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 November 27, 1999
[ ] 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) 817-1776
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:
20,217,460 shares of Common Stock as of January 5, 2000
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FRANKLIN COVEY CO.
------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(in thousands, except share amounts)
<TABLE>
<CAPTION>
November 27, August 31,
1999 1999
----- ----
(unaudited)
ASSETS
- ------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 26,366 $ 26,781
Accounts receivable, less allowance
for doubtful accounts of $4,004
and $4,074 71,148 92,500
Inventories 63,468 59,780
Income taxes receivable 3,912
Other current assets 30,065 28,673
---------- ----------
Total current assets 191,047 211,646
Property and equipment, net 125,749 127,863
Goodwill and other intangible assets, net 264,908 267,185
Other long-term assets 15,895 16,609
---------- ----------
$ 597,599 $ 623,303
========== ==========
</TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
<TABLE>
<CAPTION>
Current liabilities:
<S> <C> <C>
Accounts payable $ 23,330 $ 33,038
Accrued acquisition earnouts 5,436 15,900
Accrued restructuring costs 14,678 16,200
Current portion of long-term debt
and capital lease obligations 5,188 90,568
Other current liabilities 51,960 47,802
---------- ----------
Total current liabilities 100,592 203,508
Line of credit 70,000
Long-term debt and capital lease obligations,
less current portion 6,211 6,543
Deferred income taxes 34,818 34,818
---------- ----------
Total liabilities 211,621 244,869
---------- ----------
Shareholders' equity:
Preferred stock - Series A, no par
value; convertible into common
stock at $14 per share; 4,000,000
shares authorized, 768,750 and
750,000 shares issued 76,795 75,000
Common stock, $0.05 par value, 40,000,000
shares authorized, 27,055,894 shares
issued 1,353 1,353
Additional paid-in capital 233,667 235,632
Retained earnings 204,399 199,125
Notes receivable from sale of common stock 1,069)
Deferred compensation (222) (320)
Accumulated other comprehensive loss (298) (782)
Treasury stock at cost, 6,537,485 and
6,676,373 shares (128,647) (131,574)
----------- -----------
Total shareholders' equity 385,978 378,434
----------- -----------
$ 597,599 $ 623,303
=========== ===========
</TABLE>
(See Notes to Consolidated Condensed Financial Statements)
2
<PAGE>
FRANKLIN COVEY CO.
------------------
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
-------------------------------------------
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------
November 27, November 28,
1999 1998
------------- --------------
(unaudited)
<S> <C> <C>
Sales $ 144,078 $ 140,362
Cost of sales 59,025 53,931
------------ ------------
Gross margin 85,053 86,431
Selling, general and administrative 60,873 56,421
Depreciation and amortization 9,890 9,035
------------ ------------
Income from operations 14,290 20,975
Interest expense, net (1,197) (2,160)
------------- -------------
Income before provision for income taxes 13,093 18,815
Provision for income taxes 5,905 7,902
------------ ------------
Net income 7,188 10,913
Preferred stock dividends (1,914)
------------ ------------
Net income available to common shareholders $ 5,274 $ 10,913
============ ============
Net income per share:
Basic $ .26 $ .51
Diluted .26 .50
Weighted average number of common and
common equivalent shares:
Basic 20,518 21,413
Diluted 20,595 21,751
</TABLE>
(See Notes to Consolidated Condensed Financial Statements)
3
<PAGE>
FRANKLIN COVEY CO.
------------------
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------
November 27, November 28,
1999 1998
----- ----
(unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net income $ 7,188 $ 10,913
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 10,879 9,772
Other 82 972
Changes in assets and liabilities, net
of effects from acquisitions:
Decrease in accounts receivable 21,352 11,876
Increase in inventories (3,688) (7,954)
Decrease (increase) in other assets (1,825) 317
Decrease in accounts payable and
accrued liabilities (10,776) (10,557)
Increase in income taxes payable 5,797 1,783
--------- ---------
Net cash provided by operating activities 29,009 17,122
--------- ---------
Cash flows from investing activities:
Acquisition of businesses and earnout payments (11,964) (1,520)
Purchases of property and equipment (4,422) (3,304)
Proceeds from the sale of property and equipment 544
---------
Net cash used for investing activities (15,842) (4,824)
---------- ----------
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings 1,780 (3,625)
Proceeds from long-term debt and line of credit 70,000 18,650
Payments on long-term debt and capital leases (85,713) (678)
Purchases common stock for treasury (97) (20,751)
Proceeds from treasury stock issuance 84 490
--------- ---------
Net cash used for financing activities (13,946) (5,914)
---------- ----------
Effect of foreign exchange rates 364 1,041
--------- ---------
Net (decrease) increase in cash and cash equivalents (415) 7,425
Cash and cash equivalents at beginning of period 26,781 27,760
--------- ---------
Cash and cash equivalents at end of period $ 26,366 $ 35,185
========= =========
Supplemental disclosure of cash flow information:
Interest paid $ 3,190 $ 3,781
========= =========
Income taxes paid $ 546 $ 6,147
========= =========
Fair value of assets acquired $ 11,964 $ 1,520
Cash paid for net assets (11,964) (1,520)
--------- ---------
Liabilities assumed from acquisitions $ - $ -
========= =========
Non-cash investing and financing activities:
Accrued earnout payments $ $ 1,940
Accrued preferred dividends 1,914
Preferred dividends paid with additional
shares of preferred stock 1,875
Notes receivable issued from sale of common stock 894
</TABLE>
(See Notes to Consolidated Condensed Financial Statements)
4
<PAGE>
FRANKLIN COVEY CO.
------------------
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
----------------------------------------------------
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
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 results of operations of the Company as of the dates and for the periods
indicated. The Company utilizes a modified 52/53 week fiscal year that ends on
August 31. Corresponding quarterly periods generally consist of 13-week periods
that will end on November 27, 1999, February 26, 2000 and May 27, 2000 during
fiscal 2000. The quarter ended November 27, 1999 included one additional
business day compared to the quarter ended November 28, 1998.
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 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, 1999.
The results of operations for the quarter ended November 27, 1999 are
not necessarily indicative of results for the entire fiscal year ending August
31, 2000.
In order to conform with the current period presentation, certain
reclassifications have been made in the prior period financial statements.
NOTE 2 - INVENTORIES
<TABLE>
Inventories are comprised of the following (in thousands):
<CAPTION>
November 27, August 31,
1999 1998
----------- ----------
(unaudited)
<S> <C> <C>
Finished goods $ 48,132 $ 42,594
Work in process 7,732 4,186
Raw materials 7,604 13,000
----------- -----------
$ 63,468 $ 59,780
=========== ===========
</TABLE>
NOTE 3 - RESTRUCTURING COSTS
During the fourth quarter of fiscal 1999, the Company initiated a plan
to restructure its operations, reduce its workforce and formally exit the
majority of its leased office space in Provo, Utah. In connection with the
restructuring plan, the Company recorded a restructuring charge of $16.3 million
during the fourth quarter of fiscal 1999. Included in the restructuring charge
5
<PAGE>
are costs to provide severance and related benefits as well as costs to formally
exit the leased office space. During the quarter ended November 27, 1999 the
Company also incurred and expensed other costs related to its restructure plan
which were not specific to severance or exit costs. The Company expects to
complete the restructuring plan in fiscal 2000 and will continue to incur and
expense other restructuring costs in order to complete the plan.
As part of the restructuring plan, the Company will provide severance
and related benefits to employees affected by planned restructuring changes. The
cost to provide these benefits was estimated during the fourth quarter of fiscal
1999 to be $11.7 million and covers a planned reduction of 600 employees from
all areas of Company operations and corporate support. At August 31, 1999, a
total of 115 employees had left the Company as part of the reduction plan. As of
November 27, 1999, an additional 115 employees had left the Company in
connection with the restructuring plan. The cost to provide severance and
related benefits for these 230 employees was $1.5 million during the quarter
ended November 27, 1999. These costs were charged against the restructuring
liability recorded on the Company's balance sheet. The following table shows the
number of employees in each of the Company's operating segments that were
affected by the reduction plan through November 27, 1999:
Operating Segment Number of Employees
- --------------------------------- ----------------------------------------
Consumer Products 43
Training and Education 57
International 24
Corporate Support and Other 106
-------
230
=======
Also included in the restructuring liability is the cost to exit the
majority of the Company's leased office space in Provo, Utah. These facilities
currently contain sales, marketing and other functions primarily aligned with
the Training and Education Strategic Business Unit. During the fourth quarter of
fiscal 1999, the Company estimated the cost to exit the leased office space to
be approximately $4.6 million. During the quarter ended November 27, 1999, the
Company had incurred only nominal costs related to the exit plan. As of November
27, 1999, no significant changes have been made to the Company's restructuring
or exit plans.
NOTE 4 - SHAREHOLDERS' EQUITY
During the quarter ended November 27, 1999, the Company sold 121,250
shares of its common stock to the former CEO of the Company for $0.9 million. In
consideration for the common stock, the Company received a promissory note, due
September 2003, bearing interest at 10%. The note receivable has been recorded
as a separate component of shareholders' equity on the accompanying consolidated
condensed balance sheet.
In October 1998, the Company's Board of Directors approved the purchase
of up to 2,000,000 shares of the Company's common stock. As of November 27,
1999, the Company had approximately 970,000 shares remaining under the
board-authorized purchase plan.
6
<PAGE>
NOTE 5 - COMPREHENSIVE INCOME
Comprehensive income includes net income and other revenues, expenses,
gains and losses that are excluded from net income but are included as
components of shareholders' equity. Comprehensive income for the Company is as
follows (in thousands):
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------
November 27, November 28,
1999 1998
-------------- ---------------
(unaudited)
<S> <C> <C>
Net income available to common
shareholders $ 5,274 $ 10,913
Other comprehensive income:
Foreign currency translation
adjustments 484 1,041
--------- ---------
Comprehensive income $ 5,758 $ 11,954
========= =========
</TABLE>
NOTE 6 - NET INCOME PER COMMON SHARE
Basic earnings per share ("EPS") is calculated by dividing income
available to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS is calculated by dividing net income by
the weighted-average number of common shares outstanding plus the assumed
exercise of all dilutive securities using the treasury stock or the "as
converted" method as appropriate. The Diluted EPS calculation for the quarter
ended November 27, 1999 excludes the impact of the preferred stock because it is
antidilutive. The common share equivalents of the preferred stock on an "as
converted" basis excluded from the Diluted EPS calculation totaled 5,491,072 at
November 27, 1999. Significant components of the numerator and denominator used
for Basic and Diluted EPS are as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------
November 27, November 28,
1999 1998
-------------- ---------------
(unaudited)
<S> <C> <C>
Net income $ 7,188 $ 10,913
Preferred dividends (1,914)
---------
Net income available to common
shareholders $ 5,274 $ 10,913
========= =========
Basic weighted-average
shares outstanding 20,518 21,413
Incremental shares from assumed
exercises of stock options 77 338
--------- ---------
Diluted weighted-average
shares outstanding and
common stock equivalents 20,595 21,751
========= =========
Net income per share:
Basic $ .26 $ .51
Diluted .26 .50
</TABLE>
7
<PAGE>
NOTE 7 - SEGMENT INFORMATION
The Company has aligned its business operations into the following
three operating segments or Strategic Business Units ("SBUs"):
o Consumer Products
o Training and Education
o International
Although the Company is currently in the process of restructuring its
operations, the above SBUs remain the primary management tool until the new
reporting structure is completed and implemented. The Consumer Products SBU is
responsible for distribution of the Company's products through retail stores,
catalog sales, mass markets, contract stationers, government channels,
technology wholesale and the Internet. The Training and Education SBU, which
includes Premier Agendas and Personal Coaching, is responsible for training,
consulting and implementation services, and delivery of products to
corporations, business, government and educational institutions. The
International SBU is responsible for the delivery of both products and services
outside the United States. The "All Others" group consists primarily of
Publishers' Press. Intersegment sales consist primarily of paper planner sales
from Publishers' Press to related Franklin Covey entities, which prepare and
package the planners for sale to external customers. Corporate expenses consist
primarily of essential internal support services such as finance, legal,
information systems, manufacturing and distribution that are allocated to the
operational SBUs.
The Company's chief operating decision maker is the Chief Executive
Officer ("CEO"). Each of the reportable segments and corporate support
departments has an executive vice-president who reports directly to the CEO. The
Company accounts for its segment information on the same basis as the
accompanying consolidated condensed financial statements.
<TABLE>
<CAPTION>
SEGMENT INFORMATION
(in thousands)
Reportable Business Segments
--------------------------------------------------------
Corporate,
Adjustments
Quarter ended Consumer Training and
November 27, 1999 Products and International Total All Others Elimination Consolidated
Education
- ------------------------------ -------------- ------------- ------------- ------------- ------------ ------------- --------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Sales to external customers $ 81,311 $ 41,176 $ 14,683 $ 137,170 $ 6,908 $ 144,078
Intersegment sales 5,214 $ (5,214)
Gross margin 49,281 27,032 9,778 86,091 780 (1,818) 85,053
Depreciation and
amortization 4,060 4,757 467 9,284 606 9,890
Segment earnings before
interest and taxes 17,826 (5,192) 2,416 15,050 (259) (1,698) 13,093
Segment assets 73,201 274,220 26,041 373,462 43,024 181,113 597,599
Quarter ended
November 28, 1998
- ------------------------------ -------------- ------------- ------------- ------------- ------------ ------------- --------------
(unaudited)
Sales to external customers $ 76,880 $ 40,582 $ 14,701 $ 132,163 $ 8,199 $ 140,362
Intersegment sales 8,252 $ (8,252)
Gross margin 47,385 26,125 10,355 83,865 760 1,806 86,431
Depreciation and
amortization 3,388 4,486 438 8,312 723 9,035
Segment earnings before
interest and taxes 19,016 (2,920) 2,128 18,224 (403) 994 18,815
Segment assets 65,073 268,601 30,614 364,288 53,226 179,132 596,646
</TABLE>
8
<PAGE>
The primary measurement tool in segment performance analysis is
earnings before interest and taxes ("EBIT"). Interest expense is primarily
generated at the corporate level and is not allocated to the reporting segments.
Income taxes are likewise calculated and paid on a corporate level (except for
entities that operate within foreign jurisdictions) and are not allocated to
reportable segments. A reconciliation of reportable segment EBIT to consolidated
EBIT is presented below:
<TABLE>
<CAPTION>
November 27, November 28,
Quarter Ended 1999 1998
------------------------- -------------- ---------------
(unaudited)
Reportable segment
<S> <C> <C>
EBIT $ 15,050 $ 18,224
All others EBIT (259) (403)
Corporate items:
Intercompany rent
charges 1,711 1,711
Other (2,212) 1,443
-------------- ---------------
Consolidated EBIT $ 14,290 $ 20,975
============== ===============
</TABLE>
Other corporate items are comprised primarily of allocated manufacturing costs
and other eliminated or allocated intercompany amounts. During the first quarter
of fiscal 2000, the Company revised pricing on intercompany planner sales,
resulting in a change to segment operations. The effects of the pricing change
on the prior year were not practically estimable and prior year segment results
have not been restated to reflect the change.
Corporate assets such as cash, accounts receivable, fixed assets and
other assets are not generally allocated to reportable business segments for
business analysis purposes. However, inventories, goodwill and identifiable
fixed assets (primarily leasehold improvements in retail stores and
manufacturing equipment) are classified by segment. Intangible assets generated
from the Covey merger are primarily allocated to the Training and Education SBU.
NOTE 8 - CONTINGENT EARNOUT PAYMENTS
The purchase agreements for Premier Agendas ("Premier") and Personal
Coaching contain provisions for additional contingent earnout payments to be
made based upon the achievement of specified operating performance marks. During
the quarter ended November 27, 1999, the Company paid $10.5 million to the
former owners of Premier for operating performance during the measurement
period. An additional $0.3 million was earned in connection with operating
performance during fiscal 1999 and is expected to be paid during the second
quarter of fiscal 2000. No further contingent earnout payments are required in
connection with the Premier acquisition.
Subsequent to November 27, 1999, the Company paid $5.3 million to the
former owners of Personal Coaching for its operating performance under the terms
of the acquisition agreement. Contingent earnout payments are classified as
additional goodwill and are amortized over the remaining life of the original
goodwill recorded at the purchase date.
NOTE 9 - PROFESSIONAL RESOURCES ORGANIZATION ACQUISITION
During September 1999, the Company acquired the operations of the
Professional Resources Organization (the Jack Phillips Group) for $1.5 million
in cash. The Professional Resources Organization is a measurement assessment
9
<PAGE>
firm specializing in measuring the impact and return on investment of training
and consulting programs. The acquisition was accounted for using the purchase
method of accounting and generated $1.5 million of intangible assets, which are
being amortized over a ten-year life.
NOTE 10 - SALE OF PUBLISHERS' PRESS
The Company is currently negotiating the sale of the commercial
division of Publishers' Press, a wholly-owned printing services subsidiary. The
Company intends to retain the printing operations dedicated to the production of
its paper-based planners. The transaction is expected to close during fiscal
2000. Total sales price is contingent upon various factors, including normal due
diligence procedures. The Company does not expect to incur a loss from the sale
of these assets.
NOTE 11 - SUBSEQUENT EVENTS
Preferred Stock Subscription Offering
In connection with the issuance of Series A Preferred Stock (the
"Preferred Stock") during fiscal 1999, the Company filed a registration
statement with the Securities and Exchange Commission related to a subscription
offering for up to an additional 750,000 shares of Preferred Stock. Shareholders
of record on November 8, 1999 received a non-transferable right to purchase one
share of Preferred Stock for every 27 common shares owned, at a subscription
price of $100 per share. The Preferred Stock shares offered to shareholders were
substantially identical to the Preferred Stock issued during fiscal 1999 to a
private investor. The subscription offering closed on November 30, 1999 with
42,338 shares of Preferred Stock purchased under terms of the subscription
offering.
DayTracker.com Purchase
Subsequent to November 27, 1999, the Company purchased a majority
interest in DayTracker.com, a provider of on-line scheduling and calendar
services. The total purchase price was $11.0 million in cash and notes payable.
The acquisition was accounted for using the purchase method of accounting and
generated $9.0 million of intangible assets that are being amortized over a
ten-year life.
10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2.
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
year ended August 31, 1999.
RESULTS OF OPERATIONS
Quarter Ended November 27, 1999 Compared with the Quarter Ended
November 28, 1998
---------------------------------------------------------------
The following table sets forth selected data concerning sales of the
Company's SBUs (dollars in thousands):
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------
November 27, November 28,
1999 1998 Variance %
---------------- ---------------- ----------
(unaudited)
<S> <C> <C> <C>
Consumer Products $ 81,311 $ 76,880 6
Training and Education 41,176 40,582 1
International 14,683 14,701 0
Other 6,908 8,199 (16)
----------- -----------
$ 144,078 $ 140,362 3
=========== ===========
</TABLE>
Consumer Products sales increased $4.4 million, or 6%, compared to the
prior year. Sales increases from the Company's retail stores, contract stationer
channel and the Internet channel were partially offset by decreased sales from
the mass markets, government products and wholesale channels. Retail store sales
increased due to three additional stores and a 7% increase in comparable store
sales. At November 27, 1999, the Company was operating 128 retail stores
compared to 125 stores at November 28, 1998. Comparable store sales growth was
primarily attributable to increased sales of technology-related products such as
the Palm V(TM) by 3Com(R) bundled with the Company's Franklin Planner(TM)
software, as well as the introduction of limited edition planners such as the
Hallmark(R), Shoebox(R), ESPN(R) and Millennium planners. The Company also had
increased sales from contract stationer channels due to increased demand from
its marketing and distribution agreements with one of its distributors. Sales
from the Internet channel have increased due to general changes in consumer
buying habits and ongoing enhancements to the Company's electronic commerce
infrastructure. Increased sales in these channels were offset by decreased sales
from mass markets, government products and wholesale channels. Sales through the
mass markets channel decreased due to the termination of an agreement with a
mass marketing group. As a result of unfavorable performance from mass market
channels, the Company has declined to pursue further mass marketing agreements
in fiscal 2000. Government product sales have decreased due to uncertainties
surrounding the potential closures of certain base depots and service centers.
Sales through the Company's wholesale channel decreased due to the timing of
11
<PAGE>
certain recurring product shipments that were shipped and recorded in the fourth
quarter fiscal 1999. Sales growth in other distribution channels, including
retail stores, contract stationers and the Internet, had a nominal effect on
catalog sales during the quarter ended November 27, 1999.
Training and Education sales increased by $0.6 million, or 1%, compared
to the prior year. Sales increases from Premier Agendas were partially offset by
sales decreases in the network-marketing channel. The increase in Premier sales
resulted primarily from the timing of agenda shipments for the 1999/2000 school
year. The decrease in sales through the network-marketing channel was due to a
reduction in order volume from one of its customers. Core training sales,
including sales from the newly acquired Khalsa Associates sales training group,
remained flat as compared to the prior year.
International sales were flat, as compared to the prior year. Sales
increases in Canada and Europe were offset by decreases in Japan. Increased
sales in Canada were the result of increased product sales, while increased
sales in Europe were due to increased training sales. The decrease in Japan was
primarily due to the discontinuance of the Company's publishing business located
in Japan.
Other sales, which consist primarily of the Company's commercial
printing services, decreased $1.3 million, or 16%, compared to the prior year.
The decrease was primarily due to a reduction in customer orders resulting from
uncertainties regarding the pending sale of the Company's commercial printing
division.
Gross margin was 59.0% of sales for the quarter, compared to 61.6% in
the prior year. The Company's gross margin was unfavorably affected in the
current quarter by changes in product and training mix, channel pricing, and an
increase in inventory reserves. The Company's product mix continues to be
affected by an overall increase in lower-margin technology-related product
sales, coupled with a decline in the volume of higher margin leadership training
sales. Increased sales from the contract stationer channel adversely affected
gross margin due to contracted pricing terms that have resulted in higher
volume, but at reduced margins. Inventory reserves were increased during the
quarter as a result of the pre-holiday inventory buildup of new limited edition
planners.
Selling, general and administrative ("SG&A") expenses increased $4.5
million, to 42.2% of sales, compared to 40.2% in the prior year. The increase
was primarily due to the ongoing development of electronic-based products,
electronic commerce channels, increased promotional spending and overall growth
in the Premier business. These increases were slightly offset by a decrease in
core associate costs as a result of a reduction in core headcount. During the
quarter, the Company continued its spending to develop and market new
electronic-based products, such as the Franklin Planner for Microsoft
Outlook(TM). The Company also continues to improve its electronic commerce
infrastructure to meet changing consumer preferences and has committed
significant resources for the development of its Internet web site and other
on-line products and services. During the quarter, the Company increased its
promotional spending, primarily for catalogs and direct mailings, to advertise
new products, such as the Millennium edition of the Franklin Planner, and to
improve public program sales. The Company also incurred and expensed during the
quarter ended November 27, 1999, other nominal costs related to its restructure
plan which were not specific to severance or exit costs. The restructuring plan
is expected to be completed by the end of fiscal 2000 and other restructuring
costs may be incurred and expensed during fiscal 2000 in order to complete the
plan.
Depreciation charges increased by $0.5 million over the prior year,
primarily due to the purchase of manufacturing equipment, computer hardware and
software, and the addition of leasehold improvements for new stores.
Amortization charges increased by $0.4 million, primarily due to amortization of
contingent earnout payments made during the quarter and in fiscal 1999.
12
<PAGE>
Income taxes have been accrued using an effective rate of 45.1% for the
quarter ended November 27, 1999 compared, to 42.0% in the prior year. The
increase was primarily due to the impact of non-deductible goodwill amortization
from previous acquisitions and related contingent earnout payments.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of capital have been net
cash provided by operating activities, long-term borrowings and line of credit
financing. Working capital requirements have also been financed through
short-term borrowing and line-of-credit financing. During the fourth quarter of
fiscal 1999, the Company issued 750,000 shares of Series A Preferred Stock for
$75.0 million in cash to a private investor. In connection with the issuance of
the Preferred Stock, the Company filed a registration statement with the
Securities and Exchange Commission related to a subscription offering for up to
an additional 750,000 shares of Preferred Stock. Shareholders of record on
November 8, 1999 received a non-transferable right to purchase one share of
Preferred Stock for every 27 common shares owned, at a subscription price of
$100 per share. The Preferred Stock shares offered to shareholders were
substantially identical to the Preferred Stock issued during fiscal 1999 to the
private investor. The subscription offering closed subsequent to November 27,
1999 with 42,338 shares of Preferred Stock purchased under terms of the
subscription offering.
Net cash provided by operating activities during quarter ended November
27, 1999 was $29.0 million compared to $17.1 million in the prior year.
Adjustments to net income included $10.9 million of depreciation and
amortization charges during the first quarter of fiscal 2000. The major source
of cash from operations was the collection of accounts receivable primarily from
Premier, which has seasonally high sales during the Company's fourth fiscal
quarter. The major use of cash was the payment of accounts payable and accrued
liabilities also primarily due to the seasonal nature of Premier's operations.
Net cash used for investing activities totaled $15.8 million during
the first quarter of fiscal 2000 compared to $4.8 million in the prior year. Of
this amount, $4.4 million was used to purchase computer hardware and software,
manufacturing equipment, leasehold improvements and other property and
equipment. The Company used $12.0 million to pay the final Premier contingent
earnout payment and purchase the operations of Professional Resources
Organization.
Net cash used for financing activities during the first quarter of
fiscal 2000 was $13.9 million compared to $5.9 million in the prior year. The
primary source and use of financing cash was related to the retirement of
certain notes payable and the expansion of the Company's line of credit. At
August 31, 1999, the Company had $85.0 million of senior unsecured notes payable
(the "Notes Payable") outstanding. The Notes Payable required the Company to
maintain certain financial ratios and net worth levels until the Notes Payable
were paid in full. Due to restructuring charges in the fourth quarter of fiscal
1999, the Company was not in compliance with the terms of the Notes Payable at
August 31,1999. The Company did not obtain a waiver on the terms of the Notes
Payable and during the first quarter of fiscal 2000, the Notes Payable were
retired at par plus accrued interest. Also during the first quarter of fiscal
2000, the Company obtained a new line of credit from existing lenders that
maintained the Company's $10.0 million short-term line of credit, but increased
the long-term line of credit to $100.0 million. The Company utilized existing
cash and its expanded line of credit to retire the Notes Payable during the
quarter. The new line of credit requires the Company to maintain certain
financial ratios and minimum net worth levels, excluding the impact of the
fiscal 1999 restructuring charges. As of November 27, 1999, the Company was in
compliance with the terms of the line of credit. The new line of credit
agreement bears interest at the lessor of the prime rate or the LIBOR rate plus
1.5%, and expires October 1, 2001.
13
<PAGE>
Going forward, the Company will continue to incur costs necessary for
the development of electronic commerce channels, strategic acquisitions and
joint ventures, retail store buildouts and renovations, regional office
leasehold improvements and other costs related to the restructuring and growth
of the business. Cash provided by operations, available lines of credit and
other financing alternatives will be used for these expenditures. Management
anticipates that its existing capital resources will be sufficient to enable the
Company to maintain its current level of operations and its planned internal
growth for the foreseeable future. The Company also continues to pursue
additional financing alternatives as it repositions itself for future growth.
MARKET RISK OF FINANCIAL INSTRUMENTS
The Company has exposure to market risk from foreign currency exchange
rates and changes in interest rates. To manage the volatility related to
currency exchange rates, the Company has entered into limited derivative
transactions to manage well-defined foreign exchange risks. However, the
notional amount of the exchange contracts is immaterial and any default by
counterparties, although unlikely, would have an insignificant effect on the
Company's financial statements. As the Company continues to expand
internationally, the Company's use of foreign exchange contracts may grow in
order to manage the foreign currency risks to the Company. At November 27, 1999,
the Company had not entered into derivative instruments to hedge its exposure to
interest rate risk.
YEAR 2000 ISSUES
During 1999, the Company has been actively engaged in assessing and
correcting potential year 2000 ("Y2K") information system problems for its
critical systems. As of January 5, 2000, the Company has not experienced any
significant adverse effects related to Y2K compliance issues. The Company's
primary information systems, which include financial, supply chain, "order to
collect" and office support systems, continue to operate with no significant
problems noted. The majority of detected problems were insignificant and
corrected prior to the start of business on January 1, 2000. Crucial external
services such as telecommunications, utilities and shipping continue to operate
virtually trouble free. As of January 5, 2000, the Company is not aware of any
potential supplier problems, and cannot currently estimate the effects of such
non-compliance on future operations. At January 5, 2000, the Company has not
experienced, and does not expect to experience, any materially unfavorable
effects on its operations or financial performance resulting from Y2K issues.
EURO CONVERSION
On January 1, 1999, the European Monetary Union ("EMU"), which is
comprised of 11 out of the 15 member countries of the European Union, introduced
a new common currency, the "Euro." During the transition period between January
1, 1999 and January 1, 2002, both the Euro and national currencies will coexist.
The national currencies will remain legal tender until at least January 1, 2002,
but not later than July 1, 2002. The Company currently transacts business in EMU
countries using the national currencies and translates the financial results of
those countries in accordance with current accounting pronouncements. Further,
the Company has not experienced, nor does it expect to experience, a material
adverse impact on its financial condition, results of operations or liquidity as
a result of the Euro conversion.
14
<PAGE>
"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, unanticipated costs, delays or outcomes relating to the Company's
restructuring plan, availability of financing sources, dependence on products or
services, the rate and consumer acceptance of new product introductions,
competition, Y2K issues, the number and nature of customers and their product
orders, pricing, pending and threatened litigation, and other risk factors which
may be detailed from time to time in the Company's press releases, reports to
shareholders and in filings with the Securities and Exchange Commission.
These forward-looking statements are based on management's expectations
as of the date hereof, and the Company does not undertake any responsibility to
update any of these statements in the future. Actual future performance and
results will differ and may differ materially from that contained in or
suggested by these forward-looking statements as a result of the factors set
forth in this Management's Discussion and Analysis of Financial Condition and
Results of Operations, the business risks described in the Company's Form 10-K
Report for the year ended August 31, 1999 and elsewhere in the Company's filings
with the Securities and Exchange Commission.
15
<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:
Not applicable.
Item 6. Exhibits and Reports on Form 8-K:
(A) Exhibits:
10.1 Partnership Interest Purchase Agreement between the
Company and DayTracker.com dated December 8, 1999
(filed herewith).
10.2 Jon Rowberry Promissory Note and Security Agreement,
dated September 23, 1999 (filed herewith).
27 Financial Data Schedule (filed herewith).
(B) Reports on Form 8-K: Not applicable.
16
<PAGE>
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: January 11, 2000 By: /s/ Robert A. Whitman
------------------------ ----------------------------------------
Robert A. Whitman
Chief Executive Officer
Date: January 11, 2000 By: /s/ John L. Theler
------------------------ ----------------------------------------
John L. Theler
Chief Financial Officer
17
<PAGE>
Exhibit
No. Exhibit Page No.
-------- ------------------------------------------------- -------------
10.1 Partnership Interest Purchase Agreement between 19
the Company and DayTracker.com dated
December 8, 1999 (filed herewith).
10.2 John Rowberry Promissory Note and Security 51
Agreement, dated September 23, 1999 (filed
herewith).
27 Financial Data Schedule (filed herewith). 55
18
<PAGE>
PARTNERSHIP INTEREST PURCHASE AGREEMENT
by and between
FRANKLIN COVEY CO., a Utah corporation,
and
DAYTRACKER.COM, a general partnership,
and
SCOT ROBINSON, an individual,
and
MICHAEL BARLOW, an individual,
Effective
December 8, 1999
19
<PAGE>
EXHIBIT 10.1
PARTNERSHIP INTEREST PURCHASE AGREEMENT
---------------------------------------
THIS PARTNERSHIP INTEREST PURCHASE AGREEMENT (the "Agreement") is entered
into this 8th day of December, 1999, by and among FRANKLIN COVEY CO., a Utah
corporation ("Franklin Covey"), and DAYTRACKER.COM, a California general
partnership ("DayTracker"), SCOT ROBINSON, an individual ("Robinson"), and
MICHAEL BARLOW, an individual ("Barlow"). Robinson and Barlow are sometimes
individually and collectively referred to herein as "Seller." The capitalized
terms used in this Agreement, which are not defined in context, have the
meanings specified in Article 9 below.
RECITALS:
WHEREAS, DayTracker is in the business of providing, among other things,
WEB-based personal and group information management and calendaring software
applications and solutions; and
WHEREAS, Robinson owns a fifty percent (50%) partnership interest in
DayTracker (the "Robinson Partnership Interest") and Barlow owns a fifty percent
(50%) partnership interest in DayTracker (the "Barlow Partnership Interest");
and
WHEREAS, DayTracker is the owner of certain intangible personal
property, including intellectual property used in the conduct of DayTracker's
business, the name "DayTracker.com," all other trade names under which
DayTracker has conducted its business and operations, and certain other assets,
as described on Schedule A attached hereto and by this reference incorporated
herein (the "Assets"); and
WHEREAS, Franklin Covey desires to purchase 88.05% of the Robinson
Partnership Interest and 88.05% of the Barlow Partnership Interest, resulting in
Franklin Covey owning an 88.05% partnership interest, Robinson owning a 5.975%
partnership interest and Barlow owning a 5.975% partnership interest,
respectively, in DayTracker, all upon the terms and conditions set forth in this
Agreement, and
WHEREAS, Franklin Covey, Robinson and Barlow each desires to then
contribute its or his respective partnership interest in DayTracker to a new
corporation incorporated in the State of Utah, as Franklin Covey eSolutions,
Inc., a Utah Corporation(hereinafter, "eSolutions, Inc.) in exchange for the
number of shares of eSolutions, Inc. common stock that will represent a
percentage equity interest in eSolutions, Inc. equal to its or his percentage
partnership interest in DayTracker immediately prior to said exchange, and to
take such other actions and execute such other agreements as are necessary and
appropriate to enable eSolutions, Inc. to own, manage, operate and exploit the
Assets and to otherwise carry out and conduct the same business as was
previously conducted by DayTracker (the "Business") prior to the date of the
Closing; and
WHEREAS, the parties then desire that Franklin Covey will, immediately
following the foregoing transactions, purchase additional shares of stock in
eSolutions, Inc. for a total purchase price of Two Million Dollars ($2,000,000),
20
<PAGE>
resulting in Franklin Covey owning 90% of the issued and outstanding stock of
eSolutions, Inc. and Robinson and Barlow each owing 5% of the issued and
outstanding stock of eSolutions, Inc. as of the Closing Date; and
WHEREAS, Seller is making certain representations, warranties, covenants
and indemnities herein as an inducement to Franklin Covey to enter into this
Agreement;
NOW THEREFORE, in consideration of the respective representations,
warranties and covenants contained herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1
SALE OF PARTNERSHIP INTERESTS; EXCHANGE TRANSACTION; TRANSACTION
AGREEMENTS; CLOSING
1.1 SALE OF PARTNERSHIP INTERESTS. Subject to the terms and conditions of
this Agreement, at the Closing, (i) Robinson shall sell, transfer and deliver to
Franklin Covey, and Franklin Covey shall purchase from Robinson for the Robinson
Purchase Price set forth in Section 1.8(a), below, all right, title and interest
in and to 88.05% of the Robinson Partnership Interest; and (ii) Barlow shall
sell, transfer and deliver to Franklin Covey, and Franklin Covey shall purchase
from Barlow for the Barlow Purchase Price set forth in Section 1.8(b), below,
all right, title and interest in and to 88.05% of the Barlow Partnership
Interest. As the result of the foregoing transactions, Franklin Covey shall own
an 88.05% partnership interest in DayTracker, Barlow shall own a 5.975%
partnership interest in DayTracker, and Robinson shall own a 5.975% partnership
interest in DayTracker immediately following the Closing.
1.2 TAX ELECTIONS. The parties acknowledge that pursuant to Section
708(b)(1)(B) of the Internal Revenue Code of 1986, as amended, (the "Code"), the
consummation of the transactions described in Section 1.1 above will cause the
technical termination of the DayTracker partnership originally formed by
Robinson and Barlow ("Original DayTracker"), will create the existence of a new
partnership ("New DayTracker"), and will require the filing by Original
DayTracker of a final partnership tax return. Robinson and Barlow agree to
prepare said final tax return and to submit it to Franklin Covey for Franklin
Covey's approval, which approval shall not be unreasonably withheld or delayed.
Upon Franklin Covey's approval of the final tax return, Robinson and Barlow
shall execute and file said final tax return. Robinson and Barlow shall cause
Original DayTracker to file as part of said final tax return an election
pursuant to Section 754 of the Code to adjust the basis of the Original
DayTracker partnership assets to reflect the difference between Franklin Covey's
basis for the partnership interest it acquired pursuant to Section 1.1 above and
its proportionate share of the adjusted basis of all partnership property. In
accordance with Section 1060 of the Code, the parties shall allocate the
increase in basis of FC' share of the assets of DayTracker pursuant to the
values set forth in Schedule B hereto.
21
<PAGE>
1.3 INCORPORATION OF ESOLUTIONS, INC. Franklin Covey has heretofore
executed and filed with the State of Utah Articles of Incorporation forming
eSolutions, Inc. A copy of said Articles is attached hereto as Exhibit 1.3.
1.4 Exchange Transaction. Subject to the terms and conditions of this
Agreement, Franklin Covey, Robinson and Barlow shall be parties to and each
agrees to execute an Exchange Agreement, in the form attached hereto as Exhibit
1.4, whereby each shall contribute to eSolutions, Inc. its or his entire
respective partnership interest in New DayTracker solely in exchange for the
number of shares of common stock of eSolutions, set forth below in a transaction
intended to qualify under Section 351 (a) of the Code (the "Exchange"). As the
result of the Exchange, each party shall own the percentage of eSolutions, Inc.
stock (the "Common Stock") set forth opposite his or its name as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Shareholder eSolutions, Inc. Shares Acquired Percent of eSolutions, Inc. Stock Held
- --------------------- --------------------------------- --------------------------------------
Robinson 5,000 5.975%
Barlow 5,000 5.975%
Franklin Covey 73,637 88.05%
</TABLE>
The parties acknowledge that pursuant to Section 708(b)(1)(B) of the Code, the
consummation of the transactions described in this Section 1.4 will cause the
technical termination of the New DayTracker partnership and will require the
filing by New DayTracker of a final partnership tax return. Franklin Covey shall
prepare said tax return and submit it to Robinson and Barlow for their approval.
Upon said approval, which shall not be unreasonably withheld or delayed,
Franklin Covey shall file said tax return.
1.5 FRANKLIN COVEY STOCK PURCHASE. Concurrently with the Exchange, Franklin
Covey shall, at the Closing, purchase an additional 16,363 shares of eSolutions,
Inc. common stock for a total purchase price of Two Million Dollars
($2,000,000). Following said purchase, the parties shall own the number of
shares of eSolutions, Inc. common stock, representing the percentage ownership
interests in eSolutions, Inc. set forth below:
<TABLE>
<CAPTION>
<S> <C> <C>
Shareholder eSolutions, Inc. Shares Owned Percent of eSolutions, Inc. Stock Held
- --------------------- --------------------------------- --------------------------------------
Robinson 5,000 5%
Barlow 5,000 5%
Franklin Covey 90,000 90%
</TABLE>
1.6 SHAREHOLDER AGREEMENT. Upon the completion of the Exchange, Franklin
Covey, Robinson and Barlow shall execute a Shareholder Agreement in the form
attached hereto as Exhibit 1.6, which shall provide, among other things, the
following:
(a) Franklin Covey shall, (i) provided Robinson owns at least a two
percent (2%) equity interest in eSolutions, Inc. vote its shares of
eSolutions, Inc. stock to elect Robinson as a director of eSolutions, Inc.,
22
<PAGE>
and (ii) provided Barlow owns at least a two percent (2%) equity interest
in eSolutions, Inc., vote its shares of eSolutions, Inc. stock to elect
Barlow as a director of eSolutions, Inc. Robinson and Barlow shall be
provided reasonable errors and omissions insurance and such other benefits
as are afforded other directors of eSolutions, Inc.; and
(b) Neither Barlow nor Robinson, nor their designees, heirs or
assigns, shall offer to sell or sell any stock of eSolutions, Inc to any
third party without first offering to sell said stock to Franklin Covey at
the same price and on the same terms and conditions offered to or by said
third party; and
(c) eSolutions, Inc. shall not raise capital or enter into any
transaction that would dilute either Robinson's or Barlow's equity interest
in eSolutions, Inc. unless the Board of Directors of eSolutions, Inc.
unanimously votes in favor of such transaction; in this connection,
Franklin Covey and Seller agree that, if feasible and prudent, additional
capital shall be raised by borrowing, rather than through capital
contribution(s); and
(d) Subject to the provisions of Section 1.6(c), any capital
contributions made by the shareholders of eSolutions, Inc. if any,
subsequent to Franklin Covey's stock purchase described in Section 1.5,
shall be pro rata with respect to all shareholders, each shareholder
contributing a percentage of the aggregate dollar capital contribution of
all shareholders that corresponds to its or his percentage stock ownership
in eSolutions, Inc. and
(e) In the event any shareholder fails to make its or his pro rata
contribution to working capital ("Omitted Contribution") as determined by
the Board of Directors of eSolutions, Inc. the other shareholders may make
said capital contribution, and will be issued sufficient additional Common
Stock so that the percentage ownership interest of the non-contributing
shareholder shall be diluted by the quotient derived by dividing a
numerator consisting of the Omitted Contribution, by a denominator
consisting of the then fair market value of the total outstanding
eSolutions, Inc. stock; and
(f) Subject to the provisions of Section 1.6(c), Robinson, Barlow and
Franklin Covey shall, in the event a third party purchases eSolutions, Inc.
stock, be diluted on a pari passu basis; provided, however, that Robinson,
Barlow shall have the right to purchase shares of eSolutions, Inc. stock at
the same price paid by the third party purchaser the number of additional
shares of eSolutions, Inc. stock necessary to maintain the same percentage
equity position in eSolutions, Inc. which each of them held prior to said
third party share purchase; and
(g) In the event options are granted to third parties to purchase
eSolutions, Inc. stock, Robinson, Barlow and Franklin Covey shall be
diluted on a pari passu basis; provided, however, that any shareholder may
avoid dilution as the result of any such stock option grants by purchasing
at a price equal to the then fair market value of a share of eSolutions,
Inc. stock the number of additional shares of eSolutions, Inc. stock
23
<PAGE>
necessary to maintain the same percentage equity position in eSolutions,
Inc. the shareholder held prior to said option grant eSolutions, Inc.; and
(h) In the event Robinson and Barlow have not been afforded the
opportunity within two years following the Closing Date, to liquidate their
stock in eSolutions, Inc. through an initial public offering of eSolutions,
Inc. stock, a merger, acquisition, consolidation or other similar
transaction (a "Liquidation Transaction"), Franklin Covey shall have the
option, exercisable during the time period commencing on the second
anniversary date of the Closing Date (the "Call Option Trigger Date") and
ending on the date ninety (90) days after the Call Option Trigger Date (the
"Call Option Period"), to purchase not less than 100% of said shares (the
"Optioned Shares") at an option exercise price calculated in accordance
with Schedule 1.6(h) attached hereto as of the Call Option Trigger Date
(the "Option Exercise Price"). In the event Franklin Covey fails to
exercise the foregoing option to purchase the Optioned Shares during the
Call Option Period, Robinson and Barlow shall have the right and option,
exercisable during the time period commencing on the next business day
following the Call Option Period (the "Put Option Trigger Date") and ending
on the date ninety (90) days after the Put Option Trigger Date to put the
Optioned Shares to Franklin Covey for purchase at the Option Exercise
Price. The foregoing notwithstanding, should Robinson and Barlow be
required to make a contribution to capital of eSolutions, Inc. or should a
contribution to capital be made on their behalf, the Call Option Trigger
Date applicable to Franklin Covey, including the date as of which the
option exercise price shall be calculated, shall not occur until the second
anniversary date of the Closing date or one year following the date of the
last such capital contribution, whichever shall last occur. In the event of
such capital contribution, the Put Option Trigger Date shall not be
extended, and shall be advanced to the day immediately following the second
anniversary date of the Closing Date; and
(i) If Franklin Covey purchases the Optioned Shares pursuant to the
provisions of paragraph 1.6(h), above, and within two (2) years thereafter
the Board of Directors of Franklin Covey or the Board of Directors of
eSolutions, Inc. whichever shall last occur (the "Resolution Date"), adopts
a resolution to cause eSolutions, Inc. to engage in a Liquidation
Transaction, said Optioned Shares shall be valued based on the value
established for eSolutions, Inc. stock in the Liquidation Transaction (the
"Liquidation Share Value") and Franklin Covey shall transfer and convey to
Robinson and Barlow the number of shares of eSolutions, Inc. stock having a
value equal to the percent of the Liquidation Share Value determined by the
following table, but reduced by the price paid by Franklin Covey to
Robinson and Barlow for the Optioned Shares pursuant to Section 1.6(h)
above.
<TABLE>
<CAPTION>
<S> <C> <C>
Time Lapse Between Put or Call Percent of Liquidation Share Percent of Liquidation Share
Option Exercise and Resolution Value if Franklin Covey Call Value if Robinson/Barlow Put
Date Option Exercised Option Exercised
- ------------------------------ ----------------------------- -------------------------------
1 to 3 months 100% 100%
4 to 6 months 100% 80%
7 to 9 months 80% 60%
10 to 12 months 60% 40%
13 to 24 months 40% 20%
</TABLE>
24
<PAGE>
The Shareholder Agreement shall further provide that (i) Franklin
Covey shall not exercise a call option, without the consent of Robinson and
Barlow, during such time as the Board of Directors of Franklin Covey has
under consideration or has passed a resolution to cause eSolutions, Inc. to
pursue a Liquidation Transaction, and (ii) should Robinson and Barlow
exercise a put right during such time, Franklin Covey shall, if it has not
already done so, advise Robinson and Barlow that such resolution is under
consideration, or has been adopted, and Robinson and Barlow shall have ten
business days thereafter within which to withdraw the tender of such put.
Without limitation of the foregoing, should the Board of Directors of
Franklin Covey, or any committee or officer of Franklin Covey retain
consultants, investment advisors or counsel to explore the possibility of a
Liquidation Transaction, said Board shall be deemed to have a Liquidation
Transaction under consideration.
The Shareholder Agreement shall further provide that, in the event
eSolutions, Inc. has issued shares or options to a third party, or has
reached any agreement to issue shares to a third party, prior to the
exercise of a put by Robinson or Barlow, or call by Franklin Covey, and has
established a valuation for the Common Shares for purposes of said issuance
("Third Party Value") the Optioned Shares shall be valued for purposes of
said put or call at the Option Exercise Price, or at the Third Party Value
price, whichever is greater.
(j) Any additional contribution to capital by Robinson or Barlow
within 12 months prior to exercise of a put or call option pursuant to
Section 1.6(h) shall be added to the Option Exercise Price (or Third Party
Value price as the case may be), as more specifically set forth at Schedule
1.6(h), attached; and
(k) Franklin Covey and its Affiliates may, from time to time, render
services, material, or other support to or for the benefit of eSolutions,
Inc. Franklin Covey and its Affiliates may charge eSolutions, Inc. for such
matters; provided, however, that (a) Franklin Covey shall not charge
eSolutions, Inc. more than the then prevailing fair market price of any
services rendered by Franklin Covey to eSolutions, Inc. (b) transfer prices
charged by Franklin Covey to eSolutions, Inc. for Franklin Covey products
supplied to eSolutions, Inc. shall not exceed the lowest price charged by
Franklin Covey to Franklin Covey Affiliates or third party customers; (c)
Franklin Covey shall not charge eSolutions, Inc. any license fees or
royalties in connection with eSolutions, Inc.'s use of Franklin Covey
brands or trademarks in advertising, labeling or marketing materials and
media; and (d) if Franklin Covey or eSolutions, Inc. advertises, promotes,
endorses or markets the products or services of the other, any charges for
such services shall not exceed the actual cost of producing the promotional
or marketing materials used in connection with said services. The charge
for such matters shall be accrued by Franklin Covey, and shall be payable
by eSolutions, Inc., to the extent of proceeds available from the first to
25
<PAGE>
occur of (i) positive cash flow, or (ii) a liquidation event, or (iii)
equity contribution by Persons other than the parties or their Affiliates,
or (iv) money loaned to eSolutions, Inc. by Persons other than the parties
or their Affiliates.
(l) In the event any capital contribution by Robinson or Barlow is
required or permitted at a time when any portion of the principal balance
of the Robinson Note or the Barlow Note remains unpaid ("Unpaid Balance"),
Franklin Covey shall at Robinson's and/or Barlow's request. loan said sum
to Robinson or Barlow as the case may be (the "Loan"), in an amount up to,
but not exceeding the Unpaid Balance at the same rate of interest born by,
and to be repaid at the time of payment of, the last remaining installment
of the Unpaid Balance which would reduce the Unpaid Balance to an amount
below the Loan amount outstanding. At the time of said repayment, Franklin
Covey may offset any remaining obligation under a Loan against the Unpaid
Balance.
1.7 Additional Understandings. In connection with Franklin Covey's purchase
of the Robinson Partnership Interest and the Barlow Partnership Interest and
each other transaction contemplated by this Agreement, and pursuant to Franklin
Covey's investigation of the Business as provided in this Agreement, Franklin
Covey has reviewed and examined all business records, service agreements, supply
agreements, marketing agreements, customer contracts, employment agreements, and
related agreements and all other contracts and relationships which Seller or
DayTracker has with any suppliers, vendors, customers or any third parties
providing services, supplies or equipment to DayTracker or with whom DayTracker
does business and has met with all employees, officers and directors of
DayTracker, if any, other than Seller, and others necessary for Franklin Covey
to fully evaluate the Business and Assets and the transactions contemplated
hereby. Franklin Covey has made reasonable physical inspections of the Assets
and reasonable legal or factual inquiry of any matter relating to the subject
matter of this Agreement as Franklin Covey, in its sole discretion, deemed
necessary or appropriate, including reviewof the books, records, expenses, and
other financial data relating to the Business and the Assets.
1.8 Purchase Price.
(a) Subject to the terms and conditions of this Agreement, the
purchase price to be paid by Franklin Covey for the Robinson Partnership
Interest (the "Robinson Purchase Price") shall be Four Million Five Hundred
Thousand Dollars ($4,500,000.00), payable as follows: One Million Five
Hundred Thousand Dollars ($1,500,000.00) shall be payable in cash at the
Closing, and the sum of Three Million Dollars ($3,000,000.00) shall be
represented by a promissory note, a copy of which is attached hereto as
Exhibit 1.8(a) (the "Robinson Note") payable in two (2) equal installments
of One Million Five Hundred Thousand Dollars ($1,500,000.00), the first
installment to be paid on the 1st anniversary of the Closing Date, and the
second installment to be paid on the 2nd anniversary of the Closing Date,
with interest accruing at the rate of eight percent (8%) per annum on the
unpaid principal balance from and after the Closing Date until the Robinson
Note is paid in full.
(b) Subject to the terms and conditions of this Agreement, the
purchase price to be paid by Franklin Covey for the Barlow Partnership
Interest (the "Barlow Purchase Price") shall be Four Million Five Hundred
Thousand Dollars ($4,500,000.00), payable as follows: One Million Five
Hundred Thousand Dollars ($1,500,000.00) shall be payable in cash at the
Closing, and the sum of Three Million Dollars ($3,000,000.00) shall be
represented by a promissory note, a copy of which is attached hereto as
Exhibit 1.8(b) (the "Barlow Note") payable in two (2) equal installments of
One Million Five Hundred Thousand Dollars ($1,500,000.00), the first
installment to be paid on the 1st anniversary of the Closing Date, and the
second installment to be paid on the 2nd anniversary of the Closing Date,
with interest accruing at the rate of eight percent (8%) per annum on the
unpaid principal balance from and after the Closing Date until the Barlow
Note is paid in full.
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(c) The remaining installment payments due and owing to Robinson and
Barlow shall be secured, each, by a pledge of 24,544 shares of eSolutions,
Inc. Stock owned by Franklin Covey, having a value on the Closing Date
equivalent to the remaining installments of the Barlow Note and Robinson
Note, in the form attached hereto as Exhibit 1.8(c).
1.9 Closing Deliveries.
(a) At the Closing, Seller shall deliver to Franklin Covey the
following (the form, content and substance of which shall be satisfactory
to Franklin Covey and Seller in all respects):
(1) The Partnership Interest Purchase Agreement executed by
Robinson and Barlow; and
(2) The Shareholder Agreement executed by Robinson and Barlow;
and
(3) Copies of each of the Transaction Agreements executed by all
parties except Franklin Covey; and
(4) Such other documents as may be required by this Agreement,
including all of the Transaction Agreements, or as reasonably
requested by Franklin Covey.
(5) An opinion with respect to the matters set forth in Exhibit
1.9(a)(5), attached hereto, from counsel to the Seller, addressed to
Franklin Covey and dated as of the Closing Date; and
(b) At the Closing, Franklin Covey shall deliver or cause to be
delivered to Seller the following (the form, content and substance of which
shall be satisfactory to Seller and Franklin Covey in all respects):
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(6) A bank cashier's check or confirmed wire transfer of funds to
Robinson's designated bank account in the amount of One Million Five
Hundred Thousand Dollars ($1,500,000.00) pursuant to paragraph 1.8(a)
payable to the order of Robinson; and
(7) The Robinson Note; and
(8) A bank cashier's check or confirmed wire transfer of funds to
Barlow's designated bank account in the amount of One Million Five
Hundred Thousand Dollars ($1,5000,000.00) pursuant to paragraph 1.8(b)
payable to the order of Barlow; and
(9) The Barlow Note; and
(10) A certificate in the name of Robinson evidencing his
ownership of 5,000 Common Shares; and
(11) A certificate in the name of Barlow evidencing his ownership
of 5,000 Common Shares; and
(12) Copies of the Transaction Agreements, including the
Shareholder Agreement, executed by Franklin Covey; and
(13) An opinion with respect to the matters set forth in Exhibit
1.9(b)(8), attached hereto, from counsel to Franklin Covey, addressed
to Seller, and dated as of the Closing Date; and
(14) An assignment and pledge of Common Shares to Robinson, as
security for payment of the Robinson Note, in the form attached hereto
as Exhibit 1.9(b)(9); and
(15) An assignment and pledge of Common Shares to Barlow, as
security for payment of the Barlow Note, in the form attached hereto
as Exhibit 1.9(b)(10); and
(16) A copy of the director resolutions by which all corporate
actions on the part of Franklin Covey necessary to approve this
Agreement were taken, certified by the Secretary of Franklin Covey;
and
(17) Such other documents as may be required by this Agreement,
the Transaction Agreements or as reasonably requested by Seller.
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller jointly and severally represents and warrants to Franklin Covey
that, except as set forth in the Disclosure Schedule to be delivered to Franklin
Covey pursuant to the terms of this Agreement, the following are correct and
complete in all material respects as of the date of this Agreement and will be
materially correct and complete as of the Closing Date (as though made then and
as though the Closing Date were substituted for the date of this Agreement
throughout this Article 2), except as expressly contemplated by this Agreement.
2.1 CONSENTS AND APPROVALS; NO VIOLATION. Neither the execution and
delivery of this Agreement or the Transaction Agreements by Seller, the
consummation of the transactions contemplated hereby and thereby, nor the
compliance by Seller with any of the provisions hereof and thereof will, as of
the Closing Date, (i) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, contract, agreement, commitment, bond,
mortgage, indenture, license, lease, pledge agreement or other instrument or
obligation to which DayTracker or Seller is a party or by which DayTracker or
Seller or any of DayTracker's or Seller's properties or assets may be bound,
including, without limitation, any agreement with respect to the sale by
DayTracker or Seller of any of DayTracker's or Seller's properties or assets,
(ii) violate or conflict with any provision of any Legal Requirement binding
upon DayTracker or Seller, or (iii) result in, or require, the creation or
imposition of, any Encumbrance upon or with respect to any of the Assets, or
impair the ability of Seller to carry out Seller's obligations under this
Agreement or the Transaction Agreements.
2.2 BOOKS AND RECORDS. The books of account and other business records of
DayTracker regarding the Assets, the Business and the results of operations of
DayTracker have all been made available to Franklin Covey and such books and
records are, to the best of Seller's knowledge, true and correct.
2.3 ABSENCE OF UNDISCLOSED LIABILITIES. Except as and to the extent fully
reflected or reserved against on DayTracker's Financial Statements or as fully
disclosed in writing to Franklin Covey on the Disclosure Schedule or except for
liabilities incurred in the Ordinary Course of Business since the date of the
Financial Statements: (a) DayTracker does not have any Liabilities, including,
without limitation, any Liabilities resulting from failure to comply with any
Legal Requirement applicable to DayTracker due or to become due and whether
incurred in respect of or measured by the income or sales of DayTracker for any
period, or arising out of any transaction entered into or any state of facts
existing, on or before the Closing Date, which could materially adversely affect
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the Assets, give rise to an Encumbrance against the Assets or materially
adversely affect DayTracker's ability to carry out the transactions contemplated
by this Agreement and the Transaction Agreements; (b) as of the Closing Date
there was no transaction previously entered into or any state of facts or
circumstances existing which could give rise to, cause or result in any
Liability of DayTracker which could materially adversely affect the Assets, give
rise to an Encumbrance against the Assets or materially adversely affect
DayTracker's ability to carry out the transactions contemplated by this
Agreement and the Transaction Agreements; and (c) there is no basis for any
assertion against the Assets as of the Closing Date, of any Liabilities of any
nature.
2.4 FINANCIAL STATEMENTS. Seller has delivered or will deliver to Franklin
Covey the unaudited balance sheet of DayTracker as of December 31, 1998, and the
related unaudited statement of income for the twelve (12) months then ended.
Franklin Covey has been advised, as set forth in the Disclosure Statements, that
Seller has not maintained its financial records according to generally accepted
accounting principles ("GAAP"), nor has it maintained formal journals. Subject
to such reservations and limitations, all such Financial Statements delivered
pursuant to this Section 2.4 (the "Financial Statements") fairly present the
financial condition and results of operations of DayTracker as of the respective
dates thereof and for the period referred to therein.
2.5 ABSENCE OF CHANGES. Since December 31, 1998, there has not been (i) any
Material Adverse Change, or any event, condition or contingency that is likely
to result in a Material Adverse Change; (ii) except as reflected in the
Disclosure Statements, to prepare more formal compilations, any change in the
accounting methods followed by DayTracker; (iii) any entry into, termination or
receipt of notice of termination of any material agreement or commitment except
in the Ordinary Course of Business; (v) any dispute or any other occurrence,
event or condition of any character, which reasonably could be anticipated to
give rise to a legal or administrative action or to a Material Adverse Change;
or (vi) any agreement to do any of the foregoing.
2.6 CONTRACTS.
(a) Copies of all written Contracts have been delivered to Franklin
Covey.
(b) Other than oral agreements which Seller has no reason to believe
will not be fully performed by both parties thereto, all of the Contracts
are in full force and effect and are valid and enforceable in accordance
with their terms, there are no defaults thereunder or breaches thereof, and
no condition exists or event has occurred which, with notice or lapse of
time or both, would constitute a default or a basis for force majeure or
other claim of excusable delay or non-performance thereunder and are fully
assignable to eSolutions, Inc. and enforceable by eSolutions, Inc. in
accordance with their terms without the consent of the other party thereto
except in those instances where consent is required, in which event Seller
will use their best reasonable efforts to obtain such consents. Without
limiting the generality of the foregoing, Seller specifically represents
and warrants that DayTracker is in full compliance with any and all
software license agreements relating to software programs utilized at any
time by DayTracker which are assigned and transferred to eSolutions, Inc.
pursuant to this Agreement.
(c) There are no renegotiations of, or attempts to renegotiate, or
outstanding rights to renegotiate, any material amounts paid or payable to
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DayTracker under the Contracts to which DayTracker is a party with any
person or entity having the contractual or statutory right to demand or
require such re-negotiation. No such person or entity has made verbal or
written demand for such renegotiations.
2.7 TITLE TO ASSETS AND RELATED MATTERS. DayTracker owns all of its Assets
free and clear of all Encumbrances and the claims or rights of any other party,
except for Encumbrances represented by liabilities of DayTracker incurred in the
ordinary course of business and disclosed in the Financial Statement or
Disclosure Schedule, and the restrictions, conditions, obligations in the
Contracts, and other matters disclosed on the Disclosure Schedule.
2.8 COMPLIANCE WITH LAWS. DayTracker is in compliance with all Legal
Requirements applicable to its ownership of the Assets and the operation of its
business where the failure so to comply would have a material adverse effect on
DayTracker's ability to carry out its obligations under this Agreement or the
Transaction Agreements, and DayTracker has no basis to expect, nor has it
received, any Order, notice, or other communication from any Governmental
Authority of any alleged, actual, or potential violation and/or failure to
comply with any such Legal Requirement.
2.9 LITIGATION. DayTracker is not subject to any Order in which relief is
sought involving, affecting, or relating to the ownership, operation, or use of
the Assets or the business of DayTracker or the matters covered by the
Transaction Agreements which would prevent, delay, or make illegal the
transactions contemplated by this Agreement or the Transaction Agreements. There
are no Proceedings pending, or to the best of Seller's knowledge, threatened
against, involving, affecting, or relating to DayTracker or to its ownership,
operation, or use of the Assets or to the conduct of its business or before any
arbitrator or Governmental Authority. There exist no facts known to Seller that
would serve as a basis for the institution of any Proceeding against DayTracker
or any of the Assets or the conduct of the business of DayTracker or which would
prohibit or materially adversely affect the ability of DayTracker to carry out
its obligations under this Agreement or the Transaction Agreements.
2.10 NO BROKER'S OR FINDER'S FEES. No agent, broker, investment banker or
similar Person has acted directly or indirectly on behalf of Seller or
DayTracker in connection with this Agreement or the transactions contemplated
hereby, and no Person, including Seller or DayTracker, is or will be entitled to
any broker's or finder's fee or any other commission or similar fee or expense,
directly or indirectly, in connection with this Agreement, the Transaction
Agreements or the transactions contemplated hereby or thereby.
2.11 BANKRUPTCY. DayTracker has not made any assignment for the benefit of
creditors, filed any petition in bankruptcy, been adjudicated insolvent or
bankrupt, petitioned or applied to any tribunal for any receiver, conservator or
trustee of it or any of its property or assets, or commenced any Proceeding
under any reorganization arrangement, readjustment of debt, conservation,
dissolution or liquidation law or statute of any jurisdiction; and no such
action or Proceeding has been commenced or threatened against DayTracker by any
creditor, claimant, governmental authority or any other Person.
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2.12 PERSONAL PROPERTY. Seller has disclosed to Franklin Covey all the
Intangible Personal Property owned by DayTracker and/or Seller or used or useful
in connection with the Business or the matters covered by this Agreement and the
Transaction Agreements. Seller has made available to Franklin Covey true,
correct and complete copies of all material contracts, agreements, leases and
commitments relating to or affecting any interest in the Intangible Personal
Property of DayTracker or related to the Business. There is no other personal
property necessary to the operation of the Business that has not been disclosed
to Franklin Covey. eSolutions, Inc. will be acquiring all of the Intangible
Personal property owned by DayTracker.
2.13 DISCLOSURE. No representation or warranty of Seller contained in this
Agreement (as qualified by the Disclosure Schedule), the Schedules and Exhibits
hereto, or the Transaction Agreements to which Seller is a party contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements herein or therein, in light of the circumstances
under which they were made, not misleading. There is no fact known to Seller
which has specific application to DayTracker or the Assets (other than general
economic or industry conditions) and which materially adversely affect or
materially threatens, the Assets, the Business, the ability of eSolutions, Inc.
to carry on the Business after the Closing, or the ability of Seller to carry
out its obligations under this Agreement or the Transaction Agreements, which
has not been set forth in this Agreement or otherwise disclosed in writing to
Franklin Covey.
2.14 TAX MATTERS. Seller and DayTracker will file or cause to be filed on a
timely basis all Tax Returns that are or were required to be filed by or with
respect to DayTracker pursuant to the Legal Requirements of each Governmental
Authority with taxing power over it or the Assets. DayTracker shall pay, or make
provision for the payment of, all Taxes of DayTracker that may become due
pursuant to those Tax Returns, or otherwise, or pursuant to any assessment
received by DayTracker. There have been no audits by the Internal Revenue
Service or relevant state tax authorities of the United States federal or state
income, or state franchise or sales, Tax Returns of DayTracker.
2.15 INTELLECTUAL PROPERTY. The term "Intellectual Property Assets" shall
include the Name, all other fictitious business names and trade names under
which DayTracker has conducted the Business, registered and unregistered
trademarks, service marks, domain name registrations, and applications therefor
(collectively, "Marks") used in connection with the Business, all copyrights in
both published works and unpublished works (collectively, "Copyrights") owned,
or used by DayTracker in connection with the operation of the Business, and all
designs, inventions, know-how, trade secrets, confidential information,
software, technical information, (collectively, "Trade Secrets") owned,
developed or used by Seller or DayTracker in connection with the operation of
the Business. The term "Intellectual Property Assets" shall not include any
"off-the-shelf" software that Seller or DayTracker is using and assigning to
eSolutions, Inc. pursuant to the terms of this Agreement. The Intellectual
Property Assets are all those owned and used by or capable of being used by
DayTracker in the operation of the Business, and consist of intellectual
property that is either (i) owned by or held by or on behalf of DayTracker, (ii)
in the public domain, or (iii) rightfully used by DayTracker and authorized for
use by DayTracker pursuant to license or agreement. There are no pending
Proceedings or to the best of Seller's knowledge threatened
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disputes or disagreements with respect to the Intellectual Property Assets.
Seller and/or DayTracker owns all right, title and interest in and to each of
its Intellectual Property Assets free and clear of all Encumbrances, and Seller
and DayTracker have the right to transfer without payment to a third party, all
the Intellectual Property Assets being transferred pursuant to the terms of this
Agreement. To Seller's knowledge, no such Intellectual Property Asset infringes
upon or has been alleged to infringe upon the intellectual property rights of
any other Person. Except as disclosed on the Disclosure Schedule, DayTracker has
not granted rights or licenses to any third parties with respect to any
Intellectual Property Assets.
2.16 PARTNERSHIP STATUS. DayTracker is, and upon the Closing Date will be,
a California General Partnership, whose partners are, and at all times have
been, Barlow and Robinson.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF FRANKLIN COVEY
Franklin Covey represents and warrants to Seller as follows:
3.1 ORGANIZATION, EXISTENCE AND GOOD STANDING. Franklin Covey is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Utah and has full corporate power and authority to carry on its
business as now being conducted, to own and operate its properties and assets,
and to perform all its obligations under the Contracts and the Transaction
Agreements. Franklin Covey is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which the properties and assets owned or leased and operated by
it or the nature of the business conducted by it make such qualification
necessary and where the failure so to qualify would have a material adverse
effect on Franklin Covey's business or operations.
3.2 AUTHORITY. Franklin Covey has full power and authority to execute and
deliver this Agreement and the Transaction Agreements, to perform its
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. This Agreement has been duly and validly
executed and delivered by Franklin Covey and constitutes the legal, valid and
binding agreement of Franklin Covey enforceable against Franklin Covey in
accordance with its terms. The Transaction Agreements to which Franklin Covey is
a party, when executed by Franklin Covey, will have been duly and validly
executed and delivered by Franklin Covey and will constitute the legal, valid,
and binding agreement of Franklin Covey, enforceable against Franklin Covey in
accordance with their terms. All corporate, shareholder and other action
necessary to authorize the execution, delivery and performance of this Agreement
and the Transaction Agreements by Franklin Covey and the consummation by
Franklin Covey of the transactions contemplated by this Agreement and the
Transaction Agreements shall have been duly and validly taken and Franklin Covey
has full right and power to perform its obligations upon the terms provided in
this Agreement and the Transaction Agreements.
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3.3 CONSENTS AND APPROVALS; NO VIOLATION. No filing or registration with,
no notice to and no Governmental Authorization, consent or approval of any
Governmental Authority, creditor or other person in a contractual relationship
with Franklin Covey is necessary in connection with Franklin Covey's execution
and delivery of this Agreement or the Transaction Agreements, the performance of
its obligations hereunder or thereunder or the consummation of the transactions
contemplated hereby or thereby. Neither the execution and delivery of this
Agreement or the Transaction Agreements, the consummation of the transactions
contemplated hereby or thereby, nor the compliance by Franklin Covey with any of
the provisions thereof will, as of the Closing Date, (i) result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration) under, any of the terms, conditions or provisions of any note,
contract, agreement, commitment, bond, mortgage, indenture, license, lease,
pledge agreement or other instrument or obligation to which Franklin Covey is a
party or by which Franklin Covey or any of its properties or assets may be
bound, (ii) violate or conflict with any provision of any Legal Requirement
binding upon Franklin Covey; or (iii) result in, or require, the creation or
imposition of any Encumbrance upon or with respect to any of the properties now
owned or used by Franklin Covey.
3.4 BANKRUPTCY. Franklin Covey has not made any assignment for the benefit
of creditors, filed any petition in bankruptcy, been adjudicated insolvent or
bankrupt, petitioned or applied to any tribunal for any receiver, conservator or
trustee of it or any of its property or assets, or commenced any Proceeding
under any reorganization arrangement, readjustment of debt, conservation,
dissolution or liquidation law or statute of any jurisdiction; and no such
action or Proceeding has been commenced or threatened against Franklin Covey by
any creditor, claimant, governmental authority or any other person.
3.5 NO BROKER'S OR FINDER'S FEES. No agent, broker, investment banker or
similar Person has acted directly or indirectly on behalf of Franklin Covey in
connection with this Agreement or the transactions contemplated hereby, and no
Person, including Franklin Covey, is or will be entitled to any broker's or
finder's fee or any other commission or similar fee or expense, directly or
indirectly, in connection with this Agreement or the transactions contemplated
hereby.
3.6 REPORTS. Franklin Covey previously has furnished to Seller complete and
accurate copies of each report, schedule and proxy statement filed with the
Securities and Exchange Commission on or after January 1, 1999 (the "Reports").
As of their respective dates, the Reports did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
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ARTICLE 4
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF FRANKLIN COVEY
The obligations of Franklin Covey to consummate the transactions
contemplated by this Agreement and the Transaction Agreements at the Closing are
subject to fulfillment of the following conditions on or prior to the Closing,
any one or more of which may be waived in whole or in part by Franklin Covey in
the manner provided for herein.
4.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations and
warranties of Seller contained in this Agreement and the Transaction Agreements,
including the Schedules thereto are true, correct and complete in all material
respects as of the Closing Date.
4.2 SELLER'S COMPLIANCE WITH AGREEMENT AND TRANSACTION AGREEMENTS. Seller
shall have performed and complied with all obligations, agreements, covenants
and conditions required by this Agreement and the Transaction Agreements to be
performed or complied with by Seller on or before the Closing Date. Seller shall
have executed and delivered to Franklin Covey all of the Transaction Agreements
to which Seller is a party and shall have made all other deliveries to Franklin
Covey required by Section 1.9 hereof.
4.3 AUTHORIZATION; THIRD PARTY CONSENTS. All filings and registrations
with, and notice to and each Governmental Authorization, consent or approval of
any Governmental Authority, creditor or other person in a contractual
relationship with Seller which is necessary in connection with Seller's
execution and delivery of the Transaction Agreements, the performance of its
obligations thereunder, or the consummation of the transactions contemplated
thereby shall have been made or obtained, except where the failure to so obtain
will not have a material adverse effect on the Assets or the Business. Such
consents of third parties shall include, but not be limited to, the consents of
lenders holding security interests in the Assets to the assignment of such
Assets and the assumption of such obligations by eSolutions, Inc., and the
consent, where required, to the assignment of all Contracts being assumed by
eSolutions, Inc. Seller shall have delivered to Franklin Covey a certificate,
executed by Seller, and dated as of the Closing Date, to the foregoing effect.
On or prior to the Closing Date, Seller shall have furnished to Franklin Covey
evidence of the foregoing consents. eSolutions, Inc. shall have or shall have
obtained all licenses, permits, or Governmental Authorizations necessary for it
to operate the Business as previously operated by DayTracker.
4.4 GOOD TITLE. Subject to the provisions of Section 2.15 above, and the
Disclosure Schedules, the Assets ultimately transferred to eSolutions, Inc.
pursuant to the transactions contemplated hereby shall be free and clear of all
Encumbrances, except for Encumbrances represented by Assumed Liabilities or as
otherwise set forth herein, as provided in the Contracts, or as otherwise
disclosed and approved by Franklin Covey. No claim shall have been filed, made
or threatened by any Person asserting that such Person is entitled to any part
of the Purchase Price or other amounts paid for the Assets or pursuant to the
Transaction Agreements or that any person has any claim or interest in any of
the Assets.
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4.5 NO PROHIBITION OF TRANSACTION. No Proceeding, regulation or legislation
shall have been instituted, threatened or proposed before, nor any Order issued
by, any Governmental Authority to enjoin, restrain, prohibit or obtain
substantial damages in respect of, which is related to, or which arises out of,
this Agreement or the Transaction Agreements.
4.6 NOTICES. Seller will give any notices to third parties required by
agreements with such third parties or pursuant to Legal Requirements.
4.7 ACTIONS SATISFACTORY. The form and substance of all actions,
Proceedings, instruments and documents required to consummate the transactions
contemplated by this Agreement shall have been satisfactory in all reasonable
respects to Franklin Covey and its counsel.
4.8 DISCLOSURE SCHEDULE. The Disclosure Schedule contemplated by Article 2
hereof has been delivered by Seller to Franklin Covey concurrently with
execution of this Agreement and is satisfactory in all respects to Franklin
Covey.
ARTICLE 5
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER
The obligations of Seller to consummate the transactions contemplated by
this Agreement at the Closing are subject to the fulfillment of the following
conditions on or prior to the Closing, any one or more of which may be waived by
Seller in the manner provided for herein.
5.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The representations and
warranties of Franklin Covey contained in this Agreement shall be true, correct
and complete in all material respects as of the Closing Date.
5.2 FRANKLIN COVEY'S PERFORMANCE; COMPLIANCE WITH AGREEMENT. Franklin Covey
shall have performed and complied with all obligations, agreements, covenants
and conditions required by this Agreement and the Transaction Agreements to be
performed or complied with by Franklin Covey on or before the Closing Date.
Franklin Covey shall have executed and delivered to Seller all of the
Transaction Agreements and shall have made all of the other deliveries required
by Section 1.9 hereof.
5.3 NO PROHIBITION OF TRANSACTION. No Proceeding, regulation or legislation
shall have been instituted, threatened or proposed before, nor any Order issued
by, any Governmental Authority to enjoin, restrain, prohibit or obtain
substantial damages from Seller in respect of, which is related to, or which
arises out of, this Agreement.
5.4 COMPLIANCE WITH LAW. There shall have been obtained any and all
Governmental Authorizations which counsel for Seller may reasonably deem
necessary or appropriate so that consummation of the transactions contemplated
by this Agreement and the Transaction Agreements will be in compliance with
Legal Requirements.
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5.5 ACTIONS SATISFACTORY. The form and substance of all actions,
Proceedings, instruments and documents required to consummate the transactions
contemplated by this Agreement shall have been satisfactory in all reasonable
respects to Seller and their counsel.
ARTICLE 6
ADDITIONAL COVENANTS AND AGREEMENTS
6.1 EXPENSES. Except as otherwise expressly provided herein, each party to
this Agreement shall bear its respective expenses incurred in connection with
the preparation, execution and performance of this Agreement and the
transactions contemplated hereby, including all fees and expenses of agents,
representatives, counsel and accountants. The parties understand and acknowledge
that Franklin Covey is acquiring portions of Seller's partnership interests in
Day Tracker as set forth at Article 1.1, above, and that while Franklin Covey
has agreed that Day Tracker will then have certain liabilities as more
particularly set forth at Article 2.3, above, Franklin Covey has not agreed to
assume or pay any of Seller's costs incurred in consummating the transactions
contemplated hereby, including, but not limited to, any legal, accounting, tax
or transaction costs.
6.2 PUBLIC ANNOUNCEMENTS. Any public announcement or similar publicity with
respect to this Agreement or the transactions contemplated hereby shall be
issued, if at all, at such time and in such manner as Franklin Covey and Seller
shall determine, but , following the date upon which all contingencies to
closing have been waived by both parties, either party may make such
announcements, give such notices and provide such information to Governmental
Authorities, employees, creditors, Affiliates and the public as its counsel may
advise is legally required, following a good faith effort to meet and confer
with the other party upon the form and content of such announcement.
6.3 CONFIDENTIALITY. Each party will maintain in confidence, and cause its
directors, officers, employees, agents and advisors to maintain in confidence,
all Confidential Information unless it is required to be disclosed by law, is
disclosed pursuant to the written consent of the party from whom it has been
obtained, or it ceases to be Confidential Information as provided below.
Confidential Information shall not include information which: (a) is now, or
hereafter becomes generally, known, or available through no act or failure to
act on the part of the party to whom it has been disclosed, (b) is hereafter
furnished to a party by a third party, as matter of right and without
restriction on disclosure; (c) is subject to a written permission to disclose
provided by the party that originally possesses such information. Each party may
disclose the Confidential Information only to his or its representatives who
need to know such information for the purpose of consummating the transactions
called for by this Agreement. If the transactions contemplated by this Agreement
are not consummated, each party will return all Confidential Information to the
party from whom it was obtained. Neither party will use any confidential
information of the other for any purpose other than for the carrying out of this
Agreement or the transactions contemplated thereby.
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6.4 OPERATION OF BUSINESS. Except as specifically provided in this
Agreement, DayTracker will not engage in any practice, take any action or enter
into any transaction outside the Ordinary Course of Business from the date of
this Agreement until the Closing Date. Seller will use its best commercially
reasonable efforts to keep the business and Assets of DayTracker substantially
intact, to comply with all laws applicable to the Business and to maintain good
working relationships with lessors, licensors, suppliers, customers and
employees. Except as expressly contemplated by this Agreement, neither Seller
nor DayTracker will enter into any transaction, arrangement or contract with, or
distribute or transfer any property or other assets to any officer, director,
stockholder, trustee or other insider or Affiliate of Seller (other than
salaries and employee benefits in the Ordinary Course of Business). Until the
Closing Date, Seller will give prompt written notice to Franklin Covey of any
material development affecting the Assets, Liabilities, Business, financial
condition, operations, results of operations or future prospects of DayTracker.
Each party will give prompt written notice to the other of any material
development affecting the ability of such party to consummate the transactions
contemplated by this Agreement. No disclosure by any party pursuant to this
Section 6.4 shall prevent or cure any misrepresentation, breach of warranty or
breach of covenant.
6.5 NOTICE. From the date of this Agreement until and including the Closing
Date, Seller will give Franklin Covey prompt notice of (i) any litigation
instituted or threatened against Seller (which relates to DayTracker) or
DayTracker or which could affect the ability of Seller to close the transactions
contemplated by this Agreement, or of any governmental investigation or inquiry
with respect to Seller (which relates to DayTracker) or DayTracker, and (ii) any
event or circumstance which could have a material adverse effect on the
transactions contemplated hereby or could cause any of the representations or
warranties to be untrue at Closing or any other Closing condition not to be
satisfied.
6.6 TRANSFER AND DUTIES. Following the Closing, Robinson and Barlow,
individually and collectively, will dedicate as much time as they and each of
them are able to dedicate, subject to their respective contractual commitments
and constraints, if any, as of the Closing Date, to transfer to eSolutions, Inc.
all information, trade secrets, know-how, processes, systems, designs,
inventions, confidential information, technical information, work books, and all
other tangible and intangible information and work product associated with
DayTracker.com, and thereafter, and for a reasonable period of time, not to
exceed six months, to facilitate the successful operation and growth of
eSolutions, Inc.. Robinson and Barlow shall be afforded such liability and
errors and omissions insurance as Franklin Covey makes available to its
managerial personnel, and shall be reimbursed for costs and expenses reasonably
and necessarily incurred on the same basis as Franklin Covey managerial
personnel.
ARTICLE 7
INDEMNIFICATION
7.1 INDEMNIFICATION BY SELLER. Seller, jointly and severally,
unconditionally, and irrevocably agrees to and shall defend, indemnify and hold
harmless Franklin Covey and eSolutions, Inc., and each of Franklin Covey and
eSolutions, Inc.'s officers, directors, employees, successors and assigns,
(Franklin Covey and eSolutions, Inc. and such persons are collectively referred
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to as "FN Indemnified Persons") from and against, and shall reimburse FN
Indemnified Persons for, each and every Loss paid, imposed on or incurred by FN
Indemnified Persons, directly or indirectly, relating to, resulting from or
arising out of a breach of (a) any representation, warranty or covenant of
Seller under this Agreement or the Transaction Agreement or any agreement,
certificate or other document delivered or to be delivered by Seller pursuant
hereto in any respect, or any breach or non-fulfillment of any covenant,
agreement or other obligation of Seller under this Agreement or the Transaction
Agreements, (b) any action incident to the foregoing or this Paragraph 7.1; or
(c) any misrepresentation, breach of warranty or non-fulfillment of any
agreement or covenant on the part of Seller under this Agreement, or from any
misrepresentation in or omissions from any certificate, schedule, statement,
document or instrument furnished to Franklin Covey pursuant hereto or in
connection with the negotiation, execution or performance of this Agreement;
and, notwithstanding any other provision of this Agreement to the contrary, the
parties agree that the indemnification obligation of Seller hereunder and with
respect to any independent causes of action of the FN Indemnified Persons under
the said representations, warranties and covenants, both jointly and severally,
shall be capped at a total amount of Four Million Dollars ($4,000,000) on an
aggregate basis for all claims and causes of action to which the FN Indemnified
Persons are entitled to indemnity hereunder as follows: (1) there shall be a cap
in the amount of Two Million Dollars ($2,000,000) in the aggregate with respect
to any Single Party Losses (as defined in Section 9.32, below); and (2) there
shall be a cap in the amount of Two Million Dollars ($2,000,000) in the
aggregate with respect to all other Losses combined, exclusive of the Single
Party Losses. Seller will have no obligation to indemnify the FN Indemnified
Persons from and against any Loss resulting from, arising out of, relating to or
caused by Seller or Seller's breach of any representation or warranty thereunder
until the Franklin Covey's aggregate loss suffered by reason thereof is in
excess of Fifty Thousand Dollars ($50,000), in which case Seller shall indemnify
the FN Indemnified Persons for all indemnified losses suffered by the FN
Indemnified Persons. Any other provision of this Agreement to the contrary
notwithstanding, Seller shall not be liable for any indemnification claimed by
Franklin Covey or eSolutions, Inc. for any amount over and above $100,000
resulting from or arising out of any claim (for purposes of this provision a
"claim" shall be deemed to included all demands or causes of action arising out
of the same transaction or occurrence or related series of transactions or
occurrences) by users of the DayTracker website concerning or relating to any
information or other content contained in said website after the Closing Date.
In the event that a Loss shall consist of license payment
obligations incurred by the FN Indemnified Persons under a licensing agreement
entered into by eSolutions, Inc. with any third party to settle or avoid patent
or trademark infringement claims ("License Payments"), Seller's indemnification
with respect to such Loss shall be limited to and not exceed the present value
of the License Payments for a period of three (3) years, or the duration of the
license, whichever is less, calculated at a discount rate of eight percent (8%).
Any other provision of this Agreement to the contrary
notwithstanding, the indemnification obligation of Seller, both jointly and
severally, shall not on an aggregate basis exceed the lesser of (i) the sum of
Four Million Dollars ($4,000,000) or (ii) the sums received by Seller for their
shares of Common Stock in a Liquidation Transaction or a transaction pursuant to
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Section 1.6(h), above. Until such time as a Liquidation Transaction or a
transaction pursuant to Section 1.6(h) above occurs, Seller shall have no
obligation to remit payment in satisfaction of an indemnification obligation
except from the proceeds of such transaction, in which case FN Indemnified
Persons shall have full rights of offset against such proceeds. In the event an
indemnification obligation arises after Seller has received the proceeds of a
Liquidation Transaction or a transaction pursuant to Section 1.6(h) above,
Seller shall remit payment in the amount of said obligation.
In the event that Seller shall become entitled to receive
payment for their Common Stock in a Liquidation Transaction or a transaction
pursuant to Section 1.6(h) above, at a time when one or more patent or trademark
infringement claims are reasonably anticipated, threatened or pending, the FN
Indemnified Person(s) may require that, (i) if such claim or claims relate to
Single Party Losses, the full Two Million Dollar ($2,000,000) cap amount
applicable to Single Party Losses (or so much of such cap as may remain after
prior claims against such cap have been satisfied) shall be escrowed as
hereinafter set forth, and (ii) if such claim or claims relate to other than
Single Party Losses, the full Two Million Dollar ($2,000,000) cap amount
applicable to such non-Single Party Losses shall be escrowed as hereinafter set
forth, provided that (iii) in either such event the FN Indemnified Person(s)
may, in their sole discretion, elect to escrow such lesser amount as they may
deem adequate. The escrowed amount(s) shall be placed in an interest bearing
account at a National Banking Institution, held in the name of Seller and such
FN Indemnified Person, to remain as a source of payment in satisfaction of
Seller's indemnity obligation until such claims have been resolved, withdrawn,
or until suits upon such claims are barred by applicable law.
7.2 INDEMNIFICATION BY FRANKLIN COVEY. Franklin Covey, and any successor in
interest to all or substantially all of the assets of Franklin Covey,
unconditionally, absolutely and irrevocably agrees to and shall defend,
indemnify and hold harmless Seller and each of Seller's officers, directors,
employees, successors and assigns (Seller and such persons are collectively
referred to as "Seller's Indemnified Persons") from and against, and shall
reimburse Seller's Indemnified Persons for, each and every Loss paid, imposed on
or incurred by Seller's Indemnified Persons, directly or indirectly, relating
to, resulting from or arising out of (a) a breach of any representation,
warranty or covenant of Franklin Covey under this Agreement or the Transaction
Agreement or any agreement, certificate or other document delivered or to be
delivered by Franklin Covey pursuant hereto in any respect, or any breach or
non-fulfillment of any covenant, agreement or other obligation of Franklin Covey
under this Agreement or the Transaction Agreements; (b) all Damages asserted
against, resulting to, imposed upon or incurred by Seller, directly or
indirectly, by reason of or resulting from obligations or claims relating to the
Assets, Business or operation of eSolutions, Inc. (whether absolute, accrued,
contingent or otherwise) arising out of facts, conditions or circumstances,
occurring after the Closing Date, or (d) any action incident to the foregoing or
this Paragraph 7.2.
7.3 NOTICE AND DEFENSE OF THIRD PARTY CLAIMS. If any Proceeding shall be
brought or asserted under this Article against an indemnified party or any
successor thereto (the "Indemnified Person") in respect of which indemnity may
be sought under this Article from an indemnifying person or any successor
thereto (the "Indemnifying Person"), the Indemnified Person shall give prompt
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written notice of such Proceeding to the Indemnifying Person who shall assume
the defense thereof, including the employment of counsel reasonably satisfactory
to the Indemnified Person and the payment of all expenses; provided, that any
delay or failure to so notify the Indemnifying Person shall relieve the
Indemnifying Person of its obligations hereunder only to the extent, if at all,
that it is prejudiced by reason of such delay or failure. In no event shall any
Indemnified Person be required to make any expenditure or bring any cause of
action to enforce the Indemnifying Person's obligations and liability under and
pursuant to the indemnifications set forth in this Article. In addition, actual
or threatened action by a Governmental Authority or other Person is not a
condition or prerequisite to the Indemnifying Person's obligations under this
Article. The Indemnified Person shall have the right to employ separate counsel
in any of the foregoing Proceedings and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of the
Indemnified Person unless the Indemnified Person shall in good faith determine
that there exist actual or potential conflicts of interest which make
representation by the same counsel inappropriate. The Indemnified Person's right
to participate in the defense or response to any Proceeding should not be deemed
to limit or otherwise modify its rights and obligations under this Article. In
the event that the Indemnifying Person, within fifteen (15) days after notice of
any such Proceeding, fails to assume the defense thereof, the Indemnified Person
shall have the right to undertake the defense, compromise or settlement of such
Proceeding for the account of the Indemnifying Person, subject to the right of
the Indemnifying Person to assume the defense of such Proceeding with counsel
reasonably satisfactory to the Indemnified Person at any time prior to the
settlement, compromise or final determination thereof. If the Indemnifying
Person assumes the defense of any Proceeding, the Indemnified Person shall,
reasonably and in good faith, assist and cooperate in the defense thereof.
Anything in this Article to the contrary notwithstanding, the Indemnifying
Person shall not, without the Indemnified Person's prior written consent, settle
or compromise any Proceeding or consent to the entry of any judgment with
respect to any Proceeding for anything other than money damages paid by the
Indemnifying Person. The Indemnifying Person may, without the Indemnified
Person's prior written consent, settle or compromise any such Proceeding or
consent to entry of any judgment with respect to any such Proceeding that
requires solely the payment of money damages by the Indemnifying Person and that
includes as an unconditional term thereof the release by the claimant or the
plaintiff of the Indemnified Person from all liability in respect of such
Proceeding. As a condition to asserting any rights under this Article, each of
Franklin Covey's Indemnified Persons must appoint Franklin Covey, and each of
Seller's Indemnified Persons must appoint Scot Robinson as its sole agent for
all matters relating to any claim under this Article.
7.4 NOTICE OF INDEMNIFICATION DEMAND. If an occurrence or event shall occur
which gives rise to an indemnification right hereunder, the Indemnified Person
shall give notice of a claim for indemnity to the Indemnifying Person and shall
give the Indemnifying Person reasonable information regarding the event or
circumstance giving rise to the indemnity claim. The Indemnifying Person shall
have the right to examine the facts and circumstances and shall, within thirty
(30) days of such notice (or such shorter period as may be required by the
events or circumstances surrounding the event giving rise to the claim for
indemnity), give notice to the Indemnified Person of how the Indemnifying Person
proposes to handle or resolve the claim for indemnity or notice that the
Indemnifying Person disputes the indemnity claim. If the Indemnified Person and
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the Indemnifying Person cannot resolve, within twenty (20) days of Indemnifying
Person's notice to the Indemnified Person, how the indemnity will be handled or
how the event giving rise to the claim of indemnity will be treated, then the
Indemnified Person subject to the other provisions of this Article 7 shall have
the right to bring a suit to enforce the indemnity or otherwise to enforce all
of his or her rights under this Agreement.
ARTICLE 8
MISCELLANEOUS
8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.
Notwithstanding any investigation made at any time by or on behalf of the
parties hereto, all of the representations, warranties, indemnities and
obligations of Seller shall survive the Closing of the transactions contemplated
by this Agreement (even if Franklin Covey knew or had reason to know of any
misrepresentation or breach of any warranty at the time of the Closing) and
continue in full force and effect for a period of three (3) (5) years following
the Closing. Similarly, the representations, warranties and payment obligations
of the Franklin Covey shall survive the Closing Date.
8.2 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified,
terminated, rescinded or supplemented only by written agreement of the parties
hereto.
8.3 WAIVER; CONSENTS. The rights and remedies of the parties to this
Agreement are cumulative and not alternative. Any failure of a party to comply
with any obligation, covenant, agreement or condition herein may be waived by
each party affected thereby only by a written instrument signed by the party
granting such waiver. No waiver, or failure to insist upon strict compliance, by
any party of any condition or any breach of any obligation, term, covenant,
representation, warranty or agreement contained in this Agreement, in any one or
more instances, shall be construed to be a waiver of, or estoppel with respect
to, any other condition or any other breach of the same or any other obligation,
term, covenant, representation, warranty or agreement. Whenever this Agreement
requires or permits consent by or on behalf of any party hereto, such consent
shall be given in writing in a manner consistent with the requirements for a
waiver.
8.4 FURTHER ASSURANCES. The parties hereto agree (i) to furnish upon
request to each other such further information, (ii) to execute and deliver to
each other such other documents, and (iii) to do such other acts and things, all
as another party hereto may at any time reasonably request, including before, at
and after the Closing, for the purpose of carrying out the intent of this
Agreement and the documents referred to herein.
8.5 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given (i) when delivered
personally, (ii) when sent via facsimile (with receipt confirmed), provided that
a copy is mailed by registered or certified mail, return receipt requested
within two (2) business days after being sent via facsimile, (iii) when received
by the addressee, if sent by Express Mail, Federal Express or other express
delivery service (receipt requested), or (iv) three (3) business days after
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being sent by registered or certified mail, return receipt requested, in each
case to the other party at the following addresses and fax numbers (or to such
other address or fax number for a party as shall be specified by like notice;
provided that notices of a change of address or telecopier number shall be
effective only upon receipt thereof):
if to Seller, to:
Scot Robinson
Michael Barlow
c/o 4548 Marloma Drive
Rolling Hills Estates, California 90274
if to Franklin Covey, to:
Franklin Covey Co.
2200 West Parkway Boulevard
Salt Lake City, Utah 84119
Attn: Val John Christensen
Fax: (801) 817-8723
8.6 ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties. Without
limiting the generality of the foregoing sentence, Seller shall have the right
to transfer the right, in whole or in part, to receive payments made pursuant to
Paragraphs 1.8, above. This Agreement is not intended to and shall not confer
upon any person other than the parties, their respective successors and
permitted assigns, any rights or remedies hereunder or with respect hereto.
8.7 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Utah (regardless of the laws that might otherwise govern under
applicable principles of conflicts of law) as to all matters, including but not
limited to matters of validity, construction, effect, performance and remedies.
Each party submits to personal and subject matter jurisdiction in the federal
and state courts sitting in the County of Salt Lake, State of Utah, and Count of
Los Angeles, State of California.
8.8 JURISDICTION. Any process against Franklin Covey, or Seller in, or in
connection with, any suit, action or proceeding arising out of or relating to
this Agreement or any of the transactions contemplated by this Agreement may be
served personally or by certified mail at the address of such party set forth in
Paragraph 8.5 with the same effect as though served on it or him personally.
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8.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
8.10 INTERPRETATION. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement. Unless otherwise provided, all references in this Agreement to
articles and sections refer to the corresponding articles and sections of this
Agreement. All words used herein shall be construed to be of such gender or
number as the circumstances require. Unless otherwise specifically noted, the
words "herein," "hereof," "hereby," "hereinabove," "hereinbelow," "hereunder,"
and words of similar import, refer to this Agreement as a whole and not to any
particular article, section, subsection, paragraph, clause or other subdivision
hereof. Whenever the term "including" or a similar term is used in this
Agreement, it shall be read as if it were written "including by way of example
only and without in any way limiting the generality of the clause or concept to
which reference is made."
8.11 ENTIRE AGREEMENT. This Agreement, including the Schedules and the
documents, instruments and schedules referred to herein and in the Transaction
Agreements, embodies the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, representations, warranties, covenants, or undertakings
other than those expressly set forth or referred to herein and in the
Transaction Agreements. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
8.12 ATTORNEYS' FEES. In the event either party hereto institutes a
Proceeding against any other party hereto for a claim arising out of or to
enforce this Agreement, the losing party shall pay the reasonable attorneys'
fees and court costs incurred by the substantially prevailing party in
connection with such Proceeding.
8.13 TIME OF ESSENCE. With regard to all time periods set forth or referred
to in this Agreement, time is of the essence.
8.14 CONSTRUCTION. The parties have jointly participated in the negotiation
and drafting of this Agreement. In the event of an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties and no presumptions or burdens of proof shall arise
favoring any party by virtue of the authorship of any of the provisions of this
Agreement.
8.15 SEVERABILITY. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of the court of
competent jurisdiction declares that a term or provision hereof is invalid or
unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
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duration or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
8.16 No THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
rights or remedies upon any persons other than the parties and their respective
successors or permitted assigns.
8.17 INCORPORATION OF SCHEDULES. The Schedules and Disclosure Schedules
identified in this Agreement are incorporated herein by reference and are a part
hereof.
ARTICLE 9
DEFINITIONS
For the purposes of this Agreement, the following terms shall have the
meanings specified or referred to below whether or not capitalized when used in
this Agreement. Any reference or citation to a law, statute or regulation shall
be deemed to include any amendments to that law, statute or regulation and
judicial and administrative interpretations of it.
9.1 "Affiliate" means, with respect to a specified Person, (a) any Entity
of which such Person is an executive officer, director, trustee or other
fiduciary or is directly or indirectly the Beneficial Owner of 10% or more of
any class of equity security thereof or other financial or voting interest
therein; (b) if such Person is an individual, any relative or spouse of such
individual, or any relative of such spouse (such relative of such individual or
spouse being related to the individual or spouse in question within the second
degree), and any other natural person who resides with such person, and any
Entity of which any such relative, spouse, or relative of spouse is an executive
officer, director, trustee or other fiduciary or is directly or indirectly the
Beneficial Owner of 10% or more of any class of equity security thereof or other
financial or voting interest therein; (c) if such Person is an Entity, any
director, executive officer, trustee or other fiduciary or any direct or
indirect Beneficial Owner of 10% or more of any class of equity security of, or
other financial or voting interest in, such Entity; or (d) any Person that
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with the Person specified. For
purposes of this definition, "executive officer" means the president, any vice
president in charge of a principal business unit, division or function such as
sales, administration, research and development, or finance, and any other
officer, employee or other Person who performs a policy making function or has
the same duties as those of a president or vice president. For purposes of this
definition, "control" (including "controlling," "controlled by" and "under
common control with") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
When used without reference to a particular Person, "Affiliate" means an
Affiliate of Seller.
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9.2 "Agreement" means this Agreement, including the Exhibits and Disclosure
Schedules hereto, which are hereby incorporated herein.
9.3 "Assets" shall have the meaning specified in the Recitals.
9.4 "Closing" shall have the meaning set forth in Paragraph 1.9.
9.5 "Closing Date" means the date and time as of which the Closing actually
takes place.
9.6 "Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor law.
9.7 "Confidential Information" means any information concerning the
businesses and affairs of either Franklin Covey or of DayTracker/Seller other
than any such information that (i) is generally available to or known by the
public immediately prior to the time of disclosure (except through the actions
or inactions of the Person to whom disclosure has been made) or (ii) has been
acquired or developed independently of either Franklin Covey or Day
Tracker/Seller, as the case may be.
9.8 "Contracts" means all written real and personal property Leases, vendor
agreements, supply contracts, contracts with customers for the provision of
services or products, confidentiality and noncompetition agreements with
employees and contractors, and every other contract or agreement necessary or
useful in the conduct of Day Tracker's businesses.
9.9 "Copyrights" shall have the meaning set forth in Paragraph 2.15.
9.10 "Disclosure Schedule" means the disclosure schedule delivered by
Seller to Franklin Covey prior to the Closing.
9.11 "Encumbrance" means (i) any of the following relating to title or use
of the Assets: any lien, pledge, hypothecation, charge, mortgage, deed of trust,
security interest, encumbrance, equity, trust, equitable interest, claim, right
of possession, , license, covenant, infringement, interference, proxy, option,
right of first refusal, community property interest, legend, defect, impediment,
exception, condition, restriction, reservation, limitation, impairment, an
imperfection of title; or (ii) any of the following additional restrictions:
restriction on or condition to the voting of any security, restriction on the
transfer of any security or other asset, restriction on the receipt of any
income derived from any security or other asset.
9.12 "Entity" means any corporation (including any non-profit corporation),
general partnership, limited partnership, joint venture, joint stock
association, estate, trust, cooperative, foundation, union, syndicate, league,
consortium, coalition, committee, society, firm, company or other enterprise,
association, organization or entity of any nature, other than a Governmental
Authority.
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9.13 "Financial Statements" shall have the meaning specified in Paragraph
(2.4) hereof.
9.14 "Governmental Authority" means any foreign governmental authority, the
United States of America, any State of the United States, any local authority
and any political subdivision of any of the foregoing, any multi-national
organization or body, any agency, department, commission, board, bureau, court
or other authority thereof, or any quasi-governmental or private body
exercising, or purporting to exercise, any executive, legislative, judicial,
administrative, police, regulatory or taxing authority or power of any nature.
9.15 "Governmental Authorization" means any permit, license, franchise,
approval, certificate, consent, ratification, permission, confirmation,
endorsement, waiver, certification, registration, transfer, qualification or
other authorization issued, granted, given or otherwise made available by or
under the authority of any Governmental Authority or pursuant to any Legal
Requirement.
9.16 "Intangible Personal Property" means all of the intangible personal
property of DayTracker, including but not limited to Intellectual Property
Assets, good will, contract rights, permits, licenses, customer lists, computer
software and every other item of intangible personal property owned, licensed,
leased or held through any other means or rights by DayTracker and used in
DayTracker's business.
9.17 "Intellectual Property Assets" shall have the meaning set forth in
Paragraph 2.15.
9.18 "Knowledge" or "known"--an individual shall be deemed to have
"knowledge" of or to have "known" a particular fact or other matter if (i) such
individual is actually aware of such fact or other matter; or (ii) if such
individual is aware of facts which would lead a prudent individual to undertake
a reasonable further investigation or inquiry which would disclose said
particular fact or other matter. An Entity shall be deemed to have "knowledge"
of or to have "known" a particular fact or other matter if any individual who is
serving or who has at any time served as an officer, director, partner,
executor, trustee or agent (or in any similar capacity) has, or at any time had,
knowledge of such fact or other matter.
9.19 "Legal Requirement" means any law (including without limitation any
Environmental Laws), statute, ordinance, decree, requirement, Order, treaty,
proclamation, convention, rule or regulation (or interpretation of any of the
foregoing) of, and the terms of any Governmental Authorization issued by, any
Governmental Authority applicable to the ownership of the Assets and the
operation of the Business.
9.20 "Liability" means any debt, obligation, duty or liability of any
nature (including any unknown, undisclosed, unfixed, unliquidated, unsecured,
unmatured, unaccrued, unasserted, contingent, conditional, inchoate, implied,
vicarious, joint, several or secondary liability), regardless of whether such
debt, obligation, duty or liability would be required to be disclosed on a
balance sheet prepared in accordance with GAAP.
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9.21 "Loss" means any loss, damage, injury, harm, detriment, decline in
value, lost opportunity, Liability, exposure, claim, demand, Proceeding,
settlement, judgment, award, punitive damage award, fine, penalty, Tax, fee,
charge, cost or expense (including, without limitation, costs of attempting to
avoid or in opposing the imposition thereof, interest, penalties, costs of
preparation and investigation, and the fees, disbursements and reasonable
expenses of attorneys, accountants and other professional advisors).
9.22 "Marks" shall have the meaning set forth in Paragraph 2.15.
9.23 "Material Adverse Change" means any material adverse change in the
condition (financial or otherwise), business, operations, properties, prospects,
assets or Liabilities of Seller (whether or not covered by insurance).
9.24 "Name" means the name "DayTracker.com"
9.25 "Order" means any order, judgment, injunction, edict, decree, ruling,
pronouncement, determination, decision, opinion, sentence, subpoena, consent
decree, writ or award issued, made, entered or rendered by any court,
administrative agency or other Governmental Authority or by any arbitrator.
9.26 "Ordinary Course of Business" means an action taken by a Person if:
(a) such action is recurring in nature, or is consistent with and is
of similar magnitude to the past practices of such Person and is taken in
the ordinary course of the normal day-to-day operations of such Person;
(b) such Person is an Entity such action is not required to be
authorized by the board of directors of such Entity (or by any Person or
group of Persons exercising similar authority), is not required to be
authorized by the shareholders or other equity owners (if any) of such
Entity;
(c) does not include any litigation initiated during such period, any
tort committed or any breach of any Legal Requirement.
9.27 "Person" means any individual, Entity or Governmental Authority.
9.28 "Proceeding" means any action, suit, litigation, arbitration, lawsuit,
claim, proceeding (including any civil, criminal, administrative, investigative
or appellate proceeding and any informal proceeding), prosecution, contest,
hearing, inquiry, inquest, audit, examination, investigation, challenge,
controversy or dispute commenced, brought, conducted or heard by or before, or
otherwise involving, any Governmental Authority or any arbitrator.
9.29 "Purchase Price" shall have the meaning set forth in Paragraph 1.6.
9.30 "Franklin Covey" means Franklin Covey Co.
48
<PAGE>
9.31 "Franklin Covey's Indemnified Persons" shall have the meaning set
forth in Paragraph 7.1.
9.32 "Seller's Indemnified Persons" shall have the meaning set forth in
Paragraph 7.2.
9.33 "Single Party Loss(es)" shall mean any loss or liability arising from
or relating to any and all claims of patent infringement which i) are asserted
by the same Person or assignees of said Person; or (ii) which arise out of,
relate to, or derive from Patent application(s) which have been filed by the
same Person or assignee(s) of the same Person; or (iii) which arise out of,
relate to, or derive from Patent(s) which have been issued to the same Person or
assignees of the same Person; or(iv) including without limitation a license or
licenses or other derivative right or rights which arise out of, relate to, or
derive from any of the foregoing; provided, however, that nothing in this
definition shall be construed to create a right of indemnity on behalf of FN
Indemnified Persons for obligations or claims related to intellectual property
inventions or processes created after the Closing Date.
9.34 "Tax" means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, environmental,
customs duties, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, estimated or other tax of any kind
whatsoever, including any interest, penalty or addition thereto, whether
disputed or not.
9.35 "Tax Returns" means any return (including any information return),
report, statement, declaration, schedule, notice, notification, form,
certificate or other document or information filed with or submitted to, or
required to be filed with or submitted to, any Governmental Authority in
connection with the determination, assessment, collection or payment of any Tax
or in connection with the administration, implementation or enforcement of or
compliance with any Legal Requirement relating to any Tax.
9.36 "Threatened" - a Proceeding, dispute or other matter shall be deemed
to have been "threatened" if any demand or statement shall have been made
(orally or in writing) or any notice shall have been given (orally or in
writing), or if any other event shall have occurred or any other circumstances
shall exist, that might lead a prudent Person to conclude that such a
Proceeding, dispute or other matter might be asserted, commenced, taken or
otherwise pursued in the future.
9.37 "Transaction Agreements" shall mean all of the Agreements specified in
Paragraph 1.9 and any other agreement entered into or exchanged at the Closing
which is necessary to close the transactions contemplated by this Agreement.
9.38 "Trade Secrets" shall have the meaning set forth in Paragraph 2.15.
49
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed on its behalf as of the date first above written.
"SELLER":
DAYTRACKER.COM, a California general
partnership
By
--------------------------------------
SCOT ROBINSON, Partner
By
--------------------------------------
MICHAEL BARLOW, Partner
----------------------------------------
SCOT ROBINSON, an individual
----------------------------------------
MICHAEL BARLOW, an individual
"FRANKLIN COVEY":
FRANKLIN COVEY CO., a Utah corporation
By
--------------------------------------
Val John Christensen
Executive Vice President
50
<PAGE>
EXHIBIT 10.2
SECURED
PROMISSORY NOTE
$894,218 Salt Lake City, Utah
September 23, 1999
FOR VALUE RECEIVED, the undersigned ("Obligor") promises to pay to FRANKLIN
COVEY CO. ("Holder") at 2200 West Parkway Boulevard, Salt Lake City, Utah 84119,
the sum of Eight Hundred Ninety Four Thousand Two Hundred Eighteen Dollars
($894,218), together with interest thereon at the rate of ten percent (10%) per
annum. Interest shall accrue as of September 23, 1999.
1. This Promissory Note is payable in full on the earlier to occur of
(i) the sale of one hundred percent (100%) of the Collateral described in
paragraph 3 below, or (ii) September 23, 2003; provided, however, that Obligor
may at any time prior to September 23, 2003, make one or more payments in an
amount not less than Eighty Nine Thousand Four Hundred Twenty Two Dollars
($89,422) (a "Partial Payment"), plus the then accrued but unpaid interest on
any such Partial Payment.
2. Each payment shall be applied first to interest and thereafter to
the payment of principal.
3. Obligor hereby waives presentment, demand, notice, protest and all other
notices in connection with the delivery, acceptance, default or enforcement of
this Note. Obligor shall be in default under this Note upon the happening of any
of the following events or conditions:
(a) default in the payment or performance of any obligation, covenant
or liability contained in or referred to herein, or any other obligation of
Obligor to Holder including those obligations described in the Security
Agreement; or
(b) if any information, representation or warranty of Obligor herein
or in any other writing at any time furnished by Obligor to Holder is
untrue in any material respect when made.
4. The performance of Obligor's obligations under this Note is secured by
Obligor's grant to Holder of a purchase money security interest in 121,250
shares of Franklin Covey Co. common stock (the "Collateral") pursuant to that
certain Security Agreement executed by Obligor as of the date hereof (the
"Security Agreement"), the terms of which are incorporated herein by this
reference.
5. Upon default as provided hereunder, Holder may declare all of the
obligations of Obligor to Holder immediately due and payable; provided, however,
that the sole remedy of Holder in the event of Obligor's default shall be the
remedies described in the Security Agreement executed by Obligor and Holder as
of the date hereof. Holder shall not be entitled to a personal or deficiency
judgement against Obligor, and none shall be sought or entered.
6. Any notice to Obligor provided for in this Note shall be given by
mailing such notice by certified mail addressed to Obligor at the address set
forth below, or to such other address as Obligor may designate by written notice
to Holder. Any notice to Holder shall be given by mailing such notice by
certified mail, return receipt requested, to Holder at the address stated in the
first paragraph of this Note, or at such other address as may have been
designated by notice to Obligor.
7. Holder shall not by any act of commission or omission be deemed to waive
any of its rights or remedies hereunder unless such waiver be in writing and
signed by it, and then only to the extent specifically set forth therein, a
waiver of one event shall not be construed as continuing or as a bar to or
waiver of such right or remedy on a subsequent event.
IN WITNESS WHEREOF, the undersigned has caused this Promissory Note to be
executed as of the date above set forth.
OBLIGOR:
-----------------------------------
Jon H. Rowberry
8402 South Robidoux Drive
Sandy, UT 84093
51
<PAGE>
EXHIBIT 10.2
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is entered into effective the 23 day of September,
1999, by and between Jon H. Rowberry, an individual whose address is 8402 South
Robidoux Drive, Sandy, Utah 84093, ("Obligor"), and FRANKLIN COVEY CO., a Utah
corporation ("Franklin Covey").
W I T N E S S E T H:
WHEREAS, Obligor executed in favor of Franklin Covey a Promissory Note in
the original principal amount of Eight Hundred Ninety Four Thousand Two Hundred
Eighteen Dollars ($894,218), dated September 23, 1999 (the "Note");
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, the parties hereto agree as follows:
1. SECURITY INTEREST. Obligor hereby grants to Franklin Covey a security
interest in and to 121,250 shares of Franklin Covey Co. common stock, as
evidenced by that certain stock certificate identified by number ________ being
held in the possession of Franklin Covey (the "Collateral") to secure Obligor's
payment of all obligations evidenced by the Note.
2. DEBTOR'S COVENANTS. Except for the security interest granted hereby,
Obligor represents and warrants that he is the sole owner of the Collateral,
free from any adverse liens, security interests or encumbrances. Obligor shall
defend the Collateral against all claims or demands of any and all persons
claiming the Collateral, or any security interest therein, which are allegedly
superior to that of Franklin Covey. At the request of Franklin Covey, Obligor
shall join with Franklin Covey in executing one or more UCC-1 financing
statements perfecting Franklin Covey's security interest in the Collateral in a
form satisfactory to Franklin Covey. Obligor shall execute any other documents
and take such other actions as are reasonably requested by Franklin Covey to
perfect the interest of Franklin Covey in the Collateral.
3. ADDITIONAL COVENANTS. Obligor shall keep the Collateral free from any
adverse liens, security interests or encumbrances. Obligor shall not sell or
offer to sell or otherwise transfer the Collateral or any interest therein
without the prior written consent of Franklin Covey, and so long as any of the
obligations secured hereby remain unpaid, Obligor will not execute a financing
statement covering the Collateral, or any part thereof, with or for the benefit
of anyone other than Franklin Covey.
4. PARTIAL RELEASE. Pursuant to the terms of the Note, Obligor has the
right to make one or more payments prior to September 23, 2003, each in an
amount not less than ten percent (10%) of the original principal balance of the
Note (a "Partial Payment"), plus the then accrued but unpaid interest on said
Partial Payment. In the event Obligor makes a Partial Payment (plus interest
thereon as described above), Franklin Covey shall release from the terms of this
Security Agreement and convey outright and free of lien or encumbrance hereunder
the number of shares of Franklin Covey stock representing a percentage of the
original Collateral equal to the percentage of the original principal balance of
the Note represented by the Partial Payment. In addition to the foregoing,
provided the closing price per share of Franklin Covey stock, as quoted by the
New York Stock Exchange (the "Closing Price"), is greater than or equal to
$7.375 (the "Collateral Base Price") for five consecutive days, the fifth day of
which is the closing date of a transaction described below, Franklin Covey shall
accommodate Obligor's request to have some or all of the Collateral released
from the terms hereof (the "Released Shares") to enable Obligor to sell the
Released Shares and simultaneously make a principle and interest payment under
the Note as follows:
a. Obligor shall first offer to sell the Released Shares to Franklin
Covey at the Closing Price. If Franklin Covey accepts said offer, Obligor
shall transfer and convey to Franklin Covey his rights in and title to the
Released Shares, and Franklin Covey shall retain from the proceeds of said
sale a note payment consisting of the sum of (i) a principal payment in an
amount equal to the number of Released Shares multiplied by the Collateral
Base Price (the "Released Shares Principal Amount"), plus (ii) an interest
payment equal to the then accrued and unpaid interest on the Released
Shares Principal Amount (the "Released Shares Interest Amount"), and shall
pay the balance of the sale proceeds to Obligor.
52
<PAGE>
b. If Franklin Covey fails to exercise its right of first refusal
pursuant to paragraph a., Franklin Covey shall place the Released Shares in
an escrow account established and governed by an escrow agreement mutually
acceptable to Franklin Covey and Obligor (the "Escrow Agreement"), which
Escrow Agreement shall provide, among other things, that (i) the Released
Shares shall be sold, free of encumbrances hereunder; (ii) Franklin Covey
shall first be paid the Released Shares Principal Amount and the Released
Shares Interest Amount from the proceeds of the sale of the Released
Shares; and (iii) any balance of said proceeds, net of brokerage fees,
selling commissions, escrow fees and other selling costs, shall be paid to
Obligor. The sale of the Released Shares shall be consummated pursuant the
Escrow Agreement.
5. LOCATION OF COLLATERAL. Subject to the provisions of section 4, above,
the Collateral shall at all times remain in Franklin Covey's control or
possession.
6. DEFAULT. Obligor shall be in default under this Agreement in the event
he fails in the payment or performance of any obligation, covenant or liability
contained in or referred to herein or in the Note, or transfers any interest in
the Collateral without the written authorization of Franklin Covey.
7. REMEDIES. Upon default as provided hereunder, Franklin Covey may declare
all of the obligations of Obligor to Franklin Covey immediately due and payable
and shall have all of the remedies of a secured party, pursuant to the Utah
Uniform Commercial Code, and any other applicable laws of the State of Utah,
including, but not limited to, the right to sell or otherwise dispose of the
Collateral or any portion thereof. All rights and remedies of Franklin Covey are
cumulative and not alternative.
8. NO RECOURSE. Without impairing the rights and security interests of this
Security Agreement, Franklin Covey hereby agrees that Obligor shall have no
personal liability for the payment of the indebtedness secured hereby or any
interest thereon, and, notwithstanding anything contained herein or in the Note
secured hereby or in any security instrument executed and delivered in
connection herewith, the sole remedy of the legal holder or the payee of said
Note shall be the remedies described herein, and neither the payee nor the legal
holder of said Note shall be entitled to a personal or deficiency judgment, and
none shall be sought or entered.
9. NO WAIVER. Any waiver by Franklin Covey of any default hereunder shall
not be a waiver of any other default or of the same default on a future
occasion.
53
<PAGE>
10. MISCELLANEOUS. Obligor declares that he has read this Security
Agreement, and the Note, and understands the terms and consequences of each
document. Obligor agrees to pay all costs, fees and expenses of Franklin Covey,
including attorneys' fees, incurred in enforcing the terms of this Security
Agreement, or otherwise resulting from Obligor's breach of any of the terms or
provisions hereof.
11. BINDING EFFECT. All rights of Franklin Covey hereunder shall inure to
the benefit of its successors and assigns, and all obligations of Obligor shall
be binding upon Obligor's successors and assigns.
12. NO INVALIDATION. Any provisions hereof found to be invalid or
unenforceable shall not invalidate the remainder.
13. CONSTRUCTION. This Security Agreement shall be governed by and
construed in accordance with the laws of the State of Utah. Whenever the context
requires, the singular shall include the plural and the plural shall include the
singular, the whole shall include any part thereof, and any gender shall include
all other genders. The headings in this Agreement are for the purpose of
convenience only and shall not limit, enlarge, or otherwise affect any of the
terms of this Agreement.
IN WITNESS WHEREOF, the parties have hereunto executed this Agreement
the date and year written above.
OBLIGOR:
By
----------------------------------
Jon H. Rowberry
FRANKLIN COVEY CO.
By
---------------------------------
Val John Christensen
Executive Vice President
<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-31-2000
<PERIOD-START> SEP-1-1999
<PERIOD-END> NOV-27-1999
<EXCHANGE-RATE> 1.0
<CASH> 26,366
<SECURITIES> 0
<RECEIVABLES> 75,152
<ALLOWANCES> 4,004
<INVENTORY> 63,468
<CURRENT-ASSETS> 191,047
<PP&E> 224,101
<DEPRECIATION> 98,352
<TOTAL-ASSETS> 597,599
<CURRENT-LIABILITIES> 100,592
<BONDS> 76,211
0
76,795
<COMMON> 1,353
<OTHER-SE> 307,830
<TOTAL-LIABILITY-AND-EQUITY> 597,599
<SALES> 144,078
<TOTAL-REVENUES> 144,078
<CGS> 59,025
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<OTHER-EXPENSES> 70,763
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<INTEREST-EXPENSE> 1,526
<INCOME-PRETAX> 13,093
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<INCOME-CONTINUING> 7,188
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<EXTRAORDINARY> 0
<CHANGES> 0
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<EPS-BASIC> 0.26
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</TABLE>
