As
filed with the Securities Exchange Commission on February 2,
2006
Registration
No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-3
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FRANKLIN
COVEY CO.
(Exact
Name of Registrant as Specified in its Charter)
|
Utah
(State
or other jurisdiction of
incorporation
or organization)
|
87-0401551
(I.R.S.
Employer
Identification
No.)
|
|
|
2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2099
(801)
817-1776
(Address,
including zip code, and telephone number, including area code, of
registrant’s principal executive offices)
|
||
|
Robert
A. Whitman
President
and Chief Executive Officer
2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2099
(801)
817-1776
(Name,
address, including zip code, and telephone number, including area
code, of
agent for service)
|
||
|
Copy
to:
Nolan
S. Taylor, Esq.
DORSEY
& WHITNEY LLP
170
South Main Street, Suite 900
Salt
Lake City, Utah 84101-1655
Telephone:
(801) 933-7360
Facsimile:
(801) 933-7373
|
||
Approximate
date of commencement of proposed sale to the public:
From
time
to time after the effective date of this registration statement.
If
the
only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box:
¨
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ¨
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If
this
Form is a registration statement pursuant to General Instruction I.D. or a
post-effective amendment thereto that shall become effective upon filing with
the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box. ¨
If
this
Form is a post-effective amendment to a registration statement filed pursuant
to
General Instruction I.D. filed to register additional securities or additional
classes of securities pursuant to Rule 413(b) under the Securities Act, check
the following box. ¨
CALCULATION
OF REGISTRATION FEE
|
Title
of Each Class of Securities
to
be Registered
|
Amount
to
be
Registered
(1)
|
Proposed
Maximum
Offering
Price
per
Share (2)
|
Proposed
Maximum
Aggregate
Offering
Price
|
Amount
of
Registration
Fee
(2)
|
|||||||||
|
Common
stock, $0.05 par value per share, underlying warrants
|
325,686
|
$
|
8.00
|
$
|
2,605,488
|
$
|
278.79
|
||||||
| (1) | This Registration Statement also covers such indeterminate number of additional shares as may become issuable pursuant to Rule 416 promulgated under the Securities Act of 1933, as amended, as a result of anti-dilution adjustments. |
| (2) | For purposes of calculating the registration fee for the common shares underlying the warrants, based on the highest exercise price of the warrants pursuant to Rule 457(g) under the Securities Act of 1933, as amended. |
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities
in
any state where the offer or sale is not permitted.
Subject
to completion: Dated February 2, 2006
FRANKLIN
COVEY CO.
325,686
Shares of Common Stock
On
March
8, 2005, we completed a recapitalization that effectively bifurcated our
outstanding Series A Preferred Stock into two separate securities: (1) new
Series A Preferred Stock with revised terms and rights and (2) warrants to
purchase shares of common stock at $8.00 per share with an eight-year exercise
period. This prospectus relates to the sale, transfer or distribution of up
to
325,686
shares
of
our common stock, $0.05 par value per share, issuable upon the exercise of
such
warrants. We will receive the proceeds from the exercise of the warrants. We
will not receive any proceeds from the further sale of the common stock issuable
upon the exercise of those warrants.
Our
common stock is listed and traded on the New York Stock Exchange under the
symbol “FC.” On February 1, 2006, the average of the high and low prices of our
common stock on the NYSE was $7.10 per share.
____________________________
The
shares of common stock offered or sold under this prospectus involve a high
degree of risk. You should carefully consider the risk factors beginning on
page 3 of this prospectus before purchasing any of the shares of common
stock offered under this prospectus.
Neither
the Securities and Exchange Commission, any state securities commission, nor
any
other regulatory authority has approved or disapproved of these securities
or
passed upon the accuracy or adequacy of this prospectus. Any representation
to
the contrary is a criminal offense.
____________________________
The
date
of this prospectus is , 2006.
TABLE
OF CONTENTS
You
should rely only on the information contained in this prospectus. We have not
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely
on
it. We are not making an offer to sell these securities in any jurisdiction
where the offer or sale is not permitted. You should assume that the information
appearing in this prospectus is accurate only as of the date on the front cover
of this prospectus. Our business, financial condition, results of operations
and
prospects may have changed since that date.
____________________________
In
this prospectus, “we,” “us,” “our” and “FranklinCovey” refers to Franklin Covey
Co. and each of its operating divisions and subsidiaries.
PROSPECTUS
SUMMARY
This
summary does not contain all of the information you should consider before
investing in our common stock. You should read the entire prospectus, including
the risks discussed under the caption “Risk Factors” and the information
incorporated by reference from our periodic reports, for important information
regarding our company and our common stock before making the decision to
invest.
General
We
seek
to improve the effectiveness of organizations and individuals. We are a
worldwide leader in providing integrated learning and performance solutions
to
organizations and individuals that are designed to enhance strategic execution,
productivity, leadership, sales force performance, effective communications,
and
other skills. Each performance solution may include products and services that
encompass training and consulting, assessment, and various application tools
that are generally available in electronic or paper-based formats. Our products
and services are available through professional consulting services, public
workshops, retail stores, catalogs, and the Internet at www.franklincovey.com.
Historically, our best-known offerings include the FranklinCovey
PlannerTM
and
a
suite of new and updated individual-effectiveness and leadership-development
training products based on the best-selling book The
7 Habits of Highly Effective People.
We also
offer a range of training and assessment products to help organizations achieve
superior results by focusing and executing on top priorities, building the
capability of knowledge workers, and aligning business processes. These
offerings include the popular workshop FOCUS:
Achieving Your Highest PrioritiesTM,
The
4
Disciplines of ExecutionTM,
The
4 Roles of LeadershipTM,
Building Business Acumen: What the CEO Wants You to KnowTM,
the
Advantage Series communication workshops, and the Execution
Quotient
(xQTM)
organizational assessment tool. Nearly 1,500 FranklinCovey associates world-wide
delivered timeless and universal curriculum and effectiveness tools to more
than
five million customers in fiscal 2005.
Preferred
Stock Recapitalization
On
March
8, 2005, we completed a recapitalization transaction which resulted in
substantial changes to the terms and rights of our Series A Preferred Stock.
This transaction was designed to establish the foundation and flexibility for
future actions which could create value for holders of our common stock. The
recapitalization effectively bifurcated the outstanding Series A Preferred
Stock
into two separate securities: (1) new Series A Preferred Stock with revised
terms and rights and (2) warrants to purchase shares of common stock at $8.00
per share with an eight-year exercise period. In the recapitalization, we also
amended the terms and rights of our Series B Preferred Stock to make it
substantively identical to our Series A Preferred Stock except that it does
not
have common stock equivalent voting rights.
In
connection with the recapitalization, we amended and restated our articles
of
incorporation to eliminate the convertibility of the Series A Preferred Stock
and Series B Preferred Stock into common stock and to otherwise amend the
designations, voting powers, preferences and relative, participating, optional
and other special rights, qualifications, limitations and restrictions of the
Series A Preferred Stock and the Series B Preferred Stock, and to make other
miscellaneous changes to our articles of incorporation. Among other things,
each
share of Series A Preferred Stock will, immediately prior to any transfer to
a
transferee other than an affiliate, five percent equity holder, immediate family
member or trust for the benefit of the transferring holder, convert
automatically into one share of Series B Preferred Stock.
Corporate
Information
We
were
organized as a Utah corporation on December 2, 1983. Our principal executive
offices are located at 2200 West Parkway Boulevard, Salt Lake City, Utah 84119.
Our telephone number at that location is (801) 817-1776. Our website is located
at www.franklincovey.com.
The
information contained on our website is not part of this
prospectus.
The
Offering
|
Securities
offered
|
Up
to 325,686
shares
of common stock issuable upon exercise of our warrants.
|
|
Use
of proceeds
|
The
net proceeds, if any, from the exercise of the warrants will be used
for
working capital and general corporate purposes.
|
|
Risk
factors
|
See
“Risk Factors” and the other information included in this prospectus for a
discussion of the factors you should consider carefully before deciding
to
invest in shares of our common stock.
|
|
NYSE
symbol for common stock
|
FC
|
1
RISK
FACTORS
Business
Environment and Risk
Our
business environment, current domestic and international economic conditions,
and other specific risks may affect our future business decisions and financial
performance. The matters discussed below may cause our future results to differ
from past results or those described in forward-looking statements and could
have a material adverse effect on our business, financial condition, liquidity,
results of operations, and stock price.
We
have experienced significant declines in sales and corresponding net losses
in
recent fiscal years and we may not be able to return to consistent
profitability
Although
our sales increased in fiscal 2005 compared to fiscal 2004, we have experienced
significant sales declines in prior years. Our sales during fiscal 2005 were
$283.5 million compared to $275.4 million in fiscal 2004 and
$307.2 million in fiscal 2003. While our net income (before preferred
dividends and recapitalization loss) has improved to $10.2 million in fiscal
2005, declining sales have also had a corresponding adverse impact upon our
operating results during prior fiscal years and we have reported net losses
totaling $10.2 million in fiscal 2004 and $45.3 million in fiscal
2003. Our sales for the first quarter of fiscal 2006, which ended November
26,
2005, were $72.4 million compared to $69.1 million for the quarter ended
November 27, 2004. Our net income improved to $3.2 million for the quarter
ended
November 26, 2005 compared to $1.5 million in the same quarter of the prior
fiscal year. We continue to implement initiatives designed to increase our
sales
and improve our operating results, and have recognized significant improvements
in recent years, however, we cannot assure you that we will return to
consistently profitable operations.
In
addition to declining sales, we have faced numerous challenges that have
affected our operating results in recent years. Specifically, we have
experienced, and may continue to experience, the following:
| · |
Declining
traffic in our retail stores and consumer direct channel
|
| · |
Increased
risk of excess and obsolete inventories
|
| · |
Operating
expenses that, as a percentage of sales, have exceeded our desired
business model
|
| · |
Costs
associated with exiting unprofitable retail stores
|
Our
results of operations are materially affected by economic conditions, levels
of
business activity, and other changes experienced by our clients
Uncertain
economic conditions continue to affect many of our clients’ businesses and their
budgets for training, consulting, and related products. Such economic conditions
and budgeted spending are influenced by a wide range of factors that are beyond
our control and that we have no comparative advantage in forecasting. These
conditions include:
| · |
The
overall demand for training, consulting, and our related
products
|
| · |
Conditions
and trends in the training and consulting
industry
|
| · |
General
economic and business conditions
|
| · |
General
political developments, such as the war on terrorism, and their impacts
upon our business both domestically and
internationally
|
| · |
Natural
disasters
|
In
addition, our business tends to lag behind economic cycles and, consequently,
the benefits of any economic recovery may take longer for us to realize than
other segments of the economy. Future deterioration of economic conditions,
particularly in the United States, could increase these effects on our
business.
We
may not be able to compensate for lower sales or unexpected cash outlays with
cost reductions significant enough to generate positive net income
Although
we have initiated cost-cutting efforts that have included headcount reductions,
retail store closures, consolidation of administrative office space, and changes
in our advertising and marketing strategy, if we are not able to prevent further
revenue declines or achieve our growth objectives, we will need to further
reduce our costs. An unintended consequence of additional cost reductions may
be
reduced sales. If we are not able to effectively reduce our costs and expenses
commensurate with, or at the same pace as, any further deterioration in our
sales, we may not be able to generate positive net income or cash flows from
operations. Although we have experienced improved cash flows from operations
during fiscal 2005 and 2004, an inability to maintain or continue to increase
cash flows from operations may have an adverse impact upon our liquidity and
ability to operate the business. For example, we may not be able to obtain
additional financing or raise additional capital on terms that would be
acceptable to us.
We
are
unable to predict the exact amount of cost reductions required for us to
generate increased cash flows from operations because we cannot accurately
predict the amount of our future sales. Our future sales performance depends,
in
part, on future economic and market conditions, which are not within our
control.
2
Our
global operations pose complex management, foreign currency, legal, tax, and
economic risks, which we may not adequately address
We
have
company-owned offices in Australia, Brazil, Canada, Japan, Mexico, and the
United Kingdom. We also have licensed operations in numerous other foreign
countries. As a result of these foreign operations and their growing impact
upon
our results of operations, we are subject to a number of risks, including:
· Restrictions
on the movement of cash
· Burdens
of complying with a wide variety of national and local laws
· The
absence in some jurisdictions of effective laws to protect our intellectual
property rights
· Political
instability
· Currency
exchange rate fluctuations
· Longer
payment cycles
· Price
controls or restrictions on exchange of foreign currencies
While
we
are not currently aware of any of the foregoing conditions materially adversely
affecting our operations, these conditions, which are outside of our control,
could change at any time.
We
operate in a highly competitive industry
The
training and consulting industry is highly competitive with a relatively easy
entry. Competitors continually introduce new programs and products that may
compete directly with our offerings. Larger and better capitalized competitors
may have enhanced abilities to compete for clients and skilled professionals.
In
addition, one or more of our competitors may develop and implement training
courses or methodologies that may adversely affect our ability to sell our
methodologies to new clients.
Our
profitability will suffer if we are not able to maintain our pricing and
utilization rates and control our costs
Our
profit margin on training services is largely a function of the rates we are
able to recover for our services and the utilization, or chargeability, of
our
trainers, client partners, and consultants. Accordingly, if we are unable to
maintain sufficient pricing for our services or an appropriate utilization
rate
for our training professionals without corresponding cost reductions, our profit
margin and overall profitability will suffer. The rates that we are able to
recover for our services are affected by a number of factors, including:
| · |
Our
clients’ perceptions of our ability to add value through our programs and
products
|
| · |
Competition
|
| · |
General
economic conditions
|
| · |
Introduction
of new programs or services by us or our competitors
|
| · |
Our
ability to accurately estimate, attain, and sustain engagement sales,
margins, and cash flows over longer contract periods
|
Our
utilization rates are also affected by a number of factors, including:
| · |
Seasonal
trends, primarily as a result of scheduled training
|
| · |
Our
ability to forecast demand for our products and services and thereby
maintain an appropriate headcount in our employee base
|
| · |
Our
ability to manage attrition
|
Our
profitability is also a function of our ability to control costs and improve
our
efficiency in the delivery of our products and services. Our cost-cutting
initiatives, which focus on reducing both fixed and variable costs, may not
be
sufficient to deal with downward pressure on pricing or utilization rates.
As we
introduce new programs and seek to increase the number of our training
professionals, we may not be able to manage a significantly larger and more
diverse workforce, control our costs, or improve our efficiency.
3
Our
new training programs and products may not be widely accepted in the
marketplace
In
an
effort to improve our sales performance, we have made significant investments
in
new training and consulting offerings such as the 4
Disciplines of Execution.
Additionally, we have invested in our existing programs in order to refresh
these programs and keep them relevant in the marketplace, including the newly
revised The
7
Habits of Highly Effective People curriculum.
We expect that these new programs, combined with new product offerings, will
contribute to future growth in our revenue. Although we believe that our
intellectual property is highly regarded in the marketplace, the demand for
these new programs and products is still emerging. If our clients’ demand for
these new programs and products does not develop as we expect, or if our sales
and marketing strategies for these programs are not effective, our financial
results could be adversely impacted and we may need to change our business
strategy.
If
we are unable to attract, retain, and motivate high-quality employees, we will
not be able to compete effectively and will not be able to grow our business
Due
to
our reliance on customer satisfaction, our overall success and ability to grow
are dependent, in part, on our ability to hire, retain, and motivate sufficient
numbers of talented people with the necessary skills needed to serve clients
and
grow our business. The inability to attract qualified employees in sufficient
numbers to meet particular demands or the loss of a significant number of our
employees could have a serious adverse effect on us, including our ability
to
obtain and successfully complete important client engagements and thus maintain
or increase our sales.
We
continue to offer a variable component of compensation, the payment of which
is
dependent upon our sales performance and profitability. We adjust our
compensation levels and have adopted different methods of compensation in order
to attract and retain appropriate numbers of employees with the necessary skills
to serve our clients and grow our business. We may also use equity-based
performance incentives as a component of our executives’ compensation, which may
affect amounts of cash compensation. Variations in any of these areas of
compensation may adversely impact our operating performance.
We
may experience foreign currency gains and losses
We
conduct a portion of our business in currencies other than the United States
dollar. As our international operations continue to grow and become a larger
component of our financial results, our revenues and operating results may
be
adversely affected when the dollar strengthens relative to other currencies
and
are positively affected when the dollar weakens. In order to manage a portion
of
our foreign currency risk, we make limited use of foreign currency derivative
contracts to hedge certain transactions and translation exposure. There can
be
no guarantee that our foreign currency risk management strategy will be
effective in reducing the risks associated with foreign currency transactions
and translation.
Our
product sales may continue to decline and result in changes to our profitability
In
recent
years, our product sales have declined. These product sales, which are primarily
delivered through our retail stores, consumer direct channels (catalog call
center and eCommerce), wholesale, and government product channels have
historically been very profitable for us. However, due to recent declines,
we
have reevaluated our product business and have taken steps to restore its
profitability. These initiatives have included hiring an additional sales force
based at certain retail stores, retail store closures, transitioning catalog
customers to our eCommerce site, outsourcing our government products channel,
and increasing our business through wholesale channels. However, these
initiatives may also result in decreased gross margins on our product sales
if
lower-margin wholesale sales continue to increase. If product sales continue
to
decline or gross margins decline, our product sales strategies may not be
adequate to return our product delivery channels to past profitability levels.
Our
strategy of outsourcing certain functions and operations may fail to reduce
our
costs for these services
We
have
an outsourcing contract with Electronic Data Systems (EDS) to provide
warehousing, distribution, information systems, and call center operations.
Under terms of the outsourcing contract and its addendums, EDS operates our
company’s primary call center, provides warehousing and distribution services,
and supports our company’s various information systems. Certain components of
the outsourcing agreement contain minimum activity levels that we must meet
or
we will be required to pay penalty charges. If these activity levels are not
achieved, we may not realize anticipated benefits from the EDS outsourcing
agreement in these areas.
Our
outsourcing contracts with EDS contain early termination provisions that we
may
exercise under certain conditions. However, in order to exercise the early
termination provisions, we would have to pay specified penalties to EDS
depending upon the circumstances of the contract termination.
4
We
have significant intangible asset balances that may be impaired if cash flows
from related activities decline
At
November 26, 2005, we had $82.2 million of intangible assets, which were
primarily generated from the fiscal 1997 merger with the Covey Leadership
Center. These intangible assets are evaluated for impairment based upon cash
flows (definite-lived intangible assets) and estimated royalties from revenue
streams (indefinite-lived intangible assets). Although our current sales and
cash flows are sufficient to support these intangibles, if our sales and
corresponding cash flows decline, we may be faced with significant asset
impairment charges.
Our
sales are subject to changes in consumer preferences and buying trends
Our
product sales are subject to changing consumer preferences and difficulties
in
anticipating or forecasting these changes may result in adverse consequences
to
our sales. Although we continue to have a substantial loyal customer base for
many of our existing products, changes in consumer preferences, such as a shift
in demand from paper-based planners to handheld electronic devices or other
technology products, may have an adverse impact upon our sales. While we have
experienced stabilizing sales in our core products (paper-based planners,
binders, and accessories) during fiscal 2005, we are still subject to consumer
preferences for these products.
Our
future quarterly operating results are subject to factors that can cause
fluctuations in our stock
price
Historically,
our stock price has experienced significant volatility. We expect that our
stock
price may continue to experience volatility in the future due to a variety
of
potential factors that may include the following:
· Fluctuations
in our quarterly results of operations and cash flows
· Variations
between our actual financial results and market expectations
· Changes
in our key balances, such as cash and cash equivalents
· Currency
exchange rate fluctuations
· Unexpected
asset impairment charges
· No
analyst coverage
In
addition, the stock market has experienced substantial price and volume
fluctuations over the past several quarters that has had some impact upon our
stock and other stock issues in the market. These factors, as well as general
investor concerns regarding the credibility of corporate financial statements
and the accounting profession, may have a material adverse effect upon our
stock
in the future.
We
may need additional capital in the future, and this capital may not be available
to us on favorable terms
We
may
need to raise additional funds through public or private debt offerings or
equity financings in order to:
· Develop
new services, programs, or products
· Take
advantage of opportunities, including expansion of the business
· Respond
to competitive pressures
We
may be
unable to obtain the necessary capital on terms or conditions that are favorable
to us.
We
are the creditor for a management common stock loan program that may not be
fully collectible
We
are
the creditor for a loan program that provided the capital to allow certain
management personnel the opportunity to purchase shares of our common stock.
For
further information regarding our management common stock loan program, refer
to
Note 11 to our August 31, 2005 consolidated financials statements. The inability
of our company to collect all, or a portion, of these receivables could have
an
adverse impact upon our financial position and future cash flows compared to
full collection of the loans.
5
We
may have exposure to additional tax liabilities
As
a
multinational company, we are subject to income taxes as well as non-income
based taxes, in both the United States and various foreign tax jurisdictions.
Significant judgment is required in determining our worldwide provision for
income taxes and other tax liabilities. In the normal course of a global
business, there are many intercompany transactions and calculations where the
ultimate tax determination is uncertain. As a result, we are regularly under
audit by tax authorities. Although we believe that our tax estimates are
reasonable, we cannot assure you that the final determination of tax audits
will
not be different from what is reflected in our historical income tax provisions
and accruals.
We
are
also subject to non-income taxes, such as payroll, sales, use, valued-added,
and
property taxes in both the United States and various foreign jurisdictions.
We
are regularly under audit by tax authorities with respect to these non-income
taxes and may have exposure to additional non-income tax
liabilities.
We
may be exposed to potential risks relating to internal controls procedures
and
our ability to have those controls attested to by our independent auditors
While
we
believe that we can comply with the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002, our failure to document, implement, and comply
with
these requirements may harm our reputation and the market price of our stock
could suffer. We may be exposed to risks from recent legislation requiring
companies to evaluate their internal controls and have those controls attested
to by their independent auditors. We are evaluating our internal control systems
in order to allow our management to report on, and our independent auditors
attest to, our internal controls, as a required part of our Annual Report on
Form 10-K beginning with our report for the fiscal year ended
August 31, 2006.
At
present, there is little precedent available with which to measure compliance
adequacy. In the event we identify significant deficiencies or material
weaknesses in our internal controls that we cannot remediate in a timely manner,
our reputation, financial results, and market price of our stock could suffer.
We
may elect to use our cash to redeem shares of preferred stock, which may
decrease our ability to respond to adverse changes
Our
outstanding preferred stock bears a cumulative dividend equal to 10 percent
per
annum. During fiscal 2005, we utilized a portion of the proceeds from the sale
of our corporate headquarters to redeem $30.0 million of our preferred stock.
Subsequent to August 31, 2005, we redeemed an additional $10.0 million of
preferred stock and amended the terms of our preferred stock recapitalization
that was completed in fiscal 2005 to extend the period during which we can
redeem preferred stock at an amount equal to the liquidation preference. We
anticipate that we may redeem additional shares of preferred stock in the future
to the extent that we believe sufficient cash is available to do so. Any such
redemptions will reduce our cash on hand and may reduce our ability to
adequately respond to any future adverse changes in our business and operations,
whether anticipated or unanticipated.
SPECIAL
NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This
prospectus contains forward-looking statements. These forward-looking statements
are based on our current expectations, estimates and projections about our
industry, management’s beliefs and certain assumptions made by us. Words such as
“anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,”
“predict,” “continue,” “will” and “may” and variations of these words or similar
expressions are intended to identify forward-looking statements. These
statements reflect the views of our management at the time they are made based
on information currently available to management. These statements are not
guarantees of future performance and are subject to certain risks, uncertainties
and assumptions that are difficult to predict. Therefore, our actual results
could differ materially from those expressed or forecasted in any
forward-looking statements as a result of a variety of factors, including those
set forth in “Risk Factors” above and elsewhere in this prospectus. Except as
required by law, we undertake no obligation to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
6
USE
OF PROCEEDS
In
the
event of full cash exercise of all warrants, we estimate that the net proceeds
to us would be approximately $2,605,488 (exclusive of related expenses). The
actual exercise of any of these securities, however, is beyond our control
and
depends on a number of factors, including the market price of our common stock.
There can be no assurance that any of the warrants will be
exercised.
Additionally,
upon exercise of a warrant, holders may choose, or we may elect to require,
any
warrant exercise to be a net exercise in which the exercising holder would
receive fewer shares of common stock, depending on the fair market value of
the
common stock at the time of exercise, than otherwise could be received upon
an
exercise for cash. We would receive no proceeds from any net exercise. Further,
we, at our election, may choose, in the place of issuing any shares of common
stock to such holder, to pay to any holder completing a net exercise of a
warrant a cash amount equal to the fair market value of the shares of common
stock that otherwise would be issuable to such holder in connection with such
net exercise as opposed to issuing shares of common stock to the exercising
holder. In this case, not only would we not receive any proceeds, but we would
pay out cash to avoid issuing additional shares.
The
net
proceeds, if any, from the exercise of the warrants will be used for working
capital and general corporate purposes. We will not receive any proceeds from
the sale of any of the common stock issuable upon the exercise of the warrants.
PLAN
OF DISTRIBUTION
We
are
offering shares of common stock issuable upon the exercise of the warrants
issued in connection with a recapitalization of our company. Such warrants
may
be exercised by surrendering a duly executed Notice of Exercise and the warrant
certificate, together with payment of the exercise price, to our principal
office before 5:00 p.m. on the expiration date defined therein. If less than
all
of the warrants evidenced by a warrant certificate are exercised, a new warrant
certificate will be issued for the remaining number of warrants.
DESCRIPTION
OF CAPITAL STOCK
The
common stock registered by this prospectus is of the same class as other of
our
securities registered pursuant to Section 12 of the Securities Exchange Act
of
1934, as amended.
LEGAL
MATTERS
The
validity under the Utah Revised Business Corporation Act of the common stock
offered by this prospectus has been passed on for us by Dorsey &
Whitney LLP, Salt Lake City, Utah.
EXPERTS
The
consolidated financial statements and financial statement schedule of Franklin
Covey Co. as of August 31, 2005 and 2004 and for each of the years in the
three-year period ended August 31, 2005 have been incorporated by reference
herein and in the registration statement in reliance upon the report of KPMG
LLP, independent registered public accounting firm, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The
audit
reports indicate that the consolidated financial statements as of August 31,
2004 and for each of the years ended August 31, 2004 and 2003 have been
restated.
WHERE
YOU CAN FIND MORE INFORMATION
We
file
annual, quarterly and special reports, proxy statements and other information
with the Securities and Exchange Commission. You may read and copy any document
we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the Public Reference Room. Our SEC filings are also available
to
the public at the SEC’s web site at http://www.sec.gov. In addition, we maintain
an Internet website at www.franklincovey.com. We do not intend that our website
be a part of this prospectus.
We
incorporate information into this prospectus by reference, which means that
we
disclose important information to you by referring you to another document
filed
separately with the SEC. The information incorporated by reference is deemed
to
be part of this prospectus, except for any such information superseded by
information contained in later-filed documents or directly in this prospectus.
This prospectus incorporates by reference the documents set forth below that
we
have previously filed with the SEC. These documents contain important
information about us and our financial condition:
7
|
(1)
|
Annual
Report on Form 10-K for the year ended August 31, 2005, filed
November 29, 2005;
|
|
(2)
|
Quarterly
Report on Form 10-Q for the quarter ended November 26, 2005, filed
January
10, 2006;
|
|
(3)
|
Current
Reports on Form 8-K, filed January 24, 2006 and January 26, 2006;
and
|
|
(4)
|
The
description of our common stock contained in the
Registration Statement on Form 8-A filed under the Securities
Exchange Act of 1934, including any amendment or report filed under
the
Exchange Act of 1934, for the purpose of updating such
description.
|
We
also
incorporate all documents we subsequently file with the SEC pursuant to
Section 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of
1934, after the date of this prospectus and prior to the termination of this
offering (except for information furnished under Items 2.02 or 7.01 of our
current reports on Form 8-K). The information in these documents will update
and
supersede the information in this prospectus.
We
will
provide at no cost to each person to whom this prospectus is delivered,
including any beneficial owner, upon written or oral request, a copy of any
or
all of the information that has been incorporated by reference in this
prospectus but not delivered with this prospectus. Investors should direct
requests to Richard Putnam, Franklin Covey Co., 2200 West Parkway Boulevard,
Salt Lake City, Utah 84119, telephone: (801) 817-1776.
8
FRANKLIN
COVEY CO.
325,686
SHARES
OF COMMON STOCK
PROSPECTUS
,
2006
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
ITEM
14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The
Registrant will pay all reasonable expenses incident to the registration of
the
securities. Such expenses are set forth in the following table. All of the
amounts shown are estimates except the SEC registration fee.
|
SEC
registration fee
|
$
|
279
|
||
|
Legal
fees
|
$
|
10,000
|
||
|
Accounting
fees and expenses
|
$
|
5,000
|
||
|
Printing
and other expenses
|
$
|
100
|
||
|
|
||||
|
Total
|
$
|
15,379
|
ITEM
15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 16-10a-902
of the Utah Revised Business Corporation Act (the “Revised Act”) provides that a
corporation may indemnify any individual made a party to a proceeding because
he
is or was a director, against liability incurred in the proceeding, if: (a)
his
conduct was in good faith, (b) he reasonably believed that his conduct was
in,
or not opposed to, the corporation’s best interests; and (c) in the case of any
criminal proceeding, he had no reasonable cause to believe such conduct was
unlawful; provided, however, that a corporation may not indemnify a director
under Section 16-10a-902 if (i) in connection with a proceeding by or in
the right of the corporation in which the director was adjudged liable to the
corporation, or (ii) in connection with any other proceeding charging that
the director derived an improper personal benefit, whether or not involving
action in his or her official capacity, in which proceeding he was adjudged
liable on the basis that he derived an improper benefit.
Section 16-10a-903
of the Revised Act provides that, unless limited by its articles of
incorporation, a corporation shall indemnify a director who was successful,
on
the merits or otherwise, in the defense of any proceeding, or in the defense
of
any claim, issue or matter in the proceeding, to which he was a party because
he
is or was a director of the corporation, against reasonable expenses incurred
in
connection with the proceeding or claim with respect to which he has been
successful.
In
addition to the indemnification provided by Sections 902 and 903,
Section 16-10a-905 of the Revised Act provides that, unless otherwise
limited by a corporation’s articles of incorporation, a director may apply for
indemnification to the court conducting the proceeding or to another court
of
competent jurisdiction.
Section 16-10a-904
of the Revised Act provides that a corporation may pay for or reimburse the
reasonable expenses incurred by a director who is a party to a proceeding in
advance of the final disposition of the proceeding upon the satisfaction of
certain conditions.
Section 16-10a-907
of the Revised Act provides that, unless a corporation’s articles of
incorporation provide otherwise, (i) an officer of the corporation is
entitled to mandatory indemnification under Section 903 and is entitled to
apply for court-ordered indemnification under Section 905, in each case to
the same extent as a director, (ii) the corporation may indemnify and
advance expenses to an officer, employee, fiduciary or agent of the corporation
to the same extent as a director, and (iii) a corporation may also
indemnify and advance expenses to an officer, employee, fiduciary or agent
who
is not a director to a greater extent, if not inconsistent with public policy,
and if provided for by its articles of incorporation, bylaws, general or
specific action of its board of directors or contract.
Section 16-10a-908
of the Revised Act provides that a corporation may purchase and maintain
liability insurance on behalf of a person who is or was a director, officer,
employee, fiduciary, or agent of the corporation or who, while serving as a
director, officer, employee, fiduciary, or agent of the corporation, is or
was
serving at the request of the corporation as a director, officer, partner,
trustee, employee, fiduciary, or agent of another foreign or domestic
corporation or other person, or of an employee benefit plan against liability
asserted against or incurred by the individual in that capacity or arising
from
his status as such, whether or not the corporation would have the power to
indemnify him against the same liability under Section 902, 903, or 907 of
the Revised Act.
II-1
Section 16-10a-909
of the Revised Act provides that a provision treating a corporation’s
indemnification of, or advance for expenses to, directors that is contained
in
its articles of incorporation or bylaws, in a resolution of its shareholders
or
board of directors or in a contract (except an insurance policy), or otherwise,
is valid only if and to the extent the provision is not inconsistent with
Sections 901 through 909 of the Revised Act. If the articles of incorporation
limit indemnification or advancement of expenses, indemnification and
advancement of expenses are valid only to the extent not inconsistent with
the
articles.
Our
bylaws, as amended and restated, provide that we shall, to the fullest extent
permitted, and in the manner required by the laws of the State of Utah,
indemnify an individual made, or threatened to be made a party to a proceeding
because he or she is or was a director, officer, employee or agent of us or
of
another enterprise at our request.
Our
articles of incorporation provide that to the fullest extent permitted by the
Revised Act, no director shall be liable to us or our shareholders for monetary
damages. In addition, we are authorized to indemnify our directors and officers
to the fullest extent permitted under applicable law.
Indemnification
may be granted pursuant to any other agreement, bylaw, or vote of shareholders
or directors. In addition to the foregoing, we maintain insurance from
commercial carriers against certain liabilities which may be incurred by our
directors and officers.
The
foregoing description is necessarily general and does not describe all details
regarding the indemnification of our officers, directors or controlling
persons.
ITEM
16. EXHIBITS
|
Exhibit
No.
|
Description
|
|
|
4.1
|
Specimen
Certificate of the Registrant’s common stock, par value $0.05 per share
(incorporated by reference to Amendment No. 1 to Registration Statement
on
Form S-1 filed with the Commission on May 26, 1992, Registration
No.
33-47283).
|
|
|
4.2
|
Articles
of Restatement filed January 30, 2006 amending and restating the
Registrant’s Articles of Incorporation.
|
|
|
4.3
|
Amended
and Restated Bylaws of the Registrant (incorporated
by reference to Exhibit 3.2 to the Registration Statement on Form
S-1
filed with the Commission on April 17, 1992, Registration No.
33-47283).
|
|
|
5.1
|
Opinion
of Dorsey & Whitney LLP.
|
|
|
23.1
|
Consent
of KPMG LLP, Independent Registered Public Accounting Firm.
|
|
|
23.2
|
Consent
of Dorsey & Whitney LLP (included in Exhibit 5.1).
|
|
|
24.1
|
Power
of Attorney (included in signature page).
|
ITEM
17. UNDERTAKINGS
The
undersigned Registrant hereby undertakes:
(1)
To
file,
during any period in which offers or sales of securities are being made, a
post-effective amendment to this registration statement:
(i)
To
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933;
(ii)
To
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement. Notwithstanding
the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective
registration statement; and
(iii)
To
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement.
II-2
Provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply
if the registration statement is on Form S-3, Form S-8 of Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 of section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2)
That,
for
the purpose of determining any liability under the Securities Act of 1933,
each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of the securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3)
To
remove
from registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the
offering.
The
undersigned Registrant hereby undertakes that, for purposes of determining
any
liability under the Securities Act of 1933, each filing of the Registrant’s
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall
be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be
the initial bona fide offering thereof.
Insofar
as indemnifications for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of
such issue.
II-3
SIGNATURE
Pursuant
to the requirements of the Securities Act of 1933, the Registrant certifies
that
it has reasonable grounds to believe that it meets all of the requirements
for
filing on Form S-3 and has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Salt
Lake City, State of Utah, on February 2, 2006.
| FRANKLIN COVEY CO. | ||
| |
|
|
| By: | /s/ ROBERT A. WHITMAN | |
|
Robert A. Whitman |
||
| President and Chief Executive Officer | ||
POWER
OF ATTORNEY
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated. Each person whose signature to this Registration Statement appears
below hereby constitutes and appoints Robert A. Whitman and Stephen D.
Young, and each of them, as his true and lawful attorney-in-fact and agent,
with
full power of substitution, to sign on his behalf individually and in the
capacity stated below and to perform any acts necessary to be done in order
to
file all amendments and post-effective amendments to this Registration
Statement, and any and all instruments or documents filed as part of or in
connection with this Registration Statement or the amendments thereto and each
of the undersigned does hereby ratify and confirm all that said attorney-in-fact
and agent, or his substitutes, shall do or cause to be done by virtue
hereof.
|
Signature
|
Title
|
Date
|
|
|
/s/
ROBERT A. WHITMAN
|
Chairman
of the Board of Directors, President and Chief Executive Officer
(Principal Executive Officer)
|
February
2, 2006
|
|
|
Robert
A. Whitman
|
|||
|
/s/
STEPHEN D. YOUNG
|
Senior
Vice President and Chief Financial Officer (Principal Financial and
Accounting Officer)
|
February
2, 2006
|
|
|
Stephen
D. Young
|
|||
|
/s/
CLAYTON M. CHRISTENSEN
|
|||
|
Clayton
M. Christensen
|
Director
|
February
2, 2006
|
|
|
/s/
STEPHEN R. COVEY
|
|||
|
Stephen
R. Covey
|
Director
|
February
2, 2006
|
|
|
/s/
ROBERT H. DAINES
|
Director
|
February
2, 2006
|
|
|
Robert
H. Daines
|
|||
|
/s/
E. J. “JAKE” GARN
|
Director
|
February
2, 2006
|
|
|
E.
J. “Jake” Garn
|
|||
|
/s/
DENNIS G. HEINER
|
Director
|
February
2, 2006
|
|
|
Dennis
G. Heiner
|
|||
|
/s/
DONALD J. MCNAMARA
|
Director
|
February
2, 2006
|
|
|
Donald
J. McNamara
|
|||
|
/s/
JOEL C. PETERSON
|
Director
|
February
2, 2006
|
|
|
Joel
C. Peterson
|
|||
|
/s/
E. KAY STEPP
|
Director
|
February
2, 2006
|
|
|
E.
Kay Stepp
|
EXHIBIT
INDEX
|
Exhibit
No.
|
Description
|
|
|
4.1
|
Specimen
Certificate of the Registrant’s common stock, par value $0.05 per share
(incorporated by reference to Amendment No. 1 to Registration Statement
on
Form S-1 filed with the Commission on May 26, 1992, Registration
No.
33-47283).
|
|
|
4.2
|
Articles
of Restatement filed January 30, 2006 amending and
restating the Registrant’s Articles of Incorporation.
|
|
|
4.3
|
Amended
and Restated Bylaws of the Registrant (incorporated
by reference to Exhibit 3.2 to the Registration Statement on Form
S-1
filed with the Commission on April 17, 1992, Registration No.
33-47283).
|
|
|
5.1
|
Opinion
of Dorsey & Whitney LLP.
|
|
|
23.1
|
Consent
of KPMG LLP, Independent Registered Public Accounting Firm.
|
|
|
23.2
|
Consent
of Dorsey & Whitney LLP (included in Exhibit 5.1).
|
|
|
24.1
|
Power
of Attorney (included in signature page).
|
Exhibit
5.1
February
2, 2006
Franklin
Covey Co.
2200
West
Parkway Boulevard
Salt
Lake
City, Utah 84119
|
Re:
|
Registration
Statement on Form S-3
|
Ladies
and Gentlemen:
We
have
acted as special counsel to Franklin Covey Co., a Utah corporation (the
“Company”), in connection with a Registration Statement on Form S-3, together
with any subsequent amendments thereto (the “Registration Statement”), relating
to the sale of up to 325,686 shares of the Company's common stock, $0.05 par
value per share (the “Shares”), issuable upon the exercise of certain warrants.
The Shares are to be sold from time to time as set forth in the Registration
Statement.
We
have
examined such documents, and have reviewed such questions of law, as we have
considered necessary and appropriate for the purposes of our opinion set forth
below. In rendering our opinion, we have assumed the authenticity of all
documents submitted to us as originals, the genuineness of all signatures and
the conformity to authentic originals of all documents submitted to us as
copies. We have also assumed the legal capacity for all purposes relevant hereto
of all natural persons and, with respect to all parties to agreements or
instruments relevant hereto other than the Company, that such parties had the
requisite power and authority (corporate or otherwise) to execute, deliver
and
perform such agreements or instruments, that such agreements or instruments
have
been duly authorized by all requisite action (corporate or otherwise), executed
and delivered by such parties and that such agreements or instruments are the
valid, binding and enforceable obligations of such parties. As to questions
of
fact material to our opinion, we have relied upon certificates of officers
of
the Company and of public officials.
Based
on
the foregoing, we are of the opinion that if, as and when the Shares are issued,
such Shares will be duly authorized by all requisite corporate action and will
be validly issued, fully paid and nonassessable.
Our
opinion expressed above is limited to the laws of the State of Utah.
We
hereby
consent to the filing of this opinion as an exhibit to the Registration
Statement, and to the reference to our firm under the caption “Legal Matters”
contained in the prospectus included therein.
Very
truly yours,
/s/
DORSEY & WHITNEY LLP
NST/SPG
Exhibit
23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board
of Directors of Franklin Covey Co.:
We
consent to the use of our reports dated November 23, 2005, with respect to
the
consolidated balance sheets of Franklin Covey Co. as of August 31, 2005 and
2004, and the related consolidated statements of operations and comprehensive
income (loss), shareholders’ equity, and cash flows for each of the years in the
three-year period ended August 31, 2005 and the related financial statement
schedule, incorporated herein by reference and to the reference to our firm
under the heading “Experts” in the prospectus.
Our
reports dated November 23, 2005, indicate that the consolidated financial
statements as of August 31, 2004 and for each of the years ended August 31,
2004
and 2003 have been restated.
/s/
KPMG
LLP
Salt
Lake
City, Utah
February
2, 2006
Exhibit
4.2
ARTICLES
OF RESTATEMENT
OF
FRANKLIN
COVEY CO.
In
accordance with Section 16-10a-1007 of the Utah Revised Business
Corporation Act (the “Act”),
Franklin Covey Co., a Utah corporation (the “Company”),
hereby certifies as follows:
1. The
name
of the corporation is Franklin Covey Co.
2. The
text
of the Amended and Restated Articles of Incorporation (the “Restated
Articles”),
amending and restating the Company’s prior Amended and Restated Articles of
Incorporation, is attached hereto as Exhibit
A
and is
incorporated herein by this reference. The Restated Articles supersede the
original Articles of Incorporation of the Company and all prior amendments
and
restatements thereto.
3. The
Restated Articles were adopted by the Company’s Board of Directors on November
10, 2005 and the shareholders at the annual meeting of the shareholders held
January 20, 2006 (the “Shareholders’
Meeting”),
in
accordance with the requirements of the Act.
4. With
respect to the approval of the Restated Articles, the number of outstanding
shares of common stock, par value $0.05 per share (the “Common
Stock”),
including all outstanding shares of Series A Preferred Stock calculated on
an
as-converted into Common Stock basis, as of November 25, 2005, the record date
for the Shareholders’ Meeting (the “Record
Date”),
was
24,532,287 (collectively, the “Common
Equivalent Shares”),
the
number of Common Equivalent Shares entitled to vote at the Shareholder’s Meeting
as a voting group was 24,532,287 and the number of Common Equivalent Shares
indisputably represented at the meeting was 20,332,329. The number of
outstanding shares of Common Stock, excluding all outstanding shares of Series
A
Preferred Stock on an as-converted basis, as of the Record Date was 20,744,725,
the number of such shares of Common Stock entitled to vote at the Shareholders’
Meeting as a voting group was 20,744,725 and the number of such shares
indisputably represented at the meeting was 16,564,983. The number of
outstanding shares of Series A Preferred Stock as of the Record Date was
1,893,781, the number of such shares of Series A Preferred Stock entitled to
vote at the Shareholders’ Meeting as a voting group was 1,893,781 and the number
of shares or Series A Preferred Stock indisputably represented at the meeting
was 1,883,673. Each share of Series A Preferred Stock is entitled to two votes
of Common Stock. There were no outstanding shares of Series B Preferred Stock
as
of the Record Date and no shares of Series B Preferred Stock were entitled
to
vote at the Shareholders’ Meeting as a voting group.
5. For
each
voting group, the following numbers of votes were cast in favor of approving
the
Restated Articles: (i) 8,665,042 Common Equivalent Shares, (ii) 5,175,110 shares
of Common Stock and (iii) 3,489,932 shares of Series A Preferred Stock. For
each
voting group, the number of votes cast in favor of the Restated Articles was
sufficient for approval by such voting group.
IN
WITNESS WHEREOF, these Articles of Restatement have been executed on behalf
of
the Company as of this 20th
day of
January, 2006.
FRANKLIN
COVEY CO.
/s/
ROBERT A. WHITMAN
Robert
A.
Whitman
Chief
Executive Officer
EXHIBIT
A
AMENDED
AND RESTATED ARTICLES
OF
INCORPORATION
OF
FRANKLIN COVEY CO.
ARTICLE
I
The
name
of the corporation is Franklin Covey Co. (the “Company”).
ARTICLE
II
The
duration of the Company is perpetual.
ARTICLE
III
The
purpose of the Company is to engage in any lawful act or activity for which
corporations may be organized under the Utah Revised Business Corporation Act,
as amended (the “Act”).
ARTICLE
IV
The
Company is authorized to issue two classes of stock, which shall be designated,
respectively, as common stock, par value $0.05 per share (“Common
Stock”),
and
preferred stock, no par value (“Preferred
Stock”).
The
total number of shares of capital stock that the Company shall have authority
to
issue is 54,000,000, consisting of 40,000,000 shares of Common Stock, and
14,000,000 shares of Preferred Stock.
The
designation, powers, preferences and relative, participating, optional or other
special rights, and qualifications, limitations or restrictions thereof, of
each
class of stock, and the express grant of authority to the Board of Directors
to
fix by resolution the designation, powers, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, of each share of Preferred Stock which are not fixed
by
these Amended and Restated Articles of Incorporation, are as
follows:
A. Common
Stock.
1. Dividends.
Subject
to the rights of the holders of Preferred Stock, and subject to any other
provisions of the Articles of Incorporation, holders of Common Stock shall
be
entitled to receive such dividends and other distributions in cash, stock or
property of the Company as may be declared thereon by the Board of Directors
from time to time out of assets or funds of the Company legally available
therefor.
2. Liquidation;
Dissolution.
In
the event of any liquidation, dissolution or winding up of the affairs of the
Company, whether voluntary or involuntary, after payment or provision for
payment of the debts and other liabilities of the Company and after payment
or
provision for payment to the holders of each series of Preferred Stock of all
amounts required in accordance with Section B.3 of this Article IV, the
remaining assets and funds of the Company shall be divided among and paid to
the
holders of Common Stock.
3. Voting.
(a) At
every
meeting of the stockholders every holder of Common Stock shall be entitled
to
one vote in person or by proxy for each share of such Stock standing in his
name
on the stock transfer records of the Company.
(b) No
shareholder shall have the right to cumulate votes in the election of
directors.
4. Preemptive
Rights.
No
holder of shares of Common Stock of the Company shall, as such holder, be
entitled as of right to subscribe for, purchase or receive any part of any
new
or additional issue of stock of any class, whether now or hereafter authorized,
or of bonds, debentures or other securities convertible into or exchangeable
for
stock, but all such additional shares of stock of any class, or bonds,
debentures or other securities convertible into or exchangeable for stock,
may
be issued and disposed of by the Board of Directors on such terms and for such
consideration, so far as may be permitted by law, and to such persons, as the
Board of Directors in its absolute discretion may deem advisable.
B. Preferred
Stock.
1. Number;
Series.
The
Preferred Stock may be issued in one or more series, from time to time, with
each such series to have such designation, powers, preferences and relative,
participating, optional or other special rights and qualifications, limitations
or restrictions thereof, as shall be stated and expressed in Section C of this
Article IV or in the resolution or resolutions providing for the issue of such
series adopted by the Board of Directors of the Company, subject to the
limitations prescribed by law and in accordance with the provisions hereof,
the
Board of Directors being hereby expressly vested with authority to adopt any
such resolution or resolutions. The authority of the Board of Directors with
respect to each such series shall include, but not be limited to, the
determination or fixing of the following:
(a) The
distinctive designation and number of shares comprising such series, which
number may (except where otherwise provided by the Board of Directors in
creating such series) be increased or decreased (but not below the number of
shares then outstanding) from time to time by like action of the Board of
Directors;
(b) The
dividend rate of such series, the conditions and times upon which such dividends
shall be payable, the relation which such dividends shall bear to the dividends
payable on any other class or classes of stock or series thereof, or on the
other series of the same class, and whether dividends shall be cumulative or
noncumulative;
(c) The
conditions upon which the shares of such series shall be subject to redemption
by the Company and the times, prices and other terms and provisions upon which
the shares of the series may be redeemed;
(d) Whether
or not the shares of the series shall be subject to the operation of retirement
or sinking fund provisions to be applied to the purchase or redemption of such
shares and, if such retirement or sinking fund be established, the annual amount
thereof and the terms and provisions relative to the operation
thereof;
(e) Whether
or not the shares of the series shall be convertible into or exchangeable for
shares of any other class or classes, with or without par value, or of any
other
series of the same class and, if provision is made for conversion or exchange,
the times, prices, rates, adjustments, and other terms and conditions of such
conversion or exchange;
(f) Whether
or not the shares of the series shall have voting rights, in addition to the
voting rights provided by law, and, if so, subject to the limitations
hereinafter set forth, the terms of such voting rights;
(g) The
rights of the shares of the series in the event of voluntary or involuntary
liquidation, dissolution, or upon distribution of assets of the Company;
and
(h) Any
other
powers, preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of the shares
of such series, as the Board of Directors may deem advisable and as shall not
be
inconsistent with the provisions of these Articles of
Incorporation.
2. Dividends.
The
holders of the shares of Preferred Stock of each series shall be entitled to
receive, when and as declared by the Board of Directors, out of the funds
legally available for the payment of dividends, dividends at the rate fixed
by
the Board of Directors for such series for the current period and, if
cumulative, for all prior periods for which such dividends are cumulative,
and
no more, before any dividends, other than dividends payable in Common Stock,
shall be declared and paid, or set apart for payment, on the Common Stock with
respect to the same dividend period.
Whenever,
at any time, dividends on the then outstanding Preferred Stock as may be
required with respect to any series outstanding shall have been paid or declared
and set apart for payment on the then outstanding Preferred Stock, and after
complying with respect to any retirement or sinking fund or funds for all
applicable series of Preferred Stock, the Board of Directors may, subject to
the
provisions of Section C of this Article IV or the resolution or resolutions
creating the series of Preferred Stock, declare and pay dividends on the Common
stock as provided in Section A.1 of this Article IV, and the holders of shares
of Preferred Stock shall not be entitled to share therein, except as otherwise
provided in the resolution or resolutions creating any series.
3. Liquidation;
Dissolution.
The
holders of the Preferred Stock of each series shall be entitled upon liquidation
or dissolution of the Company to such preferences as are provided in Section
C
of this Article IV or the resolution or resolutions creating such series of
Preferred Stock, and no more, before any distribution of the assets of the
Company shall be made to the holders of shares of the Common Stock. Whenever
the
holders of shares of the Preferred Stock shall have been paid the full amounts
to which they shall be entitled, the holders of shares of the Common Stock
shall
be entitled to share in all assets of the Company remaining as provided in
Section A.2 of this Article IV. If, upon such liquidation, dissolution or
winding up, the assets of the Company distributable as aforesaid among the
holders of the Preferred Stock is insufficient to permit the payment to them
of
said preferential amounts, then such assets shall be distributed ratably among
such holders in proportion to the respective total amounts which they shall
be
entitled to receive as provided in this Section B.3.
4. Voting.
Except
as otherwise provided by a resolution or resolutions of the Board of Directors
creating any series of Preferred Stock or by the Act, the Common Stock issued
and outstanding shall have and possess the exclusive power to vote for the
election of directors and for all other purposes as provided in Section A.3
of
this Article IV.
5. Preemptive
Rights.
Except
as may be provided in the resolution or resolutions of the Board of Directors
providing for the issue of any series of Preferred Stock, no holder of shares
of
the Preferred Stock of the Company shall, as such holder, be entitled as of
right to subscribe for, purchase or receive any part of any new or additional
issue of stock of any class, whether now or hereafter authorized, or of bonds,
debentures or other securities convertible into or exchangeable for stock,
but
all such additional shares of stock of any class, or bonds, debentures or other
securities convertible into or exchangeable for stock, may be issued and
disposed of by the Board of Directors on such terms and for such consideration,
so far as may be permitted by laws, and to such persons, as the Board of
Directors in its absolute discretion may deem advisable.
C. Series
A and Series B Preferred Stock.
1. Certain
Defined Terms, Etc.
In
addition to the terms defined elsewhere herein, certain terms used in this
Article IV.C with initial capital letters have the meanings given to them
in Section 11. References in this Article IV.C to Sections are, unless
otherwise stated, references to Sections of this Article IV.C.
2. Designation.
(a) 4,000,000 shares
of
Preferred Stock of the Company are designated as “Series A Preferred Stock”
having the powers, preferences and relative participating, optional and other
special rights and the qualifications, limitations or restrictions thereof
as
set forth in this Article IV.C (the “Series A
Preferred”).
Effective
as of the date these Restated Articles are duly filed with the Utah Department
of Commerce, Division of Corporations and Commercial Code (the “Effective
Date”),
each
share of Series A Preferred issued and outstanding immediately prior to the
Effective Date (the “Old
Series A Stock”)
shall
automatically and without any action on the part of the holder thereof be split,
reclassified, changed and converted into four shares of Series A Preferred
(the
“New
Series A Stock”).
The
foregoing forward stock split shall be subject to the treatment of fractional
share interests as described below.
Each
holder of a certificate or certificates, which immediately prior to the
Effective Date represented outstanding shares of Old Series A Stock (the
“Old
Series A Certificates”),
shall
be entitled to receive, as soon as reasonably practicable following the
surrender of such Old Series A Certificates to the Company or the Company’s
transfer agent for cancellation, a new certificate or certificates (the
“New
Series A Certificates”)
representing that number of whole shares of the New Series A Stock into which
and for which the shares of the Old Series A Stock, formerly represented by
such
Old Series A Certificates so surrendered, are reclassified under the terms
hereof. Each New Series A Certificate issued by the Company shall bear the
legend required by Section 8(b)(iii).
From
and
after the Effective Date, and until such certificates are surrendered, the
Old
Series A Certificates shall be deemed for all corporate purposes to evidence
ownership of that number of whole shares of the New Series A Stock into which
and for which the shares of the Old Series A Stock have been reclassified under
the terms hereof. No certificates or scrip representing fractional share
interests in New Series A Stock will be issued, and no such fractional share
interest will entitle the holder thereof to vote, or to any rights of a
stockholder of the Company. A holder of Old Series A Certificates shall
receive, as soon as reasonably practicable following the surrender of such
certificates, in lieu of any fraction of a share of New Series A Stock to which
the holder would otherwise be entitled, a cash payment therefor. Such cash
payment will equal the fraction to which the stockholder would otherwise be
entitled multiplied by $25.00. If more than one Old Series A Certificate
shall be surrendered at one time for the account of the same stockholder, the
number of full shares of New Series A Stock for which New Series A Certificates
shall be issued shall be computed on the basis of the aggregate number of shares
of New Series A Stock represented by the Old Series A Certificates so
surrendered. In the event that the Company or the Company’s transfer agent
determines that a holder of Old Series A Certificates has not tendered all
such
certificates for exchange, the Company or the Company’s transfer agent shall
carry forward any fractional share of New Series A Stock until all Old Series
A
Certificates held by such holder have been presented for exchange such that
payment for fractional shares to any one person shall not exceed the value
of
one share of New Series A Stock held by such person. All references
elsewhere in these Restated Articles to the “Series A Preferred” shall, after
the Effective Date, refer to the New Series A Stock.
(b) 4,000,000
shares of Preferred Stock of the Company are designated as “Series B
Preferred Stock” having the powers, preferences and relative participating,
optional and other special rights and the qualifications, limitations or
restrictions thereof as set forth in this Article IV.C (the “Series B
Preferred”).
The
Series A Preferred and the Series B Preferred are together referred to herein
as
the “Senior
Preferred.”
3. Dividends
and Distributions.
(a) The
holders of shares of Senior Preferred, if any, and in preference to the holders
of Common Stock, and of any other class or series of Preferred Stock or other
capital stock of the Company (together with the Common Stock, “Junior
Stock”),
will
be entitled to receive dividends at an annual rate of $2.50 per share (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) (such dividends, “Regular
Dividends”),
payable quarterly in arrears on the 15th day of each of March, June, September
and December of each year or such other dates as are the 15th day of the month
following the end of each of the Company’s fiscal quarters (except that if any
such date is a Saturday, Sunday or legal holiday, then such dividend will be
payable on the next day that is not a legal holiday) (the “Dividend
Payment Date”),
commencing, with respect to each share of Senior Preferred, on the first date
on
which such share of Senior Preferred is issued (the “Initial
Issuance Date”)
to
such holders, prior and in preference to any declaration or payment of any
dividend on any Junior Stock; provided
that
dividends on shares of Series B Preferred issued upon conversion of shares
of
Series A Preferred will commence on the Initial Issuance Date of the shares
of
Series A Preferred that are converted into such shares of Series B Preferred.
Regular Dividends will be cumulative and accrue with respect to each outstanding
share of Senior Preferred from the date dividends commence on such share (the
“Dividend
Commencement Date”),
whether or not declared by the Board and whether or not there are funds of
the
Company legally available for payment of such dividends. No accrued or
accumulated dividends on the Senior Preferred will bear interest.
(b) Each
Regular Dividend will be payable to holders of record as they appear on the
stock books of the Company on the last day of each fiscal quarter of the
Company.
4. Voting
Rights.
(a) In
addition to the rights provided in Sections 4(b), 4(c) and 4(d), holders of
record of Series A Preferred (the “Series
A Holders”)
will
have the right to vote or consent in writing together with the Common Stock
on
all matters presented to the holders of Common Stock as set forth in Section
4(e). Apart from the rights provided in Sections 4(b), 4(c) and 4(d),
holders of record of Series B Preferred (the “Series
B Holders”)
will
have no voting rights.
(b) In
addition to the voting rights provided by Sections 4(a), 4(c) and 4(d), as
long as any shares of Senior Preferred are outstanding, the affirmative vote
or
consent of the holders of a majority of the then-outstanding shares of Senior
Preferred, voting as a separate voting group, will be required in order for
the
Company to:
(i) amend,
alter or repeal, whether by merger, consolidation or otherwise, the terms of
this Article IV.C or any other provision of the Restated Articles, in any
way that adversely affects any of the powers, designations, preferences and
relative, participating, optional and other special rights of the Senior
Preferred, and the qualifications, limitations or restrictions
thereof;
(ii) issue
any
shares of capital stock ranking prior or superior to, or on parity with, the
Senior Preferred with respect to dividends or other distributions or upon
liquidation, dissolution or winding up of the Company, or issue any Junior
Stock
other than Common Stock;
(iii) subdivide
or otherwise change shares of Senior Preferred into a different number of shares
whether in a merger, consolidation, combination, recapitalization,
reorganization or otherwise; or
(iv) issue
any
shares of Senior Preferred other than in accordance with this
Article IV.C.
(c) In
addition to the voting rights provided by Sections 4(a), 4(b) and 4(d), the
affirmative vote or consent of the holders of a majority of the then-outstanding
shares of Senior Preferred, voting as a separate voting group, will be required
for the Company to declare or pay any dividends or other distributions on or
in
respect of Junior Stock (a “Junior
Stock Dividend”);
provided,
however,
that
such affirmative vote or consent of the holder of Senior Preferred shall not
be
required for any proposed Junior Stock Dividend if (i) the Company has paid
all
Regular Dividends for all fiscal quarters preceding the fiscal quarter in which
the Company proposes to pay such Junior Stock Dividend and (ii) the Company
has
reserved sufficient funds to pay the Regular Dividend that will become payable
for such fiscal quarter in which the Company proposes to pay a Junior Stock
Dividend in accordance with Section 3.
(d) In
addition to the voting rights provided by Sections 4(a), 4(b) and 4(c),
whenever dividends of the Senior Preferred shall be in arrears in an amount
equal to at least six quarterly dividends (whether or not consecutive), the
number of members of the Board shall be increased by two and the holders of
the
Senior Preferred (voting as a voting group) will be entitled to vote for and
elect such two additional directors of the Company at any meeting of
shareholders of the Company at which directors are to be elected during the
period such dividends remain in arrears. Whenever the right to elect directors
shall have accrued to the holders of the Senior Preferred, the proper officers
of the Company shall call a meeting for the election of such directors, such
meeting to be held not less than 45 nor more than 90 days after the accrual
of
such right. The right of the holders of the Senior Preferred to vote for such
two additional directors shall terminate when all accrued and unpaid dividends
on the Senior Preferred have been paid or set apart for payment. The term of
office of all directors so elected shall terminate immediately upon the
termination of the right of the holders of the Senior Preferred to vote for
such
two additional directors. In connection with such right to vote, each holder
of
Senior Preferred will have one vote for each share of Senior Preferred
held.
(e) On
all
matters presented before the holders of the Common Stock for their vote or
consent, each share of Series A Preferred will be entitled to the number of
votes equal to two shares of Common Stock (as adjusted for any stock dividends,
combinations or splits with respect to shares of Common Stock); provided, however,
the
aggregate number of votes attributable to any Series A Holder’s shares of Series
A Preferred shall be reduced by the sum of (x) the number of shares of Common
Stock acquired by such Series A Holder upon the exercise of any warrant issued
to such Series A Holder pursuant to the Preferred Stock Amendment and Warrant
Issuance Agreement dated November 29, 2004 between the Company and the investor
identified therein (each, a “Warrant”)
and
(y) the number of shares of Common Stock purchasable upon exercise of any
Warrant that has been sold or transferred by such Series A Holder to any other
person or entity.
(f) Notwithstanding
any other provision of the Restated Articles or Bylaws of the Company, the
holders of a majority of the then-outstanding Senior Preferred may consent
in
writing to any matter about which a class vote is contemplated by
Section 4(b), 4(c) or 4(d), which written consent when so executed by the
holders of a majority of the then-outstanding Senior Preferred will be deemed,
subject to applicable Utah law, to satisfy the requirements of
Section 4(b), 4(c) or 4(d), as applicable.
5. Reacquired
Shares.
Any
shares of Senior Preferred that are issued and thereafter cease to be issued
and
outstanding for any reason, whether because shares of Series A Preferred are
converted into shares of Series B Preferred pursuant to Section 8 or shares
of
Senior Preferred are purchased or otherwise acquired by the Company in any
manner whatsoever, will reduce the number of authorized shares of either
Series A Preferred or Series B Preferred, as applicable, will be restored
to the status of authorized but unissued shares of Preferred Stock of the
Company, and may be reissued as part of a new series of Preferred Stock of
the
Company subject to the conditions and restrictions on issuance set forth herein
or in any other articles of amendment creating a series of Preferred Stock
or
any other stock of the Company.
6. Liquidation,
Dissolution or Winding Up.
Upon
any liquidation, dissolution or winding up of the Company, no distribution
will
be made to the holders of shares of Junior Stock unless, prior thereto, the
holders of shares of Senior Preferred shall have received in cash $25.00 per
share (the “Liquidation Price”) plus accrued and unpaid dividends to the date of
payment. Neither a consolidation or merger of the Company with another
corporation or other legal entity, nor a sale or transfer of all or part of
the
Company’s assets for cash, securities or other property will be considered a
liquidation, dissolution or winding up of the Company for purposes of this
Section 6.
7. Redemption.
(a) Redemption
Right.
The
shares of Senior Preferred will not be redeemable, except as otherwise agreed
between the Company and any holder or holders of Senior Preferred and except
that:
(i) during
the period beginning on March 8, 2005 and ending on March 8, 2006 (the
“Initial
Redemption Period”),
the
Company may, upon 15 business days prior notice to the holders of Senior
Preferred, redeem all or any portion of the then-outstanding Senior Preferred
at
100% of the then-applicable Liquidation Price plus accrued and unpaid dividends
to the date of payment; and
(ii) provided
it has redeemed during the period from July 15, 2005 through the end of the
Initial Redemption Period 400,000 shares of Senior Preferred Stock, the Company
shall have the right during the period beginning on March 9, 2006 and ending
on
December 31, 2006 (the “Second
Redemption Period”),
upon
15 business days prior notice to the holders of Senior Preferred, to redeem
all
or any portion of the then-outstanding Senior Preferred at 100% of the
then-applicable Liquidation Price plus accrued and unpaid dividends to the
date
of payment; and
(iii) provided
the Company has redeemed during the period beginning on July 15, 2005 through
then end of the Second Redemption Period 800,000 shares of Senior Preferred
Stock, the Company shall have the right during the period beginning on January
1, 2007 and ending on December 31, 2007 (the “Third
Redemption Period,”
each
of
the Initial Redemption Period, the Second Redemption Period and the Third
Redemption Period being called a “Redemption
Period”),
upon
15 business days prior notice to the holders of Senior Preferred, to redeem
all
or any portion of the then-outstanding Senior Preferred at 100% of the
then-applicable Liquidation Price plus accrued and unpaid dividends to the
date
of payment; and
(iv) beginning
on the fifth anniversary of the expiration of the last Redemption Period, during
which the Company shall have the right to redeem Senior Preferred Stock based
on
the Company’s redemption of Senior Preferred pursuant to subparts (i) through
(iii) of this Section 7(a), the Company may, upon 15 business days prior notice
to the holders of Senior Preferred, redeem all or any portion of the
then-outstanding Senior Preferred at 101% of the then-applicable Liquidation
Price plus accrued and unpaid dividends to the date of payment.
Any
partial redemption effected pursuant to this Section 7 shall be made on a
pro-rata basis among the holders of Senior Preferred in proportion to the shares
of Senior Preferred then held by them. Notwithstanding anything to the contrary,
the mandatory conversion of shares of Series A Preferred into shares of Series
B
Preferred pursuant to Section 8 hereof may occur at any time during the notice
periods set forth in clauses (i) through (iv) of this Section 7(a).
(b) Redemption
Notice.
Any
notice of redemption given pursuant to Section 7(a) (“Redemption
Notice”)
will
be given in writing by the Company by first class mail, postage prepaid, to
each
holder of record of Senior Preferred on the record date fixed for such
redemption by the Board at such holder’s address as it appears on the stock
books of the Company, provided that no failure to give such notice nor any
deficiency therein will affect the validity of the procedure for redemption
of
any shares of Senior Preferred except as to the holder or holders to whom the
Company has failed to give such notice or whose notice was defective. The
Redemption Notice will state:
(i) the
redemption price;
(ii) the
total
number of shares of Senior Preferred being redeemed;
(iii) the
date
fixed for redemption by the Board, which date will occur within the applicable
redemption period specified in Section 7(a) above (the “Redemption
Date”);
(iv) the
place
or places and manner in which the holder is to surrender his or her
certificate(s) to the Company; and
(v) that
dividends on the shares of Senior Preferred to be redeemed will cease to
accumulate on the Redemption Date unless the Company defaults on the redemption
price.
Upon
surrender of the certificate(s) representing shares of Senior Preferred that
are
the subject of redemption pursuant to Section 7(a), duly endorsed (or
otherwise in proper form for transfer, as determined by the Company), in the
manner and at the place designated in the Redemption Notice and on the
Redemption Date, the full redemption price for such shares will be paid in
cash
to the Person whose name appears on such certificate(s) as the owner thereof,
and each surrendered certificate will be canceled and retired.
(c) Senior
Dividends.
On and
after the Redemption Date or on or after the date of redemption otherwise agreed
upon by and between the Company and any holder or holders of shares of Senior
Preferred, unless the Company defaults in the payment in full of the applicable
redemption price, dividends on the Senior Preferred to be redeemed will cease
to
accumulate, and all rights of the holders thereof will terminate with respect
thereto on the Redemption Date (or such other redemption date, if applicable),
other than the right to receive the applicable redemption price; provided,
however,
that if
a Redemption Notice has been given as provided in Section 7(b) and the
funds necessary for redemption (including an amount in cash in respect of all
dividends that will accumulate to the Redemption Date) have been irrevocably
deposited in trust with a bank having an aggregate shareholders’ equity of at
least $5.0 billion for the equal and ratable benefit of all holders of shares
of
Senior Preferred that are to be redeemed, then, at the close of business on
the
day on which such funds are deposited in trust, dividends on the Senior
Preferred to be redeemed will cease to accumulate and the holders thereof will
cease to be shareholders of the Company and be entitled only to receive the
redemption price.
8. Conversion.
(a) No
Optional Conversion.
Neither
the Series A Preferred nor the Series B Preferred will be convertible into
the
Common Stock or any other class or series of the Company’s capital stock except
as provided in Section 8(b).
(b) Mandatory
Conversion.
(i) If
any
Series A Holder voluntarily or involuntarily transfers, sells, assigns, devises,
distributes or bequeaths any of such Series A Holder’s interest in any shares of
Series A Preferred (including, without limitation, the power to vote or provide
a consent with respect to any shares of Series A Preferred by proxy or
otherwise) (a “Transfer”)
to any
Person (the “Transferee”)
other
than a Permitted Transferee, then each share of Series A Preferred subject
to
such Transfer automatically, without any action on the part of the Company
or
such Series A Holder, will be deemed to be converted into one share of fully
paid and non-assessable Series B Preferred immediately before such transfer
is
completed. In the event of such a transfer, the Company and the transfer agent
for the Series A Preferred, if any (the “Transfer
Agent”),
shall
not register the transfer of such shares of Series A Preferred except to the
Company or a Permitted Transferee of such Series A Holder; provided,
however,
that
such restrictions on transfer shall not apply to a Business Combination of
the
Company with or into another corporation or entity, if the Company is not the
Surviving Person.
(ii) Notwithstanding
anything to the contrary set forth herein, any Series A Holder may pledge such
Series A Holder’s shares to a financial institution pursuant to a bona fide
pledge of such shares as collateral security of indebtedness due to the pledgee;
provided,
however,
that
such shares shall remain subject to the provisions of this Section 8(b) and
may
not be voted by the pledgee and, upon any transfer of such shares to the
pledgee, such shares shall convert into Series B shares in accordance with
paragraph (i) above.
(iii) Each
certificate representing shares of Series A Preferred shall be endorsed with
a
legend that states that immediately prior to any Transfer of such shares of
Series A Preferred such shares automatically will be converted into shares
of
Series B Preferred in accordance with the Restated Articles, and no such
transfer will be valid unless such transfer has been recorded in stock transfer
records kept by the Company or the Transfer Agent.
(iv) To
effect
any Transfer of Series A Preferred (which shall be converted into shares of
Series B Preferred immediately prior to such Transfer as set forth in this
Section 8(b)), the Series A Holder proposing to transfer such converted shares
of Series A Preferred must surrender the certificate(s) representing such shares
at the office of the Company or the Transfer Agent for the Series A Preferred
with instructions identifying the Transferee proposed to receive converted
shares of Series B Preferred. Thereupon, there shall be issued and delivered
to
such Transferee at such office in the name of the Transferee a certificate
or
certificates for the number of shares of Series B Preferred into which the
Series A Preferred were converted.
(c) Reservation
of Stock Issuable Upon Conversion.
The
Company will at all times reserve and keep available out of its authorized
but
unissued shares of Series B Preferred solely for the purpose of effecting the
conversion of the shares of the Series A Preferred such number of its
shares of Series B Preferred as will from time to time be sufficient to effect
the conversion of all then-outstanding shares of the Series A Preferred;
and if at any time the number of authorized but unissued shares of Series B
Preferred will not be sufficient to effect the conversion of all
then-outstanding shares of the Series A Preferred, the Company will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Series B Preferred to such number
of shares as will be sufficient for such purpose.
9. Fractional
Shares.
Following
the split of the Old Series A Stock into the New Series A Stock, the Senior
Preferred may not be issued in fractions of a share.
10. Rank.
The
Series A Preferred and the Series B Preferred will have equal rank. The
Senior Preferred will rank senior as to all capital stock of the Company,
including all Junior Stock, in each case as to the payment of dividends or
other
distributions or upon liquidation, dissolution or winding up.
11. Certain
Defined Terms.
In
addition to the terms defined elsewhere in this Article IV.C, the following
terms will have the following meanings when used herein with initial capital
letters:
(a) “Affiliate”
of
any
Person means any other Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
such Person; and, for purposes of this definition only, “control” (including the
terms “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, policies or activities of a Person whether through the ownership
of securities, by contract or agency or otherwise;
(b) “Business
Combination”
means
any merger, consolidation, combination, recapitalization, reorganization or
other transaction (whether or not the Company is the Surviving
Person);
(c) “Permitted
Transferee”
means,
with respect to any Series A Holder, any Person that is (i) an Affiliate of
such
Series A Holder, (ii) a stockholder, partner or member or other equity owner
holding at least 5% of the outstanding equity of such Series A Holder
(calculated on a fully diluted basis), or (iii) such Series A Holder’s immediate
family member or a trust for the benefit of such Series A Holder;
(d) “Person”
means
any individual, firm, corporation or other entity and included any successor
(whether by merger or otherwise) of such entity; and
(e) “Surviving
Person”
means
the continuing, surviving or resulting Person in a Business Combination, the
Person receiving a transfer of all or a substantial part of the properties
and
assets of the Company, or the Person consolidating with or merging into the
Company in a Business Combination in which the Company is the continuing or
surviving Person, but in connection with which the Senior Preferred is exchanged
or converted into the securities of any other Person or the right to receive
cash or any other property.
ARTICLE
V
To
the
fullest extent permitted by the Act or pursuant to any successor statute with
similar effect, no director shall be liable to the Company or its shareholders
for monetary damages. If the laws of the State of Utah are amended after the
adoption of these Amended and Restated Articles of Incorporation to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Company shall be eliminated
or limited to the fullest extent permitted by the laws of the State of Utah,
as
so amended. The Company is authorized to indemnify directors and officers of
the
Company to the fullest extent permitted under applicable laws. Any repeal or
modification of any applicable law or the foregoing provisions of this Article
V
shall not adversely affect any right of indemnification or limitation of
liability of a director of the Company relating to acts or omissions occurring
prior to such repeal or modification.