validity,
enforceability or the payment when due of the Guaranteed Debt; (ix) the
failure of any Borrower to take any action required in connection with the
performance of the Guaranteed Debt; (x) the existence of any claim, setoff
or other rights which the Company may have at any time against any Borrower
or any other guarantor in connection herewith or with any unrelated
transaction; (xi) the disallowance of all or any portion of any of the
Lenders' claims for repayment of the Guaranteed Debt under section 502 or
506 of the United States Bankruptcy Code; (xii) any waiver by the Agent or
Lenders of any condition precedent set forth in Article III including,
without limitation, any disbursement of funds to a Borrower who has not
executed and delivered a Note or any other Loan Document to which he or she
is a party or any disbursement of funds on the basis of a facsimile (rather
than original) signature for any Note or other Loan Document (it being
understood that upon the disbursement of funds by the Agent or Lenders to
the Company with respect to any Borrower identified to the Agent pursuant
to Section 2.01(a) in the principal amount so identified for such Borrower,
such amount shall for all purposes of this Guaranty be treated as a Loan
outstanding to the applicable Borrower in accordance with the terms hereof
and of the Note and shall be included in the Guaranteed Debt, in each case
without respect to satisfaction of any such condition precedent); or (xiii)
any other fact or circumstance which might otherwise constitute grounds at
law or equity for the discharge or release of the Company from its
obligations hereunder, all whether or not the Company shall have had notice
or knowledge of any act or omission referred to in the foregoing clauses
(i) through (xiii) of this Section. It is agreed that the Company's
liability hereunder is independent of any other guaranties or other
obligations at any time in effect with respect to the Guaranteed Debt or
any part thereof and that the Company's liability hereunder may be enforced
regardless of the existence, validity, enforcement or non-enforcement of
any such other guaranties or other obligations or any provision of any
applicable law or regulation purporting to prohibit payment by any Borrower
of the Guaranteed Debt in the manner agreed upon among the Agent, the
Lenders and any Borrower. To the extent that, by operation of Section 16 of
any Note or otherwise, the Lenders are not entitled to collect any portion
of the Guaranteed Debt in the amount and manner provided for in any Note
(such portion being the "Excess Amount"), the Company shall nevertheless be
obligated to, and shall, pay to the Lenders, as additional consideration
for entering into this Agreement, funding the Loans and thereby benefiting
the Company, an amount equal to such Excess Amounts. Such additional
consideration shall be paid upon demand made on or after the date such
Excess Amount was otherwise due.
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7.04 DEALINGS WITH BORROWERS. In addition to the Guaranteed Debt, credit may be
granted or continued from time to time by the Lenders to the Borrowers
without notice to or authorization from the Company regardless of any
Borrower's financial or other condition at the time of any such grant or
continuation. Neither the Agent nor any Lender shall have an obligation to
disclose or discuss with the Company its assessment of the financial
condition of any Borrower.
7.05 SUBROGATION. The Company shall be subrogated to all rights of the Agent and
the Lenders against a Borrower in respect of any amounts paid to the Agent
and the Lenders by the Company in respect of such Borrower pursuant to the
provisions hereof; provided, however, that the Company shall not be
entitled to enforce or to receive any payments arising out of, or based
upon, such right of subrogation with respect to a Borrower until all of the
principal of and interest on such Borrower's Note, if applicable, and all
other Obligations of such Borrower, have been paid in full. Notwithstanding
the foregoing, the Company shall have no subrogation rights (and the
Company acknowledges it has no interest in) any of the Collateral pledged
by any Borrower under such Borrower's Pledge Agreement.
7.06 RIGHTS TO PAYMENTS, ETC. In the event that acceleration of the time for
payment of any of the Guaranteed Debt is stayed upon the insolvency,
bankruptcy or reorganization of any Borrower, or otherwise, all such
amounts shall nonetheless be payable by the Company forthwith upon demand
by the Agent or the Required Lenders. The Company further agrees that, to
the extent that any Borrower makes a payment or payments to any of the
Lenders on the Guaranteed Debt, or the Agent or the Lenders receive any
proceeds of collateral securing the Guaranteed Debt, which payment or
receipt of proceeds or any part thereof is subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be
returned or repaid to any Borrower, its estate, trustee, receiver, debtor
in possession or any other party, including, without limitation, the
Company, under any insolvency or bankruptcy law, state or federal law,
common law or equitable cause, then to the extent of such payment, return
or repayment, the obligation or part thereof which has been paid, reduced
or satisfied by such amount shall be reinstated and continued in full force
and effect as of the date when such initial payment, reduction or
satisfaction occurred.
7.07 TAXES. Any taxes (excluding federal income taxes and other income taxes on
the overall net income of the Agent or any Lender imposed by the
jurisdiction in which the Agent or such Lender is incorporated or has its
principal place of business) or other similar assessments or charges
payable or ruled payable by any governmental authority in respect of this
Agreement or any of the other Loan Documents pertaining to the Company
shall be paid by the Company, together with interest and penalties, if any.
Any payments made by the Company under this Agreement shall be made free
and clear of, and without deduction or withholding for or on account of,
any present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any Governmental
Authority (excluding taxes imposed on its overall net income by the
jurisdiction in which the Agent or such Lender is incorporated or has its
principal place of business) ("Taxes"). If any such Taxes are required to
be withheld from any amounts payable to the Agent or any Lender hereunder,
the amounts so payable to the Agent or such Lender shall be increased to
the extent necessary to yield to the Agent or such Lender (after payment of
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all Taxes) interest or any such other amounts payable hereunder at the
rates or in the amounts specified in or pursuant to this Agreement or the
Notes, as applicable. Whenever any Taxes are payable by the Company, as
promptly as practicable thereafter the Company shall send to the Agent for
its own account or for the account of such Lender, as the case may be, a
certified copy of an original official receipt received by the Company
showing payment thereof. If the Company fails to pay any Taxes when due to
the appropriate taxing authority or fails to remit the required receipts or
other required documentary evidence, the Company shall indemnify the Agent
and the Lenders for any incremental taxes, interest or penalties that may
become payable by the Agent or any Lender as a result of any such failure.
The agreements in this Section 7.07 shall survive the payment in full of
all amounts payable under this Agreement.
7.08 SALE AND RELEASE OF PLEDGED SHARES.
(a) Sale of Pledged Shares. Notwithstanding any provision set forth in any
of the Loan Documents to the contrary and subject to Section 7.08(f),
the Agent and each Lender agrees that after the occurrence and during
the continuance of a Borrower Event of Repayment relating specifically
to any Borrower (and not to a Program Event of Default), the effect of
which is to cause the Obligations of such Borrower to be due and
payable, subject to the provisions of Sections 7.08(b), (d), and (f)
below, it will not demand that the Company pay any portion of the
Guaranteed Debt with respect to such Borrower until after the Agent
has used reasonable efforts to sell the Pledged Shares of such
Borrower, such sale to be consummated in one or a series of open
market transactions through one or more reputable broker-dealers
(including any Bank One affiliate) at the then fair market value of
such Pledged Shares.
(b) Conditions to Sale of Pledged Shares. The obligation of the Agent and
Lenders not to demand payment hereunder pursuant to Section 7.08(a)
shall expire five Business Days after the Agent has commenced using
its reasonable efforts to sell the applicable Pledged Shares as
provided in Section 7.08(a). Additionally, such obligation is subject
to the following conditions:
(i) none of the following has occurred at the time of such Borrower
Event of Repayment or shall occur thereafter:
(A) a suspension or material limitation in trading in
securities generally or trading in the Common Stock of the
Company on the New York Stock Exchange or any other exchange upon
which the Common Stock of the Company may then be traded;
(B) a general moratorium on commercial banking activities in
New York is declared by any Federal or New York State
authorities;
(C) the Agent is prohibited or materially limited from
selling the Pledged Shares as a result of any federal or state
securities laws (including, without limitation, the rules
promulgated thereunder relating to the disclosure of material
information); or
(D) any other event (including, without limitation,
commencement of any bankruptcy or insolvency action, suit, other
action or litigation, filing of any claim or any other similar
proceeding or any change in any applicable law) has occurred
which, in the reasonable opinion of the Agent, would prohibit,
have a material adverse effect on, or materially limit or delay
the Agent's ability to sell the Pledged Shares as contemplated by
the terms of Section 7.08.
(ii) The Company agrees that in any sale of any of the Pledged Shares,
the Agent is authorized to comply with any limitation or
restriction in connection with such sale as counsel may advise
the Agent is necessary, in the reasonable opinion of such
counsel, in order to avoid any violation of applicable law
(including, without limitation, compliance with such procedures
as may restrict the number of prospective bidders and purchasers,
require that such prospective bidders and purchasers have certain
qualifications, and restrict such prospective bidders and
purchasers to persons who will represent and agree that they are
purchasing for their own account for investment and not with a
view to the distribution or resale of such Collateral), or in
order to obtain any required approval of the sale or of the
purchaser by any governmental regulatory authority or official,
and the Company further agrees that such compliance shall not
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result in such sale being considered or deemed not to have been
made in a commercially reasonable manner, nor shall the Agent be
liable or accountable to the Company for any discount allowed by
reason of the fact that such Pledged Shares are sold in
compliance with any such limitation or restriction.
(iii)The Company further agrees to indemnify and hold harmless the
Agent and the Lenders and each of their respective officers,
directors, employees, agents, successors and assigns, and any
Person in control of any thereof, from and against any loss,
liability, claim, damage and expense, including, without
limitation, reasonable attorneys' fees actually incurred (in this
paragraph collectively called the "Indemnified Liabilities"),
under federal and state securities laws or otherwise resulting
from the action or failure to act by the Company or any Borrower;
provided, that no such Person shall have the right to be
indemnified hereunder for its own gross negligence or willful
misconduct as determined by a court of competent jurisdiction.
(c) Release of Pledged Shares. The Agent agrees that, so long as none of
the events set forth in Section 7.08(b)(i) has occurred, it shall not
release any of the Pledged Shares of any Borrower from the Lien
granted under the Pledge Agreement until after the termination of this
Agreement and the Guaranty of the Company hereunder with respect to
such Borrower. Notwithstanding the foregoing, the Company and the
Lenders agree that the Agent shall be entitled to (i) release the
Pledged Shares of such Borrower if such Pledged Shares are replaced by
a like number of shares of additional Common Stock of the Company,
(ii) sell the Pledged Shares pursuant to Section 7.08(a), (iii)
subject to the application of the net proceeds of such sale to the
Obligations of a Borrower in accordance with Section 3(d)(iv) of the
Pledge Agreement, sell or release for sale any or all of the Pledged
Shares of such Borrower upon the request of such Borrower and (iv)
release any of the Pledged Shares in any other circumstances which the
Lenders deem appropriate in their sole and absolute discretion.
(d) Borrower Event of Repayment. The Company hereby acknowledges and
agrees that Sections 7.08(a) and (c) shall not apply to any Program
Event of Default or a Borrower Event of Repayment set forth in Section
5(a) of the Notes occurring on the Maturity Date and, upon the
occurrence of a Program Event of Default or such Borrower Event of
Repayment, the Agent expressly reserves its rights and remedies under
this Agreement to demand payment hereunder to satisfy the Guaranteed
Debt and the Guaranty of the Company hereunder whether or not the
Agent has sold or attempted to sell the Pledged Shares of any Borrower
or otherwise exercised its rights and remedies under any Pledge
Agreement or any other Loan Document. Furthermore nothing contained
herein shall be deemed to prohibit or limit in any way whatsoever the
Agent's or any Lender's right or ability to receive its portion of the
assets of the Company upon the exercise by the agent or the lenders
under the Existing Credit Agreement of their rights and remedies under
the Existing Credit Agreement and related documents or any other
creditor of the Company.
(e) Application of Excess Funds. If after compliance by the Agent with the
provisions set forth in Section 7.08(a), any Obligations remain unpaid
with respect to any applicable Borrower, any funds of the Company held
by the Agent may be applied by the Agent against the payment of the
Obligations of such Borrower. The Agent, prior to applying such funds
against the Obligations of such Borrower, will certify to the Company
(a) if the Pledged Shares of such Borrower are sold pursuant to
Section 7.08(a), the net proceeds (including a calculation thereof in
reasonable detail) received by the Agent from the sale of such Pledged
Shares and (b) if the Pledged Shares of such Borrower are not sold
pursuant to Section 7.08(a), the reason or reasons why such sale could
not be accomplished. Any funds remaining after application thereof to
the Obligations as set forth above shall be returned to the Company.
The Agent agrees that it shall deliver to the Company, after the
application of such funds to the Obligations of such Borrower, a
calculation in reasonable detail of the Obligations of such Borrower
(including principal and interest of the Loans and any Early Payment
Fees with respect to such Borrower) and the application of such funds
thereto.
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(f) No Requirement to Comply with Section 7.08(a) in Certain
Circumstances. Notwithstanding the provisions of Section 7.08(a), the
Agent shall not be required to attempt to sell the Pledged Shares of
any Borrower in the manner contemplated by Section 7.08(a) prior to
demanding payment from the Company in respect of such Borrower's
Obligations if (a) the Agent would not be legally permitted to do so
by reason of restrictions imposed by the United States Bankruptcy Code
(it being understood that the Agent shall not be obligated to seek
relief from any "automatic stay" or similar restriction), (b) the
Agent would be required to comply with any restrictions on the
immediate sale of such Pledged Shares imposed by federal securities
laws or regulations, (c) in respect of the Loan of any Borrower, if
the Agent shall not have received (i) counterparts, duly executed by
such Borrower, of all documents contemplated by this Agreement to be
executed by such Borrower or (ii) a duly perfected first priority
security interest in all shares of Common Stock of the Company
purchased by such Borrower with proceeds of such Loans or (d) the
Agent or the Required Lenders decide in their sole discretion not to
attempt to sell any Pledged Shares. The decision of the Agent or the
Required Lenders to not attempt to sell the Pledged Share of any
Borrower shall not negate, release or otherwise affect the Guaranty.
7.09 MISCELLANEOUS.
(a) Any determination by a court of competent jurisdiction of the amount
of any Guaranteed Debt owing by any Borrower to the Lenders shall be
conclusive and binding on the Company irrespective of whether the
Company was a party to the suit or action in which such determination
was made.
(b) Subject to the provisions of Section 7.06, this Guaranty shall
continue in effect until this Agreement has terminated, the Guaranteed
Debt has been paid in full and the other conditions of this Guaranty
have been satisfied.
(c) In addition to and without limitation of any rights, powers or
remedies of the Agent or the Lenders under applicable law, any time
after maturity of the Guaranteed Debt, whether by acceleration or
otherwise, the Agent or the Lenders may, in their sole discretion,
with notice after the fact to the Company and regardless of the
acceptance of any security or collateral for the payment hereof,
appropriate and apply toward the payment of the Guaranteed Debt (i)
any indebtedness due or to become due from any of the Lenders to the
Company and (ii) any moneys, credits or other property belonging to
the Company (including all account balances, whether provisional or
final and whether or not collected or available but excluding any
Margin Stock) at any time held by or coming into the possession of any
of the Agent or any Lender whether for deposit or otherwise.
(d) Wherever possible, each provision of this Guaranty shall be
interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Guaranty shall be
prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining
provisions of this Guaranty.
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ARTICLE VIII
THE AGENT
8.01 APPOINTMENT; NATURE OF RELATIONSHIP. Bank One, NA is hereby appointed by
each of the Lenders as its contractual representative (herein referred to
as the "Agent") hereunder and under each other Loan Document, and each of
the Lenders irrevocably authorizes the Agent to act as the contractual
representative of such Lender with the rights and duties expressly set
forth herein and in the other Loan Documents. The Agent agrees to act as
such contractual representative upon the express conditions contained in
this Article VIII. Notwithstanding the use of the defined term "Agent," it
is expressly understood and agreed that the Agent shall not have any
fiduciary responsibilities to any Lender by reason of this Agreement or any
other Loan Document and that the Agent is merely acting as the contractual
representative of the Lenders with only those duties as are expressly set
forth in this Agreement and the other Loan Documents. In its capacity as
the Lenders' contractual representative, the Agent (i) does not hereby
assume any fiduciary duties to any of the Lenders, (ii) is a
"representative" of the Lenders within the meaning of Section 1-201 of the
Uniform Commercial Code and (iii) is acting as an independent contractor,
the rights and duties of which are limited to those expressly set forth in
this Agreement and the other Loan Documents. Each of the Lenders hereby
agrees to assert no claim against the Agent on any agency theory or any
other theory of liability for breach of fiduciary duty, all of which claims
each Lender hereby waives.
8.02 POWERS. The Agent shall have and may exercise such powers under the Loan
Documents as are specifically delegated to the Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto.
The Agent shall have no implied duties to the Lenders, or any obligation to
the Lenders to take any action thereunder except any action specifically
provided by the Loan Documents to be taken by the Agent.
8.03 General IMMUNITY. Neither the Agent nor any of its directors, officers,
employees, or agents in their capacity as representatives of the Agent
shall be liable to the Company, the Lenders or any Borrower for any action
taken or omitted to be taken by it or them hereunder or under any other
Loan Document or in connection herewith or therewith except to the extent
such action or inaction is determined in a final non-appealable judgment by
a court of competent jurisdiction to have arisen from the gross negligence
or willful misconduct of such Person.
8.04 NO RESPONSIBILITY FOR LOANS, RECITALS, ETC. Neither the Agent nor any of
its directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into, or verify (a) any statement,
warranty or representation made in connection with any Loan Document or any
borrowing hereunder; (b) the performance or observance of any of the
covenants or agreements of any obligor under any Loan Document, including,
without limitation, any agreement by an obligor to furnish information
directly to each Lender; (c) the satisfaction of any condition specified in
Article III, except receipt of items required to be delivered solely to the
Agent; (d) the existence or possible existence of any Program Event of
Default, Unmatured Default or Borrower Event of Repayment; (e) the
validity, enforceability, effectiveness, sufficiency or genuineness of any
Loan Document or any other instrument or writing furnished in connection
therewith; (f) the value, sufficiency, creation, perfection or priority of
any Lien in any collateral security; or (g) the financial condition of any
Borrower or the Company or any of its Subsidiaries. The Agent shall have no
duty to disclose to the Lenders information that is not required to be
furnished by the Company to the Agent at such time, but is voluntarily
furnished by the Company to the Agent (either in its capacity as Agent or
in its individual capacity).
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8.05 ACTION ON INSTRUCTIONS OF LENDERS. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Required Lenders, and such instructions and any action taken or failure to
act pursuant thereto shall be binding on all of the Lenders and all holders
of Notes. The Lenders hereby acknowledge that the Agent shall be under no
duty to take any discretionary action permitted to be taken by it pursuant
to the provisions of this Agreement or any other Loan Document unless it
shall be requested in writing to do so by the Required Lenders. The Agent
shall be fully justified in failing or refusing to take any action
hereunder and under any other Loan Document unless it shall first be
indemnified to its satisfaction by the Lenders Pro-rata against any and all
liability, cost and expense that it may incur by reason of taking or
continuing to take any such action.
8.06 EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute any of its duties
as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders for the default or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. The Agent shall be
entitled to advice of counsel concerning the contractual arrangement
between the Agent and the Lenders and all matters pertaining to the Agent's
duties hereunder and under any other Loan Document.
8.07 RELIANCE ON DOCUMENTS; COUNSEL. The Agent shall be entitled to rely upon
any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and
to have been signed or sent by the proper person or persons, and, in
respect to legal matters, upon the opinion of counsel selected by the
Agent, which counsel may be employees of the Agent.
8.08 AGENT'S REIMBURSEMENT AND INDEMNIFICATION. The Lenders agree to reimburse
and indemnify the Agent ratably in proportion to their respective
Commitments (or, if the Commitments have been terminated, in proportion to
their Commitments immediately prior to such termination) (a) for any
amounts not reimbursed by the Company or the Borrowers for which the Agent
is entitled to reimbursement by the Company or the Borrowers under the Loan
Documents, (b) for any other expenses incurred by the Agent on behalf of
the Lenders, in connection with the preparation, execution, delivery,
administration and enforcement of the Loan Documents (including, without
limitation, for any expenses incurred by the Agent in connection with any
dispute between the Agent and any Lender or between two or more of the
Lenders) and (c) for any liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of
any kind and nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of the
Loan Documents or any other document delivered in connection therewith or
the transactions contemplated thereby (including, without limitation, for
any such amounts incurred by or asserted against the Agent in connection
with any dispute between the Agent and any Lender or between two or more of
the Lenders), or the enforcement of any of the terms of the Loan Documents
or of any such other documents, provided that no Lender shall be liable for
any of the foregoing to the extent any of the foregoing is found in a final
non-appealable judgment by a court of competent jurisdiction to have
resulted from the gross negligence or willful misconduct of the Agent. The
obligations of the Lenders under this Section 8.08 shall survive payment of
the Obligations and termination of this Agreement.
8.09 NOTICE OF DEFAULT. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Program Event of Default, Unmatured Default
or Borrower Event of Repayment unless the Agent has received written notice
from a Lender or the Company referring to this Agreement describing such
Program Event of Default, Unmatured Default or Borrower Event of Repayment
and stating that such notice is a "notice of default". In the event that
the Agent receives such a notice, the Agent shall give prompt notice
thereof to the Lenders.
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8.10 RIGHTS AS A LENDER. In the event the Agent is a Lender, the Agent shall
have the same rights and powers hereunder and under any other Loan Document
with respect to its Commitment and its Loans as any Lender and may exercise
the same as though it were not the Agent, and the term "Lender" or
"Lenders" shall, at any time when the Agent is a Lender, unless the context
otherwise indicates, include the Agent in its individual capacity. The
Agent and its Affiliates may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction,
in addition to those contemplated by this Agreement or any other Loan
Document, with the Company, any of its Subsidiaries or any Borrower in
which the Company, or such Subsidiary or such Borrower is not restricted
hereby from engaging with any other Person. The Agent, in its individual
capacity, is not obligated to remain a Lender.
8.11 LENDER CREDIT DECISION. Each Lender acknowledges that it has, independently
and without reliance upon the Agent, the Arranger or any other Lender and
based on the financial statements prepared by the Company and such other
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and the other Loan
Documents. Each Lender also acknowledges that it will, independently and
without reliance upon the Agent, the Arranger or any other Lender and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement and the other Loan Documents.
8.12 SUCCESSOR AGENT. The Agent may resign at any time by giving written notice
thereof to the Lenders and the Company, such resignation to be effective
upon the appointment of a successor Agent or, if no successor Agent has
been appointed, forty-five days after the retiring Agent gives notice of
its intention to resign. The Agent may be removed at any time with or
without cause by written notice received by the Agent from the Required
Lenders, such removal to be effective on the date specified by the Required
Lenders. Upon any such resignation or removal, the Required Lenders shall
have the right to appoint, on behalf of the Company and the Lenders, a
successor Agent. If no successor Agent shall have been so appointed by the
Required Lenders within thirty days after the resigning Agent's giving
notice of its intention to resign, then the resigning Agent may appoint, on
behalf of the Company and the Lenders, a successor Agent. Notwithstanding
the previous sentence, the Agent may at any time without the consent of the
Company or any Lender, appoint any of its Affiliates which is a commercial
bank as a successor Agent hereunder. If the Agent has resigned or been
removed and no successor Agent has been appointed, the Lenders may perform
all the duties of the Agent hereunder and the Company shall make all
payments in respect of the Obligations to the applicable Lender and for all
other purposes shall deal directly with the Lenders. No successor Agent
shall be deemed to be appointed hereunder until such successor Agent has
accepted the appointment. Any such successor Agent shall be a commercial
bank having capital and retained earnings of at least $100,000,000. Upon
the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all
the rights, powers, privileges and duties of the resigning or removed
Agent. Upon the effectiveness of the resignation or removal of the Agent,
the resigning or removed Agent shall be discharged from its duties and
obligations hereunder and under the Loan Documents. After the effectiveness
of the resignation or removal of an Agent, the provisions of this Article
VIII shall continue in effect for the benefit of such Agent in respect of
any actions taken or omitted to be taken by it while it was acting as the
Agent hereunder and under the other Loan Documents.
8.13 NOTES. The Agent shall retain possession of the Notes on behalf of the
Lenders. Each Lender shall be entitled, upon request, to examine or receive
a copy of any Note. The Agent shall have only the duty to exercise
reasonable care in the custody and preservation of the Notes, which duty
shall be fully satisfied if the Agent accords such Notes treatment
substantially the same as that which it accords similar property owned by
it. If any Borrower has issued Replacement Notes (as defined in the Note)
pursuant to Section 15 of his or her Note, then upon the request of any
Lender the Agent shall deliver to such Lender the Replacement Note payable
to its order.
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8.14 AGENT'S FEE. The Company agrees to pay to the Agent, for its own account,
the fees agreed to by the Company and Bank One pursuant to that certain fee
letter dated March 21, 2000, or as otherwise agreed from time to time.
8.15 DELEGATION TO AFFILIATES. The Company and the Lenders agree that the Agent
may delegate any of its duties under this Agreement to any of its
Affiliates. Any such Affiliate (and such Affiliate's directors, officers,
agents and employees) which performs duties in connection with this
Agreement shall be entitled to the same benefits of the indemnification,
waiver and other protective provisions to which the Agent is entitled under
Articles VIII and XII.
ARTICLE IX
RATABLE PAYMENTS
9.01 RATABLE PAYMENTS. If any Lender, whether by setoff or otherwise, has
payment made to it upon its Advances (other than payments received pursuant
to Section 2.05 or Section 12.08) in a greater proportion than its Pro-rata
share of all such Loans, such Lender agrees, promptly upon demand, to
purchase a portion of the Loans held by the other Lenders so that after
such purchase each Lender will hold its ratable proportion of Loans. If any
Lender, whether in connection with setoff or amounts which might be subject
to setoff or otherwise, receives collateral or other protection for its
Obligations or such amounts which may be subject to setoff, such Lender
agrees, promptly upon demand, to take such action necessary such that all
Lenders share in the benefits of such collateral ratably in proportion to
their Loans. In case any such payment is disturbed by legal process, or
otherwise, appropriate further adjustments shall be made.
ARTICLE X
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
10.01 SUCCESSORS AND ASSIGNS. The terms and provisions of the Loan Documents
shall be binding upon and inure to the benefit of the Company and the
Lenders and their respective successors and assigns, except that the
Company shall not have the right to assign its rights or obligations under
the Loan Documents, provided that any assignment by any Lender must be made
in compliance with Section 10.03. Notwithstanding the preceding sentence,
any Lender may at any time, without the consent of the Company or the
Agent, assign all or any portion of its rights under this Agreement and its
Notes to a Federal Reserve Bank; provided, however, that no such assignment
to a Federal Reserve Bank shall release the transferor Lender from its
obligations hereunder. The Agent may treat the payee of any Note as the
owner thereof (to the extent of its Pro-rata interest therein) for all
purposes hereof unless and until such payee complies with Section 10.03 in
the case of an assignment thereof or, in the case of any other transfer, a
written notice of the transfer is filed with the Agent. Any assignee or
transferee of a Note agrees by acceptance thereof to be bound by all the
terms and provisions of the Loan Documents. Any request, authority or
consent of any Person, who at the time of making such request or giving
such authority or consent is the holder of any Note, shall be conclusive
and binding on any subsequent holder, transferee or assignee of such Note
or of any Note or Notes issued in exchange therefor.
10.02 PARTICIPATIONS.
(a) Permitted Participants; Effect. Any Lender may, in the ordinary course
of its business and in accordance with applicable law, at any time
sell to one or more banks or other entities ("Participants")
participating interests in any Advance owing to such Lender, any Note
held by or payable to such Lender or any other interest of such Lender
under the Loan Documents. In the event of any such sale by a Lender of
156
participating interests to a Participant, such Lender's obligations
under the Loan Documents shall remain unchanged, such Lender shall
remain solely responsible to the other parties hereto for the
performance of such obligations, such Lender shall remain the holder
of any such Note for all purposes under the Loan Documents, all
amounts payable by the Company under this Agreement or by the
Borrowers under the Notes shall be determined as if such Lender had
not sold such participating interests, and the Company, the Borrowers
and the Agent shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under
the Loan Documents.
(b) Voting Rights. Each Lender shall retain the sole right to approve,
without the consent of any Participant, any amendment, modification or
waiver of any provision of the Loan Documents other than any
amendment, modification or waiver which effects any of the
modifications referenced in clauses (a)(i) through (v) of Section
12.01.
(c) Benefit of Setoff. The Company agrees that each Participant shall be
deemed to have the right of setoff provided in Section 7.08(c) in
respect of its participating interest in amounts owing under the Loan
Documents to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under the Loan
Documents; provided, that each Lender shall retain the right of setoff
provided in Section 7.08(c) with respect to the amount of
participating interests sold to each Participant. The Lenders agree to
share with each Participant, and each Participant, by exercising the
right of setoff provided in Section 7.08(c), agrees to share with each
Lender, any amount received pursuant to the exercise of its right of
setoff, such amounts to be shared in accordance with Section 9.01 as
if each Participant were a Lender.
10.03 ASSIGNMENTS.
(a) Permitted Assignments. Any Lender may, in the ordinary course of its
business and in accordance with applicable law, at any time assign to
one or more banks or other entities ("Purchasers") all or any part of
its rights and obligations under the Loan Documents, provided that
with respect to any partial assignment, except as the Agent may
otherwise agree, such Lender ratably assigns its interest in all of
the Notes and, in the case of an assignment to a Person which is not a
Lender or an Affiliate of a Lender, such assignment shall be in the
minimum amount of $5,000,000 or, if less, all of the assigning
Lender's interests in the Notes. Such assignment shall be
substantially in the form from time to time specified by the Agent or
in such other form as may be agreed to by the parties thereto. The
consent of the Agent and, so long as no Program Event of Default is
pending, the Company shall be required prior to an assignment becoming
effective with respect to a Purchaser which is not a Lender or an
Affiliate thereof. Such consent, in each case, shall not be
unreasonably withheld in the case of an assignment to a Person which
is an Eligible Assignee.
(b) Effect; Effective Date. Upon (a) delivery to the Agent of a notice of
assignment, substantially in the form from time to time specified by
the Agent (a "Notice of Assignment"), together with any consents
required by Section 10.03(a), and (b) payment of a $3,500 fee to the
Agent by the transferor Lender for processing such assignment, such
assignment shall become effective on the effective date specified in
such Notice of Assignment. On and after the effective date of such
assignment, (a) such Purchaser shall for all purposes be a Lender
party to this Agreement and any other Loan Document executed by the
Lenders and shall have all the rights and obligations of a Lender
under the Loan Documents, to the same extent as if it were an original
party hereto, and (b) the transferor Lender shall be released with
157
respect to the percentage of the Loans assigned to such Purchaser
without any further consent or action by the Company, the Borrowers,
the Lenders or the Agent. Upon the consummation of any assignment to a
Purchaser pursuant to this Section 10.03(b), the transferor Lender,
the Agent, the Borrowers and the Company shall make appropriate
arrangements so that replacement Notes are issued to the Agent to be
held on behalf of such transferor Lender and new Notes or, as
appropriate, replacement Notes, are issued to the Agent to be held on
behalf of such Purchaser, in each case in principal amounts reflecting
their percentage of the Loans, as adjusted pursuant to such
assignment.
10.04 DISSEMINATION OF INFORMATION. The Company authorizes each Lender to
disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "Transferee")
and any prospective Transferee any and all information in such Lender's
possession concerning the creditworthiness of the Company, its Subsidiaries
and the Borrowers, provided such Person agrees in writing to keep such
information confidential and use the same only for the purpose of making
credit determinations in connection with the financing contemplated hereby
and to enforce rights it may have, except that such Person shall not be
restricted from disclosing such information as is (a) required to be
disclosed to any regulatory or administrative body or commission, (b)
required to be disclosed by subpoena or similar process of applicable law,
(c) disclosed to counsel, auditors, and other professional advisors used by
such Person on a need-to-know basis, or (d) deemed necessary by such Person
to be disclosed in conjunction with any litigation between the Company or
any Borrower and such Person, or relating to the financing contemplated
hereby.
10.05 TAX TREATMENT. If any interest in any Loan Document is transferred to any
Transferee which is organized under the laws of any jurisdiction other than
the United States of America or any State thereof, the transferor Lender
shall cause such Transferee, concurrently with the effectiveness of such
transfer, to comply with the provisions of Section 12.16.
ARTICLE XI
NOTICES
11.01 GIVING NOTICE. All notices and other communications provided to any party
hereto under this Agreement or any other Loan Document shall be in writing,
by facsimile, first class U.S. mail or courier and addressed or delivered
to such party at its address set forth below its signature hereto or at
such other address as may be designated by such party in a notice to the
other parties. Any notice, if mailed and properly addressed with first
class postage prepaid, return receipt requested, shall be deemed given
three Business Days after deposit in the U.S. mail; any notice, if
transmitted by facsimile, shall be deemed given when transmitted if a
confirmation of transmission to the addressee is then generated by the
sender's fax machine (and a copy thereof is simultaneously posted in first
class U.S. mail); and any notice given by courier shall be deemed given
when received by the addressee.
11.02 CHANGE OF ADDRESS. The Company, the Agent and any Lender may each change
the address for service of notice upon it by a notice in writing to the
other parties hereto.
ARTICLE XII
MISCELLANEOUS
12.01 AMENDMENTS.
(a) Subject to the provisions of this Section 12.01 and subject to Section
10 in each of the Notes, the Required Lenders (or the Agent with the
consent in writing of the Required Lenders) and the Company or a
Borrower, as applicable, may enter into agreements supplemental hereto
for the purpose of adding or modifying any provisions to the Loan
Documents or changing in any manner the rights of the Lenders, the
Company hereunder or thereunder or waiving any Program Event of
Default or Borrower Event of Repayment hereunder; provided, however,
that no such supplemental agreement shall, without the consent of each
Lender affected thereby:
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(i) Extend the final maturity of any Loan or Note or reduce the
principal amount thereof, or reduce the rate or amount, or extend
the time of payment, of interest or fees or other amounts payable
thereunder;
(ii) Reduce the percentage specified in the definition of Required
Lenders;
(iii) Release the Company from its obligations under the Guaranty;
(iv) Amend this Section 12.01;
(v) Permit any assignment by the Company of its Obligations or its
rights hereunder; or
(vi) Release any collateral securing any Borrower's Obligations, other
than as expressly permitted under the Loan Documents.
(b) No amendment of any provision of this Agreement relating to the Agent
shall be effective without the written consent of the Agent. The Agent
may waive payment of the fee required under Section 10.03(b) or any
administrative fee payable under any Note without obtaining the
consent of any other party to this Agreement. The Lenders shall not
consent to any amendment or modification of any Note increasing the
principal amount thereof or the rate of interest payable thereon
without the consent of the Company. The Company hereby consents to the
Note amendments contemplated by Section 3.03.
(c) Notwithstanding the foregoing, upon the agreement of the Company and
the Agent upon the Pricing Information, Schedule 2.05(A) shall be
deemed amended to include such information on such Schedule.
12.02 PRESERVATION OF RIGHTS. No delay or omission of the Lenders or the Agent
to exercise any right under the Loan Documents shall impair such right or
be construed to be a waiver of any Program Event of Default or an
acquiescence therein. Any single or partial exercise of any such right
shall not preclude other or further exercise thereof or the exercise of any
other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid
unless in writing signed by the Lenders required pursuant to Section 12.01,
and then only to the extent in such writing specifically set forth. No
waiver by the Agent or the Lenders of any default shall operate as a waiver
of any other default or the same default on a future occasion, and no
action by the Agent or the Lenders permitted hereunder shall in any way
affect or impair the Agent's or the Lenders' rights or powers, or the
obligations of the Company under this Agreement. All remedies contained in
the Loan Documents or by law afforded shall be cumulative and all shall be
available to the Agent and the Lenders until the Obligations have been paid
in full.
12.03 SURVIVAL OF REPRESENTATIONS. All representations and warranties of the
Company contained in this Agreement or in any Loan Document shall survive
delivery of the Notes and the making of the Loans herein contemplated.
12.04 GOVERNMENTAL REGULATION. Anything contained in this Agreement to the
contrary notwithstanding, no Lender shall be obligated to extend credit to
any Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
12.05 HEADINGS. Section headings in the Loan Documents are for convenience of
reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
12.06 ENTIRE AGREEMENT. The Loan Documents embody the entire agreement and
understanding among the Company, the Agent and the Lenders and supersede
all prior agreements and understandings between the Company, the Agent and
the Lenders relating to the subject matter thereof other than the fee
letter dated March 21, 2000 between the Company and Bank One.
159
12.07 SEVERAL OBLIGATIONS; Benefits of this Agreement. The respective
obligations of the Lenders hereunder are several and not joint and no
Lender shall be the partner or agent of any other (except to the extent to
which the Agent is authorized to act as such). The failure of any Lender to
perform any of its obligations hereunder shall not relieve any other Lender
from any of its obligations hereunder. This Agreement shall not be
construed so as to confer any right or benefit upon any Person other than
the parties to this Agreement and their respective successors and assigns.
This Agreement is not intended to, and shall not be construed to, create
any rights (contractual, equitable, pursuant to law or otherwise) in favor
of any Borrower against the Agent, any Lenders or the Company, and no
Borrower in his or her individual capacity shall have the right to enforce
any rights of the Company hereunder.
12.08 EXPENSES; INDEMNIFICATION.
(a) The Company shall reimburse the Agent for any costs, internal charges
and out-of-pocket expenses (including reasonable attorneys' fees and
time charges of attorneys for the Agent, which attorneys may be
employees of the Agent) paid or incurred by the Agent in connection
with the actual or proposed preparation, negotiation, execution,
delivery, review, syndication, amendment, modification, and
administration of the Loan Documents. The Company also agrees to
reimburse the Agent and the Lenders for any costs, internal charges
and out-of-pocket expenses (including, without limitation, reasonable
attorneys' fees and expenses and time charges of attorneys for the
Agent and the Lenders, which attorneys may be employees of the Agent
or the Lenders) paid or incurred by the Agent or any Lender in
connection with the collection and enforcement of the Loan Documents.
The Company further agrees to indemnify and hold harmless the Agent
and each Lender, and their respective affiliates (including, without
limitation, Bank One Capital Markets, Inc. and Bank One Securities
Corp.), agents, directors, officers and employees (the Agent and each
of the aforementioned Persons being an "Indemnified Party") against
all losses, claims, damages, penalties, judgments, liabilities and
expenses, joint or several (including, without limitation, reasonable
attorneys' fees and expenses and time charges of attorneys for the
Agent and Lenders, which attorneys may be employees of the Agent or
the Lenders, and all expenses of litigation or preparation therefor
whether or not the such Indemnified Party is a party thereto) which
any of them may become subject to or may pay or incur, whether arising
under any foreign, federal or state law or regulation, at common law
or otherwise, (including, without limitation, the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended and
the regulations thereunder) arising out of or relating to this
Agreement, any Note or the other Loan Documents, the transactions
contemplated hereby or thereby, the purchase or sale of any Common
Stock, any untrue statement or alleged untrue statement of a material
fact contained in the Stock Purchase Program, any registration
statement covering the Common Stock to be purchased as part of the
Stock Purchase Program or any other document related thereto, the
breach of any representation or warranty contained in this Agreement
or the other Loan Documents, the direct or indirect application or
proposed application of the proceeds of any Loan hereunder, any action
brought or threatened by or on behalf of any Borrower in connection
with its Loan, any claim made against any Indemnified Party by or on
behalf of any Borrower in connection with its Loan or, to the extent
permitted by law, any breach of any consumer lending, usury or similar
law relating to the Loans; provided, however, that the Company shall
not be required to indemnify any Indemnified Party against any losses,
claims, damages, penalties, judgments, liabilities or expenses to the
extent that they arise out of the gross negligence or willful
misconduct of such Person. The obligations of the Company under this
Section shall survive the termination of this Agreement and shall be
in addition to any liability the Company may otherwise have.
160
(b) If the indemnification provided for in Section 12.08(a) is due in
accordance with its terms but is for any reason held by a court to be
unavailable or insufficient to indemnify and hold harmless an
Indemnified Party on grounds of public policy or otherwise, the
Company shall contribute to the aggregate amount of such losses,
claims, damages penalties, judgments, liabilities and expenses
(including legal or other expenses reasonably incurred in connection
with investigating or defending same) for which such indemnification
is unavailable or insufficient (i) in such proportion as is
appropriate to reflect the relative benefits received, or sought to be
received by the Company, on the one hand, and the Indemnified Parties
entitled to contribution, on the other hand, in the matters
contemplated by this Agreement, the Notes and the Stock Purchase
Program or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above
but also the relative fault of the Company on the one hand and the
Indemnified Parties on the other hand in connection with the events,
actions, statements, or omissions which resulted in such losses,
claims, damages, penalties, judgments, liabilities and expenses as
well as any other relevant equitable considerations. The relative
benefits received, or sought to be received, by the Company on the one
hand and the Indemnified Parties on the other hand in connection with
the purchase of the Common Stock, the Loans and this Agreement shall
be deemed to be in the same proportion that the total proceeds of the
Loans received by the Eligible Persons in connection with the Stock
Purchase Program bears to the total fees received by the Agent and the
Lenders under this Agreement and the other Loan Documents. Any
Indemnified Party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or proceeding
against such Indemnified Party in respect of which a claim for
contribution may be made against another party or parties under this
Section 12.08(b), notify such party or parties from whom contribution
may be sought, but the omission to so notify such party or parties
shall not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have hereunder or
otherwise than under this Section 12.08(b).
12.09 NUMBERS OF DOCUMENTS. All statements, notices, closing documents, and
requests hereunder shall be furnished to the Agent with sufficient
counterparts so that the Agent may furnish one to each of the Lenders.
12.10 SEVERABILITY OF PROVISIONS. Any provision in any Loan Document that is
held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of all Loan Documents are
declared to be severable.
12.11 NONLIABILITY OF LENDERS. The relationship between the Company and the
Lenders and the Agent shall be solely that of guarantor and lender. Neither
the Agent nor any Lender shall have any fiduciary responsibilities to the
Company or any Borrower. Neither the Agent nor any Lender undertakes any
responsibility to the Company or any Borrower to review or inform the
Company or any Borrower of any matter in connection with any phase of the
Company's business or operations. The Company agrees that neither the Agent
nor any Lender shall have liability to the Company or any Borrower (whether
sounding in tort, contract or otherwise) for losses suffered by the Company
or any Borrower in connection with, arising out of, or in any way related
to, the transactions contemplated and the relationship established by the
Loan Documents, or any act, omission or event occurring in connection
therewith, unless it is determined by a court of competent jurisdiction by
final and non-appealable judgment that such losses resulted from the gross
negligence or willful misconduct of the party from which recovery is
sought.
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12.12 CHOICE OF LAW. THE LOAN DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS, WITHOUT REGARD TO CONFLICT OF LAWS PROVISIONS, OF THE
STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL
BANKING ASSOCIATIONS, FEDERAL AGENCIES, BRANCHES OF FOREIGN BANKS AND OTHER
FINANCIAL INSTITUTIONS.
12.13 CONSENT TO JURISDICTION. THE COMPANY, THE AGENT AND EACH LENDER HEREBY
IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES
FEDERAL OR ILLINOIS STATE COURT SITTING IN CHICAGO IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENTS AND THE PARTIES
HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY
WAIVE ANY OBJECTION THEY MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT
IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT
OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE COMPANY IN THE COURTS OF ANY
OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE COMPANY AGAINST THE
AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO,
OR CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN
CHICAGO, ILLINOIS.
12.14 WAIVER OF JURY TRIAL. THE COMPANY, THE AGENT AND EACH LENDER HEREBY WAIVE
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY,
ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.
12.15 DISCLOSURE. The Company and each Lender hereby (a) acknowledge and agree
that Bank One and/or its Affiliates from time to time may hold other
investments in, make other loans to or have other relationships with the
Company or any Borrower, including, without limitation, in connection with
any interest rate hedging instruments or agreements or swap transactions,
and (b) waive any liability of Bank One or such Affiliate to the Company,
any Borrower or any Lender, respectively, arising out of or resulting from
such investments, loans or relationships in, to or with any Borrower other
than liabilities arising out of the gross negligence or willful misconduct
of Bank One or its Affiliates.
12.16 WITHHOLDING TAX EXEMPTION. At least five Business Days prior to the first
date on which interest or fees are payable hereunder for the account of any
Lender, each Lender that is not incorporated under the laws of the United
States of America or a state thereof, agrees that it will deliver to the
Company and the Agent two duly completed and correct copies of United
States of America Internal Revenue Service Form 1001 or 4224, certifying in
either case that such Lender is entitled to receive all payments under this
Agreement and the Notes without deduction or withholding of any United
States federal income taxes. Each Lender which so delivers a Form 1001 or
4224 (or successor form) further undertakes to deliver to the Company and
the Agent two additional duly completed and correct copies of such form (or
a successor form) on or before the date that such form expires (currently,
three successive calendar years for Form 1001 and one calendar year for
Form 4224) or becomes obsolete or after the occurrence of any event
requiring a change in the most recent forms so delivered by it, and such
amendments thereto or extensions or renewals thereof as may be reasonably
requested by the Company or the Agent, in each case certifying that such
Lender is entitled to receive all payments under this Agreement and the
Notes without deduction or withholding of any United States of America
federal income taxes, unless an event (including without limitation any
change in treaty, law or regulation) has occurred after the date hereof and
prior to the date on which any such delivery would otherwise be required
which renders all such forms inapplicable or which would prevent such
Lender from duly completing and delivering any such form with respect to it
and such Lender advises the Company and the Agent that it is not capable of
receiving payments without any deduction or withholding of United States of
America federal income tax.
162
12.17 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement. Delivery
of an executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of a manually executed
counterpart of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
FRANKLIN COVEY CO.
By: /s/ Val J. Christensen
-----------------------------------------------------------
Name:
---------------------------------------------------------
Title:
--------------------------------------------------------
Address: 2200 West Parkway Boulevard
Salt Lake City, Utah 84119
Attn: Val J. Christensen
Telecopy: (801) 817-4291
Telephone: (801) 817-7102
BANK ONE, NA, individually and as Agent
By: /s/ James P. Moore
-----------------------------------------------------------
Name:
---------------------------------------------------------
Title:
--------------------------------------------------------
Address: 777 South Figueroa Street
4th Floor, IL1-4001
Los Angeles, CA 90017
Attn: James P. Moore
Telecopy: (213) 683-4999
Telephone: (213) 683-4966
with a copy to:
Address: 1 Bank One Plaza
Chicago, Illinois 60670
Attn: Chapin Bates
Telecopy: (312) 732-5645
Telephone: (312) 732-8762
163
SCHEDULE I
COMMITMENTS
Lender Commitment
------ ----------
Bank One, NA $16,500,000
----------
Total $16,500,000
==========
164
SCHEDULE 1.01
QUARTERLY DATES*
March 31, 2000
June 30, 2000
September 30, 2000
December 31, 2000
March 31, 2001
June 30, 2001
September 30, 2001
December 31, 2001
March 31, 2002
June 30, 2002
September 30, 2002
December 31, 2002
March 31, 2003
June 30, 2003
September 30, 2003
December 31, 2003
March 31, 2004
June 30, 2004
September 30, 2004
December 31, 2004
March 30, 2005
165
SCHEDULE 2.05(A)
FIXED REFERENCE RATES
From To
Rate (and including) (and excluding)
[to be agreed upon by the Company and the Agent pursuant to Section 2.02(b)]
166
SCHEDULE 2.05(B)
ZERO COUPON DISCOUNTING METHODOLOGY
P1 = The first remaining fixed payment as defined as the next fixed payment
outstanding in the contract.
DF1 = The first discount factor defined as 1
------------------
[1 + (R0 x D0/360)]
DFi = The ith discount factor for each remaining fixed payment date will be
determined using the Zero Coupon Rate derived from the appropriate LIBOR
rate and the rates implied by the "90 Day Euro$" futures contracts traded
at the Chicago Mercantile Exchange (IMM) as applicable to each ith payment
date.
R0 = The LIBOR rate quoted on an Annual, Actual/360 basis (expressed as a
percent in decimal form) applicable for the number of days between the
Conversion Date and the first (remaining) Quarterly Date.
D0 = The number of days between the Closing Date and the next fixed Quarterly
Date.
Di = The number of days between the Break Date and the next fixed Quarterly
Date.
Pi = The ith fixed payment remaining as defined in the contract.
N = The number of fixed payments remaining less one.
- -----------------------------------------------------
* If any Quarterly Date is not a Business Day, then such Quarterly Date shall
be the next succeeding Business Day.
167
EXHIBIT 10.15
FIRST AMENDMENT
TO
FACILITY AND GUARANTY AGREEMENT
This Amendment (the "Amendment") is entered into as of May ___, 2000 by and
among FRANKLIN COVEY CO., a Utah corporation (the "Company"), BANK ONE, NA, a
national banking association with its principal office in Chicago, Illinois,
individually and as agent (the "Agent") and the other financial institutions
signatory hereto.
RECITALS
A. The Borrower, the Agent and the Lenders are party to that certain
Facility and Guaranty Agreement dated as of March 27, 2000 (the "Facility
Agreement"). Unless otherwise specified herein, capitalized terms used in this
Amendment shall have the meanings ascribed to them by the Facility Agreement.
B. The Borrower, the Agent and the undersigned Lenders wish to amend the
Facility Agreement on the terms and conditions set forth below.
Now, therefore, in consideration of the mutual execution hereof and other
good and valuable consideration, the parties hereto agree as follows:
1. AMENDMENT TO FACILITY AGREEMENT. The Facility Agreement shall be amended as
follows:
Section 1.1. Amendment of Recitals. Recital A is amended by deleting the
words "in the aggregate principal amount of up to $15,000,000".
Section 1.2. Amendment of Section 2.01(a). Section 2.01(a) is amended by
deleting "$16,000,000" where it appears in such section and replacing it
with "$29,000,000" and (ii) deleting "$500,000" where it appears in such
section and replacing it with "$1,000,000".
Section 1.3 Amendment of Schedule I. Schedule I is amended by deleting
"$16,500,000" in each place it appears on Schedule I and replacing it with
"$30,000,000".
2. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower represents and
warrants that:
(a) The execution, delivery and performance by the Borrower of this
Amendment have been duly authorized by all necessary corporate action and
that this Amendment is a legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms,
except as the enforcement thereof may be subject to the effect of any
applicable bankruptcy, insolvency, reorganization, moratorium or similar
law affecting creditors' rights generally;
(b) Each of the representations and warranties contained in the Facility
Agreement is true and correct in all material respects on and as of the
date hereof as if made on the date hereof; and
(c) After giving effect to this Amendment, no Program Event of Default or
Unmatured Default has occurred and is continuing.
168
3. REFERENCE TO AND EFFECT UPON THE FACILITY AGREEMENT.
(a) Except as specifically amended above, the Facility Agreement and the
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed. The Company hereby reaffirms its obligations under
the Facility Agreement and all of the other Loan Documents to which it is a
party.
(b) The execution, delivery and effectiveness of this Amendment shall not
operate as a waiver of any right, power or remedy of the Agent or any
Lender under the Facility Agreement or any Loan Document, nor constitute a
waiver of any provision of the Facility Agreement or any Loan Document,
except as specifically set forth herein. Upon the effectiveness of this
Amendment, each reference in the Facility Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of similar import shall mean and
be a reference to the Facility Agreement as amended hereby.
4. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
5. HEADINGS. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this
Amendment for any other purposes.
6. COUNTERPARTS. This Amendment may be executed in any number of counterparts,
each of which when so executed shall be deemed an original but all such
counterparts shall constitute one and the same instrument. Delivery of an
executed counterpart to this Amendment by facsimile transmission shall
constitute delivery of a manually executed counterpart hereof.
[signature pages follow]
169
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
and year first above written.
FRANKLIN COVEY CO.
By:
--------------------------------------------
Name:
--------------------------------------------
Title:
--------------------------------------------
BANK ONE, NA, individually and as Agent
By:
--------------------------------------------
Name:
--------------------------------------------
Title:
--------------------------------------------
170
EXHIBIT 10.16
SECOND AMENDMENT
TO
FACILITY AND GUARANTY AGREEMENT
This Amendment (the "Amendment") is entered into as of August 3, 2000 by
and among FRANKLIN COVEY CO., a Utah corporation (the "Company"), BANK ONE, NA,
a national banking association with its principal office in Chicago, Illinois,
individually and as agent (the "Agent"), and the other financial institutions
signatory hereto.
RECITALS
A. The Borrower, the Agent and the Lenders are party to that certain
Facility and Guaranty Agreement dated as of March 27, 2000 (as previously
amended, the "Facility Agreement"). Unless otherwise specified herein,
capitalized terms used in this Amendment shall have the meanings ascribed to
them by the Facility Agreement.
B. The Borrower, the Agent and the undersigned Lenders wish to amend the
Facility Agreement on the terms and conditions set forth below.
Now, therefore, in consideration of the mutual execution hereof and other
good and valuable consideration, the parties hereto agree as follows:
1. Amendment to Facility Agreement. Upon the Effective Date (as defined
below), the Facility Agreement shall be amended as follows:
(a) Section 2.01(a) of the Facility Agreement is amended by deleting
"$29,000,000" where it appears in such section and replacing it
with "$32,850,000".
(b) Schedule I of the Facility Agreement is amended by deleting
"$30,000,000" in each place it appears on Schedule I and
replacing it with "$33,850,000".
2. Representations and Warranties of the Borrower. The Borrower
represents and warrants that:
(a) The execution, delivery and performance by the Borrower of this
Amendment have been duly authorized by all necessary corporate
action and that this Amendment is a legal, valid and binding
obligation of the Borrower enforceable against the Borrower in
accordance with its terms, except as the enforcement thereof may
be subject to the effect of any applicable bankruptcy,
insolvency, reorganization, moratorium or similar law affecting
creditors' rights generally;
(b) Each of the representations and warranties contained in the
Facility Agreement is true and correct in all material respects
on and as of the date hereof as if made on the date hereof; and
(c) After giving effect to this Amendment, no Program Event of
Default or Unmatured Default has occurred and is continuing.
3. Effective Date. This Amendment shall become effective upon the
execution and delivery hereof by the Company, the Agent and all the
Lenders; provided that Section 1 hereof shall not become effective
until the date (the "Effective Date") when the Company has delivered
to the Agent the following:
(a) a written opinion of in-house counsel to the Company, in form and
substance satisfactory to the Agent; and
171
(b) a certificate, executed by the Secretary or Assistant Secretary
of the Company, which shall attach and certify copies of the
Company's Board of Directors' resolutions authorizing the
execution, delivery and performance of the Facility Agreement as
amended hereby.
4. Reference to and Effect Upon the Facility Agreement.
(a) Except as specifically amended above, the Facility Agreement and
the other Loan Documents shall remain in full force and effect
and are hereby ratified and confirmed. The Company hereby
reaffirms its obligations under the Facility Agreement and all of
the other Loan Documents to which it is a party.
(b) The execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of the
Agent or any Lender under the Facility Agreement or any Loan
Document, nor constitute a waiver of any provision of the
Facility Agreement or any Loan Document, except as specifically
set forth herein. Upon the effectiveness of this Amendment, each
reference in the Facility Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of similar import shall
mean and be a reference to the Facility Agreement as amended
hereby.
5. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.
6. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this
Amendment for any other purposes.
7. Counterparts. This Amendment may be executed in any number of counterparts,
each of which when so executed shall be deemed an original but all such
counterparts shall constitute one and the same instrument. Delivery of an
executed counterpart to this Amendment by facsimile transmission shall
constitute delivery of a manually executed counterpart hereof.
[signature pages follow]
172
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
and year first above written.
FRANKLIN COVEY CO.
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
BANK ONE, NA, individually and as Agent
By:
--------------------------------------
Name:
--------------------------------------
Title:
--------------------------------------
173
EXHIBIT 10.17
FIRST AMENDMENT AND WAIVER TO
CREDIT AGREEMENT
THIS FIRST AMENDMENT AND WAIVER TO CREDIT AGREEMENT (this "Amendment and
Waiver") is made and dated as of the __ day of March, 2000 by and among BANK
ONE, NA ("Bank One") and ZIONS FIRST NATIONAL BANK ("Zions"), as the current
Lenders under the Credit Agreement referred to below (and as the term "Lenders"
and capitalized terms not otherwise defined herein are used in the Credit
Agreement), BANK ONE, in its capacity as Managing Agent for the Lenders, and
FRANKLIN COVEY CO., a Utah corporation (the "Borrower").
RECITALS
A. Pursuant to that certain Credit Agreement dated as of October 8, 1999,
by and among the Managing Agent, the Co-Agents, the LC Issuer, the Lenders and
the Borrower (as amended from time to time, the "Credit Agreement"), the Lenders
agreed to extend credit to the Borrower on the terms and subject to the
conditions set forth therein.
B. The Borrower has requested the Managing Agent and the Lenders to waive
certain provisions of the Credit Agreement and to amend the Credit Agreement in
certain respects and the Managing Agent and the Lenders have agreed to do so as
set forth more particularly below.
NOW, THEREFORE, in consideration of the foregoing Recitals and for other
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. WAIVER. To reflect the agreement of the Managing Agent and the Lenders to
waive certain of the reporting requirements set forth in the Credit
Agreement, the parties hereto hereby agree as follows:
(a) The Managing Agent and each of the Lenders hereby waive the Events of
Default existing under the Loan Documents as a result of the
Borrower's failure to timely deliver: (1) the financial statements for
its fiscal year ending August 31, 1999, as required pursuant to
Section 6.1(i), (2) the financial statements for its fiscal quarter
ending November 27, 1999, as required pursuant to Section 6.1(ii) and
(3) the compliance certificates relating to the financial statements
referred to above, as required pursuant to Section 6.1(iii).
(b) The Managing Agent and each of the Lenders hereby waive the Event of
Default existing under the Loan Documents as a result of the
Borrower's failure to timely deliver the plan and forecast required to
have been delivered on or before November 29, 1999 pursuant to Section
6.1(ix); provided, however, that such plan and forecast shall be
delivered by the Company on or before April 30, 2000 and the failure
to so deliver the same shall constitute an Event of Default under the
Credit Agreement.
(c) The Borrower hereby acknowledges and agrees that: (1) the waivers set
forth in subparagraphs (a) and (b) above are the sole waivers made by
the Managing Agent and the Lenders with respect to Events of Default
under the Credit Agreement and the other Loan Documents, regardless of
whether the Managing Agent or any of the Lenders is aware of, or would
upon investigation have discovered, the existence of any Event of
Default other than those expressly waived pursuant hereto, and (2)
nothing contained herein shall constitute any agreement by the
Managing Agent or any Lender to waive any Event of Default at any
other time in the future, whether such Event of Default is similar to
those expressly waived hereunder or otherwise.
174
2. EXECUTIVE STOCK PURCHASE PLAN. To reflect the agreement of the parties to
amend the Credit Agreement to permit the establishment of an executive
stock purchase plan to be financed by Bank One for certain managers,
executives, board members, and other key employees of the Borrower, the
parties hereto hereby agree as follows:
(a) Section 6.11 of the Credit Agreement is hereby amended to add a new
subsection (iv) thereto to read in its entirety as follows:
"(iv) Indebtedness consisting of Contingent Obligations permitted
pursuant to Section 6.23 below.""
(b) Section 6.23 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"6.23. CONTINGENT OBLIGATIONS. The Borrower will not, nor will it
permit any Subsidiary to, make or suffer to exist any Contingent
Obligation (including, without limitation, any Contingent Obligation
with respect to the obligations of a Subsidiary), except (i) by
endorsement of instruments for deposit or collection in the ordinary
course of business, (ii) the Reimbursement Obligations, (iii)
Contingent Obligations pursuant to the Facility And Guaranty Agreement
executed among the Borrower, Bank One as agent and the financial
institutions signatory thereto in support of the executive stock
purchase loan facility to be made available to certain managers,
executives, board members, and other key employees of the Borrower,
and (iv) Contingent Obligations set forth on Schedule 2 hereto."
3. MODIFICATION OF FINANCIAL TERMS. To reflect the agreement of the parties as
to certain modifications of the term "Consolidated EBITDA," the definition
of such term set forth in Article I of the Credit Agreement is hereby
amended to read in its entirety as follows:
"'Consolidated EBITDA'" means Consolidated Net Income plus, to the extent
deducted from revenues in determining Consolidated Net Income, (i)
Consolidated Interest Expense, (ii) expense for taxes paid or accrued,
(iii) depreciation, (iv) amortization, (v) extraordinary losses incurred
other than in the ordinary course of business, and (vi) compensation
expense, not to exceed $10,000,000.00 in the aggregate, incurred in
conjunction with the vesting and redemption of employee stock options in
the fiscal quarter ending May 27, 2000, minus, to the extent included in
Consolidated Net Income, extraordinary gains realized other than in the
ordinary course of business, all calculated for the Borrower and its
Subsidiaries on a consolidated basis and adjusted, on a one time basis, for
a charge and a loss on the sale of assets actually taken on August 31, 1999
in an amount not to exceed $27,000,000.00."
4. PARTIAL ASSIGNMENT. To reflect the agreement of Bank One to sell a portion
of its Commitment to Zions:
(a) On or before the effective date of this Amendment and Waiver, Bank One
and Zions shall execute an assignment agreement in the form of that
attached as Exhibit C to the Credit Agreement pursuant to which Bank
One shall assign to Zions, and Zions shall take from Bank One,
$10,000,000.00 of Bank One's Commitment; and
(b) To reflect such assignment, the Commitment Schedule attached to the
Credit Agreement as Schedule 3 shall be amended and replaced by
Replacement Schedule 3 attached hereto.
5. REAFFIRMATION OF LOAN DOCUMENTS. The Borrower hereby affirms and agrees
that (a) the execution and delivery by the Borrower of and the performance
of its obligations under this Amendment and Waiver shall not in any way
amend, impair, invalidate or otherwise affect any of the obligations of the
Borrower under the Loan Documents except to the extent expressly provided
herein, and (b) the Credit Agreement and the other Loan Documents remain in
full force and effect.
175
6. Effective Date. This Amendment and Waiver shall be effective as of the date
first above written upon receipt by the Managing Agent of each of the
following:
(a) A duly executed copy of this Amendment and Waiver, which may be a
counterpart copy, from each party hereto; and
(b) Such corporate resolutions, incumbency certificates and other
authorizations from the Borrower as the Managing Agent may request.
7. Representations and Warranties. The Borrower hereby represents and warrants
to the Managing Agent and the Lenders as follows:
(a) The Borrower has the corporate power and authority and the legal right
to execute, deliver and perform this Amendment and Waiver and has
taken all necessary corporate action to authorize such execution,
delivery and performance.
(b) This Amendment and Waiver has been duly executed and delivered on
behalf of the Borrower and constitutes the legal, valid and binding
obligation of the Borrower, enforceable against the Borrower in
accordance with its terms, subject to the effect of applicable
bankruptcy, insolvency, reorganization, moratorium and other similar
laws affecting the rights of creditors generally and the effect of
equitable principles whether applied in an action at law or a suit in
equity.
(c) At and as of the date of execution hereof and both before and after
giving effect hereto: (1) the representations and warranties of the
Borrower contained in the Credit Agreement and the other Loan
Documents are accurate and complete in all material respects, and (2)
there has not occurred an Event of Default or Potential Default (other
than as shall have been expressly waived pursuant to Paragraph 1
above).
8. NO OTHER AMENDMENT. Except as expressly amended hereby, the Loan Documents
shall remain in full force and effect as written and amended to date.
9. COUNTERPARTS. This Amendment and Waiver may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment and
Waiver to be executed as of the day and year first above written.
FRANKLIN COVEY CO.,
a Utah corporation
By /s/ Scott Nielsen
-------------------------------------------------------
Scott Nielsen, Acting Chief Financial Officer
BANK ONE, NA, as Managing Agent and as a Lender
By /s/ James P. Moore
-------------------------------------------------------
James P. Moore, Senior Vice President
ZIONS FIRST NATIONAL BANK, as a Lender
By /s/ David S. Mathis
-------------------------------------------------------
David S. Mathis, Vice President
176
REPLACEMENT SCHEDULE 3:
COMMITMENT SCHEDULE
(As of March , 2000)
I. From March , 2000 to but not including April 1, 2001
LENDER COMMITMENT
Bank One, NA $50,000,000.00
Zions First National Bank $50,000,000.00
II. From and after April 1, 2001
LENDER COMMITMENT
Bank One, NA $32,500,000.00
Zions First National Bank $32,500,000.00
177
EXHIBIT 10.18
SECOND AMENDMENT TO
CREDIT AGREEMENT
THIS SECOND AMENDMENT AND WAIVER TO CREDIT AGREEMENT (this "Amendment") is
made and dated as of the ___ day of May, 2000 by and among BANK ONE, NA ("Bank
One") and ZIONS FIRST NATIONAL BANK, as the current Lenders under the Credit
Agreement referred to below (and as the term "Lenders" and capitalized terms not
otherwise defined herein are used in the Credit Agreement), BANK ONE, in its
capacity as Managing Agent for the Lenders, and FRANKLIN COVEY CO., a Utah
corporation (the "Borrower").
RECITALS
A. Pursuant to that certain Credit Agreement dated as of October 8, 1999,
by and among the Managing Agent, the Co-Agents, the LC Issuer, the Lenders and
the Borrower (as amended from time to time, the "Credit Agreement"), the Lenders
agreed to extend credit to the Borrower on the terms and subject to the
conditions set forth therein.
B. The parties hereto desire to amend the Credit Agreement in certain
respects as set forth more
particularly below.
NOW, THEREFORE, in consideration of the foregoing Recitals and for other
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. DECREASE IN COMMITMENT. To reflect agreement of the parties hereto to
permit Bank One to reduce its Commitment with a concomitant reduction in
the Aggregate Commitment, the Commitment Schedule attached to the Credit
Agreement as Schedule 3 is hereby amended and replaced by Replacement
Schedule 3 attached hereto.
2. REAFFIRMATION OF LOAN DOCUMENTS. The Borrower hereby affirms and agrees
that (a) the execution and delivery by the Borrower of and the performance
of its obligations under this Amendment shall not in any way amend, impair,
invalidate or otherwise affect any of the obligations of the Borrower under
the Loan Documents except to the extent expressly provided herein, and (b)
the Credit Agreement and the other Loan Documents remain in full force and
effect.
3. Effective Date. This Amendment shall be effective as of the date first
above written upon receipt by the Managing Agent of each of the following:
(a) A duly executed copy of this Amendment, which may be a counterpart
copy, from each party hereto; and
(b) Such corporate resolutions, incumbency certificates and other
authorizations from the Borrower as the Managing Agent may request.
4. Representations and Warranties. The Borrower hereby represents and warrants
to the Managing Agent and the Lenders as follows:
178
(a) The Borrower has the corporate power and authority and the legal right
to execute, deliver and perform this Amendment and has taken all
necessary corporate action to authorize such execution, delivery and
performance.
(b) This Amendment has been duly executed and delivered on behalf of the
Borrower and constitutes the legal, valid and binding obligation of
the Borrower, enforceable against the Borrower in accordance with its
terms, subject to the effect of applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the rights
of creditors generally and the effect of equitable principles whether
applied in an action at law or a suit in equity.
(c) At and as of the date of execution hereof and both before and after
giving effect hereto: (1) the representations and warranties of the
Borrower contained in the Credit Agreement and the other Loan
Documents are accurate and complete in all material respects, and (2)
there has not occurred an Event of Default or Potential Default (other
than as shall have been expressly waived pursuant to Paragraph 1
above).
5. No Other Amendment. Except as expressly amended hereby, the Loan Documents
shall remain in full force and effect as written and amended to date.
6. Counterparts. This Amendment may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
FRANKLIN COVEY CO.,
a Utah corporation
By /s/ Scott Nielsen
--------------------------------------------------
Scott Nielsen, Acting Chief Financial Officer
BANK ONE, NA, as Managing Agent and as a Lender
By /s/ James P. Moore
--------------------------------------------------
James P. Moore, Senior Vice President
ZIONS FIRST NATIONAL BANK, as a Lender
By /s/ David S. Mathis
--------------------------------------------------
David S. Mathis, Vice President
179
REPLACEMENT SCHEDULE 3:
COMMITMENT SCHEDULE
(As of May , 2000)
LENDER COMMITMENT
Bank One, NA $29,000,000.00
Zions First National Bank $50,000,000.00
AGGREGATE COMMITMENT: $79,000,000.00
180
EXHIBIT 10.19
THIRD AMENDMENT TO
CREDIT AGREEMENT
THIS THIRD AMENDMENT AND WAIVER TO CREDIT AGREEMENT (this "Amendment") is
made and dated as of the 3rd day of August, 2000 by and among BANK ONE, NA
("Bank One") and ZIONS FIRST NATIONAL BANK, as the current Lenders under the
Credit Agreement referred to below (and as the term "Lenders" and capitalized
terms not otherwise defined herein are used in the Credit Agreement), BANK ONE,
in its capacity as Managing Agent for the Lenders, and FRANKLIN COVEY CO., a
Utah corporation (the "Borrower").
RECITALS
A. Pursuant to that certain Credit Agreement dated as of October 8,
1999, by and among the Managing Agent, the Co-Agents, the LC Issuer, the Lenders
and the Borrower (as amended from time to time, the "Credit Agreement"), the
Lenders agreed to extend credit to the Borrower on the terms and subject to the
conditions set forth therein.
B. The parties hereto desire to amend the Credit Agreement in certain
respects as set forth more particularly below.
NOW, THEREFORE, in consideration of the foregoing Recitals and for other
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. DECREASE IN COMMITMENT. To reflect agreement of the parties hereto to
permit Bank One to reduce its Commitment with a concomitant reduction in
the Aggregate Commitment, the Commitment Schedule attached to the Credit
Agreement as Schedule 3 is hereby amended and replaced by Replacement
Schedule 3 attached hereto.
2. REAFFIRMATION OF LOAN DOCUMENTS. The Borrower hereby affirms and agrees
that (a) the execution and delivery by the Borrower of and the performance
of its obligations under this Amendment shall not in any way amend, impair,
invalidate or otherwise affect any of the obligations of the Borrower under
the Loan Documents except to the extent expressly provided herein, and (b)
the Credit Agreement and the other Loan Documents remain in full force and
effect.
3. EFFECTIVE DATE. This Amendment shall be effective as of the date first
above written upon receipt by the Managing Agent of each of the following:
(a) A duly executed copy of this Amendment, which may be a counterpart
copy, from each party hereto; and
(b) Such corporate resolutions, incumbency certificates and other
authorizations from the Borrower as the Managing Agent may request.
4. Representations and Warranties. The Borrower hereby represents and warrants
to the Managing Agent and the Lenders as follows:
(a) The Borrower has the corporate power and authority and the legal right
to execute, deliver and perform this Amendment and has taken all
necessary corporate action to authorize such execution, delivery and
performance.
181
(b) This Amendment has been duly executed and delivered on behalf of the
Borrower and constitutes the legal, valid and binding obligation of
the Borrower, enforceable against the Borrower in accordance with its
terms, subject to the effect of applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the rights
of creditors generally and the effect of equitable principles whether
applied in an action at law or a suit in equity.
(c) At and as of the date of execution hereof and both before and after
giving effect hereto: (1) the representations and warranties of the
Borrower contained in the Credit Agreement and the other Loan
Documents are accurate and complete in all material respects, and (2)
there has not occurred an Event of Default or Potential Default.
5. NO OTHER AMENDMENT. Except as expressly amended hereby, the Loan Documents
shall remain in full force and effect as written and amended to date.
6. COUNTERPARTS. This Amendment may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
FRANKLIN COVEY CO.,
a Utah corporation
By /s/ J. Scott Nielsen
-------------------------------------------------------
J. Scott Nielsen, Chief Financial Officer
BANK ONE, NA, as Managing Agent and as a Lender
By /s/ James P. Moore
-------------------------------------------------------
James P. Moore, Senior Vice President
ZIONS FIRST NATIONAL BANK, as a Lender
By /s/ David S. Mathis
-------------------------------------------------------
David S. Mathis, Vice President
182
REPLACEMENT SCHEDULE 3:
COMMITMENT SCHEDULE
(As of August 3, 2000)
LENDER COMMITMENT
Bank One, NA $23,000,000.00
Zions First National Bank $50,000,000.00
-------------
AGGREGATE COMMITMENT: $73,000,000.00
183
EXHIBIT 10.20
FOURTH AMENDMENT TO
CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is made and
dated as of the 31st day of August, 2000 by and among BANK ONE, NA ("Bank One")
and ZIONS FIRST NATIONAL BANK, as the current Lenders under the Credit Agreement
referred to below (and as the term "Lenders" and capitalized terms not otherwise
defined herein are used in the Credit Agreement), BANK ONE, in its capacity as
Managing Agent for the Lenders, and FRANKLIN COVEY CO., a Utah corporation (the
"Borrower").
RECITALS
A. Pursuant to that certain Credit Agreement dated as of October 8, 1999,
by and among the Managing Agent, the Co-Agents, the LC Issuer, the Lenders and
the Borrower (as amended from time to time, the "Credit Agreement"), the Lenders
agreed to extend credit to the Borrower on the terms and subject to the
conditions set forth therein.
B. The parties hereto desire to amend the Credit Agreement in certain
respects as set forth more particularly below.
NOW, THEREFORE, in consideration of the foregoing Recitals and for other
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
AGREEMENT
1. EXTENSION OF TERM. To reflect the agreement of the parties to extend the
term of the credit facilities evidenced by the Credit Agreement, the
definition of "Facility Termination Date" is hereby amended to read in its
entirety as follows:
"'Facility Termination Date' means December 1, 2001 or any earlier date on
which the Aggregate Commitment is reduced to zero or otherwise terminated
pursuant to the terms hereof."
2. FIXED CHARGE COVERAGE RATIO. To reflect the agreement of the parties to
modify the financial covenant set forth in Section 6.24.1 of the Credit
Agreement, said Section 6.24.1 is hereby amended in its entirety to read
the following:
"6.24.1. FIXED CHARGE COVERAGE RATIO. The Borrower will not permit the
ratio, determined as of the end of each of its fiscal quarters for the then
most-recently ended four fiscal quarters, of (i) Consolidated EBITDA plus
Consolidated Rentals and minus Maintenance Capital Expenditures, expenses
for taxes paid or accrued and cash dividends paid or accrued, to (ii)
Consolidated Interest Expense, plus Consolidated Rentals, plus current
maturities of Indebtedness (including the principal portion of Capitalized
Lease Obligations but excluding the current portion of the Obligations
hereunder), all calculated for the Borrower and its Subsidiaries on a
consolidated basis, to be less than: (a) for the fiscal quarter ending
August 31, 2000, 1.15 to 1.0; (b) for the fiscal quarter ending November
25, 2000, 1.05 to 1.0, and (c) for each fiscal quarter ending after
November 25, 2000, 1.75 to 1.0."
184
3. REAFFIRMATION OF LOAN DOCUMENTS. The Borrower hereby affirms and agrees
that (a) the execution and delivery by the Borrower of and the performance
of its obligations under this Amendment shall not in any way amend, impair,
invalidate or otherwise affect any of the obligations of the Borrower under
the Loan Documents except to the extent expressly provided herein, and (b)
the Credit Agreement and the other Loan Documents remain in full force and
effect.
4. EFFECTIVE DATE. This Amendment shall be effective as of the date first
above written upon receipt by the Managing Agent of each of the following:
(a) A duly executed copy of this Amendment, which may be a counterpart
copy, from each party hereto; and
(b) Such corporate resolutions, incumbency certificates and other
authorizations from the Borrower as the Managing Agent may request.
5. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and warrants
to the Managing Agent and the Lenders as follows:
(a) The Borrower has the corporate power and authority and the legal right
to execute, deliver and perform this Amendment and has taken all
necessary corporate action to authorize such execution, delivery and
performance.
(b) This Amendment has been duly executed and delivered on behalf of the
Borrower and constitutes the legal, valid and binding obligation of
the Borrower, enforceable against the Borrower in accordance with its
terms, subject to the effect of applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws affecting the rights
of creditors generally and the effect of equitable principles whether
applied in an action at law or a suit in equity.
(c) At and as of the date of execution hereof and both before and after
giving effect hereto: (1) the representations and warranties of the
Borrower contained in the Credit Agreement and the other Loan
Documents are accurate and complete in all material respects, and (2)
there has not occurred an Event of Default or Potential Default (other
than as shall have been expressly waived pursuant to Paragraph 1
above).
6. NO OTHER AMENDMENT. Except as expressly amended hereby, the Loan Documents
shall remain in full force and effect as written and amended to date.
7. COUNTERPARTS. This Amendment may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and all of
which when taken together shall constitute one and the same agreement.
185
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
FRANKLIN COVEY CO.,
a Utah corporation
By /s/ Scott Nielsen
----------------------------------------------------
Scott Nielsen, Chief Financial Officer
BANK ONE, NA, as Managing Agent and as a Lender
By /s/ James P. Moore
----------------------------------------------------
James P. Moore, Senior Vice President
ZIONS FIRST NATIONAL BANK, as a Lender
By /s/ David S. Mathis
----------------------------------------------------
David S. Mathis, Vice President
186
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into this ____ day of
_____, 2000, by and between FRANKLIN COVEY CO., a Utah corporation (the
"Company"), and ROBERT A. WHITMAN ("Whitman").
WHEREAS, the Company desires to retain and employ Whitman as Chairman of the
Board for period of time not less than the Term, as defined below, and as its
President and Chief Executive Officer for a period of time not exceeding the
Term, and
WHEREAS, Whitman desires to accept such employment on the terms and conditions
of this Agreement,
ACCORDINGLY, the parties agree as follows:
1. EMPLOYMENT, DUTIES AND ACCEPTANCE.
a. Employment by the Company. The Company hereby employs Whitman as its
Chairman of the Board for a period of time not less than the Term, as
hereinafter defined, and as its President and Chief Executive Officer for a
period of time not exceeding the Term, to render such services and to perform
such duties as the Board of Directors of the Company shall, consistent with the
Company's bylaws and the applicable provisions of the Utah Business Corporations
Act, reasonably direct. If at any time during the Term Whitman's
responsibilities hereunder as President and/or Chief Executive Officer are
modified (it being understood that Whitman shall for a period of time not
shorter than the Term serve as Chairman of the Board), the terms of this
Agreement shall nevertheless remain in effect and shall not, without Whitman's
written agreement thereto, be modified.
b. Acceptance of Employment. Whitman hereby accepts such employment and
agrees that he will faithfully, at all times, and to the best of his ability,
experience and talents, perform his duties as President and Chief Executive
Officer, devoting his full business time and attention to and for the exclusive
benefit of the Company, and shall keep free from conflicting enterprises or any
activities which would be detrimental to or interfere with the business of the
Company or the devotion of his full time and attention to the business of the
Company. Whitman agrees to use his best efforts to comply with any and all
lawful instructions that the Board of Directors of the Company may give him from
time to time and to promote and maintain the growth, profitability, success,
professionalism and reputation of the Company. Nothing contained in this
paragraph 1b shall preclude Whitman from performing activities that do not
conflict or compete with his duties under this Agreement, including, but not
limited to, managing his personally owned shares of the Company's stock and all
other personal assets independent of his responsibilities and duties to the
Company as President and Chief Executive Officer.
c. Termination of Existing Contracts. Whitman hereby agrees that all
agreements and contracts, whether written or oral, relating to the current and
past employment of Whitman by the Company will be terminated as of the
commencement of the Term of this Agreement; provided, however, that nothing in
this Agreement shall modify the agreements currently in place between the
Company and Hampstead Interests, LP and Knowledge Capital Investment Group or
alter in any way Whitman's role as Chairman of the Board of Directors of the
Company.
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2. TERM OF EMPLOYMENT. The term of Whitman's employment under this Agreement
(the "Term") shall commence on the date of execution hereof (the "Commencement
Date") and shall continue through and expire on the seventh (7th) anniversary of
the Commencement Date (the "Termination Date"), unless earlier terminated as
provided herein; provided, however, that the term of Whitman's employment shall
automatically extend for a one year term beyond the Termination Date and for
consecutive one year terms thereafter, unless the Company shall provide written
notice to Whitman at least ninety (90) days prior to the end of the Term or any
extended term advising Whitman that the Company shall not renew the Agreement,
in which event Whitman's employment hereunder will terminate on the last date of
the Term or any extended term thereof.
3. COMPENSATION AND OTHER BENEFITS.
a. Compensation. As compensation for services rendered by Whitman pursuant
to this Agreement, the Company shall pay Whitman, during the Term, a base salary
of $500,000.00 per annum (the "Annual Salary"), subject to such increases as the
Board of Directors of the Company may, in its sole discretion, approve. The
Annual Salary shall be payable in accordance with the applicable payroll and/or
other compensation policies and plans of the Company as from time to time in
effect, less such deductions as shall be required to be withheld by applicable
law and regulations.
b. Performance Compensation. Prior to the beginning of each fiscal year of
the Company, the Organization and Compensation Committee of the Board of
Directors (the "Committee") shall, with Whitman's input and assistance, develop
a written fiscal year performance compensation plan that provides for the
payment of incentive compensation corresponding to the Company's achievement of
specific, measurable performance goals as the direct result of exceptional
performance by Whitman of his duties as President and Chief Executive Officer of
the Company ("Performance Compensation"). Whitman's target Performance
Compensation in any fiscal year for meeting the performance objectives
established by the Committee shall not be less than an amount equal to the
Annual Salary for said fiscal year. The Committee shall have complete discretion
in determining whether performance goals have been met or exceeded and the
corresponding amount of Performance Compensation to be paid to Whitman.
c. Long-term Incentive Compensation.
i. Stock Options. Whitman shall receive performance-accelerated stock
options (the "Options") granting Whitman the right to purchase, on terms
not inconsistent with those set forth herein, the number of shares of the
Company's common stock equal to 5% of the total outstanding shares of the
Company as of January 1, 2000. The grant price of the Options will be equal
to the closing price of the Company's stock on the date this Agreement is
executed by the parties. The Options will vest as follows:
Forty percent (40%) shall vest on the date that the closing price of
Company stock has averaged at least $20.00 per share for ninety (90)
consecutive trading days.
Ten percent (10%) shall vest on the date that the closing price of Company
stock has averaged at least $25.00 per share for ninety (90) consecutive
trading days.
Ten percent (10%) shall vest on the date that the closing price of Company
stock has averaged at least $30.00 per share for ninety (90) consecutive
trading days.
188
Ten percent (10%) shall vest on the date that the closing price of Company
stock has averaged at least $35.00 per share for ninety (90) consecutive
trading days.
Ten percent (10%) shall vest on the date that the closing price of Company
stock has averaged at least $40.00 per share for ninety (90) consecutive
trading days.
Ten percent (10%) shall vest on the date that the closing price of Company
stock has averaged at least $45.00 per share for ninety (90) consecutive
trading days.
Ten percent (10%) shall vest on the date that the closing price of Company
stock has averaged at least $50.00 per share for ninety (90) consecutive
trading days.
Notwithstanding the foregoing vesting schedule, all Options shall vest on
the date seven (7) years from the date the Options were granted, provided
Whitman has remained employed by the Company in any capacity agreed to by
Whitman and the Board of Directors as of , 20 .
ii. Cash Payment. In the event that the Company's average equity
market capitalization (the "Target Capitalization") exceeds $1.8 billion
for a period of ninety (90) consecutive trading days, Whitman shall receive
a cash payment in an amount equal to two percent (2%) of the difference
between the Target Capitalization and the Company's equity market
capitalization as of July 14, 2000.
d. Additional or Optional Equity Grants. Nothing herein shall prevent or
preclude the Board of Directors, provided Whitman consents thereto, from
exercising its discretion in granting to Whitman additional stock options,
restricted share awards or making other grants or awards under any incentive
stock plan, or replacing granted options with common stock.
e. Acceleration of Option Vesting. The Committee or the Board of Directors
may, in its discretion, provided such action is not inconsistent with the terms
of this Agreement or such action is consented thereto by Whitman, provide in any
agreement granting Options to Whitman that the vesting of all or a portion of
said Options shall be accelerated based on the Company's achievement of
performance objectives established by the Committee or the Board of Directors.
f. Loan to Exercise Options. Provided Whitman elects to exercise any vested
stock options and hold the shares of stock purchased upon exercise, the Company
shall, upon Whitman's written request, lend to Whitman, on a full recourse basis
and on terms substantially similar to the terms of the BankOne loans granted to
key employees of the Company under the Company's Management Stock Purchase Loan
Program, an amount equal to the aggregate option grant price of the stock
Whitman acquires and continues to hold through the exercise of Options, plus the
amount of federal, state and local taxes assessed as a result of the exercise of
the options. Repayment of the principal of any such loan and all accrued
interest thereon shall be due upon the earlier to occur of (i) the sale,
transfer or other disposition of the stock by Whitman, his heirs or assigns;
(ii) the date which is five years after the date of termination of Whitman's
employment.
g. Participation in Benefit Plans. Whitman shall be permitted, during the
Term to participate in any group life, hospitalization or disability insurance
plan, health program, pension plan, vacation and personal leave, and any other
similar benefit plan or other so-called "fringe benefits" of the Company, which
may be available to all other executive officers of the Company, generally on
the same terms and conditions as such other executive officers.
189
h. Reimbursement of Expenses. All expenses, including expenses prior to
January 1, 2000, incurred by Whitman in performing his duties as President and
Chief Executive Officer and/or Chairman of the Board, shall be reimbursed in
accordance with the Company's policies and procedures then in effect.
4. NON-COMPETITION.
a. Acknowledgments. Whitman acknowledges that: (i) the Company, which for
purposes of this Article 4 includes Franklin Covey Co. and all of its operating
divisions, subsidiaries and affiliates, including such subsidiaries and
affiliates as may be formed or incorporated during the Term or any extended
terms, is engaged in the business of providing individual and organizational
performance and effectiveness training services and products, and does now and
may engage in other business activities during the Term of this Agreement
(collectively referred to herein as the "Business"); (ii) Whitman is one of a
limited number of persons who will perform a significant role in the management
and development of the Business, and whose services will be unique and
extraordinary, and will contribute to and enhance the goodwill of the Company;
(iii) the Business is conducted throughout the world; (iv) Whitman's work for
the Company will give him access to "know-how," trade secrets, customer lists,
details of client or consultant contracts, pricing policies, seminar outlines,
products, operational methods, marketing plans or strategies, product
development techniques or plans, business acquisition plans, new personnel
acquisition plans, methods of production and distribution, technical processes,
designs and design projects, inventions, research projects, and financial
information and general confidential business information (collectively, "Trade
Secrets") that are confidential and unique, not generally known in the industry,
and which give the Company a competitive advantage and significantly enhance the
Company's goodwill; (v) the agreements and covenants contained in this Article 4
are essential to protect the Business and goodwill of the Company, to prevent
competitors from acquiring, appropriating, or discovering the Company's Trade
Secrets, and to maintain and protect the Company's competitive advantage in the
industry; and (vi) Whitman has means to support himself and his dependents other
than by engaging in the Business, and the provisions of this Article 4 will not
impair such ability. Accordingly, Whitman covenants and agrees as follows:
b. Covenants and Reformation.
i. Non-Competition Covenants. For a period commencing on the
Commencement Date hereof and continuing for three (3) years after the date
of termination of Whitman's employment with the Company, for any reason,
with or without cause (the "Covenant Period"), Whitman shall not, within
any place where the Company conducts the Business, directly or indirectly,
(i) engage in the Business or any aspect of the Business for Whitman's own
account in competition with the Company; (ii) enter the employ of, or
render any services to or consult with, any person engaged in competition
with the Company; (iii) become associated with or interested in any such
person in any capacity, including, without limitation, as an individual,
partner, shareholder, officer, director, principal, agent or trustee;
provided, however, Whitman may own, directly or indirectly, solely as an
investment, securities of any company traded on any national securities
exchange or over-the-counter if Whitman is not a controlling person of, or
a member of a group which controls, such company and does not, directly or
indirectly, own two percent (2%) or more of any class of securities of such
person; (iv) solicit or otherwise deal with any client of the Company in a
manner designed to (or that could) take business away from the Company; or
(v) solicit or otherwise induce any employee of the Company to terminate
his/her employment with the Company.
ii. Reformation or "Blue-Pencilling." The Company intends to restrict
Whitman's activities under Section 4.b.i only to the extent necessary to
protect the Company's legitimate business interests. Whitman and the
Company agree that the terms and conditions hereof should be enforced to
the fullest extent permitted by law. If any court determines that any
190
provision of Section 4.b.i, or any part thereof, is unenforceable because
of the scope, duration or geographic breadth of such provision, such court
shall have the power to reform such provision to the maximum scope,
duration or geographical breadth, as the case may be, that such court has
determined is enforceable in accordance with the law.
iii. Nondisclosure Covenant. Except in performing his duties and
obligations under this Agreement, during the Covenant Period, Whitman shall
not, without the prior written consent of the Company, intentionally or
negligently, reveal, make accessible, or disseminate to any person not an
employee of the Company, or to any other entity, or use for the benefit of
himself or others, the Trade Secrets and any and all other confidential
matters of the Company. Whitman covenants and agrees that he shall not
exploit for his own benefit, or the benefit of others, personal
relationships with customers, suppliers or agents of the Company in a
manner that would or may adversely affect the Company.
iv. Property of the Company. All of the Company's Trade Secrets, and
all tangible items, including, without limitation, all memoranda, notes,
lists, records and other documents or papers (and all copies thereof),
including such items stored in computer memories, on microfiche or by any
other means, made or compiled by or on behalf of Whitman, or made available
to Whitman, relating to the past, existing, or contemplated business,
research development, or work of the Company, other than purely personal
matters, are and shall remain the Company's exclusive property and shall be
delivered to the Company promptly upon the termination of Whitman's
employment (whether for Cause or otherwise) or at any other time on request
of the Company.
v. Rights and Remedies Upon Breach. If Whitman breaches, or threatens
to commit a breach of any of the provisions of Sections 4.b, 4.c, or 4.d
(collectively, the "Restrictive Covenants"), the Company shall, independent
of, in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity, have (A) the right and
remedy to have the Restrictive Covenants specifically enforced by any court
of competent jurisdiction, it being agreed that any breach or threatened
breach of the Restrictive Covenants would cause irreparable injury to the
Company and that money damages would not provide an adequate remedy to the
Company, and (B) the right and remedy to require Whitman to account for and
pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits derived or received by Whitman as the result
of any transactions constituting a breach of the Restrictive Covenants.
c. Severability of Covenants. Whitman acknowledges and agrees that the
Restrictive Covenants are reasonable and valid in scope, and geographical and
temporal breadth and in all other respects. If any court determines that any of
the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect, without regard to the invalid portions.
d. Enforceability in Jurisdictions. The Company and Whitman intend to and
hereby confer jurisdiction to enforce the Restrictive Covenants upon the courts
of any jurisdiction within the geographical scope of the Restrictive Covenants.
If the courts of any one or more of such jurisdictions hold the Restrictive
Covenants unenforceable by reason of their scope or otherwise, it is the
intention of the Company and Whitman that such determination not bar or in any
way affect the Company's right to the relief provided above in the courts of any
other jurisdiction within the geographical scope of the Restrictive Covenants,
as to breaches of such covenants in such other respective jurisdictions, such
covenants as they relate to each jurisdiction being, for this purpose, severable
into diverse and independent covenants.
191
5. TERMINATION.
a. Termination Without "Cause". In consideration of Whitman agreeing to the
terms of Article 4 hereof, which agreement the parties acknowledge has a value
to the Company in excess of $2,000,000, and in further consideration of Whitman
executing a general mutual release acceptable to the Board of Directors of the
Company at the time of termination, the parties agree that Whitman shall be
entitled to receive the following payments and benefits (subject to required tax
and other withholdings) in the event the Company terminates his employment
during the Term other than pursuant to Section 5.d hereof, Whitman agreeing,
however, that the provisions of Article 4 shall be enforceable notwithstanding
Whitman's termination pursuant to Section 5.d:
i. an amount equal to two and one-half (2 1/2) times the Annual Salary
at the time of termination, without interest, payable in two (2) equal
installments, the first installment to be due and payable thirty (30) days
following the date the Company receives an executed general release
satisfactory in all respects to the Board of Directors of the Company (not
releasing however any obligations the Company has to Whitman pursuant to
this Agreement), and the second installment being due and payable on the
date twelve (12) months following payment of the first installment; and
ii. an amount equal to two and one-half (2 1/2) times the average
Performance Compensation paid to Whitman in the three (3) years (or a
shorter period as the case may be) immediately preceding the date of
termination, without interest, payable in two equal installments, the first
installment being due and payable thirty (30) days following the date the
Company receives the executed general release, and the second installment
being due and payable on the date twelve (12) months following payment of
the first installment; and
iii. an amount equal to the earned (based on achievement of
performance objectives to date) but unpaid target Performance Compensation
for the fiscal year in which termination occurs, pro rated based on the
time Whitman is employed during said fiscal year and payable at the time
Performance Compensation is paid to other employees with respect to said
fiscal year; and
iv. continuation of all medical, dental and other health benefits for
which Whitman was enrolled immediately prior to termination for a period of
two (2) years following the date of termination; and
v. a five (5) year extension of time in which to exercise all options
vested but unexercised as of the date of termination; and
vi. the pay out to Whitman of any deferred compensation account
balances based on the terms and payment elections in place at the time of
termination.
b. Termination Upon Death. If Whitman dies during the Term, this Agreement
shall terminate, provided that Whitman's legal representatives, successors,
heirs or assigns shall be entitled to receive the payments and benefits earned
by Whitman as of the date of such termination (with performance bonuses prorated
as of such termination date); provided further, however, if other benefits are
governed by the provisions of any written employee benefit plan or policy of the
Company, any written agreement contemplated thereunder or any other separate
written agreement entered into between Whitman and the Company, the terms and
conditions of such plan, policy or agreement shall control in the event of any
discrepancy or conflict with the provisions of this Agreement regarding such
payments and other benefits upon the death, termination or disability of
Whitman.
192
c. Suspension upon Disability. If during the Term Whitman becomes
physically or mentally disabled, whether totally or partially, as evidenced by
the written statement of a competent physician licensed to practice medicine in
the United States, so that Whitman is unable to substantially perform his
services hereunder for (i) a period of six consecutive months, or (ii) for
shorter periods aggregating six months during any twelve-month period, at any
time after the last day of the six consecutive months of disability or the day
on which the shorter periods of disability equal an aggregate of six months, the
Company shall terminate the Term of Whitman's employment hereunder and Whitman
shall be entitled to receive the payments and benefits earned by Whitman as of
the date of such termination (with performance bonuses prorated as of such
termination date). If at any time during the Term Whitman shall no longer be
disabled, as evidenced by the written statement of a competent physician
licensed to practice medicine in the United States, the Company may, at its
election, fully reinstate the employment of Whitman pursuant to this Agreement
and shall commence payment of the Annual Salary and all of the terms of this
Agreement shall resume in full force for the balance of the Term. Nothing in
this Section 5.c shall be deemed to extend the Term.
d. Termination for "Cause." The Company has the right, at any time during
the Term, subject to all of the provisions hereof, exercisable by serving
notice, effective in accordance with its terms, to terminate Whitman's
employment under this Agreement and discharge Whitman for "Cause" (as
hereinafter defined). If such right is exercised, the Company's obligation to
Whitman shall be limited to the payment of any unpaid Annual Salary and other
benefits, if any, accrued up to the effective date (which shall not be
retroactive) specified in the Company's notice of termination. As used in this
Section 5.d, the term "Cause" shall mean and include (i) wrongful
misappropriation of any money or other assets or properties of the Company or
any subsidiary or affiliate of the Company, (ii) the conviction of Whitman for
any felony, or (iii) chronic alcoholism or drug addiction.
e. Termination in Event of "Unfriendly" Takeover. For purposes of this
Agreement, "unfriendly" takeover shall occur if more than forty percent (40%) of
the Company's common stock is purchased by a hostile purchaser. The Board of
Directors shall determine prior to the takeover whether a purchaser is hostile.
In the event of an unfriendly takeover, Whitman shall receive the payments and
benefits described in Section 5.a. All unvested stock options shall immediately
vest as of the date of the closing of any unfriendly takeover.
f. "Friendly" Takeover. For purposes of this Agreement, "friendly" takeover
shall occur if more than forty percent (40%) of the Company's common stock is
purchased by a friendly purchaser. The Board of Directors shall determine prior
to the takeover whether a purchaser is friendly. A takeover supported by the
Board shall be deemed friendly. In the event of a friendly takeover:
i. Whitman shall receive the payments and benefits described in
Section 5.a, provided that during the three (3) year period after the
friendly takeover (provided said 3-year period is within the Term) the
successor company terminates Whitman for any reason other than for "Cause"
or one or more of the following events occur and Whitman terminates his
employment within six months and by reason thereof: (i) Whitman's annual
salary is less than the Annual Salary paid to Whitman at the time of the
friendly takeover, (ii) Whitman is not eligible to receive incentive
compensation on terms and in amounts at least as favorable as the
Performance Compensation provided in this Agreement, or (iii) Whitman's
role in the Company is other than President and Chief Executive Officer.
All unvested stock options shall immediately vest as of the date of the
closing of any friendly takeover; and
ii. there shall immediately vest the number of Options that remain
unvested at the time the Board approves the "friendly" takeover necessary
to achieve Whitman's vesting of Options representing at least three percent
(3%) of the outstanding shares of the Company's stock as of January 1,
2000.
193
g. Failure to Extend Term Not an Event of Termination. The Company's
election not to extend the Term or any extended term of this Agreement pursuant
to Section 2, above, shall not constitute an act of termination of this
Agreement for any purpose.
6. INSURANCE. The Company may, from time to time, apply for and take out, in its
own name and at its own expense, naming itself or others as the designated
beneficiary (which it may change from time to time), policies for health,
accident, disability or other insurance upon Whitman in any amount or amounts
that it may deem necessary or appropriate to protect its interest. Whitman
agrees to aid the Company in procuring such insurance by submitting to
reasonable medical examinations and by filling out, executing and delivering
such applications and other instruments in writing as may reasonably be required
by an insurance company or companies to which any application or applications
for insurance may be made by or for the Company.
7. OTHER PROVISIONS.
a. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed, five days after the date of deposit in the United States mail, as
follows:
i. if to the Company, to:
Franklin Covey Co.
2200 West Parkway Boulevard
Salt Lake City, Utah 84119
Attn: Val John Christensen
ii. if to Whitman, to:
------------------------
Any party may change its address for notice hereunder by notice to the other
party hereto.
b. Entire Agreement. This Agreement contains the entire agreement and
understanding between the parties with respect to the subject matter hereof and
supersedes all prior agreements, written or oral, with respect thereto;
provided, however, that nothing herein shall in any way limit the obligation,
rights or liabilities of the parties under any written stock option agreement
separately entered into by the parties.
c. Waivers and Amendments. This Employment Agreement may be amended,
modified, superseded, canceled, renewed or extended, and the terms and
conditions hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay
on the part of any party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege hereunder, nor any single or partial exercise
of any right, power or privilege hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
d. Governing Law; Venue. This Agreement, except for Article 4 hereof, shall
be governed by and construed in accordance by with the laws of the State of Utah
applicable to agreements made and to be performed entirely within such State.
The parties submit themselves to the jurisdiction of the federal and state
courts located in Utah and agree to commence any lawsuit arising under or
relating to this Agreement (other than Article 4 hereof) in such courts.
194
e. Assignment. This Agreement, and any rights and obligations hereunder,
may not be assigned by any party hereto without the prior written
consent of the other party, except that the Company may assign this Agreement to
any of its subsidiaries or affiliates without Whitman's consent provided such
assignment does not diminish any of Whitman's benefits, rights or obligations
hereunder.
f. Successors and Assigns. The rights and benefits of this Agreement shall
inure to the parties' respective successors and assigns.
g. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
h. Headings. The headings in this Agreement are for reference purposes only
and shall not in any way affect the meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
FRANKLIN COVEY CO.
By /s/ Val John Christensen
------------------------------------------
Val John Christensen
Executive Vice President/General Counsel
ROBERT A. WHITMAN, an individual
195
EXHIBIT 21
FRANKLIN COVEY CO.
SUBSIDIARIES
Franklin Development Corporation (a Utah corporation)
Franklin Covey Europe, Inc. (a Utah corporation)
Franklin Covey Europe, Ltd. (a United Kingdom corporation)
Franklin Covey Canada, Ltd. (a Canada corporation)
Franklin Excellence, Inc. (a Utah corporation)
Franklin Covey Asia, Inc. (a Utah corporation)
Franklin Covey Australia, Inc. (a Utah corporation)
Franklin Covey NZ, Inc. (a Utah corporation)
Franklin Covey Mexico, Inc. (a Utah corporation)
Franklin Covey de Mexico, SA de CV (a Mexico corporation)
Franklin Covey Taiwan, Inc. (a Utah corporation)
Franklin Covey Argentina, Inc. (a Utah corporation)
Franklin Covey Brazil, Inc. (a Utah corporation)
Franklin Covey International, Inc. (a Utah corporation)
Franklin Covey Puerto Rico, Inc. (a Puerto Rico corporation)
Franklin Covey SA, Inc. (a Utah corporation)
Franklin Covey ASC, Inc. (a Utah corporation)
Franklin Covey Printing (formerly Publishers Press, Inc.) (a Utah corporation)
Franklin Covey Client Sales, Inc. (a Utah corporation)
Franklin Covey Catalog Sales, Inc. (a Utah corporation)
Franklin Covey Product Sales, Inc. (a Utah corporation)
Franklin Covey Services, L.L.C. (a Utah limited liability company)
Franklin Covey Marketing, Ltd. (a Utah limited partnership)
Franklin Covey Travel, Inc. (a Utah corporation)
Franklin Covey Coaching, L.L.C. (a Delaware limited liability company)
Premier Agendas, Inc. (a Washington corporation)
Premier School Agendas, Ltd. (a Canada corporation)
Premier Graphics, L.P. (a Washington limited partnership)
Wasatch Communications, Inc. (a Utah corporation)
Franklin Covey Japan Co. Ltd. (a Japan corporation)
McCulley Cuppan, LLC (a Utah limited liability)
Franklin Planner.com, Inc. (a Utah corporation)
Franklin Covey Pty. Ltd. (an Australia corporation)
Franklin Covey Ltd. (a New Zealand corporation)
Franklin Covey Middle East, WLL (a Bahrain corporation)
SA Acquisition, Inc. (a Utah corporation)
196
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included or incorporated by reference in this Form
10-K, into the Company's previously filed Registration Statements on Form S-8,
File Nos. 33-73624 , 33-51314, 333-34498 and 333-38172, and Form S-3, File Nos.
33-47894 and 333-89541.
/s/ ARTHUR ANDERSEN LLP
- ------------------------
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
November 27, 2000
197
Exhibit 99.1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
To Franklin Covey Co.:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements included in Franklin
Covey Co.'s annual report to shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated September 28, 2000. Our audits
were made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in the index on page 199 is the responsibility of the
Company's management and is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
- -----------------------
ARTHUR ANDERSEN LLP
Salt Lake City, Utah
September 28, 2000
198
EXHIBIT 99.2
SCHEDULE II
FRANKLIN COVEY CO.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Three Years Ended August 31, 2000
(Dollars in Thousands)
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
----------------------
Charged to Charged
Balance at Costs and to Other Balance at
Description Beginning of Period Expenses Accounts Deductions End of Period
- --------------------------------------------------------------------------------------------------------------------
Year ended August 31, 1998:
Allowance for doubtful accounts $ 1,931 $ 3,472 $ (2,563)(1) $ 2,840
Allowance for inventories 4,475 6,522 (5,998)(2) 4,999
-------- -------- --------- --------
$ 6,406 $ 9,994 $ (8,561) $ 7,839
======== ======== ========= ========
Year ended August 31, 1999:
Allowance for doubtful
accounts $ 2,840 $ 4,862 $ (3,628)(1) $ 4,074
Allowance for inventories 4,999 13,460 (8,899)(2) 9,560
-------- -------- --------- --------
$ 7,839 $ 18,322 $(12,527) $ 13,634
======== ======== ========= ========
Year ended August 31, 2000:
Allowance for doubtful
accounts $ 4,074 $ 1,918 $ (2,642)(1) $ 3,350
Allowances for inventories 9,560 5,243 (8,881)(2) 5,922
-------- -------- --------- --------
$ 13,634 $ 7,161 $(11,523) $ 9,272
======== ======== ========= ========
(1) Represents a write-off of accounts deemed uncollectible.
(2) Reduction in the allowance is due to a write-off of obsolete inventories.
199