UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
The
Securities Exchange Act of 1934
Date of
Report (Date of Earliest Event Reported):
July
7, 2008
FRANKLIN
COVEY CO.
(Exact
name of registrant as specified in its charter)
Commission
File No. 1-11107
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Utah
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87-0401551
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|
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(State
or other jurisdiction of incorporation)
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(IRS
Employer Identification Number)
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2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2099
(Address
of principal executive offices)(Zip Code)
Registrant’s
telephone number, including area code: (801) 817-1776
Former
name or former address, if changed since last report: Not Applicable
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
[
] Written communications pursuant to Rule 425
under the Securities Act (17 CFR 230.425)
[
] Soliciting material pursuant to Rule 14a-12
under the Exchange Act (17 CFR 240.14a-12)
[
] Pre-commencement communications pursuant to
Rule 14d-2(b) under the Exchange Act (17 CFR240.14d-2(b))
[x] Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR240.13e-4(c))
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Item
1.01
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Entry into a Material Definitive
Agreement
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In
connection with the completion of the sale of substantially all of the assets of
Franklin Covey Co.’s (the Company) Consumer Solutions Business Unit (the CSBU)
to Franklin Covey Products, LLC (Franklin Covey Products) as described in Item
2.01 below, the Company, or its wholly-owned subsidiaries, entered into the
following material definitive agreements:
Master Licensing
Agreement
On July
7, 2008, the Company entered into a master license agreement (the License
Agreement), effective as of July 5, 2008, with Franklin Covey Products pursuant
to which the Company granted to Franklin Covey Products, subject to certain
restrictions and limitations, an exclusive, worldwide (excluding Japan and South
Korea), transferable, sublicensable, royalty-bearing license to use the licensed
trademarks and licensed copyrights, including FranklinCovey™ and FranklinCovey
Planner™, in the design, development, manufacture, marketing, promotion,
advertisement, distribution, lease and sale of licensed products in certain
distribution channels, including wholesale channels, retail, eCommerce and
call-center channels. The licensed products include planners,
binders, totes and cases, personal leather goods, stationary items, writing
instruments, organizational containers, calendars and non-dated paper
products. The License Agreement will continue until terminated by
either party due to a material breach of the terms of the License
Agreement.
Pursuant
to the License Agreement, for 99 years, Franklin Covey Products will make a
yearly royalty payment to the Company equal to 30% of the amount of the earnings
before interest, taxes, depreciation, and amortization (EBITDA) of Franklin
Covey Products in excess of $13,000,000 each year, up to a maximum of
$1,250,000.
The
foregoing description of the License Agreement does not purport to be complete
and is qualified in its entirety by reference to the text of the License
Agreement, which is filed as Exhibit 10.1 attached hereto.
Supply
Agreement
In
connection with the execution of the License Agreement, on July 7, 2008,
Franklin Covey Product Sales, Inc., a wholly-owned subsidiary of the Company,
entered into a supply agreement (the Supply Agreement), effective as of July 5,
2008, with Franklin Covey Products.
The
Supply Agreement provides that Franklin Covey Products will be the Company’s
exclusive supplier of the products required to fulfill the Company’s training
and consulting service contracts that have historically been manufactured by the
CSBU that will now be manufactured by Franklin Covey Products, directly or
indirectly, including those products produced pursuant to the License Agreement,
pursuant to certain forecasting and ordering procedures, as long as the products
are supplied at a competitive price. Additionally, the Company will
supply Franklin Covey Products with products that the Company
produces. The Supply Agreement will continue until terminated by the
parties. Either party may terminate the Supply Agreement effective
immediately if the License Agreement has been terminated.
The
foregoing description of the Supply Agreement does not purport to be complete
and is qualified in its entirety by reference to the text of the Supply
Agreement, which is filed as Exhibit 10.2 attached hereto.
Master Shared Services
Agreement
On July
7, 2008, the Company, and the Company’s wholly-owned subsidiaries Franklin Covey
Client Sales, Inc., Franklin Covey Product Sales, Inc., Franklin Development
Corp., Franklin Covey Canada, Ltd., Franklin Covey Europe, Ltd. and Franklin
Covey de Mexico S. de R.L. de C.V. entered into a master shared services
agreement (the Shared Services Agreement), effective as of July 5, 2008, with
Franklin Covey Products and Franklin Covey Products’ wholly-owned subsidiaries
Franklin Covey Products Canada ULC, Franklin Covey Products Europe Limited and
FC Products de Mexico, S. de R.L. de C.V.
Pursuant
to the Shared Services Agreement, the Company and its subsidiaries will provide
certain accounting, administrative, information technology, human resources and
other transition services to Franklin Covey Products and its
subsidiaries. Unless otherwise agreed upon by the Company and
Franklin Covey Products, the Company will provide these transition services to
Franklin Covey Products in substantially the same manner in which the Company
provided these services to the CSBU prior to the closing of the
transaction. Franklin Covey Products will pay an amount based upon
the cost associated with the provision of these transition services, or a fee
based on an agreed assessment of the cost associated with the provision of such
services.
The
foregoing description of the Shared Services Agreement does not purport to be
complete and is qualified in its entirety by reference to the text of the Shared
Services Agreement, which is filed as Exhibit 10.3 attached hereto.
Operating
Agreement
On July
7, 2008, in connection with the Company’s investment in Franklin Covey Products
of approximately $1.8 million to purchase a 19.5% voting interest and a $1.0
million preferred capital contribution with a 10 percent priority return,
Franklin Covey Client Sales, Inc., a wholly-owned subsidiary of the Company,
entered into an amended and restated operating agreement for Franklin Covey
Products (the Operating Agreement) with Franklin Covey Products, Peterson
Partners V, L.P., and the other members and managers named
therein. The Operating Agreement will govern the rights and
obligations of the members and managers of Franklin Covey Products in connection
with the operation of Franklin Covey Products.
Pursuant
to the Operating Agreement, Franklin Covey Products will be managed by a five
member management board, which will function substantially in the same manner as
the board of directors of a Utah corporation. Three of the members of
the management board will be appointed by Peterson Partners V, L.P. (the
Peterson Managers), one member of the management board will be appointed by the
Company (the FC Manager), and one member of the management board will be
appointed by unanimous consent of the Peterson Managers and the FC Manager (the
Peterson/FC Manager). Robert A. Whitman, the Company’s CEO will serve
as the initial FC Manager and as the chairman of the management board of
Franklin Covey Products. Sarah Merz, the former President of the CSBU
and new President of Franklin Covey Products, will initially serve as the
Peterson/FC Manager on the management board. The management board
will appoint officers that will manage the day-to-day business and affairs of
Franklin Covey Products.
The
foregoing description of the Operating Agreement does not purport to be complete
and is qualified in its entirety by reference to the text of the Operating
Agreement, which is filed as Exhibit 10.4 attached hereto.
Sublease
Agreement
On July
7, 2008, Franklin Development Corp., a wholly-owned subsidiary of the Company,
entered into a Sublease Agreement (the Sublease Agreement), effective as of July
5, 2008, with Franklin Covey Products.
Pursuant
to the Sublease Agreement, through June 30, 2025, Franklin Covey Products will
sublease from Franklin Development Corp. portions of the following buildings:
Franklin, Washington, Jefferson, Patrick Henry and Adams buildings located in
the office park commonly known as 2650 South Decker Lake Boulevard, Salt Lake
City, Utah. Franklin Covey Products will sublease 53,701 square feet
of office space at an initial monthly base rent of $9.00 per square foot, 975
square feet of computer room space at an initial monthly base rent of $12.00 per
square foot, and 23,280 square feet of shared space, for which Franklin Covey
Products will only be responsible for rent on 11,640 square feet, at an initial
monthly base rent of $9.00 per square foot. Beginning on July 1,
2010, and each year thereafter, the base rent will increase by 2 percent per
year. Franklin Covey Products will also pay its share of other
expenses associated with the premises.
The
foregoing description of the Sublease Agreement does not purport to be complete
and is qualified in its entirety by reference to the text of the Sublease
Agreement, which is filed as Exhibit 10.5 attached hereto.
Sub-sublease
Agreement
On July
7, 2008, the Company entered into a Sub-sublease Agreement (the Sub-sublease
Agreement), effective as of July 5, 2008, with Franklin Covey
Products.
The
Company subleases warehouse space from EDS Information Services L.L.C., and
pursuant to the Sub-sublease Agreement, Franklin Covey Products will
sub-sublease from the Company approximately 96,225 square feet of warehouse
space through June 30, 2016. The initial monthly base rent due under
the Sub-sublease Agreement is $31,408. Franklin Covey Products is
also obligated to pay a portion of the costs related to utilities, operating
expenses, garbage and recycling and real estate taxes.
The
foregoing description of the Sub-sublease Agreement does not purport to be
complete and is qualified in its entirety by reference to the text of the
Sub-sublease Agreement, which is filed as Exhibit 10.6 attached
hereto.
Modification
Agreement
On July
8, 2008, the Company entered into a Modification Agreement (the Modification
Agreement) with JP Morgan Chase Bank, N.A. The Modification Agreement
modifies the terms of the long-term secured revolving line-of-credit agreements
that the Company entered into with JP Morgan Chase Bank, N.A. on March 14, 2007
(the Credit Agreements). Pursuant to the Modification Agreement, the
interest rate provided for in the Credit Agreements has been increased from
LIBOR plus 1.10 percent to LIBOR plus 1.50 percent and, effective as of June 30,
2009, the borrowing capacity of the Company under the Credit Agreements will be
reduced from $25,000,000 to $15,000,000.
The
foregoing description of the Modification Agreement does not purport to be
complete and is qualified in its entirety by reference to the text of the
Modification Agreement, which is filed as Exhibit 10.7 attached
hereto.
Item
2.01 Completion of Acquisition or Disposition of
Assets
On July
7, 2008, the Company announced that it completed its previously announced sale
of substantially all of the assets of the CSBU to Franklin Covey
Products. This new company, which is controlled by Peterson Partners,
a private equity firm, purchased the CSBU assets for $32.0 million in cash
subject to adjustments for net working capital. In addition, certain
costs incurred in the completion of the sale transaction will be reimbursed to
the Company by Franklin Covey Products. Prior to the transaction, the
CSBU was primarily focused on the production and sale of the Company’s products
to individual customers and small business organizations and includes the
operations of the Company’s domestic retail stores, consumer direct channels
(primarily eCommerce and call center), wholesale operations, international
product channels in certain countries, and other related distribution channels,
including government product sales and domestic printing and publishing
operations.
In
connection with the closing of the sale, the Company invested approximately $1.8
million to purchase a 19.5 percent voting interest in Franklin Covey Products
and made a $1.0 million preferred capital contribution with a 10 percent
priority return. The Company also has the opportunity to earn
contingent license fees if Franklin Covey Products, LLC achieves certain
performance objectives. The remaining interest in Franklin Covey
Products will be primarily held by Peterson Partners V, L.P., an affiliate of
Peterson Partners, Inc., a Salt Lake City, Utah based investment firm that
specializes in small to mid-size companies. A founding general
partner of Peterson Partners and a significant investor in Peterson Partners V,
L.P. is Joel C. Peterson, a member of the Company’s Board of
Directors. Due to this relationship, Mr. Peterson recused himself
from the negotiations and Board of Director discussions regarding the sale of
CSBU.
The
Company currently intends to utilize substantially all of the net sale proceeds
to repurchase shares of its common stock pursuant to a Dutch auction tender
offer, which it anticipates will commence in the fourth quarter of fiscal
2008.
A copy of
the press release announcing the completion of the sale is attached hereto as
Exhibit 99.1 and incorporated by reference herein.
The
foregoing description of the sale of CSBU assets does not purport to be complete
and is qualified in its entirety by reference to the sale agreements described
in Item 1.01 above, which are filed as exhibits to this report on Form 8-K and
incorporated by reference herein.
Forward
Looking Statements
This
current report and the exhibits furnished herewith contain forward-looking
statements related to, among other things, a proposed tender
offer. These statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of
1995. Investors are cautioned that forward-looking statements
inherently involve risks and uncertainties that could cause actual results to
differ materially from those contemplated in the forward-looking
statements. Such risks and uncertainties include, but are not limited
to, the Company may decide, for any number of reasons, not to pursue the tender
offer, the conditions to any such tender offer may not be satisfied, market
conditions and the price of
the
Company’s stock may not be favorable, general economic conditions, the Company’s
cash needs, shareholders may not tender shares in response to the offer in
sufficient numbers to make the tender offer advisable, and other risks and
uncertainties outlined in the Company’s documents filed with the SEC, including
the Company’s most recent annual report on Form 10-K for the fiscal year ended
August 31, 2007 as filed with the Securities and Exchange
Commission. All forward-looking statements and other information in
this current report are based upon information available as of the date of this
report. Such information may change or become invalid after the date
of this report, and, by making these forward-looking statements, the Company
undertakes no obligation to update these statements after the date of this
report, except as required by law.
Tender
Offer Statement
This
communication is for informational purposes only and is not an offer to buy, or
the solicitation of an offer to sell, any shares. The full details of any tender
offer, including complete instructions on how to tender shares, will be included
in the offer to purchase, the letter of transmittal and related materials, which
will be mailed to shareholders promptly following commencement of the offer.
Shareholders should read carefully the offer to purchase, the letter of
transmittal and other related materials when they are available because they
will contain important information. Shareholders may obtain free copies, when
available, of the offer to purchase and other related materials that will be
filed by Franklin Covey Co. with the Securities and Exchange Commission at the
Commission’s website at www.sec.gov. When available,
shareholders also may obtain a copy of these documents, free of charge, from the
Company’s information agent.
Item
5.02 Departure of Directors or Certain Officers;
Election of Directors;Appointment of Certain Officers; Compensatory Arrangements
ofCertain Officers
Departure of Sarah
Merz
In
connection with the completion of the sale of CSBU assets described in Item 2.01
above, on July 7, 2008, Sarah Merz ended her employment with Franklin Covey and
as President of the CSBU. Ms. Merz was appointed the President and
Chief Executive Officer of Franklin Covey Products, LLC.
Compensatory Arrangements of
Executive Officers
As of the
completion of the sale of the CSBU assets, the Company had granted unvested
share awards to its executive officers and certain other managerial personnel
that remained unvested. The terms and conditions of these awards,
which were granted in fiscal 2004 and fiscal 2005, allow accelerated vesting
based upon overall Company performance. However, the sale of the CSBU
was not anticipated when these awards were granted to the
participants.
The
Compensation Committee of the Board of Directors authorized the Company to vest
the previously unvested portion of the unvested share awards and to pay a
discretionary cash bonus. As a result of these actions, the following
compensatory amounts were authorized to be awarded to the Company’s executive
officers as shown in the table below.
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Executive
Officer
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Cash
Bonus
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Number
of Shares of Common Stock Vested
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Robert
A. Whitman
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$ | 645,100 | 112,500 | |||||
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Stephen
D. Young
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177,900 | 23,625 | ||||||
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Robert
William Bennett
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177,900 | 26,250 | ||||||
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Sarah
Merz
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261,000 | 26,250 | ||||||
Item
9.01 Financial Statements and Exhibits
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(b)
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Pro
Forma Financial Information
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Pro
forma financial information is attached hereto as Exhibit 99.2 and is
incorporated herein by reference.
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(d)
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Exhibits:
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2.1
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Master
Asset Purchase Agreement between Franklin Covey Products, LLC and Franklin
Covey Co. dated May 22, 2008 (filed as exhibit 2.1 to Form 8-K/A as filed
with the Commission on May 29, 2008 and incorporated herein by
reference).
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2.2
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Amendment
to Master Asset Purchase Agreement between Franklin Covey Products, LLC
and Franklin Covey Co. dated July 3, 2008 (filed as exhibit 2.2 to Form
10-Q as filed with the Commission on July 10, 2008 and incorporated herein
by reference).
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10.1
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Master
License Agreement between Franklin Covey Products, LLC and Franklin Covey
Co. dated July 7, 2008, and effective as of July 5, 2008.**
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10.2
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Supply
Agreement between Franklin Covey Products, LLC and Franklin Covey Product
Sales, Inc. dated July 7, 2008, and effective as of July 5,
2008.**
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10.3
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Master
Shared Services Agreement by and among Franklin Covey Co., Franklin Covey
Client Sales, Inc, Franklin Covey Product Sales, Inc., Franklin
Development Corp., Franklin Covey Canada, Ltd., Franklin Covey Europe,
Ltd. and Franklin Covey de Mexico S. de R.L. de C.V., Franklin Covey
Products, Franklin Covey Products Canada ULC, Franklin Covey Products
Europe Limited and FC Products de Mexico, S. de R.L. de C.V., dated July
7, 2008, and effective as of July 5, 2008.**
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10.4
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Amended
and Restated Operating Agreement of Franklin Covey Products, LLC, dated
July 7, 2008, and effective as of July 5, 2008.**
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10.5
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Sublease
Agreement between Franklin Development Corp. and Franklin Covey Products,
LLC, dated July 7, 2008, and effective as of July 5, 2008.**
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10.6
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Sub-sublease
Agreement, between Franklin Covey Co. and Franklin Covey Products, LLC,
dated July 7, 2008, and effective as of July 5, 2008.**
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10.7
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Modification
Agreement between Franklin Covey Co. and JP Morgan Chase Bank, N.A., dated
July 8, 2008.**
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99.1
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Press
release announcing the completion of the sale of the Consumer Solutions
Business Unit dated July 7, 2008.**
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99.2
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Pro
forma financial information.**
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**
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Filed
herewith.
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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 hereunto
duly authorized.
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FRANKLIN
COVEY CO.
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Date:
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July 11, 2008
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By:
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/s/ Stephen D. Young | |
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Stephen
D. Young
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Chief
Financial Officer
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