SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file no. 1-11107
FRANKLIN COVEY CO.
(Exact name of registrant as specified in its charter)
Utah 87-0401551
(State of incorporation) (I.R.S. Employer Identification No.)
2200 West Parkway Boulevard
Salt Lake City, Utah 84119-2331
(Address of principal executive offices) (Zip code)
Registrant's telephone number,
including area code: (801) 975-1776
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 the number of shares outstanding of each of the issuer's
classes of Common Stock as of the latest practicable date:
22,923,768 shares of Common Stock as of July 7, 1998
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FRANKLIN COVEY CO.
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(in thousands, except share amounts)
<TABLE>
<CAPTION>
May 31, August 31,
1998 1997
---------------- ---------------
(unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 31,153 $ 20,389
Accounts receivable, less allowance for
doubtful accounts of $2,623 and $1,931 53,649 71,840
Inventories 55,926 55,748
Income taxes receivable 1,357 6,094
Other current assets 15,937 15,672
---------- ----------
Total current assets 158,022 169,743
Property and equipment, net 125,488 119,768
Goodwill and other intangible assets, net 267,249 269,219
Other long-term assets 23,837 13,457
---------- ----------
$ 574,596 $ 572,187
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,427 $ 31,611
Accrued earnout payments 875 9,000
Other current liabilities 48,271 46,292
---------- ----------
Total current liabilities 67,573 86,903
Line of credit 26,037 86,000
Long-term debt, less current portion 89,290 5,870
Deferred income taxes 36,180 35,735
Capital lease obligations, less current portion 1,655 2,274
---------- ----------
Total liabilities 220,735 216,782
---------- ----------
Shareholders' equity:
Common stock, $0.05 par value, 40,000,000
shares authorized, 27,055,894 shares issued 1,353 1,353
Additional paid-in capital 237,900 239,699
Retained earnings 194,177 169,714
Deferred compensation (1,006) (1,495)
Cumulative translation adjustments (2,399) (934)
Treasury stock at cost, 3,360,445 and 2,373,223 shares (76,164) (52,932)
----------- -----------
Total shareholders' equity 353,861 355,405
----------- -----------
$ 574,596 $ 572,187
=========== ===========
</TABLE>
(See Notes to Consolidated Condensed Financial Statements)
<PAGE>
FRANKLIN COVEY CO.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
-------------------------------------------
(in thousands, except per share data)
<TABLE>
Three Months Ended Nine Months Ended
May 31, May 31,
-------------------------------- --------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales $ 107,542 $ 79,840 $ 390,025 $ 288,175
Cost of sales 42,728 33,612 152,874 119,953
--------- --------- --------- ---------
Gross margin 64,814 46,228 237,151 168,222
Operating expenses 62,411 40,852 187,545 119,616
--------- --------- --------- ---------
Income from operations 2,403 5,376 49,606 48,606
Interest and other, net (1,600) (142) (4,233) 255
---------- ---------- ---------- ---------
Income before income taxes and cumulative
effect of accounting change 803 5,234 45,373 48,861
Provision for income taxes 333 2,107 18,830 19,666
--------- --------- --------- ---------
Income before cumulative effect of
accounting change 470 3,127 26,543 29,195
Cumulative effect of accounting change,
net of tax (Note 5) (2,080)
--------- --------- ---------- ---------
Net income $ 470 $ 3,127 $ 24,463 $ 29,195
========= ========= ========= =========
Income from continuing operations per share
Basic $ .02 $ .16 $ 1.08 $ 1.47
Diluted .02 .15 1.05 1.41
Cumulative effect of accounting change,
net of tax, per share
Basic (.08)
Diluted (.08)
Net income per share
Basic $ .02 $ .16 $ 1.00 $ 1.47
Diluted $ .02 $ .15 $ .97 $ 1.41
Weighted average number of common and
common equivalent shares
Basic 24,040 19,799 24,522 19,846
Diluted 24,732 20,537 25,227 20,742
</TABLE>
(See Notes to Consolidated Condensed Financial Statements)
<PAGE>
FRANKLIN COVEY CO.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
May 31,
----------------------
1998 1997
------- -------
(unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 24,463 $ 29,195
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 27,123 15,777
Deferred taxes 445 354
Deferred compensation 489 388
Other changes in assets and liabilities 170 (10,403)
---------- ----------
Net cash provided by operating activities 52,690 35,311
---------- ----------
Cash flows from investing activities:
Acquisition of businesses and earnout payments (16,786) (33,024)
Purchases of property and equipment (21,118) (11,214)
---------- ----------
Net cash used for investing activities (37,904) (44,238)
---------- ----------
Cash flows from financing activities:
Proceeds from short-term borrowings 3,256
Payments on short-term borrowings (889) (133)
Proceeds from long-term debt and lines of credit 110,037 48,357
Payments on long-term debt, capital leases and lines of credit (86,672) (2,398)
Purchase of treasury shares (28,471) (18,377)
Proceeds from treasury stock issuance 3,438 997
--------- ---------
Net cash (used for) provided by financing activities (2,557) 31,702
---------- ---------
Effect of foreign exchange rates (1,465) (75)
---------- ----------
Net increase in cash and cash equivalents 10,764 22,700
Cash and cash equivalents at beginning of period 20,389 24,041
---------- ----------
Cash and cash equivalents at end of period $ 31,153 $ 46,741
========== ==========
Supplemental disclosure of cash flow information:
Interest paid $ 5,386 $ 757
========== ==========
Income taxes paid 14,569 27,916
========== ==========
Fair value of assets acquired $ 18,943 $ 45,542
Cash paid for net assets (16,786) (33,024)
---------- ----------
Liabilities assumed from acquisitions $ 2,157 $ 12,518
========== ==========
Non-cash investing activities:
Accrued earnout payments $ 875 $ 500
</TABLE>
(See Notes to Consolidated Condensed Financial Statements)
<PAGE>
FRANKLIN COVEY CO.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
Effective June 2, 1997, Franklin Quest Co. merged (the "Merger") with
Covey Leadership Center ("Covey") to form Franklin Covey Co. (the "Company").
Accordingly, the accompanying consolidated condensed Statements of Income for
the three and nine months ended May 31, 1997 and the Statement of Cash Flows for
the nine months ended May 31, 1997 do not include the results of operations and
cash flows of Covey. Pro forma information related to the Merger is presented in
Note 4.
The attached unaudited consolidated condensed financial statements
reflect, in the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, and the results of operations and cash flows of the Company as of the
dates and for the periods indicated.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission rules and regulations. The Company suggests the information
included in this report on Form 10-Q be read in conjunction with the financial
statements and related notes included in the Company's Annual Report to
Shareholders for the fiscal year ended August 31, 1997. The Company also
suggests reading this report in conjunction with the definitive Proxy Statement
relating to the Merger which was filed with the Securities and Exchange
Commission on April 30, 1997 which includes certain pro forma financial
information giving effect to the Merger.
Certain reclassifications have been made to the prior period
consolidated condensed financial statements to conform with the current period
presentation.
The results of operations for the nine months ended May 31, 1998 are
not necessarily indicative of results for the entire fiscal year ending August
31, 1998.
NOTE 2 - NET INCOME PER COMMON SHARE
The Company calculates earnings per share under the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". Basic earnings per share is calculated by dividing income from
continuing operations by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share 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. The following schedule reconciles the numerator and
denominator of the basic and diluted earnings per share calculations (in
thousands, except per share amounts):
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
---------------------------------- ----------------------------------
1998 1997 1998 1997
--------------- -------------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income $ 470 $ 3,127 $ 24,463 $ 29,195
========= ========= ========= =========
Basic weighted-average
shares outstanding 24,040 19,799 24,522 19,846
Plus: Incremental shares from
assumed exercises of stock options
using the treasury stock method 692 738 705 896
--------- --------- --------- ---------
Diluted weighted-average shares
outstanding and common stock
equivalents 24,732 20,537 25,227 20,742
========= ========= ========= =========
Basic EPS $ .02 $ .16 $ 1.00 $ 1.47
========= ========= ========= =========
Diluted EPS $ .02 $ .15 $ .97 $ 1.41
========= ========= ========= =========
</TABLE>
NOTE 3 - INVENTORIES
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
May 31, 1998 August 31, 1997
------------ ---------------
(unaudited)
<S> <C> <C>
Finished goods $ 37,234 $ 40,955
Work in process 6,738 7,286
Raw materials 11,954 7,507
----------- -----------
$ 55,926 $ 55,748
=========== ===========
</TABLE>
NOTE 4 - PRO FORMA RESULTS OF OPERATIONS
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company as if the Merger and the
acquisition of Premier School Agendas ("Premier") had occurred at the beginning
of the fiscal year ended August 31, 1997. Pro forma adjustments have been made
to give effect to amortization of goodwill, interest expense on acquisition debt
and certain other adjustments. The pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of the results of
operations which actually would have resulted had the Merger and Premier
acquisition been consummated at the beginning of the fiscal year ended August
31, 1997 (in thousands, except per share data).
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
---------------------------------- ----------------------------------
1998 1997 1998 1997
--------------- -------------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales $ 107,542 $ 107,980 $ 390,025 $ 372,659
Income from operations 2,403 6,640 49,606 48,721
Income before cumulative effect
of accounting change 470 3,177 26,543 26,411
Net income 470 3,177 24,463 26,411
Earnings per share:
Basic $ .02 $ .13 $ 1.00 $ 1.06
Diluted .02 .12 .97 1.01
</TABLE>
NOTE 5 - CHANGE IN ACCOUNTING PRINCIPLE
On November 20, 1997, the Emerging Issues Task Force ("EITF") of the
Financial Accounting Standards Board issued consensus ruling 97-13 which
requires certain business reengineering and information technology
implementation costs that have previously been capitalized to be expensed as
incurred. In addition, any previously capitalized costs which are addressed by
EITF 97-13 were written off as a cumulative adjustment in the quarter ended
November 30, 1997.
The Company is currently involved in a business reengineering and
information system implementation project and has capitalized costs in
accordance with generally accepted accounting standards. Certain previously
capitalized costs of the project were written off in accordance with EITF 97-13
during the Company's first quarter of fiscal 1998. During the Company's third
quarter of fiscal 1998, the majority of costs associated with the information
system implementation were capitalized in accordance with Statement of Position
98-1, "Accounting for the Cost of Computer Software Developed or Obtained for
Internal Use" and EITF 97-13. In addition, the Company expects that the majority
of the remaining costs of the project will qualify for capitalization.
The Company incurred no significant costs which are addressed by EITF
97-13 during the three and nine months ended May 31, 1997. Accordingly, no pro
forma disclosures are necessary for these periods.
NOTE 6 - LONG-TERM NOTES PAYABLE
On May 4, 1998, the Company privately issued $85.0 million of unsecured
senior notes payable (the "Notes Payable"). The Notes Payable are due May 4,
2008 and bear interest at a fixed rate of 6.6%. Interest is due semi-annually
beginning on November 4, 1998 with principal payments of $17.0 million due
annually beginning May 4, 2003. In addition, the Notes Payable Purchase
Agreement (the "Agreement") requires the Company to maintain certain financial
ratios and net worth levels until the Notes Payable are paid in full. At May 31,
1998, the Company was in compliance with the terms of the Agreement.
NOTE 7 - SHAREHOLDERS' EQUITY
During the nine months ended May 31, 1998, the Company purchased
1,222,100 shares of its Common Stock for $28.5 million. Of this amount, 500,000
shares were purchased at market value from the Chairman of the Board of
Directors of the Company. The Company also issued 234,878 shares of treasury
stock for $5.2 million in connection with stock option exercises and the
employee stock purchase plan during the nine months ended May 31, 1998.
In March 1998, the Company's Board of Directors approved the purchase
of an additional 3,000,000 shares of the Company's Common Stock.
<PAGE>
FRANKLIN COVEY CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements, the Notes thereto and Management's Discussion
and Analysis included in the Company's Annual Report to Shareholders for the
fiscal year ended August 31, 1997.
During fiscal 1997, the Company initiated a project to replace its
current accounting and information systems with new integrated systems to better
support Company growth and to be compliant with "year 2000" computer date
issues. The Company has reviewed the new information systems, which will become
fully operational during fiscal 1999, and does not believe that any additional
material expenditures will be required to make its systems "year 2000"
compliant. However, the Company could be impacted by "year 2000" issues
affecting the information processing systems of vendors and other organizations
with which the Company does business.
RESULTS OF OPERATIONS
The following table sets forth selected data concerning the sales of
the Company's products and services (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31, May 31,
----------------------------------------------- -----------------------------------------------
(Unaudited) (Unaudited)
1998 % 1997 % 1998 % 1997 %
-------------- --- ------------- --- ------------- --- ------------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Product $ 53,982 50.2 $ 50,908 63.8 $ 235,572 60.4 $ 206,031 71.5
Training 46,646 43.4 22,964 28.8 133,484 34.2 64,273 22.3
Printing services 6,914 6.4 5,968 7.4 20,969 5.4 17,871 6.2
---------- ----- ---------- ----- ---------- ----- ---------- -----
$ 107,542 100.0 $ 79,840 100.0 $ 390,025 100.0 $ 288,175 100.0
========== ===== ========== ===== ========== ===== ========== =====
</TABLE>
Three Months Ended May 31, 1998 Compared with the Three Months Ended
--------------------------------------------------------------------
May 31, 1997
------------------
Sales for the three months ended May 31, 1998 increased $27.7 million,
or 35%, over the same period in 1997 primarily as a result of the Merger, an
increase in the number of participants attending training seminars, an increase
in the number of Franklin Planners sold and the effects of other acquisitions.
Product sales increased $3.1 million, or 6%, compared to the
corresponding quarter of the prior year. Of this increase, $2.3 million came
from growth in retail store sales, which was due to new stores opened during the
past twelve months offset by a 7% decrease in comparable store sales for the
quarter ended May 31, 1998 compared to the same quarter a year ago. At May 31,
1998 the Company was operating 119 retail stores, compared to 103 stores at May
31, 1997. Product sales also increased $4.0 million in aggregate, or 19%, due to
increases in catalog, international, corporate wholesale and book royalties
resulting from the Merger. Sales increases during the quarter were offset by a
decrease in sales of $3.8 million, or 55%, due to declining network marketing
business and declining government sales at Productivity Plus.
<PAGE>
Training sales increased $23.7 million, or 103%, over the same quarter
a year ago. This increase was primarily attributable to additional domestic and
international training sales resulting from the Merger, as well as increased
personal coaching program sales as compared to the corresponding quarter of the
prior year.
Printing services sales increased by $0.9 million, or 16%, compared to
the same quarter a year ago. The increase resulted from new print jobs sold and
delivered during the quarter by the Company's printing services division.
Gross margin was 60.3% of sales for the three months ended May 31,
1998, compared to 57.9% for the same period in 1997. The increase in gross
margin for the Company as a whole reflects the higher margins on certain Covey
training seminars added as a result of the Merger as well as manufacturing
process improvements and reductions in the costs of the Company's raw materials.
Operating expenses, consisting primarily of selling, general and
administrative expenses, depreciation and amortization, increased to 58.1% of
sales for the three months ended May 31, 1998 compared to 51.2% of sales during
the corresponding period of the prior fiscal year. The increase reflects the
higher operating expenses, as a percentage of sales, of Covey as well as
increases in operating expenses due to the addition of 16 retail stores and
expanded international operations in Japan, Australia and New Zealand.
Depreciation increased by $1.7 million over the corresponding quarter
of the prior year due to the purchase of new computer equipment and the addition
of leasehold improvements in new stores. Amortization expense increased $2.4
million primarily due to amortization of intangible assets acquired in
connection with the Merger and earnout payments made during the current fiscal
year for other acquisitions.
Income taxes were accrued using an effective rate of 41.5% for the
three months ended May 31, 1998 compared to 40.3% for the same quarter of fiscal
1997. The increase was due primarily to non-deductible goodwill generated from
the Merger and other acquisitions.
Nine Months Ended May 31, 1998 Compared with the Nine Months Ended May 31, 1997
- --------------------------------------------------------------------------------
Sales for the nine months ended May 31, 1998 increased $101.9 million,
or 35%, over the same period in fiscal 1997 primarily as a result of the Merger,
an increase in the number of participants attending training seminars, an
increase in the number of Franklin Planners sold, and the effects of other
acquisitions.
Product sales for the first nine months of fiscal 1998 increased $29.5
million, or 14%, as compared to the first nine months of the previous fiscal
year. Retail store sales comprised $20.7 million of this increase, which
represented a 24% increase compared to the first nine months of fiscal 1997. The
increase in retail sales is principally due to the number of stores opened
during the past twelve months. At May 31, 1998, the Company was operating 119
retail stores, compared to 103 stores at May 31, 1997. In addition, comparable
store sales increased 4% for the nine months ended May 31, 1998 over the
comparable period of the prior year. Product sales also increased $20.1 million
in aggregate, or 22%, due to increases in catalog, international, corporate
wholesale and book royalties resulting primarily from the Merger. The increases
in product sales were offset by a decrease of $15.8 million, or 59%, due to
declining network marketing business and declining government sales at
Productivity Plus.
<PAGE>
Training sales for the nine months ended May 31, 1998 increased by
approximately $69.2 million, or 108%, compared to the same period a year ago.
The increase in training sales was primarily the result of additional domestic
and international seminar sales from the Merger, as well as increased personal
coaching program sales as compared to the corresponding period of the prior
year.
Printing services revenue increased by $3.1 million, or 17%, compared
to the first nine months of fiscal 1997. The increase was primarily the result
of new print jobs being sold and delivered during the first nine months of the
current year as well as the incremental printing sales from Premier's printing
division which was acquired effective March 1, 1997.
Gross margin was 60.8% of sales in the first nine months of fiscal 1998
compared to 58.4% during the comparable nine months of fiscal 1997. The increase
in gross margin reflects the higher margins on certain Covey training seminars
added as a result of the Merger as well as manufacturing process improvements
and reductions in the costs of the Company's raw materials.
Operating expenses increased to 48.2% of sales for the nine months
ended May 31, 1998 compared to 41.6% for the corresponding period of the prior
year. The increase in operating expenses reflects the higher operating expenses,
as a percentage of sales, of Covey, as well as increases in operating expenses
due to the addition of 16 new retail stores, expanded international operations,
and the addition of Premier which has seasonally low sales during the first
three fiscal quarters, but incurs normal operating expenses during the
corresponding period.
Depreciation expense was higher by $4.9 million compared to the same
period a year ago due to new computer equipment purchased, the addition of
leasehold improvements in new stores, and the purchase of new printing presses.
Amortization charges increased by $6.8 million, primarily due to amortization of
intangible assets acquired in connection with the Merger and Premier
acquisition. Amortization expense also increased due to earnout payments made
during the current fiscal year for other acquisitions.
On November 20, 1997, the Emerging Issues Task Force (EITF) of the
Financial Accounting Standards Board issued a consensus ruling, which requires
that certain business and information system reengineering costs that would have
been capitalized must be expensed as incurred. In addition, certain previously
capitalized reengineering costs were required to be written off as a cumulative
adjustment during the Company's quarter ended November 30, 1997. In accordance
with this ruling, the Company recorded a charge of $2.1 million, net of related
income taxes, during its first fiscal quarter of 1998 to write off certain costs
of its business and information systems reengineering project that had been
previously capitalized.
Income taxes have been accrued using an effective rate of 41.5% for the
nine months ended May 31, 1998 compared to 40.2% for the corresponding period of
fiscal 1997. The increase in the tax rate was due primarily to non-deductible
goodwill generated from the Merger and other acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of capital have been net
cash provided by operating activities, long-term borrowing, capital lease
financing and the sale of Common Stock. Working capital requirements have also
been financed through short-term borrowing. At May 31, 1998, the Company had
$31.2 million in cash and cash equivalents compared to $20.4 million at August
31, 1997.
<PAGE>
Working capital during the period increased by $7.6 million due to
operations in the normal course of business. Management believes that cash flows
and available credit facilities are sufficient to meet working capital
requirements, including anticipated increases in accounts receivable and
inventories associated with sales increases.
Cash provided by operating activities during the nine months ended May
31, 1998 was $52.7 million consisting primarily of net income and non-cash
charges for depreciation and amortization.
Net cash used for investing activities was $37.9 million. Of this
total, $21.1 million was invested in property and equipment, with the remaining
balance utilized for contingent earnout payments from previous acquisitions and
other acquisitions made during the current fiscal year.
Cash used for financing activities during the nine months ended May 31,
1998 was $2.6 million. On May 4, 1998 the Company privately issued $85.0 million
of unsecured senior notes payable. The Notes Payable are due May 4, 2008 and
bear interest at a fixed rate of 6.6%. The proceeds from the Notes Payable were
used to enhance the capital structure of the Company through the reduction of
variable-rate line of credit financing. The Company also has available lines of
credit, at May 31, 1998 totaling $74.0 million. At May 31, 1998, $26.0 million
was outstanding against these lines. In connection with the Company's stock
purchase program, 1,222,100 shares of its common stock were purchased for $28.5
million during the nine months ended May 31, 1998.
"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 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, 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 the Securities and Exchange Commission filings.
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 could differ 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 Securities and
Exchange Commission.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
Not applicable.
Item 2. Changes in Securities:
Not applicable.
Item 3. Defaults upon Senior Securities:
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders:
Not applicable.
Item 5. Other information:
In March 1998, the Board of Directors approved the purchase of
an additional 3,000,000 shares of the Company's Common Stock.
As of June 30, 1998, the Company had acquired 1,210,700 shares
at an average price of $20.79 per share under this purchase
plan.
Item 6. Exhibits and Reports on Form 8-K:
(A) Exhibits:
1. Notes Payable Purchase Agreement for $85.0 million of
6.6% unsecured senior notes payable due May 2008 (filed
herewith).
(B) Reports on Form 8-K:
Not applicable.
SIGNATURES
Pursuant to the requirements 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.
FRANKLIN COVEY CO.
Date: ____________________________ By: _________________________
Jon H. Rowberry
President
Chief Executive Officer
Date: ____________________________ By: _________________________
John L. Theler
Executive Vice President
Chief Financial Officer
<PAGE>
EXHIBIT 1
FRANKLIN COVEY CO.
2200 West Parkway Boulevard
Salt Lake City, Utah 84119-2331
6.64% Senior Notes due May 4, 2008
as of May 4, 1998
TO EACH OF THE PURCHASERS NAMED ON THE
SIGNATURE PAGE OF THIS AGREEMENT:
Ladies and Gentlemen:
FRANKLIN COVEY CO., a Utah corporation (the "Company"), agrees
with you as follows:
1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $85,000,000
aggregate principal amount of its 6.64% Senior Notes due May 4, 2008 (the
"Notes", such term to include any such notes issued in substitution therefor
pursuant to Section 13). The Notes shall be substantially in the form set out in
Exhibit 1, with such changes therefrom, if any, as may be approved by you and
the Company. Certain capitalized terms used in this Agreement are defined in
Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise
specified, to a Schedule or an Exhibit attached to this Agreement.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the
Company will issue and sell to you and you will purchase from the Company, at
the Closing provided for in Section 3, Notes in the principal amount specified
opposite your name in Schedule A at the purchase price of 100% of the principal
amount thereof. Contemporaneously with the execution and delivery to you by the
Company of a counterpart of this Agreement, the Company is executing and
delivering a counterpart hereof to each of the other purchasers named in
Schedule A (the "Other Purchasers"), providing for the sale at the Closing to
each of the Other Purchasers of Notes in the principal amount specified opposite
its name in Schedule A. The sales of Notes to you and the Other Purchasers (you
and the Other Purchasers being hereinafter sometimes referred to collectively as
the "Purchasers") are to be separate sales made by the Company to the
Purchasers. The obligations of the Purchasers hereunder shall be several and not
joint, and this Agreement shall for all purposes be construed and deemed to be a
separate agreement between the Company, on the one hand, and each of the
Purchasers, on the other, the Purchasers acting severally and not jointly, with
the same effect as though a separate agreement with each such Purchaser to the
effect herein provided were hereby entered into between the Company and each
such Purchaser.
3. CLOSING.
The purchase and sale of the Notes to be purchased by you and
the Other Purchasers shall occur at the offices of Coudert Brothers, 1114 Avenue
of the Americas, New York, New York 10036-7703, at 10:00 a.m., New York City
time, at a closing (the "Closing") on May 4, 1998 or on such subsequent date as
may be agreed upon by the Company and you and the Other Purchasers (the "Closing
Date"). At the Closing the Company will deliver to you the Notes to be purchased
by you in the form of a single Note (or such greater number of Notes in
denominations of at least $100,000 as you may request), dated the Closing Date
and registered in your name (or in the name of your nominee), against payment of
the purchase price therefor. The purchase price of the Notes to be purchased
hereunder shall be paid by delivery by you to the Company or its order of
immediately available funds in the amount of the purchase price therefor by wire
transfer of immediately available funds for the account of the Company to
account number 11-128493 at Zions First National Bank, ABA No. 124000054. If at
the Closing the Company shall fail to tender such Notes to you as provided above
in this Section 3, or any of the conditions specified in Section 4 shall not
have been fulfilled to your satisfaction, you shall, at your election, be
relieved of all further obligations under this Agreement, without thereby
waiving any rights you may have by reason of such failure or such
nonfulfillment.
<PAGE>
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold
to you at the Closing is subject to the fulfillment to your satisfaction, prior
to or at the Closing, of the following conditions:
4.1. Representations and Warranties.
The representations and warranties of the Company in this
Agreement shall be correct when made and at the time of the Closing.
4.2. Performance; No Default.
The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it prior to or at the Closing, and after giving effect to
the issue and sale of the Notes (and the application of the proceeds thereof as
contemplated by Section 5.14) no Default or Event of Default shall have occurred
and be continuing.
4.3. Compliance Certificates.
(a) Officer's Certificate. The Company shall have delivered to
you an Officer's Certificate, dated the Closing Date, certifying that the
conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.
(b) Secretary's Certificate. The Company shall have delivered
to you a certificate, dated the Closing Date, certifying as to the resolutions
attached thereto and other corporate proceedings relating to the authorization,
execution and delivery of the Notes and this Agreement.
4.4. Opinions of Counsel.
You shall have received opinions in form and substance
satisfactory to you, dated the Closing Date (a) from Parr Waddups Brown Gee &
Loveless, special counsel for the Company, covering the matters set forth in
Exhibit 4.4(a) and covering such other matters incident to the transactions
contemplated hereby as you or your counsel may reasonably request (and the
Company hereby instructs its counsel to deliver such opinion to you) and (b)
from Coudert Brothers, your special counsel in connection with such
transactions, covering such matters incident to such transactions as you may
reasonably request.
4.5. Purchase Permitted By Applicable Law, etc.
On the Closing Date your purchase of the Notes to be purchased
by you shall (i) be permitted by the laws and regulations of each jurisdiction
to which you are subject, without recourse to basket or leeway provisions of
such laws (such as Section 1405(a)(8) of the New York Insurance Law), (ii) not
violate any applicable law or regulation (including, without limitation,
Regulation U, T or X of the Board of Governors of the Federal Reserve System)
and (iii) not subject you to any tax, penalty or liability under or pursuant to
any applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by you, you shall have received an Officer's
Certificate certifying as to such matters of fact as you may reasonably specify
to enable you to determine whether such purchase is so permitted.
<PAGE>
4.6. Sale of Other Notes.
Contemporaneously with the Closing the Company shall sell to
the Other Purchasers, and the Other Purchasers shall purchase, the Notes to be
purchased by them as specified in Schedule A.
4.7. Payment of Special Counsel Fees.
Without limiting the provisions of Section 15.1, the Company
shall have paid at or before the Closing the fees, charges and disbursements of
your special counsel referred to in Section 4.4 to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the Closing.
4.8. Private Placement Number.
A Private Placement number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained for
the Notes.
4.9. Changes in Corporate Structure.
Neither the Company nor any Subsidiary shall have changed its
jurisdiction of incorporation or been a party to any merger or consolidation and
shall not have succeeded to all or any substantial part of the liabilities of
any other entity at any time following the date of the most recent audited
financial statements referred to in Schedule 5.5.
4.10. Approvals.
All actions, approvals, consents, waivers, exemptions, orders,
authorizations, registrations, declarations, filings and recordings
(collectively, "Approvals"), if any, which are required to be taken, given,
obtained, filed or recorded, as the case may be, by or from or with (a) any
Governmental Authority, (b) any trustee or holder of any indebtedness,
obligation or securities of the Company or any of its Subsidiaries or (c) any
other Person, in connection with the legal and valid execution and delivery by
the Company of this Agreement and the consummation of the transactions
contemplated hereby and the issuance and sale by the Company of the Notes, shall
have been duly taken, given, obtained, filed or recorded, as the case may be,
and all such Approvals shall be final, subsisting and in full force and effect
on the Closing Date, and shall not be subject to any further proceedings or
appeals or any conditions subsequent not approved by you. Certified copies or
other appropriate evidence of all such Approvals, in form, scope and substance
satisfactory to you and your special counsel, shall have been delivered to you
and your special counsel.
4.11. Debt Repayment.
The Debt of the Company identified on Schedule 5.15 as being
repaid on or prior to the Closing Date shall have been repaid to the extent
specified on Schedule 5.15, and you and your special counsel shall have each
received appropriate evidence of such repayment.
4.12. Proceedings and Documents.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to you and your special
counsel, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
5.1. Organization; Power and Authority.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, and is
duly qualified as a foreign corporation and is in good standing in each
jurisdiction in which such qualification is required by law, other than those
jurisdictions as to which the failure to be so qualified or in good standing
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. The Company has the corporate power and authority to
own or hold under lease the properties it purports to own or hold under lease,
to transact the business it transacts and proposes to transact, to execute and
deliver this Agreement and the Notes and to perform the provisions hereof and
thereof.
5.2. Authorization, etc.
This Agreement and the Notes have been duly authorized by all
necessary corporate action on the part of the Company, and this Agreement
constitutes, and upon execution and delivery thereof each Note will constitute,
a legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
(ii) general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
5.3. Disclosure.
The Company, through its agent, First Chicago Capital Markets,
Inc., has delivered to you and each Other Purchaser a copy of a Confidential
Offering Memorandum, dated March, 1998 (the "Memorandum"), relating to the
transactions contemplated hereby. The Memorandum fairly describes, in all
material respects, the general nature of the business and principal properties
of the Company and its Subsidiaries. This Agreement, the Memorandum, the
documents, certificates or other writings delivered to you by or on behalf of
the Company in connection with the transactions contemplated hereby and the
financial statements listed in Schedule 5.5, taken as a whole, do not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made. Since the date of most recent audited
financial statements of the Company referred to in Schedule 5.5, there has been
no change in the financial condition, operations, business, properties or
prospects of the Company or any Subsidiary except changes that individually or
in the aggregate could not reasonably be expected to have a Material Adverse
Effect. There is no fact known to the Company that could reasonably be expected
to have a Material Adverse Effect that has not been set forth herein or in the
Memorandum or in the other documents, certificates and other writings delivered
to you by or on behalf of the Company specifically for use in connection with
the transactions contemplated hereby. The projected financial statements
contained in the Memorandum were prepared based on assumptions which were
believed by the Company to be reasonable at the time of such preparation and
were made in good faith.
<PAGE>
5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates.
(a) Schedule 5.4 contains complete and correct lists of (i)
the Company's Subsidiaries, showing, as to each Subsidiary, the correct name
thereof, the jurisdiction of its organization, and the percentage of shares of
each class of its capital stock or similar equity interests outstanding owned by
the Company and each other Subsidiary, (ii) the Company's direct Affiliates,
other than Subsidiaries, and (iii) the Company's directors and senior officers.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the
Company and its Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned by the Company or another Subsidiary free and clear
of any Lien.
(c) Each Subsidiary identified in Schedule 5.4 is a
corporation or other legal entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, and is duly
qualified as a foreign corporation or other legal entity and is in good standing
in each jurisdiction in which such qualification is required by law, other than
those jurisdictions as to which the failure to be so qualified or in good
standing could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. Each such Subsidiary has the corporate or other
power and authority to own or hold under lease the properties it purports to own
or hold under lease and to transact the business it transacts and proposes to
transact.
(d) No Subsidiary is a party to, or otherwise subject to, any
legal restriction or any agreement (other than this Agreement, the agreements
listed on Schedule 5.4 and customary limitations imposed by corporate law
statutes) restricting the ability of such Subsidiary to pay dividends out of
profits or make any other similar distributions of profits to the Company or any
of its Subsidiaries that owns outstanding shares of capital stock or similar
equity interests of such Subsidiary.
5.5. Financial Statements.
The Company has delivered to each Purchaser copies of the
financial statements of the Company and its Subsidiaries listed on Schedule 5.5.
All of said financial statements (including in each case the related schedules
and notes) fairly present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
specified in such Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except
as set forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments).
5.6. Compliance with Laws, Other Instruments, etc.
The execution, delivery and performance by the Company of this
Agreement and the Notes will not (i) contravene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect of
any property of the Company or any Subsidiary under, any indenture, mortgage,
deed of trust, loan, purchase or credit agreement, lease, corporate charter or
by-laws, or any other agreement or instrument to which the Company or any
Subsidiary is bound or by which the Company or any Subsidiary or any of their
respective properties may be bound or affected, (ii) conflict with or result in
a breach of any of the terms, conditions or provisions of any order, judgment,
decree, or ruling of any court, arbitrator or Governmental Authority applicable
to the Company or any Subsidiary or (iii) violate any provision of any statute
or other rule or regulation of any Governmental Authority applicable to the
Company or any Subsidiary.
<PAGE>
5.7. Governmental Authorizations, etc.
No Approval by, from or with any Governmental Authority is
required in connection with the execution, delivery or performance by the
Company of this Agreement or the Notes.
5.8. Litigation; Observance of Agreements, Statutes and Orders.
(a) There are no actions, suits or proceedings pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
Subsidiary or any property of the Company or any Subsidiary in any court or
before any arbitrator of any kind or before or by any Governmental Authority
that, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default under
any term of any agreement or instrument to which it is a party or by which it is
bound, or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance, rule
or regulation (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
5.9. Taxes.
The Company and its Subsidiaries have filed all tax returns
that are required to have been filed in any jurisdiction, and have paid all
taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (i) the amount
of which is not individually or in the aggregate Material or (ii) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or a Subsidiary,
as the case may be, has established adequate reserves in accordance with GAAP.
The Company knows of no basis for any other tax or assessment that could
reasonably be expected to have a Material Adverse Effect. The charges, accruals
and reserves on the books of the Company and its Subsidiaries in respect of
Federal, state or other taxes for all fiscal periods are adequate. The Federal
income tax returns of the Company and its Subsidiaries have been examined and
reported on by the Internal Revenue Service or closed by applicable statute for
all fiscal years up to and including the fiscal year ended August 31, 1993.
5.10. Title to Property; Leases.
The Company and its Subsidiaries have good and sufficient
title to their respective properties that individually or in the aggregate are
Material, including all such properties reflected in the most recent audited
balance sheet referred to in Section 5.5 or purported to have been acquired by
the Company or any Subsidiary after said date (except as sold or otherwise
disposed of in the ordinary course of business), in each case free and clear of
Liens prohibited by this Agreement. All leases that individually or in the
aggregate are Material are valid and subsisting and are in full force and effect
in all material respects.
<PAGE>
5.11. Licenses, Permits, etc.
(a) The Company and its Subsidiaries own or possess all
licenses, permits, franchises, authorizations, patents, copyrights, service
marks, trademarks and trade names, or rights thereto, that individually or in
the aggregate are Material, without known conflict with the rights of others.
(b) To the Knowledge of the Company, no product of the Company
infringes in any material respect any license, permit, franchise, authorization,
patent, copyright, service mark, trademark, trade name or other right owned by
any other Person.
(c) To the Knowledge of the Company, there is no material
violation by any Person of any right of the Company or any of its Subsidiaries
with respect to any patent, copyright, service mark, trademark, trade name or
other right owned or used by the Company or any of its Subsidiaries.
5.12. Compliance with ERISA.
(a) Except for the termination of certain Plans maintained by
Subsidiaries, which terminations were made in connection with the acquisition of
such Subsidiaries by the Company or another Subsidiary and did not result in or
create the risk of a liability on the part of any Company Group Member, no
Termination Event has occurred, and no event or condition has occurred or exists
as a result of which any Termination Event could reasonably be expected to
occur, with respect to any Plan, and no accumulated funding deficiency (as
defined in Section 302 of ERISA and Section 412 of the Code), whether or not
waived, has occurred with respect to any Plan. The present value of all accrued
benefits under each Plan (based on those assumptions used to fund such Plan,
which assumptions are reasonable) did not, as of the most recent valuation date,
which for any such Plan was not earlier than twelve months prior to the date as
of which this representation is made, exceed the then current value of the
assets of such Plan allocable to such benefits.
(b) No Company Group Member has incurred, or is reasonably
expected to incur, any withdrawal liability to any Multiemployer Plan. No
Company Group Member has received any notification that any Multiemployer Plan
is in reorganization (as defined in Section 4241 of ERISA), is insolvent (as
defined in Section 4245 of ERISA) or has been terminated, within the meaning of
Title IV of ERISA, and no Multiemployer Plan is reasonably expected to be in
reorganization or insolvent or to be terminated.
(c) No prohibited transaction (within the meaning of Section
406 of ERISA or Section 4975 of the Code) or breach of fiduciary responsibility
has occurred which has subjected or could subject any Company Group Member to
any liability under Section 406, 409, 502(i) or 502(1) of ERISA or Section 4975
of the Code, or under any agreement or other instrument pursuant to which such
Company Group Member has agreed or is required to indemnify any Person against
any such liability. No Company Group Member has incurred, or is reasonably
expected to incur, any liability to the PBGC (other than for insurance premiums,
which have been paid when due).
<PAGE>
(d) Full payment has been made on or before the due date
thereof of all amounts which any Company Group Member is or was required under
the terms of each Plan to have paid as contributions to such Plan as of the date
hereof.
(e) No Lien imposed under the Code or ERISA on the assets of
any Company Group Member exists or is reasonably likely to arise on account of
any Plan.
(f) No welfare plan (as defined in Section 3(1) of ERISA)
maintained by any Company Group Member provides medical or death benefits with
respect to current or former employees beyond their termination of employment
(other than coverage mandated by law). Each such plan to which Sections 601-609
of ERISA and Section 4980B of the Code apply has been administered in compliance
with such sections.
(g) The execution and delivery of this Agreement and the issue
and sale of the Notes as herein contemplated will not involve any transaction
which is subject to the prohibitions of Section 406 of ERISA or in connection
with which a tax could be imposed pursuant to Section 4975 of the Code. The
representation by the Company in the immediately preceding sentence is made in
reliance upon and is subject to the accuracy of your representation in Section
6.2 of this Agreement.
5.13. Private Offering by the Company.
Neither the Company nor anyone acting on its behalf has
offered the Notes or any similar securities for sale to, or solicited any offer
to buy any of the same from, or otherwise approached or negotiated in respect
thereof with, any Person other than you, the Other Purchasers and not more than
27 other Institutional Investors, each of which has been offered the Notes at a
private sale for investment. Neither the Company nor anyone acting on its behalf
has taken, or will take, any action that would subject the issuance or sale of
the Notes to the registration requirements of Section 5 of the Securities Act.
5.14. Use of Proceeds; Margin Regulations.
The Company will apply the proceeds of the sale of the Notes
as set forth in Schedule 5.14. No part of the proceeds from the sale of the
Notes hereunder will be used, directly or indirectly, for the purpose of buying
or carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System (12 CFR 207), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve the Company in a violation of Regulation X of said Board (12 CFR 224) or
to involve any broker or dealer in a violation of Regulation T of said Board (12
CFR 220). Margin stock does not constitute more than 5% of the value of the
consolidated assets of the Company and its Subsidiaries and the Company does not
have any present intention that margin stock will constitute more than 5% of the
value of such assets. As used in this Section, the terms "margin stock" and
"purpose of buying or carrying" shall have the meanings assigned to them in said
Regulation U.
<PAGE>
5.15. Existing Debt; Future Liens.
(a) Schedule 5.15 sets forth a complete and correct list of
all outstanding Debt of the Company and its Subsidiaries as of the date hereof
and as of the Closing Date, identifying the obligor and setting forth the
amount, interest rate, maturity date and a brief description of any security
therefor. Neither the Company nor any Subsidiary is in default and no waiver of
default is currently in effect in the payment of any principal or interest on
any Debt of the Company or such Subsidiary and no event or condition exists with
respect to any Debt of the Company or any Subsidiary that would permit (or that
with notice or the lapse of time, or both, would permit) one or more Persons to
cause such Debt to become due and payable before its stated maturity or before
its regularly scheduled dates of payment.
(b) Neither the Company nor any Subsidiary has agreed or
consented to cause or permit in the future (upon the happening of a contingency
or otherwise) any of its property, whether now owned or hereafter acquired, to
be subject to a Lien not permitted by Section 10.5.
5.16. Foreign Assets Control Regulations, etc.
Neither the sale of the Notes by the Company hereunder nor its
use of the proceeds thereof will violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
5.17. Status under Certain Statutes.
Neither the Company nor any Subsidiary is subject to
regulation under the Investment Company Act of 1940, as amended, the Public
Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as
amended, or the Federal Power Act, as amended.
5.18. Environmental Matters.
(a) Neither the Company nor any Subsidiary has Knowledge of
any claim or has received notice of any claim, and no proceeding has been
instituted raising any claim against the Company or any of its Subsidiaries or
any of the Company Premises, alleging any damage to the environment or violation
of any Environmental Laws, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect.
<PAGE>
(b) Neither the Company nor any Subsidiary has Knowledge of
any facts which would give rise to any claim, public or private, of violation of
Environmental Laws or damage to the environment emanating from, occurring on or
in any way related to any of the Company Premises or their use, except, in each
case, such as could not reasonably be expected to result in a Material Adverse
Effect.
(c) To the Knowledge of the Company, neither the Company nor
any of its Subsidiaries has stored any Hazardous Materials on any of the Company
Premises or disposed of any Hazardous Materials in a manner contrary to any
Environmental Laws in each case in any manner that could reasonably be expected
to result in a Material Adverse Effect.
(d) To the Knowledge of the Company, all buildings on all real
properties now owned, leased or operated by the Company or any of its
Subsidiaries are in compliance with applicable Environmental Laws, except where
failure to comply could not reasonably be expected to result in a Material
Adverse Effect.
6. REPRESENTATIONS OF THE PURCHASER.
6.1. Purchase for Investment.
You represent that you are purchasing the Notes being
purchased by you for your own account or for one or more separate accounts
maintained by you or for the account of any of your affiliates or of one or more
pension or trust funds and not with a view to the distribution thereof, provided
that the disposition of your or their property shall at all times be within your
or their control. You understand that the Notes have not been registered under
the Securities Act and may be resold only if registered pursuant to the
provisions of the Securities Act or if an exemption from registration is
available, except under circumstances where neither such registration nor such
an exemption is required by law, and that the Company is not required to
register the Notes.
6.2. Source of Funds.
You represent to the Company that, as of the Closing Date:
(a) if you are acquiring the Notes to be purchased by you
hereunder for your own account with funds from or attributable to your general
account, the amount of the reserves and liabilities for the general account
contracts (as defined by the annual statement for life insurance companies as in
effect on the date hereof and approved by the National Association of Insurance
Commissioners (the "NAIC Annual Statement")) held by or on behalf of any
employee benefit plan together with the amount of the reserves and liabilities
for the general account contracts held by or on behalf of any other employee
benefit plan maintained by the same employer (or affiliate thereof, as such term
is defined in Section V of DOL Prohibited Transaction Exemption 95-60 (60 FR
35925, July 12, 1995)) or by the same employee organization (as defined in
ERISA) in the general account do not exceed 10% of the total reserves and
liabilities of the general account (exclusive of separate account liabilities)
plus surplus as set forth in the NAIC Annual Statement filed with the state of
domicile of the insurance company; for purposes of the percentage limitation in
this subdivision (a), the amount of reserves and liabilities for the general
account contracts held by or on behalf of an employee benefit plan shall be
determined before reduction for credits on account of any reinsurance ceded on a
coinsurance basis; or
<PAGE>
(b) if any part of the funds being used by you to purchase the
Notes to be purchased by you hereunder shall come from assets of an employee
benefit plan or a plan (as defined in Section 4975(e)(1) of the Code):
(i) If such funds are attributable to a separate
account, either
(x) all requirements of an exemption under DOL
Prohibited Transaction Exemption 90-1 (issued January
29, 1990) are met with respect to the use of such to
purchase such Notes, or
(y) the employee benefit plans with an interest in
such separate account have been identified in a writing
delivered by you to the Company;
(ii) if such funds are attributable to a separate
account that is maintained solely in connection with fixed
contracted obligations of an insurance company, any amounts
payable, or credited, to any employee benefit plan having an
interest in such account and to any participant or
beneficiary of such plan (including an annuitant) are not
affected in any manner by the investment performance of the
separate account;
(iii) if such funds are attributable to an investment
fund managed by a qualified plan asset manager (as such
terms are defined in Part V of DOL Prohibited Transaction
Exemption 84-14, issued March 13, 1984), all requirements
for an exemption under such Exemption are met with respect
to the use of such funds to purchase such Notes; or
(iv) such employee benefit plan is excluded from the
provisions of Section 406 of ERISA by virtue of Section 4(b)
of ERISA; or
(c) the source of funds being used by you to purchase the
Notes to be purchased by you hereunder is:
(i) a governmental plan (as defined in Section 3(32) of
ERISA);
(ii) a bank collective investment fund (within the
meaning of DOL Prohibited Transaction Exemption 91-38,
issued July 12, 1991), and you have identified in writing to
the Company each plan (as defined in Section 3(3) of ERISA)
or group of related plans that comprise 10% of the assets of
such fund; or
<PAGE>
(iii) one or more plans (as defined in Section 3(3) of
ERISA), or a separate account of a trust fund comprised of
one or more plans, each of which has been identified in a
writing delivered by you to the Company.
As used in this Section 6.2, the terms "employee benefit plan"
and "separate account" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
7. INFORMATION AS TO COMPANY.
7.1. Financial and Business Information.
The Company shall deliver to each holder of Notes that is an
Institutional Investor:
(a) Quarterly Statements -- within 90 days after the end of
each quarterly fiscal period in each fiscal year of the Company (other than the
last quarterly fiscal period of each such fiscal year), duplicate copies of
(i) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of operations, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such quarter and (in the case of the
second and third quarters) for the portion of the fiscal year
ending with such quarter, setting forth in each case in
comparative form the figures for the corresponding periods
in the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior
Financial Officer as fairly presenting, in all material
respects, the financial position of the companies being
reported on and their results of operations and cash flows,
subject to changes resulting from year-end adjustments,
provided that delivery within the time period specified
above of copies of the Company's Quarterly Report on Form
10-Q prepared in compliance with the requirements therefor
and filed with the Securities and Exchange Commission shall
be deemed to satisfy the requirements of this Section 7.1(a);
<PAGE>
(b) Annual Statements -- within 120 days after the end of each
fiscal year of the ----------------- Company, duplicate copies of
(i) a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such year, and
(ii) consolidated statements of operations, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries for such year, setting forth in each case in
comparative form the figures for the previous fiscal year,
all in reasonable detail, prepared in accordance with GAAP,
and accompanied by an opinion thereon of independent
certified public accountants of recognized national
standing, which opinion shall state that such financial
statements present fairly, in all material respects, the
financial position of the companies being reported upon and
their results of operations and cash flows and have been
prepared in conformity with GAAP, and that the examination
of such accountants in connection with such financial
statements has been made in accordance with generally
accepted auditing standards, and that such audit provides a
reasonable basis for such opinion in the circumstances,
provided that the delivery within the time period specified
above of the Company's Annual Report on Form 10-K for such
fiscal year (together with the Company's annual report to
shareholders, if any, prepared pursuant to Rule 14a-3 under
the Exchange Act) prepared in accordance with the requirements
therefor and filed with the Securities and Exchange Commission
shall be deemed to satisfy the requirements of this Section
7.1(b);
(c) SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or proxy
statement sent by the Company or any Subsidiary to public securities holders
generally, and (ii) each regular or periodic report, each registration statement
(without exhibits except as expressly requested by such holder), and each
prospectus and all amendments thereto filed by the Company or any Subsidiary
with the Securities and Exchange Commission and of all press releases and other
statements made available generally by the Company or any Subsidiary to the
public concerning developments that are Material;
(d) Notice of Default or Event of Default-- promptly, and in
any event within five days after a Responsible Officer becoming aware of the
existence of any Default or Event of Default or that any Person has given any
notice or taken any action with respect to a claimed default hereunder or that
any Person has given any notice or taken any action with respect to a claimed
default of the type referred to in Section 11(f), a written notice specifying
the nature and period of existence thereof and what action the Company is taking
or proposes to take with respect thereto;
<PAGE>
(e) ERISA Matters --promptly, and in any event within five
days after a Responsible Officer becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if any, that the
Company or any Company Group Member proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event, as
defined in section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been waived
pursuant to such regulations as in effect on the date hereof;
or
(ii) the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of,
proceedings undersection 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan,
or the receipt by the Company or any ERISA Affiliate of a
notice from a Multiemployer Plan that such action has been
taken by the PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could
result in the incurrence of any liability by the Company or
any ERISA Affiliate pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating to
employee benefit plans, or in the imposition of any Lien on
any of the rights, properties or assets of the Company or
any ERISA Affiliate pursuant to Title I or IV of ERISA or
such penalty or excise tax provisions, if such liability or
Lien, taken together with any other such liabilities or
Liens then existing, could reasonably be expected to have a
Material Adverse Effect;
(f) Notices from Governmental Authority -- promptly, and in
any event within 30 days of receipt thereof, copies of any notice to the Company
or any Subsidiary from any Federal or state Governmental Authority relating to
any order, ruling, statute or other law or regulation that could reasonably be
expected to have a Material Adverse Effect; and
(g) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations, affairs,
financial condition, assets or properties of the Company or any of its
Subsidiaries as from time to time may be reasonably requested by any such
holder of Notes if such holder reasonably believes that the requested data
or information reasonably relates to the ability of the Company to perform its
obligations hereunder and under the Notes.
<PAGE>
7.2. Officer's Certificate.
Each set of financial statements delivered to a holder of
Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied
by a certificate of a Senior Financial Officer setting forth:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Sections 10.1, 10.2, 10.3, 10.4(d), 10.5(j),
10.6(i) and 10.7(g) during the quarterly or annual period covered by the
statements then being furnished (including with respect to each such Section,
where applicable, the calculations of the maximum or minimum amount, ratio or
percentage, as the case may be, permissible under the terms of such Sections,
and the calculation of the amount, ratio or percentage then in existence); and
(b) Event of Default -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made, under his
or her supervision, a review of the transactions and conditions of the Company
and its Subsidiaries from the beginning of the quarterly or annual period
covered by the statements then being furnished to the date of the certificate
and that such review shall not have disclosed the existence during such
period of any condition or event that constitutes a Default or an Event of
Default or, if any such condition or event existed or exists, specifying the
nature and period of existence thereof and what action the Company shall have
taken or proposes to take with respect thereto.
7.3. Inspection.
The Company shall permit the representatives of each holder of
Notes that is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice to the
Company, and giving the officers of the Company the opportunity to accompany
such holder on such visit, to visit the principal executive office of the
Company, to discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the Company's officers, and (with the consent of the Company,
which consent will not be unreasonably withheld) its independent public
accountants (and by this provision the Company authorizes said accountants
to discuss the affairs, finances and accounts of the Company and its
Subsidiaries), provided that the Company shall be entitled to have a
representative of the Company attend any such discussion with the Company's
independent public accountants, but only if such representative is available to
attend such discussion at the time and place therefor specified by such
representatives of one or more holders of Notes, and (with the consent of the
Company, which consent will not be unreasonably withheld) to visit the other
offices and properties of the Company and each Subsidiary, all at such
reasonable times and as often as may be reasonably requested in writing; and
<PAGE>
(b) Default -- if a Default or Event of Default then exists,
at the expense of the Company to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine all their respective
books of account, records, reports and other papers, to make copies and
extracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective officers and independent public accountants
(and by this provision the Company authorizes said accountants to discuss the
affairs, finances and accounts of the Company and its Subsidiaries), provided
that the Company shall be entitled to have a representative of the Company
attend any such discussion with the Company's independent public accountants,
but only if such representative is available to attend such discussion at the
time and place therefor specified by such representatives of one or more holders
of Notes, all at such times and as often as may be requested.
8. PAYMENT OF THE NOTES.
8.1. Required Prepayments and Payment at Maturity.
On May 4, 2004 and on each May 4 thereafter to and including
May 4, 2007, the Company will prepay $17,000,000 principal amount (or such
lesser principal amount as shall then be outstanding) of the Notes at par and
without payment of the Make-Whole Amount or any premium, provided that upon any
partial prepayment of the Notes pursuant to Section 8.2 or purchase of the Notes
permitted by Section 8.5 the principal amount of each required prepayment of the
Notes becoming due under this Section 8.1 on and after the date of such
prepayment or purchase shall be reduced in the same proportion as the aggregate
unpaid principal amount of the Notes is reduced as a result of such prepayment
or purchase. On May 4, 2008, the Company will pay, and there shall become due
and payable, the entire remaining unpaid principal amount of the Notes, together
with all accrued and unpaid interest thereon.
8.2. Optional Prepayments.
The Company may, at its option, upon notice as provided below,
prepay at any time all, or from time to time any part of, the Notes (in integral
multiples of $1,000,000), at 100% of the principal amount so prepaid, plus the
Make-Whole Amount determined for the prepayment date with respect to such
principal amount. The Company will give each holder of Notes written notice of
each optional prepayment under this Section 8.2 not less than 30 days and not
more than 60 days prior to the date fixed for such prepayment. Each such notice
shall specify such date, the aggregate principal amount of the Notes being
prepaid on such date, the principal amount of each Note held by such holder to
be so prepaid (determined in accordance with this Section and Section 8.4), and
the interest to be paid on the prepayment date with respect to such principal
amount being prepaid, and shall be accompanied by a certificate of a Senior
Financial Officer as to the estimated Make-Whole Amount due in respect of the
Notes in connection with such prepayment (calculated as if the date of such
notice were the date of the prepayment), setting forth the details of such
computation. Two Business Days prior to such prepayment, the Company shall
deliver to each holder of Notes a certificate of a Senior Financial Officer
specifying the calculation of such Make-Whole Amount as of the specified
prepayment date.
<PAGE>
8.3. Allocation of Partial Prepayments.
In the case of each partial prepayment of the Notes, the
principal amount of the Notes to be prepaid shall be allocated among all of the
Notes at the time outstanding in proportion, as nearly as practicable, to the
respective unpaid principal amounts thereof not theretofore called for
prepayment.
8.4. Maturity; Surrender, etc.
In the case of each prepayment of Notes pursuant to this
Section 8, the principal amount of each Note to be prepaid shall mature and
become due and payable on the date fixed for such prepayment, together with
interest on such principal amount accrued to such date and the applicable
Make-Whole Amount, if any. From and after such date, unless the Company shall
fail to pay such principal amount when so due and payable, together with the
interest and Make-Whole Amount, if any, as aforesaid, interest on such principal
amount shall cease to accrue. Any Note paid or prepaid in full shall be
surrendered to the Company and canceled and shall not be reissued, and no Note
shall be issued in lieu of any prepaid principal amount of any Note.
8.5. Purchase of Notes.
The Company will not and will not permit any Affiliate to
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of
the outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes. The Company will
promptly cancel all Notes acquired by it or any Affiliate pursuant to any
payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement and no Notes may be issued in substitution or exchange for any such
Notes.
8.6. Make-Whole Amount.
The term "Make-Whole Amount" means, with respect to any Note,
an amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, provided that the Make-Whole Amount may in no
event be less than zero. For the purposes of determining the Make-Whole Amount,
the following terms have the following meanings:
"Called Principal" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to Section 8.2 or has
become or is declared to be immediately due and payable pursuant to Section
12.1, as the context requires.
<PAGE>
"Discounted Value" means, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due dates
to the Settlement Date with respect to such Called Principal, in accordance
with accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on such Note is payable) equal to the
Reinvestment Yield with respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called
Principal of any Note, 50 basis points (0.50%) over the yield to maturity
implied by (i) the yields reported, as of 10:00 A.M. (New York City time) on the
second Business Day preceding the Settlement Date with respect to such Called
Principal, on the display designated as "Gov't PX" of the Bloomberg Financial
Market Services (or, if not available, such other display as may replace such
display on the Bloomberg Financial Market Services or any other nationally
recognized trading screen reporting on-line intra-day trading in U.S. Treasury
securities), for actively traded U.S. Treasury securities having a maturity
equal to the Remaining Average Life of such Called Principal as of such
Settlement Date, or (ii) if such yields are not reported as of such time or the
yields reported as of such time are not ascertainable, the Treasury Constant
Maturity Series Yields reported, for the latest day for which such yields have
been so reported as of the second Business Day preceding the Settlement Date
with respect to such Called Principal, in Federal Reserve Statistical Release
H.15 (519) (or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date. Such implied yield
will be determined, if necessary, by (a) converting U.S.Treasury bill quotations
to bond-equivalent yields in accordance with accepted financial practice and
(b) interpolating linearly between (1) the actively traded U.S. Treasury
security with the duration closest to and greater than the Remaining Average
Life and (2) the actively traded U.S.Treasury security with the duration closest
to and less than the Remaining Average Life.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth year)
obtained by dividing (i) such Called Principal into (ii) the sum of the products
obtained by multiplying (a) the principal component of each Remaining Scheduled
Payment with respect to such Called Principal by (b) the number of years
(calculated to the nearest one-twelfth year) that will elapse between the
Settlement Date with respect to such Called Principal and the scheduled due date
of such Remaining Scheduled Payment.
<PAGE>
"Remaining Scheduled Payments" means, with respect to the
Called Principal of any Note, all payments of such Called Principal and interest
thereon that would be due after the Settlement Date with respect to such Called
Principal if no payment of such Called Principal were made prior to its
scheduled due date, provided that, if such Settlement Date is not a date on
which interest payments are due to be made under the terms of such Note, then
the amount of the next succeeding schedule interest payment will be reduced by
the amount of interest accrued to such Settlement Date and required to be paid
on such Settlement Date pursuant to Section 8.2, 8.3 or 12.1.
"Settlement Date" means, with respect to the Called Principal
of any Note, the date on which such Called Principal is to be prepaid pursuant
to Section 8.2 or has become or is declared to be immediately due and payable
pursuant to Section 12.1, as the context requires.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
9.1. Compliance with Law.
The Company will and will cause each of its Subsidiaries to
comply with all laws, ordinances or governmental rules or regulations to which
each of them is subject, and will obtain and maintain in effect all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of their respective properties or to the conduct of
their respective businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or regulations
or failures to obtain or maintain in effect such licenses, certificates,
permits, franchises and other governmental authorizations could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
<PAGE>
9.2. Insurance.
The Company will and will cause each of its Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
9.3. Maintenance of Properties.
The Company will and will cause each of its Subsidiaries to
maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary wear
and tear and obsolescence), so that the business carried on in connection
therewith may be properly conducted at all times, provided that this Section
shall not prevent the Company or any Subsidiary from discontinuing the operation
and the maintenance of any of its properties if such discontinuance is desirable
in the conduct of its business and the Company has concluded that such
discontinuance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
9.4. Payment of Taxes and Claims.
The Company will and will cause each of its Subsidiaries to
file all tax returns required to be filed in any jurisdiction and to pay and
discharge all taxes shown to be due and payable on such returns and all other
taxes, assessments, governmental charges, or levies imposed on them or any of
their properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of the Company or any Subsidiary, provided
that neither the Company nor any Subsidiary need pay any such tax or assessment
or claims if (i) the amount, applicability or validity thereof is contested by
the Company or such Subsidiary on a timely basis in good faith and in
appropriate proceedings, and the Company or a Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (ii) the nonpayment of all such taxes and assessments in
the aggregate could not reasonably be expected to have a Material Adverse
Effect.
<PAGE>
9.5. Corporate Existence, etc.
The Company will at all times preserve and keep in full force
and effect its corporate existence. Subject to Section 10.7, the Company will at
all times preserve and keep in full force and effect the corporate existence of
each of its Subsidiaries (unless merged into or consolidated with the Company or
a Wholly-Owned Subsidiary) and all rights and franchises of the Company and its
Subsidiaries unless, in the good faith judgment of the Company, the termination
of or failure to preserve and keep in full force and effect such corporate
existence, right or franchise could not, individually or in the aggregate, have
a Material Adverse Effect.
9.6. Books and Records.
The Company will (a) keep proper books of record and account
in which full, true and correct entries will be made of all its material
business dealings and transactions in accordance with GAAP applied on a
consistent basis and (b) maintain a system of accounting established and
administered in accordance with GAAP, and set aside on its books from its
earnings for each fiscal year all proper reserves, accruals and provisions
which, in accordance with GAAP, should be set aside from such earnings in
connection with its business. The Company will cause each of its Subsidiaries to
(a) keep proper books of record and account in which full, true and correct
entries will be made of all its material business dealings and transactions in
accordance with GAAP applied on a consistent basis and (b) maintain a system of
accounting established and administered in accordance with GAAP, and set aside
on its books from its earnings for each fiscal year all proper reserves,
accruals and provisions which, in accordance with GAAP, should be set aside from
such earnings in connection with its business.
9.7. Maintenance of Office.
The Company will maintain its principal office at a location
in the United States of America where notices, presentations and demands in
respect of this Agreement and the Notes may be made upon it, and will notify
each holder of a Note in writing of any change of location of such office at
least 30 days prior to such change of location. Such office shall first be
maintained at the address set forth at the head of this Agreement.
10. NEGATIVE COVENANTS.
The Company covenants that, so long as any of the Notes are
outstanding:
10.1. Maintenance of Consolidated Net Worth.
The Company will not, on any date, permit Consolidated Net
Worth to be less than the sum of (i) $250,000,000, plus (ii) 40% of the
aggregate sum of the respective amounts of Consolidated Net Income for each
completed fiscal year which shall have ended on or prior to such date, beginning
with the fiscal year ended August 31, 1998 (it being agreed that, in the event
that Consolidated Net Income for any such fiscal year is a loss, Consolidated
Net Income for such fiscal year shall be deemed to be zero for all purposes of
this Section 10.1).
<PAGE>
10.2. Maintenance of Fixed Charge Coverage Ratio.
The Company will not, as of the last day of any fiscal quarter
of the Company, permit the Fixed Charge Coverage Ratio to be less than 1.75 to
1.
10.3. Priority Debt Limitation.
The Company will not on any day permit the Priority Debt
Amount to exceed 20% of Consolidated Net Worth.
10.4. Limitation on Debt.
The Company will not, and will not permit any Subsidiary to,
directly or indirectly, create, assume, guarantee, incur, permit to exist or in
any manner become liable in respect of any Debt (other than Debt of a Subsidiary
owing to the Company or to a Wholly-Owned Subsidiary) unless on and as of the
date on which the Company or such Subsidiary proposes to incur any such
additional Debt, and after giving effect to such incurrence and to the
substantially concurrent incurrence of any other Debt by the Company and its
Subsidiaries and to the application of the proceeds of all such Debt, the Total
Debt Ratio shall not exceed 55%.
From and after June 1, 1998, the Company will not in any event
create, incur, assume or permit to exist any Debt of the Company owing to any of
its Subsidiaries unless such Debt constitutes Subordinated Intracompany Debt.
For all purposes of this Section, any Person becoming a Subsidiary after the
date of this Agreement shall be deemed to have created, assumed or incurred all
of its then outstanding Debt at the time it becomes a Subsidiary, and any
extension, renewal, refunding or refinancing of any Debt shall be deemed to be
an incurrence of such Debt at the time of such extension, renewal, refunding or
refinancing.
10.5. Limitation on Liens.
The Company will not, and will not permit any Subsidiary to,
directly or indirectly create, incur, assume or permit to exist (upon the
happening of a contingency or otherwise) any Lien on or with respect to any
property or asset (real, personal or mixed, and including any document or
instrument in respect of goods or accounts receivable) of the Company or any
Subsidiary, whether now owned or held or hereafter acquired, or any income or
profits therefrom, or assign or otherwise convey any right to receive income or
profits, except:
(a) Liens (other than Liens created or imposed under ERISA)
for taxes, assessments or governmental charges or levies the payment of which is
not at the time required by Section 9.4;
<PAGE>
(b) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Persons, in each case
incurred in the ordinary course of business for sums either not yet due or the
payment of which is not at the time required by Section 9.4;
(c) Liens (other than Liens created or imposed under ERISA)
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social security
or retirement benefits, or to secure the performance of tenders, statutory
obligations, surety bonds, appeal bonds, bids, leases (other than Capital
Leases), government contracts, performance and return-of-money bonds and other
similar obligations (exclusive in any case of obligations incurred in connection
with the borrowing of money, the obtaining of advances or credit or the payment
of the deferred purchase price of property);
(d) Liens incidental to the conduct of business or to the
ownership or improvement of property of a character which customarily exist on
properties of corporations engaged in similar activities and similarly situated
and which were not incurred in connection with the borrowing of money, the
obtaining of advances of credit or the payment of the deferred purchase price
of property, and which do not, individually or in the aggregate, interfere with
the ordinary conduct of the business of the Company and its Subsidiaries, taken
as a whole, or detract from the value or use of the properties subject to any
such Liens;
(e) any attachment or judgment Lien arising in connection with
court proceedings, so long as (i) the execution or other enforcement of such
Lien is effectively stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings diligently conducted and
effective to prevent the forfeiture or sale of any property of the Company or
any of its Subsidiaries or any interference with the ordinary use thereof by the
Company or any of its Subsidiaries and (ii) such reserve or other appropriate
provision, if any, in the amount and of the type as shall be required by GAAP
shall be maintained therefor;
(f) Liens on property or assets of any Subsidiary securing
Debt or other obligations of such Subsidiary owing to the Company or to a
Wholly-Owned Subsidiary;
(g) Liens existing on the date of this Agreement and securing
the Debt of the Company and its Subsidiaries referred to in Items 3, 4 and 6
through 21 of Schedule 5.15;
<PAGE>
(h) any Lien existing on property of a Person immediately
prior to its being consolidated with or merged into the Company or a Subsidiary
or its becoming a Subsidiary, or any Lien existing on any property acquired
by the Company or any Subsidiary at the time such property is so acquired
(whether or not the Debt secured thereby shall have been assumed), provided that
(i) no such Lien shall have been created or assumed in contemplation or such
consolidation or merger or such Person's becoming a Subsidiary or such
acquisition of property and (ii) each such Lien shall extend solely to the
item or items of property so acquired and, if required by the terms of the
instrument originally creating such Lien, other property which is an improvement
to or is acquired for specific use in connection with such acquired property;
(i) Liens (including Capital Leases) created solely to secure
the deferred purchase price of assets useful and intended to be used in carrying
on the business of the Company and its Subsidiaries which assets are acquired,
constructed or improved by the Company or any Subsidiary after the date hereof,
or any Lien (including such a Capital Lease) created to secure Debt incurred
solely for the purpose of financing the acquisition, construction or
improvement, as the case may be, of any such asset (if such Debt is incurred and
such Lien is created at the time of or within 180 days after such acquisition or
the completion of such construction or improvement), provided that:
(i) no such Lien shall at any time extend to or cover
asset of the Company or any Subsidiary other than the
acquired assets on which it was originally imposed and
improvements thereto and proceeds thereof, and
(ii) the aggregate principal amount of all Debt
secured by all such Liens on any such asset shall at no time
exceed 100% of the lesser of (x) the purchase price or cost of
construction or improvement of such asset and (y) the fair
market value of such asset as determined in good faith by the
board of directors of the Company;
(j) any Lien renewing, extending or refunding any Liens
permitted by clause (g), (h) or (i) of this Section 10.5, provided that (i) the
principal amount of Debt secured by such Lien immediately prior to such
extension, renewal or refunding is not increased and (ii) such Lien is not
extended to any other property; and
<PAGE>
(k) Liens not otherwise permitted by clauses (a) through
(j) of this Section 10.5; provided, however that no Lien shall be created,
incurred or assumed pursuant to this clause (k) unless, immediately after
giving effect thereto, the aggregate principal amount of all Debt of the
Company and its Subsidiaries outstanding which is secured by Liens other than
Liens permitted by clauses (a) through (j) of this Section 10.5 shall not
exceed 15% of Consolidated Net Worth
10.6. Investments.
The Company will not, and will not permit any Subsidiary to,
directly or indirectly, make or own any Investments except:
(a) Investments in property to be used in the ordinary course
of business of the Company and its Subsidiaries;
(b) Investments in current assets arising from the sale of
goods and services in the ordinary course of business of the Company and its
Subsidiaries;
(c) Investments by the Company in any Subsidiary or any
Person which simultaneously becomes a Subsidiary;
(d) Investments existing on the date hereof and described in
Schedule 10.6;
(e) Investments in direct obligations issued by the United
States of America or any agency thereof which, in the case of any such agency,
are unconditionally guaranteed or backed by the full faith and credit of the
United States of America, in each case maturing within one year from the date
of acquisition thereof;
(f) Investments in certificates of deposit, time deposits,
bankers' acceptances or Eurodollar time deposits maturing within one year from
the date of creation thereof which are either (x) fully insured by the Federal
Deposit Insurance Corporation or (y) issued by an Approved Bank;
(g) Investments in open-market commercial paper maturing not
later than 270 days after the date of issuance thereof and having at the time of
acquisition a rating of at least A-2 from Standard & Poor's Corporation or P-2
from Moody's Investors Service, Inc. or an equivalent rating from any other
credit rating agency of recognized national standing in the United States of
America;
<PAGE>
(h) Investments in so-called "money market funds" registered
under the Investment Company Act of 1940, as amended, and organized under the
laws of the United States of America or any jurisdiction thereof investing
primarily in Investments of the type specified in clauses (e), (f) and (g) of
this Section 10.6;
(i) Investments in addition to those permitted by the
foregoing clauses (a) through (h) of this Section 10.6, provided that the
aggregate amount of all such additional Investments permitted by this clause
(i) shall not at any time exceed 10% of Consolidated Net Worth.
For purposes of this Section, (i) Investments owned by any
Person or for which it is obligated at the time it becomes a Subsidiary shall be
deemed to be made at the time such Person becomes such a Subsidiary and (ii) the
amount involved in any Investment made through the transfer of property shall be
deemed to be the lesser of (x) the fair market value of such property (as
determined in good faith by the board of directors of the Company) and (y) the
book value thereof on the books of the Company (as determined in accordance with
GAAP), in each case determined on the date such Investment is made or committed
to be made.
10.7. Merger, Consolidation, Sale of Assets.
The Company will not, and will not permit any of its
Subsidiaries to, voluntarily liquidate or dissolve, or consolidate or merge with
or into any other Person, or permit any other Person to consolidate with or
merge with or into it, or participate in a share exchange with or sell, lease,
transfer, contribute or otherwise dispose of any of its assets (including,
without limitation, stock of any Subsidiary owned by it) to any other Person
(other than sales of inventory and worn out and obsolete assets in the ordinary
course of business as such business is conducted in compliance with Section
10.9), except that, subject in any event to compliance with the last paragraph
of this Section:
(a) any Subsidiary may consolidate with or merge into the
Company or any Wholly-Owned Subsidiary if the Company or a Wholly-Owned
Subsidiary shall be the continuing or surviving corporation;
<PAGE>
(b) any Subsidiary may sell, lease, transfer, contribute or
otherwise dispose of its assets in whole or in part to the Company or any
Wholly-Owned Subsidiary, and may, following any such disposition in whole,
liquidate and dissolve;
(c) the Company may consolidate or merge with any other
corporation if the Company shall be the continuing or surviving corporation;
(d) the Company may consolidate with or merge into, or sell,
lease, transfer or otherwise dispose of its assets as an entirety or
substantially as an entirety, to any other Person, including a Subsidiary (a
"Successor"; any such consolidation, merger or disposition of assets being
hereinafter referred to as a "Successor Transaction"), but only if such
Successor is a solvent corporation duly organized, validly existing and in good
standing under the laws of the United States of America or any state thereof or
the District of Columbia, and such Successor expressly and unconditionally
assumes, not later than the consummation of such Successor Transaction, pursuant
to a written instrument satisfactory in form, scope and substance to the holders
of the Notes, the due and punctual payment of the principal of, premium, if any,
and interest on the Notes according to their tenor, and the due and punctual
performance and observance of the obligations of the Company under this
Agreement, an executed counterpart of which instrument shall have been furnished
to each holder of Notes together with a favorable opinion of counsel
satisfactory to each such holder covering such matters relating to the
Successor, the Successor Transaction, such assumption and such instrument as
such holder may reasonably request;
(e) the Company or any Subsidiary may sell and simultaneously
lease back any of its assets in connection with an Excluded Sale Leaseback
(subject to compliance with the negative covenants contained in this Agreement
otherwise applicable thereto);
(f) the Company may sell the assets of the National Institute
of Fitness for a consideration of not less than $10,800,000; and
<PAGE>
(g) the Company or any Subsidiary, in addition to making any
sale, lease, transfer or other disposition permitted by the foregoing provisions
of this Section, may sell any of its assets for a consideration at least equal
to the fair market value thereof (as determined in good faith by the board of
directors of the Company) at the time of such sale (any such sale being
hereinafter referred to as an "Asset Sale") but only if after the consummation
of such Asset Sale, and immediately after giving effect thereto, (x) the assets
which are the subject of the proposed Asset Sale, together with all other
assets of the Company and its Subsidiaries which were the subject of prior Asset
Sales within the period of twelve consecutive months ending on or most recently
prior to the date of the consummation of such proposed Asset Sale (excluding any
assets sold in connection with an Excluded Sale Leaseback), do not have an
aggregate net book value representing more than 10% of Consolidated Net Worth,
determined as of the last day of the most recently completed fiscal quarter of
the Company, and (y) the assets which are the subject of the proposed Asset
Sale, together with all other assets of the Company and its Subsidiaries which
were the subject of prior Asset Sales since the date of this Agreement
(excluding any assets sold in connection with an Excluded Sale Leaseback), do
not have an aggregate net book value representing more than 30% of Consolidated
Net Worth, determined as of the last day of the most recently completed fiscal
quarter of the Company; provided, however, that, notwithstanding the foregoing
limitations, the Company or any Subsidiary may consummate an Asset Sale which
does not meet the requirements of, and is not otherwise permitted under,
subclauses (x) and/or (y) of this clause (g) (any such Asset Sale being referred
to as an "Excess Asset Sale"), but only if an amount equal to that portion of
the net proceeds of such Excess Asset Sale which exceed the limitations set
forth in such subclauses (x) and (y) shall, within 360 days of such Excess Asset
Sale, be applied by the Company and/or its Subsidiaries to:
(i) the purchase of assets of a similar nature useful
in the business of the Company as conducted in accordance
with Section 10.9 having a fair market value (as determined
in good faith by the board of directors of the Company) at
least equal to the proceeds so applied; or
(ii) the prepayment or payment of outstanding Senior
Funded Debt of the Company; provided, however, that in the
case of the Notes, the requirements of this subdivision (ii)
shall be satisfied if (A) the Company shall have offered to
prepay, upon notice as provided in Section 8.3, a principal
amount of the Notes held by each holder thereof equal to such
holder's pro rata share (based on such holder's proportionate
<PAGE>
share of the aggregate principal amount of all Notes
outstanding) of the net proceeds of such Excess Asset Sale
then being applied to the prepayment of Senior Funded Debt of
the Company, such offer to be made at a prepayment price equal
to the principal amount thereof, together with interest
accrued thereon to the date of prepayment, without payment of
the Make-Whole Amount or any premium, and (B) the Company
shall have prepaid, within 360 days of such Excess Asset Sale,
such principal amount of the Notes held by each holder thereof
which shall have responded affirmatively to such offer by the
Company; or
(iii) a combination of the purposes described in the
foregoing subdivisions (i) and (ii).
No consolidation, merger, sale, lease, transfer, contribution
or other disposition referred to in clauses (a) through (g) of this Section
shall be permitted unless at the time of and immediately after giving effect to
any such transaction (A) no Default or Event of Default shall have occurred and
be continuing and (B) the Company shall be permitted to incur at least $1.00 of
additional Debt.
10.8. Transactions with Affiliates.
The Company will not and will not permit any Subsidiary to
enter into or be a party to, directly or indirectly, any transaction or
arrangement or group of related transactions (including, without limitation, the
purchase, lease, sale or exchange of properties of any kind or the rendering of
any service) with any Affiliate (other than the Company or another Subsidiary),
unless such transaction is entered into 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 would be obtainable in a comparable arm's-length
transaction with a Person not an Affiliate; provided, however that, so long as
no Event of Default shall have occurred and be continuing, the Company or any
Subsidiary shall be permitted to enter into transactions not meeting the
foregoing requirements of this Section 10.8, but only if the aggregate amount
involved in all such transactions entered into by the Company and its
Subsidiaries in any fiscal year does not exceed $500,000.
10.9. Nature of Business.
The Company will not, and will not permit any of its
Subsidiaries to, engage in any line of business in which it is not currently
engaged if as a result thereof the general nature of the business engaged in by
the Company and its Subsidiaries, taken as a whole, would be substantially
different from what it was on the Closing Date as described in the Memorandum.
<PAGE>
11. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following
conditions or events shall occur and be continuing (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or come about
or be effected by operation of law or judicial or governmental or administrative
action or otherwise):
(a) the Company defaults in the payment of any principal or
Make-Whole Amount or other premium, if any, on any Note when the same becomes
due and payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any
Note for more than five Business Days after the same becomes due and payable;
or
(c) the Company defaults in the performance of or compliance
with any term contained in Sections 10.1 through 10.7; or
(d) the Company defaults in the performance of or compliance
with any term contained herein (other than those referred to in paragraphs (a),
(b) and (c) of this Section 11)and such default is not remedied within 30 days
after the earlier of (i)a Responsible Officer obtaining actual knowledge of such
default and (ii) the Company receiving written notice of such default from any
holder of a Note (any such written notice to be identified as a "notice of
default" and to refer specifically to this paragraph (d) of Section 11); or
(e) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in this Agreement
or in any writing furnished in connection with the transactions contemplated
hereby or pursuant hereto proves to have been false or incorrect in any material
respect on the date as of which made; or
(f) (i) the Company or any Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any principal
of or premium or make-whole amount or interest on any Debt having an aggregate
principal amount outstanding exceeding $10,000,000 beyond any period of grace
provided with respect thereto, or (ii) the Company or any Subsidiary is in
default in the performance of or compliance with any term of any evidence of any
Debt having an aggregate principal amount outstanding exceeding $10,000,000 or
of any mortgage, indenture or other agreement relating thereto or any other
condition exists, if the effect of any such default or condition is to cause
such Debt to become due and payable before its stated maturity or before its
regularly scheduled dates of payment, or (iii)as a consequence of the occurrence
or continuation of any event or condition (other than the passage of time or the
right of the holder of Debt to convert such Debt into equity interests), the
Company or any Subsidiary has become obligated to purchase or repay Debt before
its regular maturity or before its regularly scheduled dates of payment having
an aggregate principal amount outstanding exceeding $10,000,000; or
<PAGE>
(g) the Company or any Significant Subsidiary (i) is generally
not paying, or admits in writing its inability to pay, its debts as they become
due, (ii) files, or consents by answer or otherwise to the filing against it of,
a petition for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii) makes
an assignment for the benefit of its creditors, (iv) consents to the appointment
of a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
the purpose of any of the foregoing; or
(h)a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the Company or any of its
Significant Subsidiaries, a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for relief
or reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Company or any of its
Significant Subsidiaries, or any such petition shall be filed against the
Company or any of its Significant Subsidiaries and such petition shall not be
dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $5,000,000 are rendered against one or more of the
Company or any Subsidiaries and which judgments are not, within 90 days after
entry thereof, bonded, discharged or stayed pending appeal, or are not
discharged within 90 days after the expiration of such stay; or
<PAGE>
(j)(i) any Company Group Member shall fail to pay when due
any amount which it shall have become liable to pay to the PBGC or to a Plan
under Title IV of ERISA; (ii) any Company Group Member shall withdraw from a
Multiple Employer Plan during a plan year in which it is a substantial employer
(as such term is defined in Section 4001(a)(2) of ERISA), or shall be treated as
having so withdrawn under Section 4062(e) of ERISA, or any Multiple Employer
Plan shall be terminated; (iii) notice of intent to terminate a Plan or Plans
shall be filed under Title IV of ERISA by any Company Group Member, any plan
administrator or any combination of the foregoing; (iv) the PBGC shall institute
proceedings under Title IV of ERISA to terminate or to cause a trustee to be
appointed to administer any Plan or Plans, and such proceeding shall not be
vacated within ten Business Days; (v) any Company Group Member shall withdraw
from any Multiemployer Plan; (vi) any Plan shall have an Unfunded Current
Liability; or (vii) any prohibited transaction (within the meaning of Section
406 of ERISA or Section 4975 of the Code)or breach of fiduciary responsibility
shall occur which may subject any Company Group Member to any liability under
Section 406, 409, 502(i) or 502(l) of ERISA or Section 4975 of the Code, or
under any agreement or other instrument pursuant to which such Company Group
Member has agreed or is required to indemnify any Person against any such
liability; and there shall result from any such event or events referred to in
the foregoing subdivisions (j)(i) through (j)(vii) a risk of incurring a
liability on the part of any Company Group Member which would have a Material
Adverse Effect.
12. REMEDIES ON DEFAULT, ETC.
12.1. Acceleration.
(a) If an Event of Default with respect to the Company
described in paragraph (g) or (h) of Section 11 (other than an Event of Default
described in clause (i) of paragraph (g) or described in clause (vi) of
paragraph (g) by virtue of the fact that such clause encompasses clause (i) of
paragraph (g)) has occurred, all the Notes then outstanding shall automatically
become immediately due and payable.
(b) If any other Event of Default has occurred and is
continuing, any holder or holders of more than 66-2/3% in principal amount of
the Notes at the time outstanding may at any time at its or their option, by
notice or notices to the Company, declare all the Notes then outstanding to be
immediately due and payable.
<PAGE>
(c) If any Event of Default described in paragraph (a) or (b)
of Section 11 has occurred and is continuing, any holder or holders of Notes at
the time outstanding affected by such Event of Default may at any time, at its
or their option, by notice or notices to the Company, declare all the Notes held
by it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section
12.1, whether automatically or by declaration, such Notes will forthwith mature
and the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Make-Whole Amount determined in respect of
such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a premium by the Company in the event that the Notes are prepaid or are
accelerated as a result of an Event of Default as provided in the preceding
sentence is intended to provide compensation for the deprivation of such right
under such circumstances.
12.2. Other Remedies.
If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 12.1, the holder of any Note
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Note, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise.
12.3. Rescission.
At any time after any Notes have been declared due and payable
pursuant to clause (b) of Section 12.1, the holders of not less than 66-2/3% in
principal amount of the Notes then outstanding, by written notice to the
Company, may rescind and annul any such declaration and its consequences if (a)
the Company has paid all overdue interest on the Notes, all principal of and
premium, if any, on any Notes that are due and payable and are unpaid other than
by reason of such declaration, and all interest on such overdue principal and
premium, if any, and (to the extent permitted by applicable law) any overdue
interest in respect of the Notes, at the applicable Default Rate, (b) all Events
of Default and Defaults, other than non-payment of amounts that have become due
solely by reason of such declaration, have been cured or have been waived
pursuant to Section 17, and (c) no judgment or decree has been entered for the
payment of any monies due pursuant hereto or to the Notes. No rescission and
annulment under this Section 12.3 will extend to or affect any subsequent Event
of Default or Default or impair any right consequent thereon.
<PAGE>
12.4. No Waivers or Election of Remedies, Expenses, etc.
No course of dealing and no delay on the part of any holder of
any Note in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers or remedies. No
right, power or remedy conferred by this Agreement or by any Note upon any
holder thereof shall be exclusive of any other right, power or remedy referred
to herein or therein or now or hereafter available at law, in equity, by statute
or otherwise. Without limiting the obligations of the Company under Section 15,
the Company will pay to the holder of each Note on demand such further amount as
shall be sufficient to cover all costs and expenses of such holder incurred in
any enforcement or collection under this Section 12, including, without
limitation, reasonable attorneys' fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1. Registration of Notes.
The Company shall keep at its principal executive office a
register for the registration and registration of transfers of Notes. The name
and address of each holder of one or more Notes, each transfer thereof and the
name and address of each transferee of one or more Notes shall be registered in
such register. Prior to due presentment for registration of transfer, the Person
in whose name any Note shall be registered shall be deemed and treated as the
owner and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company shall give to
any holder of a Note that is an Institutional Investor promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
13.2. Transfer and Exchange of Notes.
Upon surrender of any Note at the principal executive office
of the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of such
Note or his attorney duly authorized in writing and accompanied by the address
for notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one or
more new Notes (as requested by the holder thereof) in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request and shall be substantially in the form of Exhibit 1. Each
such new Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Note or dated the date of the
<PAGE>
surrendered Note if no interest shall have been paid thereon. The Company may
require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Notes. Notes shall not be
transferred in denominations of less than $100,000, provided that, if necessary
to enable the registration of transfer by a holder of its entire holding of
Notes, one Note may be in a denomination of less than $100,000. Any transferee,
by its acceptance of a Note registered in its name (or the name of its nominee),
shall be deemed to have made the representation set forth in Section 6.2 or
shall provide a representation reasonably acceptable to the Company to the
effect that the purchase by or assignment to such transferee of such Note does
not involve any prohibited transaction within the meaning of ERISA or Section
4975 of the Code.
13.3. Replacement of Notes.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Note (which evidence shall be, in the case of an Institutional
Investor, notice from such Institutional Investor of such ownership and such
loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of such Note is, or
is a nominee for, an original Purchaser or another holder of a Note with a
minimum net worth of at least $50,000,000, such Person's own unsecured agreement
of indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note, dated and bearing interest from the date to which interest shall have been
paid on such lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.
14. PAYMENTS ON NOTES.
14.1. Place of Payment.
Subject to Section 14.2, payments of principal, Make-Whole
Amount or other premium, if any, and interest becoming due and payable on the
Notes shall be made in New York, New York at the principal office of Morgan
Guaranty Trust Company of New York in such jurisdiction. The Company may at any
time, by notice to each holder of a Note, change the place of payment of the
Notes so long as such place of payment shall be either the principal office of
the Company in such jurisdiction or the principal office of a bank or trust
company in such jurisdiction.
<PAGE>
14.2. Home Office Payment.
So long as you or your nominee shall be the holder of any
Note, and notwithstanding anything contained in Section 14.1 or in such Note to
the contrary, the Company will pay all sums becoming due on such Note for
principal, Make-Whole Amount or other premium, if any, and interest by the
method and at the address specified for such purpose below your name in Schedule
A, or by such other method or at such other address as you shall have from time
to time specified to the Company in writing for such purpose, without the
presentation or surrender of such Note or the making of any notation thereon,
except that upon written request of the Company made concurrently with or
reasonably promptly after payment or prepayment in full of any Note, you shall
surrender such Note for cancellation, reasonably promptly after any such
request, to the Company at its principal executive office or at the place of
payment most recently designated by the Company pursuant to Section 14.1. Prior
to any sale or other disposition of any Note held by you or your nominee you
will, at your election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Note to the Company in exchange for a new Note or Notes pursuant to Section
13.2. The Company will afford the benefits of this Section 14.2 to any
Institutional Investor that is the direct or indirect transferee of any Note
purchased by you under this Agreement and that has made the same agreement
relating to such Note as you have made in this Section 14.2.
15. EXPENSES, ETC.
15.1. Transaction Expenses.
Whether or not the transactions contemplated hereby are
consummated, the Company will pay all costs and expenses (including reasonable
attorneys' fees of a special counsel and, if reasonably required, local or other
counsel) incurred by you and each Other Purchaser or holder of a Note in
connection with such transactions and in connection with any amendments, waivers
or consents under or in respect of this Agreement or the Notes (whether or not
such amendment, waiver or consent becomes effective), including, without
limitation: (a) the costs and expenses incurred in enforcing or defending (or
determining whether or how to enforce or defend) any rights under this Agreement
or the Notes or in responding to any subpoena or other legal process or informal
investigative demand issued in connection with this Agreement or the Notes, or
by reason of being a holder of any Note, and (b) the costs and expenses,
including financial advisors' fees, incurred in connection with the insolvency
or bankruptcy or restructuring of the Company or any Subsidiary or in connection
with any work-out or restructuring of the transactions contemplated hereby and
by the Notes. The Company will pay, and will save you and each other holder of a
Note harmless from, all claims in respect of any fees, costs or expenses if any,
of brokers and finders (other than those retained by you).
<PAGE>
15.2. Survival.
The obligations of the Company under this Section 15 will
survive the payment or transfer of any Note, the enforcement, amendment or
waiver of any provision of this Agreement or the Notes, and the termination of
this Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT
All representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the Notes, the purchase
or transfer by you of any Note or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any subsequent holder of a Note,
regardless of any investigation made at any time by or on behalf of you or any
other holder of a Note. All statements contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant to this Agreement
shall be deemed representations and warranties of the Company under this
Agreement. Subject to the preceding sentence, this Agreement and the Notes
embody the entire agreement and understanding between you and the Company and
supersede all prior agreements and understandings relating to the subject matter
hereof.
17. AMENDMENT AND WAIVER.
17.1. Requirements.
This Agreement and the Notes may be amended, and the
observance of any term hereof or of the Notes may be waived (either
retroactively or prospectively), with (and only with) the written consent of the
Company and the Required Holders, except that (a) no amendment or waiver of any
of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term
(as it is used therein), will be effective as to you unless consented to by you
in writing, and (b) no such amendment or waiver may, without the written consent
of the holder of each Note at the time outstanding affected thereby, (i) subject
to the provisions of Section 12 relating to acceleration or rescission, change
the amount or time of any prepayment or payment of principal of, or change the
rate or change the time of payment or method of computation of interest or of
the Make-Whole Amount or premium on, the Notes, (ii) change the percentage of
the principal amount of the Notes the holders of which are required to consent
to any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b),
12 or 17.
<PAGE>
17.2. Solicitation of Holders of Notes.
(a) Solicitation. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. The Company will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the provisions
of this Section 17 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any holder of
Notes as consideration for or as an inducement to the entering into by any
holder of Notes or any waiver or amendment of any of the terms and provisions
hereof unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each holder of Notes then
outstanding even if such holder did not consent to such waiver or amendment.
17.3. Binding Effect, etc.
Any amendment or waiver consented to as provided in this
Section 17 applies equally to all holders of Notes and is binding upon them and
upon each future holder of any Note and upon the Company without regard to
whether such Note has been marked to indicate such amendment or waiver. No such
amendment or waiver will extend to or affect any obligation, covenant,
agreement, Default or Event of Default not expressly amended or waived or impair
any right consequent thereon. No course of dealing between the Company and the
holder of any Note nor any delay in exercising any rights hereunder or under any
Note shall operate as a waiver of any rights of any holder of such Note. As used
herein, the term "this Agreement" and references thereto shall mean this
Agreement as it may from time to time be amended or supplemented.
17.4. Notes held by Company, etc.
Solely for the purpose of determining whether the holders of
the requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or the Notes, or have directed the taking of any
action provided herein or in the Notes to be taken upon the direction of the
holders of a specified percentage of the aggregate principal amount of Notes
then outstanding, Notes directly or indirectly owned by the Company or any of
its Affiliates shall be deemed not to be outstanding.
<PAGE>
18. NOTICES.
All notices and communications provided for hereunder shall be
in writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid).
Any such notice must be sent:
(i) if to you or your nominee, to you or it at the
address specified for such communications in Schedule A, or
at such other address as you or it shall have specified to
the Company in writing,
(ii) if to any other holder of any Note, to such holder
at such address as such other holder shall have specified to
the Company in writing, or
(iii) if to the Company, to the Company at its address
set forth at the beginning hereof to the attention of its
Treasurer, or at such other address as the Company shall
have specified to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may hereafter
be executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
<PAGE>
20. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your
Affiliates as the purchaser of the Notes that you have agreed to purchase
hereunder, by written notice to the Company, which notice shall be signed by
both you and such Affiliate, shall contain such Affiliate's agreement to be
bound by this Agreement and shall contain a confirmation by such Affiliate of
the accuracy with respect to it of the representations set forth in Section 6.
Upon receipt of such notice, wherever the word "you" is used in this Agreement
(other than in this Section 20), such word shall be deemed to refer to such
Affiliate in lieu of you. In the event that such Affiliate is so substituted as
a purchaser hereunder and such Affiliate thereafter transfers to you all of the
Notes then held by such Affiliate, upon receipt by the Company of notice of such
transfer, wherever the word "you" is used in this Agreement (other than in this
Section 20), such word shall no longer be deemed to refer to such Affiliate, but
shall refer to you, and you shall have all the rights of an original holder of
the Notes under this Agreement.
21. MISCELLANEOUS.
21.1. Successors and Assigns.
All covenants and other agreements contained in this Agreement
by or on behalf of any of the parties hereto bind and inure to the benefit of
their respective successors and assigns (including, without limitation, any
subsequent holder of a Note) whether so expressed or not.
21.2. Payments Due on Non-Business Days.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-Whole Amount or other
premium or interest on any Note that is due on a date other than a Business Day
shall be made on the next succeeding Business Day without including the
additional days elapsed in the computation of the interest payable on such next
succeeding Business Day.
21.3. Severability.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
<PAGE>
21.4. Construction.
Each covenant contained herein shall be construed (absent
express provision to the contrary) as being independent of each other covenant
contained herein, so that compliance with any one covenant shall not (absent
such an express contrary provision) be deemed to excuse compliance with any
other covenant. Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
21.5. Counterparts.
This Agreement may be executed in any number of counterparts,
each of which shall be an original but all of which together shall constitute
one instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
21.6. Governing Law.
This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the State
of New York excluding choice-of-law principles of the law of such State that
would require the application of the laws of a jurisdiction other than such
State.
<PAGE>
If you are in agreement with the foregoing, please sign the
form of agreement on the accompanying counterpart of this Agreement and return
it to the Company, whereupon the foregoing shall become a binding agreement
between you and the Company.
Very truly yours,
FRANKLIN COVEY CO.
By /s/ John L. Theler
Name: John L. Theler
Title: Executive Vice President/
Chief Financial Officer
The foregoing is hereby
agreed to as of the
date thereof.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
JJD
By /s/ Charles C. Thompson III
Name: Charles C. Thompson III
Title: Managing Director
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
JMH
By /s/ Mark A. Ahmed
Name: Mark A. Ahmed
Title: Managing Director
MML BAY STATE LIFE INSURANCE COMPANY
JMH
By /s/ Mark A. Ahmed
Name: Mark A. Ahmed
Title: Managing Director
FORETHOUGHT LIFE INSURANCE COMPANY
By /s/ Richard L. Sega
Name: Richard L. Sega
Title: President, Charter Oak Capital Management, Inc.
its Investment Manager
NORTHERN LIFE INSURANCE COMPANY
CHP
By /s/ James V. Wittich
Name: James V. Wittich
Title: Assistant Treasurer
RELIASTAR LIFE INSURANCE COMPANY
CHP
By /s/ James V. Wittich
Name: James V. Wittich
Title: Authorized Representative
SECURITY CONNECTICUT LIFE INSURANCE COMPANY
CHP
By /s/ James V. Wittich
Name: James V. Wittich
Title: Assistant Treasurer
HARTFORD LIFE INSURANCE COMPANY
By The Hartford Investment Management Company
and By Hartford Investment Services, Inc.
its Agents and Attorneys-in-Fact
By /s/ Betsy Roberts
Name: Betsy Roberts
Title: Senior Vice President
NATIONWIDE LIFE INSURANCE COMPANY
By /s/ Edwin P. McCausland, Jr.
Name: Edwin P. McCausland, Jr.
Title: Senior Vice President
Fixed-Income Securities
<PAGE>
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
<TABLE>
============= --------------------------------------------------------------------------- ==========================
A B
Principal Amount
of Notes
Name and Address of Purchaser
============= --------------------------------------------------------------------------- ==========================
<S> <C>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA $32,000,000
============= --------------------------------------------------------------------------- ==========================
(1) All payments on account of the Notes shall be made in immediately
available funds at the opening of business on the due date by
electronic funds transfer (identifying each as FRANKLIN COVEY CO.,
private placement number 353469 A* 0, 6.64% Senior Notes due 2008,
principal, premium or interest) through the Automated Clearing
House System to:
============= --------------------------------------------------------------------------- ==========================
Chase Manhattan Bank
ABA No. 021-000-021
New York, New York
Account of: Teachers Insurance and Annuity Association of America,
Account No. 910-2-766475,
On order of FRANKLIN COVEY CO.
============= --------------------------------------------------------------------------- ==========================
(2) Contemporaneous with the above electronic funds transfer, advice setting
forth (1) the full name, private placement number, interest rate and
maturity date of the Notes, (2) the allocation of payment between
principal, interest, premium or any other payment, and (3) the name and
address of the bank from which payment was made, shall be
delivered, mailed or telecopied to:
============= --------------------------------------------------------------------------- ==========================
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Attention: Securities Accounting Division
Phone: (212) 916-4188
Facsimile: (212) 916-6199
============= --------------------------------------------------------------------------- ==========================
(3) Address for all other communications:
============= --------------------------------------------------------------------------- ==========================
Teachers Insurance and Annuity
Association of America
730 Third Avenue
New York, New York 10017
Attention: Securities Division,
Private Placements
Phone: (212) 916-5907
or
(212) 490-9000 (general number)
Facsimile: (212) 916-6583
<PAGE>
============= --------------------------------------------------------------------------- ==========================
MASSACHUSETTS MUTUAL LIFE $14,500,000
INSURANCE COMPANY (to be evidenced by two
1295 State Street Notes in the respective
Springfield, MA 01111 principal amounts of
Attention: Securities Investment Division $11,000,000 and
MaryAnn McCarthy, Managing Director $3,500,000)
============= --------------------------------------------------------------------------- ==========================
(1) Payments:
============= --------------------------------------------------------------------------- ==========================
All payments on account of the Notes shall be made by crediting in the
form of bank wire transfer of Federal or other immediately available
funds (identifying each payment as FRANKLIN COVEY CO. 6.64% Senior Notes
due 2008, interest and principal):
============= --------------------------------------------------------------------------- ==========================
(a) with respect to the $11,000,000 Note, to:
============= --------------------------------------------------------------------------- ==========================
Citibank, N.A.
111 Wall Street
New York, NY 10043
ABA No. 021000089
for credit to the account of MassMutual
Long Term Pool
Account No. 4067-3488
Re: Description of security, principal and interest split
============= --------------------------------------------------------------------------- ==========================
(b) with respect to the $3,500,000 Note, to:
============= --------------------------------------------------------------------------- ==========================
Chase Manhattan Bank, N.A.
Four Chase MetroTech Center
New York, New York 10081
ABA No. 021000021
for credit to the account of MassMutual Pension Management
Account No. 910-2594018
Re: Description of security, principal and interest split
============= --------------------------------------------------------------------------- ==========================
With telephone advice of payment to the Securities Custody and Collection
Department of Massachusetts Mutual Life Insurance Company at (413)
744-3878
============= --------------------------------------------------------------------------- ==========================
(2) Payment Notices:
============= --------------------------------------------------------------------------- ==========================
Notices with respect to payments to be addressed to:
1295 State Street
Springfield, MA 01111
Attention: Securities Custody and
Collection Department
F 381
============= --------------------------------------------------------------------------- ==========================
(3) All other notices and communications to be addressed as follows:
1295 State Street
Springfield, MA 01111
Attention: Securities Investment Division
Tax identification no. 04-1590850.
<PAGE>
============= --------------------------------------------------------------------------- ==========================
MML BAY STATE LIFE INSURANCE COMPANY $500,000
c/o MASSACHUSETTS MUTUAL LIFE
INSURANCE COMPANY
1295 State Street
Springfield, MA 01111
Attention: Securities Investment Division
MaryAnn McCarthy, Managing Director
============= --------------------------------------------------------------------------- ==========================
(1) Payments:
============= --------------------------------------------------------------------------- ==========================
All payments on account of the Notes shall be made by crediting in the
form of bank wire transfer of Federal or other immediately available
funds (identifying each payment as FRANKLIN COVEY CO. 6.64% Senior Notes
due 2008, interest and principal), to:
============= --------------------------------------------------------------------------- ==========================
Chase Manhattan Bank, N.A.
Four Chase MetroTech Center
New York, New York 10081
ABA No. 021000021
for credit to the account of MML Bay Street
Account No. 910-2481026
Re: Description of security, principal and interest split
============= --------------------------------------------------------------------------- ==========================
With telephone advice of payment to the Securities Custody and Collection
Department of Massachusetts Mutual Life Insurance Company at (413)
744-3878
============= --------------------------------------------------------------------------- ==========================
(2) Payment Notices:
============= --------------------------------------------------------------------------- ==========================
Notices with respect to payments to be addressed to:
1295 State Street
Springfield, MA 01111
Attention: Securities Custody and
Collection Department
F 381
============= --------------------------------------------------------------------------- ==========================
(3) All other notices and communications to be addressed as follows:
1295 State Street
Springfield, MA 01111
Attention: Securities Investment Division
Tax identification no. 43-0581430
<PAGE>
============= --------------------------------------------------------------------------- ==========================
FORETHOUGHT LIFE INSURANCE COMPANY $5,000,000
Forethought Center
Batesville, IN 47006
============= --------------------------------------------------------------------------- ==========================
(1) Payments:
============= --------------------------------------------------------------------------- ==========================
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds (identifying each payment as
FRANKLIN COVEY CO., private placement number 353469 A* 0, 6.64%
Senior Notes due 2008, interest and principal) to:
============= --------------------------------------------------------------------------- ==========================
Fifth Third Bank
ABA # 042000314
Beneficiary Account # 71575856
Further credit to: A/C 010032247500
Attn: David Miller (513-579-5185)
============= --------------------------------------------------------------------------- ==========================
(2) Notices:
============= --------------------------------------------------------------------------- ==========================
All notices of payment, on or in respect of the Notes and written
confirmation of each such payment to:
============= --------------------------------------------------------------------------- ==========================
Charter Oak Capital Management, Inc.
One Financial Plaza, 17th Floor
Hartford, CT 06156
with a copy to:
============= --------------------------------------------------------------------------- ==========================
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, OH 45263
Attn: David Miller, ML I090E5
============= --------------------------------------------------------------------------- ==========================
(3) All other notices and communications to:
============= --------------------------------------------------------------------------- ==========================
Forethought Life Insurance Company
Forethought Center
Batesville, IN 47006
============= --------------------------------------------------------------------------- ==========================
with a copy to:
Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, MA 01111
Attention: Securities Investment Division
============= --------------------------------------------------------------------------- ==========================
Tax identification no. 06-1016329
<PAGE>
============= --------------------------------------------------------------------------- ==========================
NORTHERN LIFE INSURANCE COMPANY $8,000,000
============= --------------------------------------------------------------------------- ==========================
(1) Deliver securities to:
ReliaStar Investment Research, Inc.
100 Washington Square, Suite 800
Minneapolis, MN 55401-2121
Attn: Bret Brunner
============= --------------------------------------------------------------------------- ==========================
(2) Wire payments to:
US Bank, N.A./Mpls.
601 2nd Avenue S., Mpls, MN
Acct# 160232376105
Bank ABA# 091000022
Attn: Securities Accounting
Ref: Issuer, CUSIP, Coupon &
Maturity
Payments must be accompanied by a full security
description.
============= --------------------------------------------------------------------------- ==========================
(3) Correspondence and notices to:
ReliaStar Investment Research
100 Washington Square, Suite 800
Minneapolis, MN 55401-2121
Ref: Chris Patton
Tel: (612) 342-7576
Fax: (612) 372-5368
============= --------------------------------------------------------------------------- ==========================
Taxpayer I.D. Number: 41-1295933
============= --------------------------------------------------------------------------- ==========================
RELIASTAR LIFE INSURANCE COMPANY $3,000,000
============= --------------------------------------------------------------------------- ==========================
(1) Deliver securities to:
ReliaStar Investment Research, Inc.
100 Washington Square, Suite 800
Minneapolis, MN 55401-2121
Attn: Bret Brunner
============= --------------------------------------------------------------------------- ==========================
(2) Wire payments to:
US Bank, N.A./Mpls.
601 2nd Avenue S., Mpls, MN
Acct# 110240014461
Bank ABA# 091000022
Attn: Securities Accounting
Ref: Issuer, CUSIP, Coupon &
Maturity
Payments must be accompanied by a full security
description.
============= --------------------------------------------------------------------------- ==========================
(3) Correspondence and notices to:
ReliaStar Investment Research
100 Washington Square, Suite 800
Minneapolis, MN 55401-2147
Ref: Chris Patton
Tel: (612) 342-7576
Fax: (612) 372-5368
============= --------------------------------------------------------------------------- ==========================
Taxpayer I.D. Number: 41-0451140
<PAGE>
============= --------------------------------------------------------------------------- ==========================
SECURITY CONNECTICUT LIFE $2,000,000
INSURANCE COMPANY
============= --------------------------------------------------------------------------- ==========================
Note to be registered in the name of "SIGLER & CO."
============= --------------------------------------------------------------------------- ==========================
(1) Deliver securities to:
============= --------------------------------------------------------------------------- ==========================
ReliaStar Investment Research, Inc.
100 Washington Square, Suite 800
Minneapolis, Minnesota 55401-2121
Attn: Bret Brunner
============= --------------------------------------------------------------------------- ==========================
(2) Wire payments to:
============= --------------------------------------------------------------------------- ==========================
Chase Manhattan Bank
New York, New York
Bank ABA #: 021-000-021
Beneficiary Acct. #: 544755102
Reference: Sigler & Co. (Nominee name)
Tax I.D. #: 13-3641527
F/C # BS72152-07
Ref: Issuer, CUSIP, Coupon & Maturity
============= --------------------------------------------------------------------------- ==========================
Payments must be accompanied by a full security description
============= --------------------------------------------------------------------------- ==========================
(3) Correspondence and notices to:
============= --------------------------------------------------------------------------- ==========================
ReliaStar Investment Research
100 Washington Square, Suite 800
Minneapolis, MN 55401-2147
Ref: Chris Patton
Tel: (612) 342-7576
Fax: (612) 372-5368
Taxpayer I.D. Number: 35-1468921 (Security Connecticut Life)
============= --------------------------------------------------------------------------- ==========================
(4) For written notices to Bank for payment collection:
Sigler & Co.
c/o Chase Manhattan Bank
Dept. # 3492
P.O. Box 50000
Newark, New Jersey 07101-8006
<PAGE>
============= --------------------------------------------------------------------------- ==========================
HARTFORD LIFE INSURANCE COMPANY $10,000,000
(to be evidenced by two
Notes in the respective
principal amounts of
$5,000,000 each)
============= --------------------------------------------------------------------------- ==========================
(1) All payments on account of the Notes shall be made by wire
transfer of immediately available funds to:
============= --------------------------------------------------------------------------- ==========================
(a) with respect to the first Note, to:
============= --------------------------------------------------------------------------- ==========================
Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
Bank ABA No. 021000021
Chase NYC/Cust
A/C # 900-9-000200 for F/C/T G06612-HVA
Attn: Bond Interest/Principal - Franklin
Covey Co. PPN# 353469A* 0 6.64% due 4/30/08
Prin $____________Int $____________
============= --------------------------------------------------------------------------- ==========================
(b) with respect to the second Note, to
============= --------------------------------------------------------------------------- ==========================
Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
Bank ABA No. 021000021
Chase NYC/Cust
A/C # 900-9-000200 for F/C/T G06641-CRC
Attn: Bond Interest/Principal - Franklin
Covey Co. PPN# 353469A* 0 6.64% due 4/30/08
Prin $____________Int $____________
============= --------------------------------------------------------------------------- ==========================
with sufficient information to identify the source and application of
such funds
============= --------------------------------------------------------------------------- ==========================
(2) All notices of payments and written confirmations of such wire
transfers:
============= --------------------------------------------------------------------------- ==========================
The Hartford Investment Management Company
c/o Portfolio Support
P.O. Box 1744
Hartford, Connecticut 06144-1744
Fax: (860) 297-8875/8876
============= --------------------------------------------------------------------------- ==========================
(3) All other communications:
============= --------------------------------------------------------------------------- ==========================
The Hartford Investment Management Company
c/o Investment Department - Private Placements
P.O. Box 1744
Hartford, Connecticut 06144-1744
Fax: (860) 297-8884
============= --------------------------------------------------------------------------- ==========================
(4) Physical Delivery of Notes:
============= --------------------------------------------------------------------------- ==========================
Chase Manhattan Bank
4 New York Plaza
New York, New York 10004
Attn: Betty Carrera
Custody Account Numbers: G06612-HVA and
G06641-CRC, respectively, must appear on the
outside of the envelopes (as applicable)
============= --------------------------------------------------------------------------- ==========================
Tax identification no. 06-0974148
<PAGE>
============= --------------------------------------------------------------------------- ==========================
NATIONWIDE LIFE INSURANCE COMPANY $10,000,000
============= --------------------------------------------------------------------------- ==========================
(1) All payments on account of the Notes shall be made by Federal wire
transfer of immediately available funds (identifying each payment as
Franklin Covey Co. 6.64% Senior Notes due 2008, principal, interest or
premium, if any) to:
============= --------------------------------------------------------------------------- ==========================
By Wire:
The Bank of New York
ABA # 021000018
BNF: IOC566
F/A/O Nationwide Life Insurance Co.
Attention: P & I Department
PPN# 353469 A* 0
Security Description _____________________
============= --------------------------------------------------------------------------- ==========================
By Mail:
Nationwide Life Insurance Company
c/o The Bank of New York
Attention: P & I Department
P.O. Box 19266
Newark, NJ 07195
============= --------------------------------------------------------------------------- ==========================
(2) All notices of payment on or in respect to the Notes should be sent to:
============= --------------------------------------------------------------------------- ==========================
Nationwide Life Insurance Company
c/o The Bank of New York
P.O. Box 19266
Attention: P & I Department
Newark, NJ 07195
With a copy to:
============= --------------------------------------------------------------------------- ==========================
Nationwide Life Insurance Company
Attention: Investment Accounting (1-32-05)
One Nationwide Plaza
Columbus, Ohio 43215-2220
============= --------------------------------------------------------------------------- ==========================
(3) All other correspondence (such as annual reports, statements,
waivers, amendments) should be mailed to:
============= --------------------------------------------------------------------------- ==========================
Nationwide Life Insurance Company
Attention: Corporate Fixed-Income Securities (1-33-07)
One Nationwide Plaza
Columbus, Ohio 43215-2220
============= --------------------------------------------------------------------------- ==========================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000886206
<NAME> FRANKLIN COVEY CO.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> MAR-1-1998
<PERIOD-END> MAY-31-1998
<EXCHANGE-RATE> 1.0
<CASH> 31,153
<SECURITIES> 0
<RECEIVABLES> 56,272
<ALLOWANCES> 2,623
<INVENTORY> 55,926
<CURRENT-ASSETS> 158,022
<PP&E> 194,348
<DEPRECIATION> 68,860
<TOTAL-ASSETS> 574,596
<CURRENT-LIABILITIES> 67,573
<BONDS> 116,982
0
0
<COMMON> 1,353
<OTHER-SE> 352,508
<TOTAL-LIABILITY-AND-EQUITY> 574,596
<SALES> 107,542
<TOTAL-REVENUES> 107,542
<CGS> 42,728
<TOTAL-COSTS> 42,728
<OTHER-EXPENSES> 62,411
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,600
<INCOME-PRETAX> 803
<INCOME-TAX> 333
<INCOME-CONTINUING> 470
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 470
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
