UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K/A
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
The
Securities Exchange Act of 1934
Date of
Report (Date of Earliest Event Reported):
May
22, 2008
FRANKLIN
COVEY CO.
(Exact
name of registrant as specified in its charter)
Commission
File No. 1-11107
|
Utah
(State
or other jurisdiction of incorporation)
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87-0401551
(IRS
Employer Identification
Number)
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2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2099
(Address
of principal executive offices)(Zip Code)
Registrant’s
telephone number, including area code: (801) 817-1776
Former
name or former address, if changed since last report: Not Applicable
______________________
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
[
] Written communications pursuant to Rule 425
under the Securities Act (17 CFR 230.425)
[
] Soliciting material pursuant to Rule 14a-12
under the Exchange Act (17 CFR 240.14a-12)
[
] Pre-commencement communications pursuant to
Rule 14d-2(b) under the Exchange Act (17 CFR240.14d-2(b))
[
] Pre-commencement communications pursuant to
Rule 13e-4(c) under the Exchange Act (17 CFR240.13e-4(c))
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Item
1.01
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Entry into a Material Definitive
Agreement
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On May
22, 2008, Franklin Covey Co. (the Company) filed a Form 8-K announcing that it
had joined with Peterson Partners V, L.P. to create a new limited liability
company, Franklin Covey Products, LLC (Franklin Covey Products), to pursue the
strategic growth of Franklin Covey branded products throughout the
world. To accomplish this objective, the Company entered into a
definitive agreement to sell substantially all of the assets of its Consumer
Solutions Business Unit (CSBU) to Franklin Covey Products (the Sale
Agreement). The Company is filing this amended Form 8-K to attach a
copy of the Sale Agreement as Exhibit 2.1 hereto and to incorporate the Sale
Agreement herein by reference.
The Sale
Agreement has been included to provide investors and shareholders with
information regarding its terms and conditions. Except for its status
as a contractual document that establishes and governs the legal relations among
the parties thereto with respect to the transaction described in this Form
8-K/A, the Sale Agreement is not intended to be a source of factual, business,
or operational information about the parties.
Certain
of the contractual representations or warranties made by the parties in the Sale
Agreement are subject to a standard of materiality that may be different from
what shareholders of the Company may view as material to their
interests. Representations and warranties may be used as a tool to
allocate risks between the respective parties to the Sale Agreement, including
where the parties do not have complete knowledge of all the
facts. Investors in the Company’s securities are not third-party
beneficiaries under the Sale Agreement and should not rely on the
representations, warranties, and covenants or any description thereof as
characterizations of the actual state of facts or condition of the parties or
any of their affiliates.
FORWARD
LOOKING STATEMENTS
This Form
8-K and the exhibits furnished herewith contain forward-looking statements
related to, among other things, the completion of the sale of CSBU and the other
transactions contemplated by the Sale Agreement. These statement are
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that forward-looking
statements inherently involve risks and uncertainties that could cause actual
results to differ materially from those contemplated in the forward-looking
statements. Such risks and uncertainties include, but are not limited
to, the ability of the parties to the Sale Agreement to satisfy the conditions
to closing specified in the Sale Agreement, and other risks and uncertainties
outlined in the Company’s documents filed with the SEC, including the Company’s
most recent annual report on Form 10-K for the fiscal year ended August 31, 2007
as filed with the Securities and Exchange Commission. All
forward-looking statements and other information in this current report are
based upon information available as of the date of this report. Such
information may change or become invalid after the date of this report, and, by
making these forward-looking statements, the Company undertakes no obligation to
update these statements after the date of this report, except as required by
law.
Item
9.01 Financial Statements and Exhibits
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(d) Exhibits:
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2.1
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Master
Asset Purchase Agreement between Franklin Covey Products, LLC and Franklin
Covey Co. dated May 22, 2008.*
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99.1
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Press
release announcing the sale of Consumer Solutions Business Unit dated May
22, 2008.**
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*
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Schedules
and exhibits to the Master Asset Purchase Agreement have been omitted
pursuant to Item 601(b)(2) of Regulation S-K. The Company
hereby undertakes to furnish on a supplemental basis, a copy of any
omitted schedules and exhibits to the Securities and Exchange Commission
upon request.
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**
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Previously
filed.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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FRANKLIN
COVEY CO.
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||||
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Date:
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May 29, 2008
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By:
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/s/ Stephen D.
Young
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Stephen D.
Young
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||||
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Chief Financial
Officer
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Exhibit
2.1
MASTER
ASSET PURCHASE AGREEMENT
BETWEEN
FRANKLIN
COVEY PRODUCTS, LLC
AND
THE
SELLING COMPANIES IDENTIFIED HEREIN
MADE AS OF
MAY
22, 2008
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Exhibit A
– Master License Agreement
Exhibit B
– Master Shared Services Agreement
Exhibit C
– Buyer Operating Agreement
Exhibit D
– Supply Agreement
Exhibit
E1 – Lease Agreement (Office)
Exhibit
E2 – Sub-sublease (Warehouse)
Exhibit F
– Bill of Sale
Exhibit G
– Assignment and Assumption Agreement
MASTER
ASSET PURCHASE AGREEMENT
This
MASTER ASSET PURCHASE
AGREEMENT (this “Agreement”) among Franklin
Covey Products, LLC, a Utah limited liability company (“Buyer”), Franklin Covey Co.,
a Utah corporation (the “Company”), Franklin Covey
Canada, Ltd., a Canadian corporation, Franklin
Covey de Mexico S. de R.L. de C.V., a Mexican company, Franklin Covey Europe,
Ltd., a UK registered company, Franklin Covey Client Sales, Inc., a Utah
corporation, Franklin Covey Catalog Sales, Inc., a Utah corporation, Franklin
Covey Product Sales, Inc., a Utah corporation, and Franklin Covey Printing,
Inc., a Utah corporation, is made effective as of May 22, 2008.
WHEREAS, Buyer and the other
Purchasing Companies desire to purchase from the Company and the Selling
Subsidiaries, and the Company and the Selling Subsidiaries desire to sell to
Buyer and the other Purchasing Companies, the Business upon the terms and
subject to the conditions of this Agreement.
WHEREAS, in connection with
the Closing, Buyer and the Company desire to enter into a Master License
Agreement in substantially the form attached as Exhibit A (the “Master License Agreement”), a
Master Shared Services Agreement in substantially the form attached as Exhibit B (the “Master Shared Services
Agreement”), the Amended and Restated Operating Agreement for Buyer in
substantially the form attached as Exhibit C (the “Buyer Operating Agreement”),
and the other Ancillary Agreements contemplated in this Agreement.
WHEREAS, the Board of
Directors of the Company, by resolution duly adopted, has declared that it deems
the sale of the Business to be in the best interests of the Company, the Selling
Subsidiaries and its shareholders, and it deems it advisable and in the best
interests of its shareholders to consummate, and has approved, this Agreement
and the Ancillary Agreements and the transactions contemplated hereby and
thereby on the terms and conditions set forth in this Agreement and in the
Ancillary Agreements.
NOW, THEREFORE, in
consideration of the mutual representations, warranties and agreements contained
in this Agreement, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties agree as
follows:
Article
I. Definitions
As used
in this Agreement, the following terms have the meanings assigned to them
below.
“Acquisition Proposal” means
any offer, proposal, inquiry or indication of interest (other than an offer,
proposal, inquiry or indication of interest by Buyer) contemplating or otherwise
relating to any Acquisition Transaction.
“Acquisition Transaction”
means any transaction or series of transactions involving (i) a merger,
consolidation or other business combination of the Company or any Subsidiary
that
conducts
or is involved in any part of the Business, (ii) a restructuring,
recapitalization or liquidation of the Company or any Subsidiary that conducts
or is involved in any part of the Business, or (iii) an acquisition or
disposition of any stock or material assets of the Company or any Subsidiary
that, in the case of such Subsidiary, conducts or is involved in any part of the
Business, or that, in the case of such assets, are used in the conduct of, or
constitute a part of, the Business.
“Active Employee” has the
meaning set forth in Section 6.5(a).
“Agreement” has the meaning
set forth in the first paragraph of this Agreement.
“Affiliate” has the meaning
set forth in Rule 12b-2 under the Exchange Act.
“Ancillary Agreements”
means (i) the Master License Agreement, (ii) the Master Shared
Services Agreement, (iii) the Buyer Operating Agreement, (iv) the
Supply Agreement proposed to be entered into between the Company and Buyer in
substantially the form attached as Exhibit D,
and (v) the
Leases.
“Business” means the Company’s
Consumer Solutions Business Unit, which is engaged in the business of selling
productivity tools to individual consumers through retail stores, through
consumer direct channels, including e-commerce and call center channels, through
selected wholesale and third party channels, through licensing operations and
through international operations.
“Buyer” has the meaning set
forth in the first paragraph of this Agreement.
“Buyer Basket Amount” has the
meaning set forth in Section 9.1(b).
“Buyer Cap” means $3,200,000
minus the sum of (i) the aggregate amount of all Buyer Losses arising under
Section 9.1(a)(i) paid by any Selling Company to Buyer (or any Buyer Indemnified
Parties), and (ii) the aggregate amount of any liabilities for damages arising
from a breach of any representation or warranty contained in any Ancillary
Agreement paid by any Selling Company to Buyer (or any Affiliate of
Buyer).
“Buyer Claim” has the meaning
set forth in Section 9.1(d).
“Buyer Indemnified Parties”
has the meaning set forth in Section 9.1(a).
“Buyer Losses” has the meaning
set forth in Section 9.1(a).
“Buyer Termination Fee” has
the meaning set forth in Section 8.1(b)(iv).
“Capital Lease” means a lease
on which the Company is a lessee that is a capital lease as determined in
accordance with GAAP.
“Change in Control” means (i)
a merger, consolidation or reorganization of a Selling Company other than a
merger, consolidation or reorganization resulting in the voting securities of
such Selling Company outstanding immediately prior thereto continuing to
represent at least 50%
of the
combined voting power of the securities of Selling Company or the surviving
entity or any parent thereof outstanding immediately thereafter, (ii) the
acquisition by a person or persons acting as a group of equity securities, which
together with equity securities already held by such person or persons,
constitutes more than 50% of the total voting power of such Selling Company or
(iii) any transfer or other disposition of all or substantially all such Selling
Company’s assets.
“Code” means the Internal
Revenue Code of 1986, as amended.
“Commitment Letters” has the
meaning set forth in Section 4.6.
“Company” has the meaning set
forth in the first paragraph of this Agreement.
“Company Basket Amount” has
the meaning set forth in Section 9.2(b).
“Company Cap” means $3,200,000
minus the sum of (i) the aggregate amount of all Company Losses arising under
Section 9.2(a)(i) paid by Buyer (or any Affiliate of Buyer) to any Company
Indemnified Parties, and (ii) the aggregate amount of any liabilities for
damages arising from a breach of any representation or warranty contained in any
Ancillary Agreement paid by Buyer (or any Affiliate of Buyer) to any Selling
Company (or any Affiliate of a Selling Company).
“Company Claim” has the
meaning set forth in Section 9.2(d).
“Company Indemnified Parties”
has the meaning set forth in Section 9.2(a).
“Company Losses” has the
meaning set forth in Section 9.2(a).
“Company SEC Reports” has the
meaning set forth in Section 3.4.
“Company Termination Fee” has
the meaning set forth in Section 8.2.
“Confidentiality Agreement”
means the Confidentiality Agreement dated effective January 31, 2008
between the Company and Buyer.
“Consent” means any
authorization, consent, approval, filing, waiver, exemption or other action by
or notice to any Person.
“Contract” means a contract,
agreement, lease, commitment or binding understanding, whether oral or written,
that is in effect as of the date of this Agreement or any time after the date of
this Agreement.
“Debt Commitment Letter” has
the meaning set forth in Section 4.6.
“Disclosure Schedule” means
the schedule delivered by the Company to Buyer on or prior to the date of this
Agreement, as it may be updated from time to time as provided
herein.
“Encumbrance” means any
charge, claim, community property interest, easement, covenant, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal
or
restriction of any kind, including any restriction on use, voting, transfer,
receipt of income or exercise of any other attribute of ownership.
“Environmental Law” means any
legal requirements designed to minimize, prevent, punish or remedy the
consequences of actions that damage or threaten the environment or public health
and safety.
“Equity Commitment Letter” has
the meaning set forth in Section 4.6.
“ERISA” means the Employee
Retirement Income Security Act of 1974, as amended, and the rules and
regulations thereunder.
“ERISA Affiliate” means any
entity or trade or business that is treated as a member of the Company’s
controlled group within the meaning of Section 414(b), (c), (m)
or (o) of the Code.
“Exchange Act” means the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder.
“Excluded Businesses” means any businesses
conducted by the Company other than the Business, including
the OSBU.
“Excluded Matter” means any
one or more of the following: (i) any change, effect, event or
condition relating to local, regional, national or foreign political, economic
or financial conditions or resulting from or arising out of developments or
conditions in credit, financial or securities markets, including without
limitation, caused by acts of terrorism or war (whether or not declared) or any
material worsening of such conditions existing as of the date of this
Agreement, (ii) any change, effect, event or condition generally affecting
the industries in which the Business operates, (iii) any change, effect,
event or condition resulting from any hurricane, earthquake or other natural
disasters, (iv) seasonal fluctuations in the Business that are reasonably
consistent with the Business’s historical seasonal fluctuations in operating
performance, (v) any change, effect, event or condition resulting from a
change after the date of this Agreement in accounting rules or procedures
announced by the Financial Accounting Standards Board with respect to GAAP,
(vi) any failure to meet any internal budgets, plans, projections or forecasts
of the Business’s revenue, earnings or other financial performance or results of
operations, or any published financial forecasts or analyst estimates of the
Business’s revenue, earnings or other financial performance or results of
operations or any change in analyst recommendations, for any period, unless such
failure was a direct result of a fundamental, long-term adverse change, effect,
event or condition, (vii) any change, effect, event or condition
attributable to the execution, performance or announcement of this Agreement
(including the impact thereof on relationships, contractual or otherwise, with
customers, suppliers, vendors, landlords, licensors, licensees, distributors,
partners or employees, including without limitation, the loss or departure of
officers or other employees of the Company or its Subsidiaries working in the
Business), or otherwise resulting from the pursuit of the consummation of the
transactions contemplated hereby, (viii) any legal proceedings brought by
or on behalf of any of the current or former shareholders of the Company (on
their own behalf or on behalf of the Company) arising out of or related to this
Agreement or any of the transactions contemplated hereby, (ix) any action
taken by the Company
at the
request or with the consent of Buyer, or (x) changes resulting from or
arising out of any change in any Law applicable to the Company.
“Expenses” has the meaning set
forth in Section 10.4.
“Expiration Date” has the
meaning set forth in Section 8.1(b)(ii).
“Foreign Assets” means
Acquired Assets transferred pursuant to this Agreement or a Foreign Transfer
Agreement, as applicable, by a Foreign Subsidiary.
“Foreign Subsidiaries”
means (i) Franklin Covey Canada, Ltd., (ii) Franklin Covey de Mexico
S. de R.L. de C.V., and (iii) Franklin Covey Europe, Ltd.
“Foreign Transfer Agreement”
means any separate asset transfer and sale agreement, if necessary, to be
entered into by the Company or any of the Foreign Subsidiaries, as applicable,
and the Buyer or other Purchasing Company, as applicable, in such form and
substance as may be reasonably required, to give effect to the transfer,
assignment and sale of the applicable Foreign Assets, or the allocation of the
Worldwide Purchase Price in accordance with Section 2.12 under the
applicable laws in effect in the jurisdiction in which the relevant Foreign
Assets are located. The terms of any Foreign Transfer Agreements
shall be consistent with and governed by the terms of this
Agreement.
“GAAP” means United States
generally accepted accounting principles, as in effect from time to
time.
“Governmental Authorization”
means any approval, consent, license, permit, waiver, registration or other
authorization issued, granted, given, made available or otherwise required by
any Governmental Entity or pursuant to Law.
“Governmental Entity” means
any federal, state, local, foreign, international or multinational entity or
authority exercising executive, legislative, judicial, regulatory,
administrative or taxing functions of or pertaining to government.
“Governmental Order” means any
judgment, injunction, writ, order, ruling, award or decree by any Governmental
Entity or arbitrator.
“Hired Active Employee” has
the meaning set forth in Section 6.5(a).
“Indemnified Parties” has the
meaning set forth in Section 9.3(a).
“Indemnifying Party” has the
meaning set forth in Section 9.3(a).
“Insider” means (i) a
shareholder, officer, director or employee of the Company, (ii) any Member
of the Immediate Family of any shareholder, officer, director or employee of the
Company or (iii) any entity in which any of the Persons described in
clause (i) or (ii) owns any beneficial interest (other than less than
one percent of the outstanding shares of capital stock of any corporation whose
stock is listed on a national securities exchange).
“Intellectual Property Rights”
means (i) rights in patents, patent applications and patentable subject matter,
whether or not the subject of an application, including continuation,
divisional, continuation-in-part, and provisional patent applications and any
patents issuing therefrom, including all reexaminations, reissues, and
extensions thereof, and rights in respect of utility models or industrial
designs, and invention disclosures or certificates of invention, (ii) rights in
trademarks, service marks, trade names, trade dress and other designators of
origin, registered or unregistered, (iii) rights in copyrightable subject
matter, whether or not registered, including, without limitation, protectable
designs, look and feel, web pages, and Software, (iv) trade secrets, including
non-public know-how, inventions, discoveries, improvements, concepts, ideas,
methods, processes, designs, plans, schematics, drawings, formulae, technical
data, specifications, research and development information, technology and
product roadmaps, data bases and other proprietary or confidential information,
including customer lists, but excluding any copyrights or patents that may cover
or protect any of the foregoing, (v) rights in internet domain names,
uniform resource locators, e-mail addresses, metadata, and
metatags, and (vi) all other intellectual and industrial property rights of
every kind and nature and however designated, whether arising by operation of
Law, Contract, license or otherwise including moral rights and publicity
rights.
“IRS” means the United States
Internal Revenue Service.
“Knowledge of the Company” or
“Selling Companies’
Knowledge” means the actual
knowledge, after diligent and customary inquiry, of (i) Robert A. Whitman,
Sarah E. Merz, Stephen D. Young or Robert Sumbot, after reasonable
inquiry, and (ii) for purposes of Section 3.11 only, Robert A. Whitman,
Sarah E. Merz, Stephen D. Young, Robert Sumbot, Jeff Anderson and
Michael Connelly.
“Latest Balance Sheet” has the
meaning set forth in Section 3.4(c).
“Latest Balance Sheet Date”
has the meaning set forth in Section 3.4(c).
“Latest Financial Statements”
has the meaning set forth in Section 3.4(c).
“Law” means any constitution,
law, ordinance, principle of common law, regulation, statute or treaty of any
Governmental Entity.
“Leases” means the Office
Sublease and the Warehouse Sublease.
“Liability” means any
liability or obligation whether accrued, absolute, contingent, unliquidated or
otherwise, whether due or to become due, whether known or unknown, and
regardless of when asserted.
“Licensed-In Intellectual Property
Rights” means Third-Party Intellectual Property Rights used or held for
use by the Company with the permission of the owner.
“Litigation” means any claim,
action, arbitration, mediation, audit, hearing, investigation, proceeding,
litigation or suit (whether civil, criminal, administrative, investigative or
informal) commenced, brought, conducted or heard by or before, or otherwise
involving, any Governmental Entity or arbitrator or mediator.
“Loss” means any Litigation,
Governmental Order, complaint, claim, demand, damage, deficiency, penalty, fine,
cost, amount paid in settlement, liability, obligation, Tax, Encumbrance, loss,
expense or fee, including court costs and attorneys’ fees and
expenses.
“Material Adverse Effect”
means any change, effect, event or condition, individually or in the aggregate,
that has had or is reasonably likely to have a material adverse effect on the
business, assets, properties, condition (financial or otherwise) and results of
operations of the Business other than as a proximate or direct result of an
Excluded Matter.
“Member of the Immediate
Family” of a Person means a spouse, parent, child, sibling, mother- or
father-in-law, son- or daughter-in-law, and brother- or sister-in-law of such
Person.
“Office Sublease” means the
Lease Agreement proposed to be entered into between Franklin Development
Corporation and Buyer in substantially the form attached as Exhibit E1.
“Ordinary Course of Business”
means the ordinary course of the Business consistent with past custom and
practice (including with respect to quantity and frequency) as it has been
conducted by the Company since the Last Fiscal Year End.
“Organizational Documents”
means (i) the articles or certificate of incorporation and the bylaws of a
corporation, (ii) the partnership agreement and any statement of
partnership of a general partnership, (iii) the limited partnership
agreement and the certificate of limited partnership of a limited
partnership, (iv) the limited liability company agreement and articles or
certificate of formation of a limited liability company, (v) any charter or
similar document adopted or filed in connection with the creation, formation or
organization of a Person, and (vi) any amendment to any of the
foregoing.
“OSBU” means the Company’s
Organizational Solutions Business Unit.
“Owned Intellectual Property
Rights” means Intellectual Property Rights owned by the Selling
Companies.
“Permitted Encumbrances”
means (i) Encumbrances for Taxes and other governmental charges and
assessments that are not yet due and payable or which are being contested in
good faith by appropriate proceedings (provided required payments have been made
in connection with any such contest or adequate reserves have been established
and are reflected in the Latest Financial Statements and such contents have been
disclosed to the Buyer), (ii) Encumbrances of carriers, warehousemen,
mechanics’ and materialmen and other like Encumbrances arising in the Ordinary
Course of Business (provided lien statements have not been filed as of the
Closing Date), (iii) easements, rights of way and restrictions, zoning
ordinances and other similar Encumbrances affecting the Acquired Leases and
which do not unreasonably restrict the use thereof or Buyer’s proposed use
thereof in the Ordinary Course of Business, (iv) statutory Encumbrances in
favor of lessors arising in connection with any property leased to the Selling
Companies, (v) Encumbrances reflected in the Latest Financial Statements or
arising under Acquired Contracts, and (vi) Encumbrances that will be
removed prior to or in connection with the Closing.
“Person” means any individual,
corporation (including any non-profit corporation), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, labor union, Governmental Entity or other
entity.
“Peterson Partners V” has the
meaning set forth in Section 4.3.
“Plan” means every plan, fund,
contract, program and arrangement (whether written or not) for the benefit of
present or former employees employed in the operation of the Business, including
those intended to provide (i) medical, surgical, health care,
hospitalization, dental, vision, workers’ compensation, life insurance, death,
disability, legal services, severance, sickness or accident benefits (whether or
not defined in Section 3(1) of ERISA), (ii) pension, profit
sharing, stock bonus, retirement, supplemental retirement or deferred
compensation benefits (whether or not tax qualified and whether or not defined
in Section 3(2) of ERISA) or (iii) salary continuation,
unemployment, supplemental unemployment, severance, termination pay,
change-in-control, vacation or holiday benefits (whether or not defined in
Section 3(3) of ERISA), (w) that is maintained or contributed to
by the Company, (x) that the Company has committed to implement, establish,
adopt or contribute to in the future, (y) for which the Company is or may
be financially liable as a result of the direct sponsor’s affiliation with the
Company or the Company’s shareholders (whether or not such affiliation exists at
the date of this Agreement and notwithstanding that the Plan is not maintained
by the Company for the benefit of its employees or former employees) or (z)
for or with respect to which the Company is or may become liable under any
common law successor doctrine, express successor liability provisions of Law,
provisions of a collective bargaining agreement, labor or employment Law or
agreement with a predecessor employer. Plan does not include any
arrangement that has been terminated and completely wound up prior to the date
of this Agreement and for which the Company has no present or potential
liability.
“PlanPlus Software” means (i)
the planning and organizational Software currently known as PlanPlus for
Outlook, PlanPlus for Windows for Windows and PlanOne; (ii) the planning and
organizational Software for use by customers through cellular telephones or
similar personal device and currently known as Mobile PlanPlus; and (iii) the
planning and organizational Software currently known as the Basic, Sales,
Business and Project editions of PlanPlus Online, Tax Plus and Projects
Plus.
“Pre-Closing Tax” means: (i)
all gross income, net income, or franchise Taxes, or the non-payment thereof of
each of the Company and the Selling Subsidiaries for any taxable period; and
(ii) all other Taxes of either the Company or the Selling Subsidiaries, and
all other Taxes with respect to the Business or the Acquired Assets, for all
taxable periods or portions thereof ending on or before the Closing Date
(including, for the avoidance of doubt, all such Taxes incurred by reason of the
transactions contemplated by this Agreement and the Ancillary Agreements, except
for that portion of transfer Taxes specifically allocated to the Buyer pursuant
to Section 10.3).
“Reimbursable Expenses” means all costs and
expenses paid by the Company for the benefit of the Buyer at the Buyer’s written
request or with the Buyer’s written consent prior to the Closing
Date.
“Remedies Exception,” when
used with respect to any Person, means, except to the extent enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws affecting the enforcement of creditors’ rights generally and by
general equitable principles.
“Required Consents” has the
meaning set forth in Section 5.5(a).
“Restructuring Plan” means the Company’s
plan to close retail stores, sell Company printing operations, restructure call
center and information technology contracts, and other actions disclosed to
Buyer prior to the date hereof.
“Rolled-Over Accrued Vacation”
has the meaning set forth in Section 5.8(b).
“SEC” means the United States
Securities and Exchange Commission.
“Selling Subsidiaries” means
the Foreign Subsidiaries and (i) Franklin Covey Client Sales,
Inc., (ii) Franklin Covey Catalog Sales, Inc., (iii) Franklin
Covey Product Sales, Inc., and (iv) Franklin Covey Printing,
Inc.
“Securities Act” means the
Securities Act of 1933, as amended, and the rules or regulations
thereunder.
“Software” means non-product
related computer programs or data, whether in object code, source code,
regardless of the media format of such Software, and all documentation relating
thereto.
“Subsidiary” means any Person
of which at least a majority of the securities or ownership interests having by
their terms ordinary voting power to elect a majority of the board of directors
or other persons performing similar functions is directly or indirectly owned or
controlled by another Person. When used without reference to a
particular entity, Subsidiary means a Subsidiary of the Company.
“Superior Proposal” means any
Acquisition Proposal presented by a Person to the Company in writing
that (i) the Company’s Board of Directors has determined in good faith is
more favorable from a financial point of view to the Company’s shareholders than
this Agreement and the transactions contemplated hereby (including any
adjustment to the terms and conditions thereof proposed in writing by Buyer in
response to any such Acquisition Proposal) and (ii) is reasonably capable
of being consummated, taking into account all financial, regulatory, legal and
other aspects of such Acquisition Proposal within a period of four months
following any termination of this Agreement.
“Taxes” means all taxes,
charges, fees, levies duties, tariffs, imposts, or other assessments, including
all net income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, windfall or other profits, license, withholding, payroll, employment,
social security, pay as you go, unemployment, national insurance contributions
act tax, workers’ compensation, excise, estimated, severance, stamp, occupation,
capital stock, value added, property, net worth or other taxes, customs duties,
fees, assessments or charges of any kind whatsoever, including all
interest
and
penalties thereon, and additions to tax or additional amounts imposed by any
Taxing Authority.
“Tax Return” means any return,
declaration, report, estimate, election, claim for refund or information return
or other statement or form relating to, filed or required to be filed with any
Taxing Authority, including any schedule or attachment thereto or any amendment
thereof.
“Taxing Authority” means any
Governmental Entity in charge of administering or interpreting any Law relating
to Taxes and imposing or collecting any Taxes, including, but not limited to,
the IRS and any similar foreign, supranational, state, provincial, local
Governmental Entity.
“Third-Party Action” has the
meaning set forth in Section 9.3(a).
“Third-Party Intellectual Property
Rights” means Intellectual Property Rights in which a Person other than
the Company has any ownership interest or control.
“Treasury Regulations” means
the rules and regulations under the Code.
“Warehouse Sublease” means the
sub-sublease proposed to be entered into between the Company and the Buyer in
substantially the form attached as Exhibit E2
“WARN Act” means the Worker
Adjustment and Retraining Notification Act of 1988, as
amended.
The
following terms not defined above are defined in the sections of Article II
indicated below:
|
Definition
|
Defined
|
|
|
Acquired
Assets
|
2.1
|
|
|
Acquired
Contracts
|
2.1(e)
|
|
|
Acquired
Leases
|
2.1(a)
|
|
|
Acquired
Intellectual Property
|
2.1(k)
|
|
|
Adjustment
Note
|
2.8(b)
|
|
|
Assignment
and Assumption Agreement
|
2.9(b)(i)(G)
|
|
|
Assumed
Liabilities
|
2.4
|
|
|
Available
Cash
|
2.8(a)
|
|
|
Buyer
Notes
|
2.8(b)
|
|
|
Cash
Payment Amount
|
2.8(a)
|
|
|
Closing
|
2.9(a)
|
|
|
Closing
Date
|
2.9(a)
|
|
|
Closing
Date Balance Sheet
|
2.10(a)
|
|
|
Closing
Date Net Current Assets
|
2.10(a)
|
|
|
Current
Assets
|
2.10(a)
|
|
|
Current
Liabilities
|
2.10(a)
|
|
|
Estimated
Buyer Shortfall Amount
|
2.8(a)
|
|
|
Estimated
Closing Date Balance Sheet
|
2.7
|
|
|
Estimated
Closing Date Net Current Assets
|
2.7
|
|
Definition
|
Defined
|
|
|
Estimated
Purchase Price
|
2.7
|
|
|
Excess
Net Current Assets
|
2.10(d)(i)
|
|
|
Excluded
Assets
|
2.2
|
|
|
Inventories
|
2.1(d)
|
|
|
Net
Current Assets Shortfall
|
2.10(d)(ii)
|
|
|
Purchasing
Companies
|
2.1
|
|
|
Restricted
Asset
|
2.11(a)
|
|
|
Retained
Liabilities
|
2.5
|
|
|
Section
1060 Consideration
|
2.12
|
|
|
Selling
Companies
|
2.1
|
|
|
Tangible
Personal Property
|
2.1(b)
|
|
|
Target
Closing Date
|
2.9(a)
|
|
|
Target
Net Current Assets
|
2.6
|
|
|
Working
Capital Note
|
2.8(a)
|
|
|
Worldwide
Purchase Price
|
2.6
|
Article
II. Purchase of Acquired Assets and
Closing
2.1 Purchase
and Sale of Acquired Assets. At the Closing and on the terms
and subject to the conditions set forth in this Agreement, the Company agrees to
sell, or to cause the Selling Subsidiaries to sell (the Company and the Selling
Subsidiaries being collectively referred to herein as the “Selling Companies”), to Buyer
or such wholly-owned Subsidiaries of Buyer as Buyer may designate in writing to
the Company prior to the Closing (Buyer and such designated wholly-owned
Subsidiaries being collectively referred to as the “Purchasing Companies”), and
Buyer agrees to buy, or to cause the other Purchasing Companies to buy, from the
Selling Companies, free and clear of all Encumbrances other than Permitted
Encumbrances and Encumbrances listed on Schedule 3.7(c), all right,
title and interest in and to all of the assets of the Company or the Selling
Subsidiary, as applicable, that are used exclusively in the Business as
conducted on the date hereof (collectively, the “Acquired Assets”), as more
specifically described below (but excluding the Excluded Assets):
(a) the
leasehold interests in the real property leased or otherwise used or occupied by
the Company exclusively for the Business as listed on Schedule 2.1(a)(i), as such schedule may be
updated from time to time pursuant to Section 10.11(b) or Section 2.3(a),
including all improvements and fixtures thereon and all rights and easements
appurtenant thereto, including those listed on Schedule 2.1(a)(ii) but excluding such
leases for which both (i) the Company is required to obtain a Required
Consent pursuant to Section 5.5 and (ii) the Company has not obtained such
Required Consent as of the Closing Date, unless otherwise agreed to by the
parties (the “Acquired
Leases”);
(b) the
machinery, equipment, tools, furniture, office equipment, computer hardware,
supplies, materials, vehicles and other items of tangible personal property
(other than the Inventories) owned or leased by the Company exclusively for the
Business under Capital Leases (wherever located and whether or not carried on
the Company’s books) as listed on Schedule 2.1(b), as such
schedule may be updated from time to time pursuant to
Section
10.11(b) or Section 2.3(a), together with any transferable express or implied
warranty by the manufacturers, sellers or lessors of any item or component part
thereof, rights of return, rebate rights, over-payment recovery rights and any
other rights of the Company relating to these items (the “Tangible Personal
Property”);
(c) all (i)
accounts receivable and other rights to payment from customers of the Company
related exclusively to the Business for goods sold or services rendered and the
full benefit of all security for such accounts or rights to payment, (ii)
other accounts or notes receivable of the Company and the full benefit of all
security for such accounts or notes, and (iii) the Company’s rights related
to any of the foregoing;
(d) all
inventories related exclusively to the Business, wherever located, including all
finished goods, work in process, raw materials, ingredients, spare parts,
packaging and all other materials and supplies to be used, consumed, sold,
resold or distributed by the Company, together with any transferable express or
implied warranty by the manufacturers or sellers of any item or component part
thereof, rights of return, rebate rights, over-payment recovery rights and the
Company’s rights related to any of the foregoing (the “Inventories”);
(e) the
Contracts related exclusively to the Business to which the Company is a party as
listed on Schedule 2.1(e), as such
schedule may be updated from time to time pursuant to Section 10.11(b) or
Section 2.3(a), but excluding those Contracts for which both (i) the
Company is required to obtain a Required Consent pursuant to Section 5.5(a) and
(ii) the Company has not obtained such Required Consent as of the Closing
Date, unless otherwise agreed to by the parties (the “Acquired
Contracts”);
(f) all
Governmental Authorizations held by the Company related exclusively to the
Business as listed on Schedule 2.1(f), as such
schedule may be updated from time to time pursuant to Section 10.11(b)or Section
2.3(a), and all pending applications for or renewals of Governmental
Authorizations;
(g) Except
as otherwise provided in the Master License Agreement, all sales and promotional
literature used exclusively in the Business and all customer lists related to
the Business, including those summarized on Schedule 2.1(g), as such
schedule may be updated from time to time pursuant to Section 10.11(b) or
Section 2.3(a), provided, however, that the Company shall be entitled to retain
copies of all customer lists provided to Buyer pursuant to this Section
2.1(g);
(h) the
Owned Intellectual Property Rights (other than Software) related exclusively to
the Business as listed on Schedule 2.1(h), as such
schedule may be updated from time to time pursuant to Section 10.11(b)or Section
2.3(a), and all rights that the Company may have to institute or maintain any
action to protect the same and recover damages for any infringement thereof
including the right to recover damages for past infringement;
(i) the
Software licensed to the Company related exclusively to the Business as listed
on Schedule 2.1(i), as such
schedule may be updated from time to time pursuant to Section 10.11(b) or
Section 2.3(a);
(j) the
Software (including, but not limited to, database interfaces) owned by the
Selling Companies listed on Schedule 2.1(j), as such
schedule may be updated from time to time pursuant to Section 10.11(b) or
Section 2.3(a);
(k) the
Licensed-In Intellectual Property Rights related exclusively to the Business
(other than Software) as listed on Schedule 2.1(k), as such
schedule may be updated from time to time pursuant to Section 10.11(b) or
Section 2.3(a), and all rights that the Company may have to institute or
maintain any action to protect the same and recover damages for any infringement
thereof, including the right to recover damages for past infringement (such
Intellectual Property Rights, together with the Intellectual Property Rights
described in Sections 2.1(g), 2.1(h), 2.1(i) and 2.1(j), the “Acquired Intellectual
Property”);
(l) all
assignable insurance benefits, including rights and proceeds, arising from or
relating exclusively to the Acquired Assets or the Assumed Liabilities prior to
the Closing Date;
(m) cash
in the cash registers of each retail store of the Business as of the Closing
Date;
(n) the
benefits of all prepaid expenses incurred by the Company with respect to the
Business as of the Closing Date;
(o) intangible
assets related to the 1995 acquisition of Productivity Plus, Inc., by the
Company;
(p) all
data and records related to the operations of the Selling Companies that are
exclusively related to the Business, including referral sources, research and
development reports and records, production reports and records, operating
guides and manuals, financial and accounting records, studies, reports,
correspondence and other similar documents and records and, with respect to any
Hired Active Employee, copies of all personnel records; provided, however, that
the Company shall be entitled to retain copies of all data and records provided
to Buyer pursuant to this Section 2.1(p);
(q) all
of the going concern value and goodwill related to the Acquired
Assets;
(r) all
claims of the Selling Companies against third parties relating to the Acquired
Assets, whether choate or inchoate, known or unknown, contingent or
noncontingent;
(s) copies
of all transfer pricing reports or studies of any of the Selling Companies’
related to the Business; and
(t) all
prepaid expenses as listed on Schedule 2.1(t), as such
schedule may be updated from time to time pursuant to Section 10.11(b)or Section
2.3(a), and all rights of the Selling Companies relating to deposits and prepaid
expenses (other than Reimbursable Expenses), claims for refunds and rights to
offset in respect thereof that are exclusively related to the Acquired Assets or
the Business.
2.2 Excluded
Assets. Notwithstanding anything to the contrary contained in
Section 2.1 or elsewhere in this Agreement, all assets and property of the
Company not specifically included in the Acquired Assets (the “Excluded Assets”), whether or
not related primarily to the Business, are not part of the sale and purchase
contemplated by this Agreement, are excluded from the Acquired Assets and will
be retained by the Company and remain the property of the Company following the
Closing, including, without limitation:
(a) all
rights of the Company under this Agreement and any other agreements between the
Company and Buyer entered into on or after the date of this
Agreement;
(b) the
Company’s records relating to the organization, maintenance, existence and good
standing of the Company as a corporation, namely the
Company’s (i) corporate charter, (ii) qualifications to conduct
business as a foreign corporation, (iii) taxpayer and other identification
numbers, (iv) minute books, (v) stock records, (vi) tax
records, (vii) books of account and (vii) corporate
seals;
(c) any
records that the Company is required by Law to retain in its possession
(provided, that copies of any such records related primarily to the Business
that are not “Excluded
Assets” by another provision of this Section 2.2 will, to the extent
permitted by Law, be provided to Buyer at the Closing);
(d) those
Governmental Authorizations and pending applications or renewals of governmental
obligations that are nonassignable in accordance with their terms, all of which
are listed on Schedule 2.2(d), as such
schedule may be updated from time to time pursuant to Section 10.11(b) or
Section 2.3(a);
(e) except
for the Acquired Intellectual Property, all Owned Intellectual
Property;
(f) subject
to Section 2.1(l), all insurance policies and rights
thereunder;
(g) any
shares of capital stock of the Company held in treasury and shares of stock of
Subsidiaries;
(h) all
securities owned by or on behalf of the Company;
(i) except
as provided in Section 2.1(m), the Company’s cash and cash equivalents
(including marketable securities and short-term investments);
(j) accounts
receivable and amounts receivable from any Insider;
(k) those
rights relating to deposits, prepaid expenses, claims for refunds and rights to
offset listed on Schedule 2.2(k), as such
schedule may be updated from time to time pursuant to Section 10.11(b) or
Section 2.3(a), including rights relating to the payment of interest payable
with respect to any of the foregoing;
(l) all
rights relating to any refund or claim for refund of Taxes of the Company,
including but not limited to any Taxes arising as a result of the Company’s
operation of the Business or ownership of the Acquired Assets prior to the
Closing.
(m) all
rights in connection with, and with respect to the assets associated with, any
Plan;
(n) the
assets listed on Schedule 2.2(n), as such
schedule may be updated from time to time pursuant to Section 10.11(b) or
Section 2.3(a);
(o) all
assets of the Company used or held for use in the conduct of the Excluded
Businesses and not specifically transferred or conveyed pursuant to this
Agreement;
(p) all
tax refunds owing to the Company or any Subsidiary of the Company including any
Selling Subsidiary;
(q) all
value-added tax registration numbers of the Selling Companies; and
(r) all
assets or properties of the Company not specifically included in the Acquired
Assets.
2.3 Recapture
of Assets and Liabilities.
(a) Within
60 days after the Closing Date, the parties, acting in good faith, shall jointly
prepare final supplements, modifications or updates, as of the Closing Date, to
any schedules previously delivered by the Company pursuant to this Article II,
including, if applicable, any supplements, modifications or updates previously
made in accordance with Section 10.11(b). Any such post-closing
supplements, modifications and updates shall supplement, amend and modify the
Disclosure Schedule.
(b) In
the event that one of the parties, within one (1) year after the Closing Date,
identifies any asset or liability that has been inadvertently transferred or not
transferred pursuant to Sections 2.1, 2.2, 2.4 and 2.5 and reasonably should or
should not have been transferred pursuant to such Sections, the parties agree to
in good faith promptly correct such omission or inclusion, as
appropriate.
2.4 Assumption
of Assumed Liabilities. At the Closing and on the terms and
subject to the conditions set forth in this Agreement, Buyer agrees to assume
the following Liabilities of the Company (the “Assumed
Liabilities”):
(a) all
executory Liabilities arising or to be performed after the Closing under
all (i) Acquired Contracts and Acquired Leases, (ii) Acquired
Contracts and Acquired
Leases
described in (i) to the extent the same are amended after the date of this
Agreement in accordance with this Agreement, (iii) Acquired Contracts and
Acquired Leases entered into after the date of this Agreement in accordance with
the provisions of this Agreement and (iv) those Acquired Contracts and
Acquired Leases entered into after the date of this Agreement not in accordance
with the provisions of this Agreement that Buyer expressly agrees to assume, in
each case other than any Liability arising out of or relating to a breach of any
Acquired Contract that occurred prior to the Closing;
(b) any
Liability arising under any Environmental Law arising from the operation of the
Business after the Closing or the leasing, ownership or operation of the real
property listed on Schedule 2.1(a)(i), as such schedule may be
updated from time to time pursuant to Section 10.11(b) or Section 2.3(a), by
Buyer or any other Purchasing Company after the Closing;
(c) all
of the Company’s accounts payable for goods and services exclusively related to
the Business incurred in the Ordinary Course of Business that are either
reflected on the Latest Balance Sheet or related to the Business and incurred by
the Company in the Ordinary Course of Business between the date of the Latest
Balance Sheet and the Closing (other than accounts payable to Insiders or
Affiliates of the Company), and that remain unpaid without having given rise to
a breach at the Closing;
(d) any
Liability related to the Rolled-Over Accrued Vacation; and
(e) all
of the Liabilities of the Company related to the Business and described on Schedule 2.4(e), as such schedule may
be updated from time to time pursuant to Section 10.11(b)or Section
2.3(a).
2.5 Retained
Liabilities. The following Liabilities of the Selling
Companies (the “Retained
Liabilities”) are not part of the sale and purchase contemplated by this
Agreement, are excluded from the Assumed Liabilities and will be retained by the
Selling Companies and remain the sole responsibility of the Selling Companies
following the Closing:
(a) any
Liability arising out of or relating to the Excluded Assets except for
Liabilities that are Assumed Liabilities;
(b) any
Liability arising out of or relating to the Excluded Businesses except for
Liabilities that are Assumed Liabilities;
(c) any
Liability under any Contract assumed by Buyer pursuant to Section 2.4 that
arises prior to the Closing or arises after the Closing but that arises out of
or relates to a breach of such Contract that occurred prior to the
Closing;
(d) any
Liability in respect of any Pre-Closing Tax, including (i) any Taxes
arising as a result of any Selling Company’s operation of its business or
ownership of the Acquired Assets prior to the Closing and (ii) any Taxes
that will arise as a result of the sale of the Acquired Assets pursuant to this
Agreement, except for that portion of transfer taxes specifically allocated to
Buyer pursuant to Section 10.3;
(e) any
Liability arising under any Environmental Law in connection with the operation
of the Business by the Selling Companies prior to the Closing or the Selling
Companies’ leasing, ownership or operation of real property other than the real
property listed on Schedule
2.1(a)(i);
(f) any
Liability under any Plan;
(g) except
as set forth in Section 2.4(d), any Liability arising out of or relating to any
Selling Company’s disposition of an application for employment, the employment
of any employee or the termination of the employment of any employee, whether or
not the affected employee is hired by Buyer;
(h) any
Liability of the Selling Companies to any Insider or Affiliate of the
Company;
(i) any
Liability to distribute to any of the Company’s shareholders or otherwise apply
all or any part of the consideration received by the Company under this
Agreement;
(j) any
Liability to indemnify, reimburse or advance amounts to any officer, director,
employee or agent of the Selling Companies;
(k) any
Liability arising out of any Litigation (i) pending as of the Closing
or (ii) commenced after the Closing and arising out of or relating to any
occurrence, happening or situation existing prior to the Closing, including the
Litigation listed on Schedule 3.13;
(l) any
Liability arising out of or resulting from any Selling Company’s compliance or
non-compliance with any Law, Governmental Authorization or Governmental
Order;
(m) any
Liability of the Selling Companies under this Agreement, the Ancillary
Agreements or any other Contract between any of the Selling Companies and
Buyer;
(n) a
payment obligation for goods or services provided to the Selling Companies
before the Closing Date except to the extent assumed pursuant to
Section 2.4(c);
(o) any
Liability based upon the Company’s acts or omissions with respect to the
Excluded Businesses occurring after the Closing; and
(p) notwithstanding
any provision to the contrary in this Agreement, any Liability listed on Schedule 2.5(p), as such schedule may
be updated from time to time pursuant to Section 10.11(b) or Section 2.3(a).
2.6 Purchase
Price. The aggregate consideration for the Acquired Assets
(the
2.7 Estimated
Purchase Price. At least two business days prior to the
Closing Date, the Company will deliver to Buyer an estimated balance sheet (the
“Estimated Closing Date
Balance Sheet”) for the Business as of the close of business on the
Closing Date with respect to the Acquired Assets and the Assumed Liabilities and
in accordance with GAAP applied on a basis consistent with the preparation
of the Latest Financial Statements). The Estimated Closing Date
Balance Sheet will include a determination of the Estimated Closing Date Net
Current Assets of the Business as of the close of business on the Closing
Date. “Estimated
Closing Date Net Current Assets” means the excess of Current Assets over
Current Liabilities (as those terms are defined in Section 2.10(a)) shown
on the Estimated Closing Date Balance Sheet. “Estimated Purchase Price”
means an amount equal to $32,000,000, plus the amount, if any, by which the
Estimated Closing Date Net Current Assets exceeds the Target Net Current Assets
or minus the amount, if any, by which the Target Net Current Assets exceeds the
Estimated Closing Date Net Current Assets.
2.8 Payment
of the Worldwide Purchase Price. Buyer will pay the Worldwide
Purchase Price by delivery to the Company of the following:
(a) At
Closing, a cash amount equal to the Estimated Purchase Price plus the amount of
any Reimbursable Expenses; provided, however, that if
the sum or difference, as applicable, of the aggregate amount of any
Reimbursable Expenses plus the amount, if any, by which the Estimated Closing
Date Net Current Assets exceeds the Target Net Current Assets or minus the
amount, if any, by which the Target Net Current Assets exceeds the Estimated
Closing Date Net Current Assets results in a positive amount payable by Buyer to
the Company (the “Estimated
Buyer Shortfall Amount”), then, only to the extent Buyer reasonably
determines in good faith that it has insufficient Available Cash to fund the
payment of the Estimated Buyer Shortfall Amount, Buyer may deliver to the
Company at Closing a subordinated promissory note with an aggregate principal
amount equal to such amount of the Estimated Buyer Shortfall Amount that Buyer
is not able to fund in cash (the “Working Capital Note”) (the
amount of cash to be delivered to the Company at Closing pursuant to this
Section 2.8(a) shall be referred to as the “Cash Payment
Amount”). “Available Cash” means any
cash on hand or available to Buyer, including from equity contributions, bank
lines of credit or working capital, taking into account actual or projected
operating cash flow requirements of Buyer. The Working Capital Note
will be in a form reasonably acceptable to the Company and Buyer, each acting in
good faith, and will provide for the payment of the principal amount, and
accrued and unpaid interest at a rate per annum equal to the interest rate
applicable to the Company’s line of credit with the Company’s then current
senior lender as of the Closing Date plus an additional 100 basis points, as
soon as Buyer has Available Cash following the Closing but in no case later than
six months following the Closing Date. If Buyer delivers a Working
Capital Note and subsequent to the Closing the parties determine there is a Net
Current Asset Shortfall pursuant to Section 2.10(d)(ii), then the
amount of
such Net Current Asset Shortfall shall reduce any accrued interest and then
principal owing under the Working Capital Note as set forth in Section
2.10(d)(ii); and
(b) If
the parties determine there are Excess Net Current Assets pursuant to Section
2.10(d)(i), then Buyer will pay to the Company an aggregate cash amount equal to
the Excess Net Current Assets as set forth in Sections 2.10(d)(i) and (e); provided, however, if Buyer
reasonably determines in good faith that it has insufficient Available Cash to
fund such cash payment of the amount of such Excess Net Current Assets, then
Buyer may deliver to the Company an additional subordinated promissory note with
an aggregate principal amount equal to the amount of such Excess Net Current
Assets that Buyer is not able to fund in cash (the “Adjustment Note” and together
with the Working Capital Note, the “Buyer Notes”). The
Adjustment Note will be in a form reasonably acceptable to the Company and
Buyer, each acting in good faith, and will be payable and will bear interest on
the same terms as the Working Capital Note.
2.9 The
Closing.
(a) The
consummation of the transactions contemplated by this Agreement (the “Closing”)
will take place at the offices of Dorsey & Whitney LLP at 136 South
Main Street, Suite 1000, Salt Lake City, UT 84010
at 10:00 a.m. within three business days following satisfaction of the
conditions set forth in Article VII (other than those conditions that by
their nature are to be satisfied at Closing provided that the parties are then
able to satisfy such conditions) (the “Closing Date”) or at such
other place and on such other date as may be mutually agreed by Buyer and the
Company, in which case Closing Date means the date so agreed. The
parties currently contemplate that the Closing will occur on or before July 31,
2008 (the “Target Closing
Date”). The failure of the Closing will not ipso facto result in
termination of this Agreement and will not relieve any party of any obligation
under this Agreement. The Closing will be effective as of the close
of business on the Closing Date.
(b) At
the Closing:
(i) the
Company will deliver to Buyer:
(A) a
certificate of an appropriate officer of the Company dated the Closing Date
stating that the conditions set forth in subsections (a) through (i)
of Section 7.1 have been satisfied;
(B) the
text of the resolutions adopted by the board of directors of the Company
authorizing the execution, delivery and performance of this Agreement, certified
by an appropriate officer of the Company;
(C) each
Ancillary Agreement to which the Company is a party, duly executed by the
Company;
(D) a
contribution of $1,735,500 to Buyer, by wire transfer of immediately
available funds to the account designated by Buyer to the Company no later than
three business days prior to the Closing, to acquire a 19.5% equity
interest in Buyer, before giving effect to any grants of interest to
certain
employees
of the Company in connection with the Closing, as contemplated in the Buyer
Operating Agreement;
(E) a
contribution of $1,000,000 to Buyer, by wire transfer of immediately
available funds to the account designated by Buyer to the Company no later than
three business days prior to the Closing, constituting the FC Priority
Contribution (as defined in the Buyer Operating Agreement);
(F) a
bill of sale for the Acquired Assets that are Tangible Personal Property in
substantially the form of Exhibit F, duly executed by the
Company, and other substantially similar bills of sale duly executed by other
Selling Companies to the extent any such Acquired Assets that are Tangible
Personal Property are owned by such other Selling Companies;
(G) an
assignment of Acquired Assets that are intangible rights and property (including
Contracts) in substantially the form of Exhibit G duly executed by the
Company, which assignment shall also contain Buyer’s assumption of the Assumed
Liabilities (the “Assignment
and Assumption Agreement”), and other substantially similar assignment
and assumption agreements duly executed by other Selling Companies and/or other
Purchasing Companies to the extent any such Acquired Assets that are intangible
rights and property (including Contracts) are owned by such other Selling
Companies and/or Assumed Liabilities are being assumed by other Purchasing
Companies;
(H) any
instruments, agreements or documents, including any Foreign Transfer Agreements,
required for the transfer of Foreign Assets by Selling
Subsidiaries;
(I) assignments
of the Acquired Intellectual Property, duly executed by the Company, together
with other agreements, instruments, certificates and other documents necessary
or appropriate, in the opinion of Buyer’s counsel, to assign all of the
Company’s rights and interests in and to the Acquired Intellectual Property to
Buyer;
(J) appropriate
instruments of transfer for Acquired Assets subject to certificate of title, if
any, duly executed by the Company;
(K) assignments
and assumptions or other appropriate documents (pursuant to the Assignment and
Assumption Agreement or otherwise) for the assignment of the Acquired Leases and
other Acquired Assets under leases accompanied by estoppel certificates
acceptable to Buyer, duly executed by the Company and any other appropriate
parties; and
(L) duly
executed copies of all agreements, instruments, certificates and other documents
necessary or appropriate, in the opinion of Buyer’s counsel, to release any and
all Encumbrances against the Acquired Assets, other than Permitted Encumbrances
and Encumbrances listed on Schedule 3.7(c).
All
actions to be taken in connection with consummation of the transactions
contemplated by this Agreement and all certificates, opinions, instruments and
other documents required to effect the transactions contemplated by this
Agreement will be in form and substance satisfactory to Buyer.
(ii) Buyer
will deliver to the Company:
(A) a
cash payment equal to the Cash Payment Amount by wire transfer of immediately
available funds to the account designated by the Company to Buyer no later than
three business days prior to the Closing;
(B) if
applicable, the Working Capital Note, as provided in Section
2.8(a);
(C) a
certificate of an appropriate officer of Buyer dated the Closing Date stating
that the conditions set forth in subsections (a) through (d) of
Section 7.2 have been satisfied;
(D) the
text of the resolutions adopted by the single member and manager of Buyer
authorizing the execution, delivery and performance of this Agreement, including
the issuance of the Buyer Notes, certified by a manager of Buyer;
(E) assumptions
of leases or other appropriate documents for the Acquired Leases and other
Acquired Assets under leases, duly executed by Buyer or other Purchasing
Company, as appropriate; and
(F) each
Ancillary Agreement to which Buyer, or other Purchasing Company, is a party,
duly executed by Buyer or such Purchasing Company, as appropriate.
All
actions to be taken in connection with consummation of the transactions
contemplated by this Agreement and all certificates, opinions, instruments and
other documents required to effect the transactions contemplated by this
Agreement will be in form and substance satisfactory to the
Company.
(c) All
items delivered by the parties at the Closing will be deemed to have been
delivered simultaneously, and no items will be deemed delivered or waived until
all have been delivered.
2.10 Post-Closing
Adjustment to Estimated
Purchase Price.
(a) The
Company will promptly prepare and deliver to Buyer within 60 days after the
Closing Date a balance sheet (the “Closing Date Balance Sheet”)
for the Business as of the close of business on the Closing Date with respect to
the Acquired Assets and the Assumed Liabilities and in accordance with GAAP
applied on a basis consistent with the preparation of the Latest Financial
Statements. The Closing Date Balance Sheet will include a
determination of the Closing Date Net Current Assets of the Business as of the
close of business on the Closing Date.
(b) Buyer
may object to the Closing Date Balance Sheet on the basis that it was not
prepared in accordance with GAAP applied on a basis consistent with the
preparation of the Latest Financial Statements or that the calculation of
Closing Date Net Current Assets contains mathematical errors. If
Buyer has any objections to the Closing Date Balance Sheet or the Closing Date
Net Current Assets, Buyer will deliver a detailed statement describing such
objections to the Company within 30 days after receiving the Closing Date
Balance Sheet. Buyer and the Company will attempt in good faith to
resolve any such objections. If Buyer and the Company do not reach a
resolution of all objections within 30 days after the Company has received the
statement of objections, Buyer and the Company will select a mutually acceptable
accounting firm to resolve any remaining objections. If Buyer and the
Company are unable to agree on the choice of an accounting firm, they will
select a nationally recognized accounting firm by lot (after excluding the
regular outside accounting firms of Buyer and the Company). The
accounting firm will determine, in accordance with GAAP applied on a basis
consistent with the preparation of the Latest Financial Statements, the amounts
to be included in the Closing Date Balance Sheet and the Closing Date Net
Current Assets. The parties will provide the accounting firm, within
10 days of its selection, with a definitive statement of the position of each
party with respect to each unresolved objection and will advise the accounting
firm that the parties accept the accounting firm as the appropriate Person to
interpret this Agreement for all purposes relevant to the resolution of the
unresolved objections. The Company and the Buyer, as applicable, will
provide the accounting firm access to the books and records of the
Company. The accounting firm will have 30 days to carry out a
review of the unresolved objections and prepare a written statement of its
determination regarding each unresolved objection. The determination
of any accounting firm so selected will be set forth in writing and will be
conclusive and binding upon the parties. The Company will revise the
Closing Date Balance Sheet and the determination of the Closing Date Net Current
Assets as appropriate to reflect the resolution of any objections to the Closing
Date Balance Sheet pursuant to this Section 2.10(b).
(c) If
Buyer and the Company submit any unresolved objections to an accounting firm for
resolution as provided in Section 2.10(b), Buyer and the Company will each
bear their respective costs and expenses and will share equally in the fees and
expenses of the accounting firm.
(d) Within 10
business days after the date on which the Closing Date Net Current Assets is
finally determined pursuant to this Section 2.10:
(i) If
the Closing Date Net Current Assets exceeds the Estimated Closing Date Net
Current Assets (the amount of such excess, the “Excess Net Current Assets”),
Buyer
will pay to the Company an aggregate amount equal to the Excess Net Current
Assets, or, as provided in Section 2.8(b), deliver to the Company the Adjustment
Note.
(ii) If
the Closing Date Net Current Assets is less than the Estimated Net Current
Assets (the amount of such difference, the “Net Current Assets
Shortfall”), the aggregate amount of accrued interest and then principal
owing pursuant to the Working Capital Note, if any, will be reduced by an amount
equal to the Net Current Assets Shortfall, and, to the extent the Net Current
Assets Shortfall exceeds the amount owing pursuant to the Working Capital Note,
if any, the Company will pay the balance to Buyer.
(e) All
payments of cash to be made to Buyer or the Company pursuant to this
Section 2.10 will be made by wire transfer of immediately available funds
to the accounts designated by Buyer or the Company, as applicable, no later than
three business days after the date on which the Closing Date Net Current Assets
is finally determined.
(f) Any
payment made pursuant to this Section 2.10 will be the exclusive remedy
provided in this Agreement or otherwise for any breach of representation or
warranty with respect to any element of the Closing Date Balance
Sheet.
(g) Judgment
upon the award rendered by the accounting firm may be entered in any court of
competent jurisdiction.
2.11 Unobtained
Consents. If the Company has not obtained a Required Consent
and, irrespective of such failure, the Closing occurs, then, notwithstanding
anything to the contrary contained in Section 2.1 or elsewhere in this
Agreement:
(a) with
respect to any Contract, Governmental Authorization or other item with respect
to which such Required Consent was not obtained, and which would have, if such
Required Consent had been obtained, been an Acquired Asset (each a “Restricted Asset”), Buyer
shall (unless otherwise mutually agreed to by the Company and the Buyer in
writing) exclude such Restricted Asset from the Acquired Assets so that, unless
and until the applicable Required Consent is obtained after the Closing, neither
this Agreement nor any instrument delivered at the Closing will constitute an
assignment or transfer of such Restricted Asset or any interest arising
thereunder or resulting therefrom;
(b) the
Company will continue to use commercially reasonable efforts to obtain all such
Required Consents as soon as practicable following Closing, and, prior to
obtaining such Required Consents, the Company will continue to operate any
Restricted Assets pursuant to the terms of the Master Shared Services Agreement;
and
(c) with
respect to any Restricted Asset that has been excluded from the Acquired Assets
pursuant to Section 2.11(a), if the applicable Required Consent is obtained
following the Closing Date, such Restricted Asset shall immediately be deemed to
be included in the Acquired Assets pursuant to the terms of the Assignment and
Assumption Agreement.
2.12 Allocation. The Worldwide
Purchase Price and those Assumed Liabilities, costs and other items included in
“consideration” for purposes of Code Section 1060 (the “Section 1060 Consideration”)
shall be allocated among the Acquired Assets in accordance with
this
Section 2.12
(this allocation among the Acquired Assets, the “Allocation”). Any
Assumed Liabilities included in the Section 1060 Consideration shall be
allocated to the Selling Company in connection with which such Assumed
Liabilities were incurred. The Allocation shall include an allocation
among the Foreign Assets, with reference to each country in which the Foreign
Assets are located. The Allocation shall be based on the fair market
values of the Acquired Assets as of the Closing Date as determined and allocated
in accordance with Code Section 1060 and the Treasury Regulations thereunder,
with the fair market values of the accounts receivable and inventory included in
the Acquired Assets determined in accordance with GAAP such that tangible assets
in these categories are valued at book value as of the Closing
Date. As soon as reasonably practicable (and in any event within one
hundred twenty (120) days) after the Closing Date, the Company and the Buyer
shall work together in good faith to finalize the Allocation to reflect the
final determinations of the fair market values of assets as of the Closing Date
and any changes to the Section 1060 Consideration, and the Allocation as so
finalized shall become the “Final Allocation”, which
shall be final and binding upon all the parties. If the Company and
the Buyer are unable to finalize the Allocation during such one hundred twenty
(120) day period, then the Company and the Buyer shall submit only those
disputed items that have not been resolved to an independent accountant mutually
chosen by the Company and the Buyer for determination, provided, however, that the
basis for dispute shall not include any objection to the methodology used to
determine the fair market value of the accounts receivable and
inventory. The independent accountant’s determination as to each item
of dispute shall be binding on the parties, and the Allocation shall be amended
in accordance with the independent accountants’ determination (as to the
disputed items) and the agreement of the Company and the Buyer (as to the items
that are not disputed) and shall become the Final Allocation. If any
adjustment is subsequently made to the Section 1060 Consideration pursuant to
the terms of this Agreement, the Buyer and the Company shall agree to an amended
Allocation in accordance with the above procedures, and such amended allocation
(the “Amended
Allocation”) shall replace the Final Allocation. Within
fifteen (15) days after the Allocation has been determined in accordance with
this Section 2.12, the Buyer shall cause to be prepared and delivered to the
Company IRS Forms 8594 and any required exhibits thereto, and any similar forms
required under applicable state, local or foreign Law governing Taxes, which
shall conform to the Final Allocation, and the Company and the Purchasing
Companies shall each timely file: (a) the applicable Form(s) 8594 with the IRS
in accordance with the requirements of Code Section 1060; and (b) such other
forms with the applicable Taxing Authorities in accordance with the requirements
of the applicable Law. Any subsequent adjustment to the Section 1060
Consideration reflected in an Amended Allocation shall be reflected in one or
more amended Forms 8594 and applicable state, local or foreign Tax forms that
the Company shall cause to be prepared and delivered to the Company within
fifteen (15) days after determination of an Amended Allocation. The Company
and the Purchasing Company shall, and shall cause their respective
Affiliates to, each report, act, and file Tax Returns in all respects and for
all purposes (including for purposes of Code Section 704(c)) consistent with the
Final Allocation (or Amended Allocation, as applicable). The parties
agree that they will not take, nor will they permit any of their respective
Affiliates to take, for Tax purposes, any position (whether in audits, Tax
Returns or otherwise) that is inconsistent with such allocations unless required
to do so by applicable Law.
2.13 Foreign
Transfer Agreements. For those foreign jurisdictions
where (i) applicable laws in such jurisdiction require any of the parties
to be a party to a Foreign Transfer Agreement in order to effect the sale,
assignment, transfer or delivery (as the case may be) of
Acquired
Assets in such jurisdiction, or (ii) a Foreign Transfer Agreement is
otherwise deemed necessary or appropriate for tax or other purposes, the
applicable Selling Subsidiary and Buyer or the appropriate Purchasing Company
shall negotiate in good faith to enter into a Foreign Transfer Agreement for
each such jurisdiction between the date hereof and the Closing
Date.
2.14 Further
Assurances. On and
after the Closing Date, the Company and Buyer will take all appropriate action
and execute any documents, instruments or conveyances of any kind that may be
reasonably requested by the other party to carry out any of the provisions of
this Agreement.
Article III. Representations
and Warranties of the Company.
The
Company jointly and severally represents and warrants to Buyer and the
Purchasing Companies, and each of the Selling Subsidiaries severally represents
and warrants to Buyer and the Purchasing Companies, except as described in the
Disclosure Schedule and the Company SEC Reports and only with respect to
the representations and warranties applicable to such Selling Company, that, as
of the date of this Agreement:
3.1 Incorporation;
Power and
Authority.
(a) The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Utah, and has all necessary power and authority
to own, lease and operate its assets and to carry on the Business as it is
currently conducted. The Company is duly qualified to do business in
each jurisdiction in which the nature of the Business or its ownership of the
Acquired Assets requires it to be so qualified, except for where a failure to be
so qualified could not reasonably be expected to have a Material Adverse
Effect. The Company has all necessary power and authority to execute,
deliver and perform this Agreement and the Ancillary Agreements to which it will
become a party.
(b) Each
Selling Subsidiary is duly organized and validly existing, and has all necessary
power and authority to own, lease and operate its assets and to carry on the
Business as it is currently conducted by such selling
subsidiary. Each Selling Subsidiary is duly qualified to do business
in each jurisdiction in which the nature of the Business or its ownership of the
Acquired Assets requires it to be so qualified, except for where a failure to be
so qualified could not reasonably be expected to have a Material Adverse
Effect. For each Selling Subsidiary, Schedule 3.1(b) lists the jurisdiction of
its organization and its form as a legal entity. Each Selling
Subsidiary has all necessary power and authority to execute, deliver and perform
this Agreement and the Ancillary Agreements to which it will become a
party.
3.2 Valid and
Binding Agreement. The execution, delivery and performance by
the Company of this Agreement, and the Ancillary Agreements to which it will
become a party, has been duly and validly authorized by all necessary corporate
action. The execution, delivery and performance by each Selling
Subsidiary of the Ancillary Agreements to which each it will become a party, has
been duly and validly authorized by all necessary corporate action of such
selling Subsidiary. This Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation of the
Company, enforceable in accordance with its terms, subject to the Remedies
Exception. Each Ancillary Agreement to which a Selling
Company
will become a party, when executed and delivered by such Selling Company, will
constitute the valid and binding obligation of such Selling Company, as
applicable, enforceable in accordance with its terms, subject to the Remedies
Exception. The Board of Directors of the Company, at a meeting duly
called and held at which a quorum was present throughout, by the requisite vote
of the directors, has determined that this Agreement and the transactions
contemplated by this Agreement to be advisable and fair to and in the best
interest of the Company and its shareholders and no such declaration, approval,
adoption or recommendation has been changed, withdrawn or revoked.
3.3 No
Breach; Consents. The execution, delivery and performance of
this Agreement will not (a) contravene any provision of the Organizational
Documents of the Company or any Selling Subsidiary; (b) violate or
conflict with any material Law, Governmental Order or Governmental Authorization
applicable to any Selling Company; (c) except as set forth on Schedule 3.3, conflict
with, result in any breach of any of the provisions of, constitute a default (or
any event that would, with the passage of time or the giving of notice or both,
constitute a default) under, result in a violation of, increase the burdens
under, result in the termination, amendment, suspension, modification,
abandonment or acceleration of payment (or any right to terminate) or require a
Consent under any Acquired Contract that is either binding upon or enforceable
against any Selling Company or any Governmental Authorization that is held by
any Selling Company; or (d) result in the creation of any material
Encumbrance upon any of the Acquired Assets.
3.4 SEC
Filings; Financial Statements.
(a) The
Company has filed all forms, reports, schedules, statements and other documents
required to be filed by it during the 12 months immediately preceding the
date of this Agreement (collectively, as supplemented and amended since the time
of filing, the “Company SEC Reports”)
with the SEC. The Company SEC Reports (i) were
prepared in all material respects in accordance with all applicable requirements
of the Securities Act and the Exchange Act, as applicable, and (ii) did
not, at the time they were filed, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The representation in
clause (ii) of the preceding sentence does not apply to any misstatement or
omission in any Company SEC Report that was superseded by subsequent
Company SEC Reports.
(b) The
audited consolidated financial statements and unaudited consolidated interim
financial statements of the Company and its consolidated Subsidiaries included
or incorporated by reference in the Company SEC Reports have been prepared
in accordance with GAAP consistently applied during the periods indicated
(except as may otherwise be indicated in the notes) and present fairly the
financial position, results of operations and cash flows of the Company and its
consolidated Subsidiaries on a consolidated basis at the respective dates and
for the respective periods indicated (except interim financial statements may
not contain all notes and are subject to year-end adjustments).
(c) As
provided on Schedule
3.4, the unaudited balance sheet as of March 1, 2008 (“Latest Balance Sheet Date”)
of the Company relating to the Business (the “Latest Balance
Sheet”) and the unaudited
statements of income, changes in shareholders’ equity and cash flows of the
Company relating to the Business for the six-month period then ended (such
statements and the Latest Balance Sheet, the “Latest Financial Statements”)
are based upon the books and records of the Company, have been prepared in
accordance with GAAP consistently applied during the periods indicated and
present fairly, in all material respects, the financial position, results of
operations and cash flows of the Business at the respective dates and for the
respective periods indicated, except that the Latest Financial Statements may
not contain all notes and are subject to year-end adjustments, none of which are
material.
3.5 Absence
of Undisclosed Liabilities. Except as reflected or expressly
reserved against in the Latest Balance Sheet, no Selling Company has any
Liability relating to the Business, except Liabilities that have arisen after
the date of the Latest Balance Sheet in the Ordinary Course of
Business.
3.6 Absence
of Certain Developments. Except for the Restructuring Plan,
since the Latest Balance Sheet Date, the Selling Companies have conducted the
Business in the Ordinary Course of Business consistent with past practice and
have not experienced any development or change which, individually or in the
aggregate, has resulted in or which would be reasonably likely to result in a
Material Adverse Effect.
3.7 Property.
(a) As
of the date of this Agreement, the real properties demised by the leases listed
on Schedule 3.7(a)
constitute all of the real property leased (whether or not occupied and
including any leases assigned or leased premises sublet for which the Company
remains liable), used or occupied by the Selling Companies relating exclusively
to the Business.
(b) As
of the date of this Agreement, the leases listed on Schedule 3.7(a) are in
full force and effect, and the applicable Selling Company holds a valid and
existing leasehold interest under each of the leases for the term listed on
Schedule 3.7(a).
(c) The
Selling Companies have (i) good and marketable title to all of the Acquired
Assets purported to be owned by them and (ii) have good leasehold title to all
Acquired Assets purported to be leased by them, in each case free and clear of
all Encumbrances, except for Permitted Encumbrances and Encumbrances listed on
Schedule 3.7(c).
3.8 Accounts
Receivable. All notes and accounts receivable of the Company
relating to the Business are reflected properly on its books of account, are
valid, have arisen from bona fide transactions in the Ordinary Course of
Business, and are subject to no setoff or counterclaim. All Accounts
Receivable that are reflected on the Latest Financial Statements or on the
accounting records of the Company as of the Closing Date represent or will
represent valid obligations arising from sales actually made or services
actually performed by the Company in the Ordinary Course of Business. Except to
the extent paid prior to the Closing Date, such Accounts Receivable are or will
be as of the Closing Date current and collectible net of the respective reserves
shown on the Latest Financial Statement or on the Closing Date Balance Sheet
(which reserves are adequate and calculated consistent with past
practice).
3.9 Inventory. The
inventory of raw materials, work in process, supplies and finished goods of the
Company relating to the Business consists of items of a quality and quantity
usable and, with respect to finished goods only, salable at normal profit
levels, in each case, in the Ordinary Course of Business. The
inventory of finished goods is not slow-moving (as determined in accordance with
past practices), obsolete, damaged or defective, subject only to any reserve for
inventory on the face of the Latest Balance Sheet as adjusted in the Company’s
books of account for the passage of time through the Closing Date in the
Ordinary Course of Business.
3.10 Tax
Matters.
(a) Each
Selling Company has properly prepared and duly and timely filed (or has had
timely filed on its behalf), taking into account all valid extensions of time
for filing such Tax Returns, each Tax Return that it was required to file in
respect of any Taxes by any Taxing Authority. All such Tax Returns
are complete and accurate in all material respects and properly reflect the
Taxes of each Selling Company or otherwise relating to the Acquired Assets and
the Business for the periods covered thereby. Schedule 3.10 identifies, by
jurisdiction and type of Tax, all Tax Returns relating to the Business and the
Acquired Assets (other than Tax Returns related to locations of the Business
that have closed since December 31, 2004 ) that any of the Selling Companies has
filed with any Taxing Authority for any Tax period ending on or after December
31, 2004 and the required frequency of filing for such Tax Returns.
(b) Each
Selling Company has timely paid or caused to be paid, or will timely pay or
cause to be paid, all material Taxes required to be paid by it with respect to
the Business and the Acquired Assets with respect to periods on or prior to the
Closing, whether such payment is due prior to or after the Closing.
(c) Each
Selling Company has complied with all material requirements of Law in relation
to the withholding and reporting of employment and withholding Taxes and other
Taxes with respect to the Business and the Acquired Assets; has duly and timely
withheld and paid over to the appropriate Taxing Authority all amounts required
to be so withheld or paid under applicable Law with respect to the Business and
the Acquired Assets, including any Taxes in connection with any amounts paid or
owing to any present or former employee, officer, director, independent
contractor, creditor, shareholder or other third party; and has duly completed
and timely filed all forms W-2 and 1099 and Schedules K-1 required with respect
thereto.
(d) There
are no Encumbrances for Taxes upon any Acquired Assets, except Encumbrances for
Taxes not yet due.
(e) There
are no proceedings or claims pending or, to the Knowledge of the Company,
threatened against any of the Selling Companies which proceeding or claim would
be relevant to the Tax position or reporting requirements of any of the Selling
Companies or otherwise with respect to the Acquired Assets or the Business after
the Closing, nor are there any matters which are the subject of written
correspondence between any of the Selling Companies (in relation to the
Business), on the one hand, and any Taxing Authority, on the other hand,
regarding or relating to claims for additional Taxes, proposed or assessed
penalties, interest or deficiencies which would be relevant to the Tax position
or reporting requirements of any of the
Selling
Companies or otherwise with respect to the Acquired Assets or the Business after
the Closing.
(f) No
waiver or extension of any time period or applicable statute of limitations with
respect to the assessment or payment of Taxes in any jurisdiction has been (or,
as of the Closing, will have been) granted or agreed to by or on behalf of any
of the Selling Companies with respect to the Business and the Acquired
Assets.
(g) No
claim has ever been made with respect to any of the Selling Companies by a
Taxing Authority with respect to the Business and the Acquired Assets in a
jurisdiction (i) where such Selling Company does not file Tax Returns with
respect to the Business and the Acquired Assets, that it may be subject to
taxation by that jurisdiction or (ii) where such Selling Company files Tax Returns but
does not compute its Tax with respect to the Business and the Acquired Assets on
the basis of its net income attributable to such jurisdiction, that it is or may
be subject to Tax with respect to the Business and the Acquired Assets on the
basis of its net income attributable to such jurisdiction.
(h) Schedule 3.10 sets forth each
foreign country in which any of the Selling Companies has a “permanent
establishment”, as such term is defined in any applicable Tax treaty or
convention between the United States and such foreign country with respect to
the Business and the Acquired Assets. None of the Selling Companies
has conducted operations with respect to the Business and the Acquired Assets in
any other foreign countries that have exposed, or will expose, it to the Tax
jurisdiction of any such foreign jurisdiction.
(i) The
Selling Companies have each complied with all material transfer pricing
requirements applicable to such Selling Company or the Business with respect to
the Business and the Acquired Assets under applicable Law.
(j) No
Selling Company has entered into any agreement (including any advance pricing
agreement or closing agreement) with any Taxing Authority with respect to Taxes,
or requested or received a ruling from any Taxing Authority with respect to
Taxes that would be relevant to the Tax position or reporting requirements of
any of the Purchasing Companies or otherwise with respect to the Acquired Assets
or the Business after the Closing.
(k) None
of the Acquired Assets is tax-exempt use property as defined by
Section 168(h) of the Code.
(l) None
of the Acquired Assets is property that is required to be treated as owned by
any other person pursuant to the “safe harbor lease” provisions of former
Section 168(f)(8) of the Internal Revenue Code of 1954 as amended and in effect
immediately prior to the enactment of the Tax Reform Act of 1986.
(m) None
of the Assumed Liabilities, individually or in the aggregate, could obligate
Buyer to make a payment that would not be deductible under Code Section
4999. Neither the execution and delivery of this Agreement and the
Ancillary Agreements, nor the consummation of the transactions contemplated
hereby and thereby will result in payment of any “parachute payment” as defined
for purposes of Code Section 280G.
(n) To
the Knowledge of the Company, none of the Selling Companies has liabilities for
unpaid Taxes that would be imposed on the Buyer as a result of the consummation
of the transactions contemplated herein and in the Ancillary
Agreements.
(o) Each
Selling Company, to the extent required, is registered for all value added tax
purposes.
(p) None
of the Foreign Assets have, at any time, been (i) located within the United
States (with respect to tangible personal property), (ii) used within the United
States (with respect to intangible personal property), or (iii) used by any of
the Selling Companies with respect to the conduct of any trade or business
conducted within the United States.
3.11 Intellectual
Property Rights.
(a) Schedules 2.1(h), (i), (j) and (k) set forth an accurate and
complete list of the Acquired Intellectual Property.
(b) To
the Selling Companies’ Knowledge, except as set forth in Schedule 3.11(b), no Selling
Company has disclosed, nor is any Selling Company under any contractual or other
obligation to disclose, to another person any material trade secret included in
the Acquired Intellectual Property, except pursuant to an enforceable
confidentiality agreement or undertaking, and no person has materially breached
any such agreement or undertaking. The Selling Companies have a
practice of requiring all persons who create, invent or contribute to the
Acquired Intellectual Property to execute a customary confidentiality and
assignment agreement.
(c) Except
as set forth in Schedule
3.11(c), the Selling Companies own exclusively all right, title and
interest in and to all of the Acquired Intellectual Property, free and clear of
any and all Liens, encumbrances or, to the Selling Companies’ Knowledge, other
adverse ownership claims (other than Permitted Encumbrances), and no Selling
Company has received, within three years prior to the date hereof, any notice or
claim challenging any Selling Company’s ownership of the Acquired Intellectual
Property, nor, to the Selling Companies’ Knowledge, is there a reasonable basis
for any claim that the Selling Companies do not so own any of the Acquired
Intellectual Property.
(d) Except
as set forth in Schedule
3.11(d), to
the Selling Companies’ Knowledge, the registered Acquired Intellectual Property,
other than patents, is valid and enforceable, and the Selling Companies are not
aware (with no duty to investigate) of any basis upon which any registered
patent would not be valid and enforceable. To the Selling Companies’
Knowledge, no Selling Company has received any notice or claim challenging or
questioning the validity or enforceability of the Acquired Intellectual
Property.
(e) The
Selling Companies have timely paid all filing, examination, issuance, post
registration and maintenance fees, annuities and the like associated with or
required with respect to the material registered Acquired Intellectual
Property.
(f) To
the Selling Companies’ Knowledge, none of the Acquired Intellectual Property
infringes upon, misappropriates, violates, dilutes or constitutes the
unauthorized use of any Intellectual Property Rights of any third party which
could reasonably be expected to have a
Material
Adverse Effect, and, except as set forth in Schedule 3.11(f), to the
Selling Companies’ Knowledge, no Selling Company has received any notice or
claim asserting that any such infringement, misappropriation, violation,
dilution or unauthorized use is occurring or has occurred, nor is there any
reasonable basis therefor, which could reasonably be expected to have a Material
Adverse Effect. No material Acquired Intellectual Property is subject
to any outstanding order, judgment, decree or stipulation restricting the use
thereof by any Selling Company. To the Selling Companies’ Knowledge,
no third party is misappropriating, infringing, diluting or violating any
Acquired Intellectual Property which could reasonably be expected to have a
Material Adverse Effect.
3.12 Acquired
Contracts. Schedule 3.12 sets forth a
complete list of all material Contracts to which the Company or any Selling
Subsidiary is a party and that are material to the operation of the Business,
copies of which have been made available to Buyer prior to the
Closing. Each Contract listed on Schedule 3.12 is valid and binding,
currently in force and enforceable in accordance with its terms, subject to the
Remedies Exception. Each Selling Company has performed all
obligations required to be performed by it in connection with each Contract
listed on Schedule
3.12 except
where the failure to do so would not result in a Material Adverse Effect or as
otherwise set forth in Schedule 3.12. No
Selling Company has received any notice of any claim of default by it, and no
Selling Company has any Knowledge of any circumstances that are reasonably
likely to result in a default by it, under or termination of any Contract listed
on Schedule 3.12 except where the
failure to do so would result in a Material Adverse Effect or as otherwise set
forth in Schedule 3.12.
3.13 Litigation;
Liabilities. Except as set forth in Schedule 3.13, no
material Litigation relating to the Acquired Assets or the Business is pending
or, to the Knowledge of the Company, threatened and, to the Knowledge of the
Company, there is no reasonable basis for any material Litigation against the
Company related to the Acquired Assets or the Business. No Selling
Company is subject to any outstanding Governmental Order related to the
Business.
3.14 Compliance
with Laws; Governmental Authorizations.
(a) Each
Selling Company has complied in all material respects with all applicable Laws
and Governmental Orders applicable to the Business. With respect to
the Business, no Selling Company is relying on any exemption from or deferral of
any Law, Governmental Order or Governmental Authorization that would not be
available to the Purchasing Companies after the Closing.
(b) Each
Selling Company has in full force and effect all material Governmental
Authorizations necessary to conduct the Business and own and operate the
Acquired Assets. Schedule 3.14(b) lists
each Governmental Authorization held by each Selling Company. The
Company and each Selling Subsidiary has complied with all Governmental
Authorizations applicable to the Business.
3.15 Employees.
(a) Except
as disclosed in Schedule 3.15(a), within
the last five years, no Selling Company has experienced and, to the Knowledge of
the Company, there has not been
threatened,
any strike, work stoppage, slowdown, lockout, picketing, leafleting, boycott,
other labor dispute, union organization attempt, demand for recognition from a
labor organization or petition for representation under the National Labor
Relations Act or applicable state or other Law related to employees primarily
operating the Business. Except as disclosed in Schedule 3.15(a), no
Litigation is pending or, to the Knowledge of the Company, threatened respecting
or involving any applicant for employment, any current employee or any former
employee, or any class of the foregoing related to the operation of the
Business.
(b) No
employee of any Selling Company employed primarily in the operation of the
Business is covered by any collective bargaining agreement, and no collective
bargaining agreement is being negotiated.
(c) The
Selling Companies have paid in full to all employees employed primarily in the
operation of the Business all wages, salaries, bonuses and commissions due and
payable to such employees and has fully reserved in its books of account all
amounts for wages, salaries, bonuses and commissions due but not yet payable to
such employees.
(d) Except
for layoffs in the Ordinary Course of Business or contemplated pursuant to the
Restructuring Plan, and other layoffs or reductions noted in Schedule 3.15(d), there has
been no lay-off of employees employed primarily in the operation of the Business
or work reduction program undertaken by or on behalf of any Selling Company in
the past two years, and no such program has been adopted by any Selling Company
or publicly announced.
3.16 Employee
Benefits.
(a) Schedule 3.16(a) lists
all Plans by name and provides a brief description identifying (i) the type
of Plan, (ii) the funding arrangements for the Plan, (iii) the
sponsorship of the Plan, (iv) the participating employers in the Plan
and (v) any one or more of the following characteristics that may apply to
such Plan: (A) defined contribution plan as defined in Section 3(34)
of ERISA or Section 414(i) of the Code, (B) defined benefit plan
as defined in Section 3(35) of ERISA or Section 414(j) of the
Code, (C) plan that is or is intended to be tax qualified under
Section 401(a) or 403(a) of the Code, (D) plan that is or is
intended to be an employee stock ownership plan as defined in
Section 4975(e)(7) of the Code (and whether or not such plan has entered
into an exempt loan), (E) nonqualified deferred compensation
arrangement, (F) employee welfare benefit plan as defined in
Section 3(1) of ERISA, (G) multiemployer plan as defined in
Section 3(37) of ERISA or Section 414(f) of the Code, (H)
multiple employer plan maintained by more than one employer as defined in
Section 413(c) of the Code, (I) plan providing benefits after
separation from service or termination of employment, (J) plan that owns
any Company or other employer securities as an investment, (K) plan
that provides benefits (or provides increased benefits or vesting) as a result
of a change in control of the Company, (L) plan that is maintained pursuant
to collective bargaining and (M) plan that is funded, in whole or in
part, through a voluntary employees’ beneficiary association exempt from Tax
under Section 501(c)(9) of the Code.
(b) Except
as listed on Schedule 3.16(b),
neither the Company nor any ERISA Affiliate has ever maintained or
contributed to any pension plan that is subject to Title IV
of ERISA. None of the Acquired Assets is subject to any lien
under Section 412(n) of the Code
or
Section 4068 of ERISA. The Company has no unsatisfied
liabilities, or is reasonably expected to incur any liabilities, that could
become a liability of Buyer with respect to any Plan, and, with respect to each
such Plan, full payment has been made of all amounts that the Company is
required, under the terms of each such plan, to have paid as contributions to
that Plan. Each Plan to which the Company contributes on behalf of
its employees that is intended to be a tax qualified Plan under
Section 401(a) of the Code is in fact so qualified and the Plan provider
has received a determination letter from the IRS as to the tax qualified
status of the prototype documents upon which the Plan is based, and the Plan is
in material compliance with ERISA and the Code as to both form and
operation.
(c) Schedule 3.16(c) lists
each employee of the Company employed primarily in the Business who is (i)
absent from active employment due to short or long term
disability, (ii) absent from active employment on a leave pursuant to
the Family and Medical Leave Act or a comparable state Law, (iii) absent
from active employment or any other leave or approved absence (together with the
reason for each leave or absence) or (iv) absent from active employment due
to military service (under conditions that give the employee rights to
re-employment).
3.17 Insurance. Schedule 3.17 lists all
insurance policies maintained by the Selling Companies related to the Business.
All such policies are in full force and effect, have been issued by an insurer
that is financially sound and reputable, all premiums due and payable thereon
have been paid, no cancellation or termination has been received with respect to
any such policy that has not been replaced on substantially similar terms prior
to the date of such cancellation, and, when taken together, provide adequate
insurance coverage for the Acquired Assets and the operations of the Selling
Companies for all risks normally insured against by a Person carrying on the
same business or businesses as the Business. There is no claim pending under any
such policies as to which coverage has been questioned, denied or
disputed.
3.18 Suppliers. Schedule 3.18 lists
the 10 largest suppliers of the Business for each of the last two fiscal
years and for the interim period ended on the Latest Balance Sheet Date and sets
forth opposite the name of each such supplier the approximate percentage of
purchases by the Company attributable to such supplier for each such
period. No supplier listed on Schedule 3.18 is a sole
source of supply for the Company. No supplier listed on Schedule 3.18 has
indicated that it will stop or decrease the rate of business done with the
Company.
3.19 Environmental
Matters. The
Selling Companies are and have at all times been in material compliance with all
Environmental Laws. There is no Environmental Claim pending or, to
the Knowledge of the Selling Companies, threatened against any of the Selling
Companies. To the knowledge of the Selling Companies, there are no
past or present actions, activities, circumstances, conditions, events or
incidents that could reasonably form the basis of an Environmental Claim against
any of the Selling Companies. The Company has delivered to Buyer all
reports, authorizations, disclosures and other documents of which they are aware
relating in any way to the status of any real property demised by the Acquired
Leases or otherwise relating to the Companies with respect to any Environmental
Law. For purposes of this Section 3.19, “Environmental Claim” means
any notice or claim by a Person alleging potential liability (including
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal injuries,
Liens or penalties) arising
out of,
based on or resulting from (A) the presence, or release into the environment, of
any material or form of energy at any location, or (B) any violation, or alleged
violation, of any Environmental Law.
3.20 Brokerage. Except
for ThinkEquity Partners LLC, no Person will be entitled to receive any
brokerage commission, finder’s fee, fee for financial advisory services or
similar compensation in connection with the transactions contemplated by this
Agreement based on any Contract made by or on behalf of the Company for which
Buyer is or could become liable or obligated.
3.21 Entire
Business. The Acquired Assets and the Owned Intellectual
Property Rights licensed pursuant to the Master License Agreement constitute all
the assets that are in use in the Business as conducted by the Selling Companies
immediately prior to the date of this Agreement and, together with the services
and licenses provided in connection with the Ancillary Agreements, they are all
of the assets and services that are necessary for the conduct of the Business in
the Ordinary Course of Business.
3.22 No
Premium. None of the amounts payable by the Purchasing
Companies for the products or services under the Ancillary Agreements represent
an allocation or transfer of any portion of the Worldwide Purchase
Price. The amounts payable by the Purchasing Companies under each of
the Master Shared Services Agreement and the Leases are based upon historical
allocations of costs by the Company attributable to providing similar services,
in the case of the Master Shared Services Agreement, or leased space, in the
case of the Leases, to the Business prior to the date hereof. Any
amounts payable by the Purchasing Companies under the Master License Agreement
and the Supply Agreement represent agreed upon economic terms relating to
licenses, products and services contemplated in such agreements and do not
represent an allocation or transfer of any portion of the Worldwide Purchase
Price.
3.23 No Other
Representations or Warranties. Except for the representations
and warranties of the Selling Companies expressly set forth in this Article III,
no Selling Company or any other Person makes any other express or implied
representation or warranty on behalf of any Selling Company, or otherwise in
respect of the Business, the Acquired Assets or the Assumed
Liabilities.
Article IV. Representations
and Warranties of Buyer
Buyer
represents and warrants to the Company that as of the date of this
Agreement:
4.1 Incorporation;
Power and
Authority. Buyer is a limited liability company duly
organized, validly existing and in good standing under the Laws of its
jurisdiction of organization, with all necessary power and authority to execute,
deliver and perform this Agreement and the Ancillary Agreements to which it will
become a party.
4.2 Valid and
Binding Agreement. The execution, delivery and performance of
this Agreement and the Ancillary Agreements to which any Purchasing Company will
become a party has been or will be duly and validly authorized by all necessary
action. This Agreement has been duly executed and delivered by Buyer
and constitutes the valid and binding obligation of Buyer, enforceable against
it in accordance with its terms, subject to the Remedies
Exception. Each
Ancillary
Agreement to which any Purchasing Company will become a party, when executed and
delivered by such Purchasing Party, will constitute the valid and binding
obligation of such Purchasing Party, enforceable against Purchasing Party in
accordance with its terms, subject to the Remedies Exception.
4.3 Capitalization. Peterson
Partners V, L.P., a Delaware limited partnership (“Peterson Partners V”), is the
record holder of all of the issued and outstanding membership interests of
Buyer. Buyer has no other securities outstanding that would be
entitled to vote on the approval of the transactions contemplated by this
Agreement. As of the Closing, the ownership of Buyer will be as set
forth in the Buyer Operating Agreement.
4.4 No
Breach; Consents. The execution, delivery and performance of
this Agreement and the Ancillary Agreements to which any Purchasing Company will
become a party will not (a) contravene any provision of the Organizational
Documents of such Purchasing Party; (b) violate or conflict with any Law,
Governmental Order or Governmental Authority; (c) conflict with, result in
any breach of any of the provisions of, constitute a default (or any event that
would, with the passage of time or the giving of notice or both, constitute a
default) under, result in a violation of, increase the burdens under, result in
the termination, amendment, suspension, modification, abandonment or
acceleration of payment (or any right to terminate) or require a Consent,
including any Consent under any Contract or Governmental Authorization that is
either binding upon or enforceable against such Purchasing Company; or (d)
require any Governmental Authorization.
4.5 Brokerage. No
Person will be entitled to receive any brokerage commission, finder’s fee, fee
for financial advisory services or similar compensation in connection with the
transactions contemplated by this Agreement based on any Contract made by or on
behalf of Buyer for which the Company is or could become liable or
obligated.
4.6 Buyer
Notes. The Buyer Notes will, when issued and delivered in
accordance with this Agreement, be duly authorized, validly issued and binding
obligations of Buyer, enforceable against Buyer in accordance with their terms,
subject to the Remedies Exception.
4.7 Financing. Buyer
has provided to the Company true and complete copies of (a) the executed
commitment letter from the parties named therein (the “Debt Commitment Letter”)
relating to the financing to be provided in connection with this Agreement and
the Ancillary Agreements and the transactions contemplated hereby and thereby
and (b) the executed commitment letter from Peterson Partners V relating to the
equity financing in connection with this Agreement and the Ancillary Agreements
and the transactions contemplated hereby and thereby (the “Equity Commitment letter” and
together with the Debt Commitment Letter, the “Commitment
Letters”). As of the date hereof, (i) each of the
Commitment Letters is a legal, valid and binding obligation of Buyer
and (ii) Buyer has no reason to believe that it will be unable to satisfy,
on a timely basis, any material term or condition of funding to be satisfied by
it contained in any Commitment Letter, it being agreed, for the avoidance of
doubt, that no representation or warranty is made with respect to any matter
dependent upon the financial performance of, or otherwise involving, the Company
or any Subsidiary of the Company. All commitment fees required to be
paid under the Commitment Letters have been paid in full or will be duly paid in
full when due.
4.8 Litigation;
Liabilities. No material Litigation is pending or, to the
knowledge of Buyer, threatened against Buyer, and there is no reasonable basis
for any Litigation against Buyer. Buyer is not subject to any
outstanding Governmental Order related to the Business.
4.9 Operations;
Contracts. Buyer and the other Purchasing Companies have been
formed for the purpose of entering into the transactions contemplated by this
Agreement. Neither Buyer nor any of the other Purchasing Companies
has conducted any business, maintained any operations, incurred any Liabilities
or entered into any Contracts other than in connection with this Agreement and
the Ancillary Agreements and the transactions contemplated hereby and
thereby.
4.10 No
Premium. None of the amounts payable by the Purchasing
Companies for the products or services under the Ancillary Agreements represent
an allocation or transfer of any portion of the Worldwide Purchase
Price. To the knowledge of Buyer, the amounts payable by the
Purchasing Companies under each of the Master Shared Services Agreement and the
Leases are based upon historical allocations of costs by the Company
attributable to providing similar services, in the case of the Master Shared
Services Agreement, or leased space, in the case of the Leases, to the Business
prior to the date hereof. Any amounts payable by the Purchasing
Companies under the Master License Agreement and the Supply Agreement represent
agreed upon economic terms relating to licenses, products and services
contemplated in such agreements and do not represent an allocation or transfer
of any portion of the Worldwide Purchase Price.
4.11 No Other
Representations or Warranties. Except for the representations
and warranties of Buyer expressly set forth in this Article IV, neither
Buyer nor any other Person makes any other express or implied
representation or warranty on behalf of Buyer.
Article V. Agreements
of the Company
5.1 Conduct
of the Business. To and including the Closing Date, except
with the consent of Buyer (which consent will not be unreasonably withheld), as
contemplated pursuant to the Restructuring Plan or as expressly contemplated by
this Agreement:
(a) the
Selling Companies will conduct the Business in the Ordinary Course of Business
and in accordance with applicable Law;
(b) each
Selling Company will (i) use commercially reasonable efforts to preserve
its respective business organization and goodwill, keep available the services
of its officers, employees and consultants and maintain satisfactory
relationships with vendors, customers and others having business relationships
with it, (ii) subject to applicable Laws, confer on a regular and frequent
basis with representatives of Buyer to report operational matters and the
general status of ongoing operations relating to the Business as requested by
Buyer and (iii) except as required by applicable Laws or contract, not take
any action that would render, or that reasonably may be expected to render, any
representation or warranty made by the Selling Companies in this Agreement
untrue;
(c) except
with the consent of Buyer or in the Ordinary Course of Business, the Selling
Companies will not use extraordinary selling efforts that would have the effect
of
accelerating
sales in the Business prior to the time reasonably expected, through offering of
discounts, shipment of goods prior to anticipated shipping dates or
otherwise;
(d) the
Selling Companies will not permit any accounts payable related to the Business
owed to trade creditors to remain outstanding more than 60 days;
(e) the
Selling Companies will not enter into or modify any employment, severance or
similar agreements or arrangements with, or grant any bonuses, salary or
benefits increases, severance or termination pay to, any officers, directors,
managers, employees or consultants employed by the Business, except in the
Ordinary Course of Business;
(f) and
the Selling Companies will not, except in the Ordinary Course of Business,
(whether directly or indirectly) sell, transfer, license, abandon, let lapse,
disclose, misuse, misappropriate, diminish, destroy, encumber, or otherwise
dispose of or encumber any Acquired Intellectual Property that is necessary to
carry on the Business as currently conducted by the Company or assert or
threaten to assert any rights in Acquired Intellectual Property against any
third party.
(g) the
Company will not cancel or terminate its current insurance policies insuring any
of the Acquired Assets or allow any of the coverage thereunder to lapse, unless
simultaneously with such termination, cancellation or lapse replacement policies
providing coverage equal to or greater than the coverage under the canceled,
terminated or lapsed policies for substantially similar premiums are in full
force and effect.
5.2 Notice of
Developments. The Company will promptly notify
Buyer:
(a) of
any emergency or other material change in the operation of the Business that is
not in the Ordinary Course of Business,
(b) of
the commencement or threat of Litigation relating to the Business of which it
has Knowledge or
(c) if
it comes to the Knowledge of the Company that any representation or warranty
made in this Agreement by any Selling Company was, when made, or has
subsequently become, untrue in any respect; provided, however, that in the case
of information that comes to the Knowledge of the Company relating to a breach
of any representation or warranty that does not have or is not reasonably likely
to result in a Material Adverse Effect, the failure to provide the notice
required by this clause (c) will not, by itself, constitute a failure to satisfy
the condition to Buyer’s obligation to take the actions required of it at
Closing set forth in Section 7.1(b).
5.3 Access. Subject
to the terms of the Confidentiality Agreement, through the Closing Date, the
Company will afford to Buyer and its authorized representatives full access at
all reasonable times and upon reasonable notice to the facilities, offices,
properties, technology, processes, books, business and financial records,
officers, employees, business plans, budgets, and projections, customers,
suppliers and other information of the Company, and the workpapers of KPMG
LLP, the Company’s independent accountants, relating to the Business or the
Acquired Assets and otherwise provide such assistance as may be reasonably
requested by Buyer in order that Buyer have an opportunity to make such
investigation and evaluation as it
reasonably
desires to make of the Business and affairs of the Company relating to the
Business or the Acquired Assets; provided that no such access shall be (i)
to trade secrets or know how or (ii) for invasive
procedures. Subject to Law, Buyer will have full access to the
personnel records (including performance appraisals, disciplinary actions,
grievances and medical records) of the Company for the purpose of preparing for
and conducting employment interviews with all Active Employees. The
Company will provide such Plan documents and summary plan descriptions, employee
data or other information as may be reasonably required to carry out the
arrangements described in Section 6.5.
5.4 Conditions. The
Company will use commercially reasonable efforts to cause the conditions set
forth in Section 7.1 to be satisfied and to consummate the transactions
contemplated by this Agreement as soon as reasonably possible and in any event
prior to the Closing Date.
5.5 Consents
and Authorizations.
(a) The
Company will use commercially reasonable efforts to obtain, prior to the Closing
Date, the Consents and Governmental Authorizations that are specifically listed
on Schedule 5.5(a)
(the “Required
Consents”). The Company will keep Buyer reasonably advised of
the status of obtaining the Required Consents.
(b) The
term “Required Consents” also includes consents of the third-party software
developers listed on Schedule 5.5(b) and/or
amendments to the agreements with such software developers relating to granting
to Buyer rights to resell PlanPlus Software. The Company agrees to
use commercially reasonable efforts to obtain such consents or negotiate such
amendments on reasonably acceptable terms to Buyer, and Buyer agrees to
cooperate with the Company for this purpose.
5.6 No
Sale. Except for Acquired Assets that are subject to Permitted
Encumbrances, the Company will not sell, pledge, transfer or otherwise place any
Encumbrance on any Acquired Assets except that the Company may sell Inventories
in the Ordinary Course of Business.
5.7 No
Solicitation.
(a) From
and after the date hereof until the Expiration Date or the termination of this Agreement pursuant to
Article VIII, the Company and its Subsidiaries and their respective
officers and directors shall not (i) solicit, knowingly initiate or
encourage (including by way of furnishing information or assistance), or take
any other action to knowingly facilitate, any inquiry in connection with or the
making of any proposal from any Person that constitutes, or would reasonably be
expected to lead to, an Acquisition Proposal, (ii) enter into, maintain,
participate in or continue any discussion or negotiation with any Person (other
than Buyer) that constitutes, or would reasonably be expected to lead to, an
Acquisition Proposal, or knowingly furnish to any Person (other than Buyer) any
information or otherwise knowingly cooperate in any way with, or knowingly
assist or participate in, any effort or attempt by any other Person (other than
Buyer) to make or effect an Acquisition Proposal or (iii) enter into any agreement, arrangement
or understanding with respect to, or otherwise endorse, any Acquisition
Proposal; provided, however, that nothing contained in this Section 5.7 or
any other provision of this Agreement shall
prohibit
the Company’s Board of Directors from furnishing information to, or engaging in
discussions or negotiations with, any Person that makes an unsolicited
Acquisition Proposal (which did not result from a breach of this
Section 5.7) if (A), the Acquisition Proposal could reasonably be expected to lead to a Superior
Proposal, (B) the Company complies with Section 5.7(c), and (C) prior to
furnishing any nonpublic information to, or engaging in discussions or
negotiations with, such Person, the Company receives from such Person an
executed confidentiality agreement (which agreement shall be provided to Buyer for information purposes).
(b) If
the Company’s Board of Directors is entitled to furnish information to, or
engage in discussions or negotiations with, any Person pursuant to Section 5.7(a) in respect of any
Acquisition Proposal, the Company’s Board of Directors may (i) approve such
Acquisition Proposal, (ii) cause the Company to enter into a binding
written agreement with respect to, and containing the terms of, such Acquisition
Proposal, or (iii) terminate this Agreement pursuant to the termination
provisions set forth in Article VIII if such Acquisition Proposal
constitutes a Superior Proposal.
(c) The
Company (i) must notify Buyer promptly (and in no event later than within
three business days) orally and in writing of the receipt of any Acquisition
Proposal or any inquiry regarding the making of an Acquisition Proposal
including any request for information, the terms and conditions of such request,
Acquisition Proposal or inquiry and the identity of the Person making such
request, Acquisition Proposal or inquiry and (ii) will keep Buyer reasonably informed of any material changes
to any such request, Acquisition Proposal or inquiry.
(d) The Company shall immediately cease any and all
existing activities, discussions or negotiations with any parties (other than
Buyer) conducted heretofore with respect to any Acquisition Proposal, and shall
use its reasonable best efforts to cause any such parties in possession of
confidential information about the Company that was furnished by or on behalf of
the Company in connection with such Acquisition
Proposal to return or destroy all such information in the possession of
any such party or its
representatives.
(e) The
Company’s Board of Directors shall not determine that any Acquisition Proposal
is a Superior Proposal prior to the time that is five business days after the
time by which the Company has complied in all respects with Section 5.7(c)
with respect to such Acquisition Proposal (which time period shall start again
in the event the terms of such Acquisition Proposal are altered in any material
respect). During such five business day period, the Company shall
negotiate with Buyer (to the extent Buyer wishes to do so) to make such
adjustments to the terms and conditions of this Agreement so that such
Acquisition Proposal ceases to constitute a Superior Proposal.
5.8 Employment
Matters.
(a) The
Company will be responsible for (i) the payment of all wages and other
remuneration due to Active Employees with respect to their services as employees
of the Company through the close of business on the Closing Date, including
compensation for overtime, pro rata bonus payments and all accrued personal
time, except for the Rolled-Over Accrued Vacation, earned prior to the Closing
Date, (ii) the payment of any termination or
severance
payments and the provision of health plan continuation coverage in accordance
with the requirements of COBRA and Sections 601 through 608
of ERISA and (iii) compliance with the WARN Act and state
equivalent laws, including any and all payments to employees that may be
required under such laws.
(b) Within
30 days prior to the Closing, the Company will notify each Active Employee that
such Employee’s employment with the Company will terminate as of the Closing,
and shall provide each Active Employee with the option to elect in writing
delivered to the Company on or before the Closing Date to either (i) receive
payment in cash for accrued but unpaid current year personal time off benefit at
the Closing Date up to a maximum of 80 earned hours of personal time off (which
includes, but is not limited to, sick days, vacation and personal time off) for
full-time employees and up to a maximum of 40 earned hours of personal time off
for part-time employees, except where state law prohibits forfeiture of accrued
personal time off, or (ii) subject to such Active Employee becoming a Hired
Active Employee in accordance with Section 6.5(a), be credited with the amount
of current year personal time off that shall have been accrued and unpaid at the
Closing Date (all such accrued and unpaid personal time off credited to Hired
Active Employees being referred to herein as the “Rolled-Over Accrued
Vacation”). Any failure by an Active Employee to make an
election in accordance with this Section 5.8(b), shall be deemed to be an
election to receive payment in cash as contemplated in clause (i)
above.
5.9 Sale of
Franklin Covey de Mexico S. de R. L. de C.V. With the consent
of the Buyer as to form, which consent shall not be unreasonably withheld, and
notwithstanding any other provision of this Agreement, the Company shall have
the right to sell the assets of Franklin Covey de Mexico S. de R. L. de C.V., a
wholly-owned subsidiary of the Company, to Leadership Technologies Latin America
Inc., or its affiliates, at any time prior to Closing (the “Mexico Disposition”);
provided, however, that whatever rights or benefits (excluding refunds of Taxes)
that the Company receives from the Mexico Disposition, including any cash or
cash equivalent that the Company receives or any license agreement that the
Company enters into in connection with the Mexico Disposition, minus any
expenses of the Company incurred in connection with the Mexico Disposition,
shall be assigned or otherwise transferred to the Buyer pursuant the terms of
this Agreement.
Article
VI. Agreements
of Buyer
6.1 Conditions. Buyer
will use commercially reasonable efforts to cause the conditions set forth in
Section 7.2 to be satisfied and to consummate the transactions contemplated
by this Agreement as soon as reasonably possible and in any event prior to the
Closing Date.
6.2 Financing.
(a) Buyer
shall use commercially reasonable efforts to (i) maintain in effect the
Commitment Letters and to satisfy on a timely basis all the conditions to
obtaining the financing for the transactions contemplated in this Agreement (the
“Financing”) set forth
therein, (ii) enter into definitive financing agreements with respect to the
Financing as contemplated by the Commitment Letters (including by consummating
the equity financing pursuant to the terms and conditions of the Equity
Commitment Letter), (iii) enter into definitive financing
agreements
with
respect to the Financing as contemplated by the Debt Commitment Letter and (iv)
consummate the Financing at the Closing. Buyer shall not permit any
amendment, modification or waiver to be made to the Commitment Letters without
first consulting with the Company, and will obtain the Company’s prior written
consent (which consent shall not be unreasonably withheld, conditioned or
delayed) prior to agreeing to any such amendment, modification or
waiver. To the extent actually known by Buyer, Buyer will keep the
Company (x) fully informed of any material breaches by any party of the
Commitment Letters or any termination of the Commitment Letters and (y) upon the
request of the Company at any time, reasonably informed of the status of the
financing process.
(b) If
the Commitment Letters are terminated, Buyer shall use commercially reasonable
efforts to enter into commitments for alternative financing with other persons
(it being understood that Buyer shall provide prompt notice to the Company upon
obtaining any such alternative financing commitments); provided, that Buyer
shall be under no obligation to obtain or seek to obtain any financing
commitment containing terms or funding conditions less favorable to Buyer than
those included in the Commitment Letters.
6.3 Books and
Records; Access. After the Closing Date, Buyer will hold all
of the books and records of the Company relating to the Business or the Acquired
Assets (to the extent such books and records were provided to Buyer in
connection with the Closing) in accordance with Buyer’s retention
policies in effect from time to time for a period of not less than two years
from the Closing Date and, if it thereafter proposes to destroy or dispose of
any such books and records, to offer first in writing at least 60 days prior to
such proposed destruction or disposition to surrender them to the Company at the
sole expense of the Company. After the Closing Date, Buyer will
afford the Company and its accountants and counsel, during normal business
hours, upon reasonable request, full access to such books and
records. Buyer will make available to the Company upon written
request and at the expense of the Company, but consistent with Buyer’s business
requirements, reasonable assistance of any of the Company’s personnel whose
assistance or participation is required by the Company, in anticipation of, or
preparation for, existing or future litigation or other matters in which the
Company is involved related to the Acquired Assets.
6.4 Litigation
Support. If and for so long as the Company is actively
contesting or defending against any Litigation in connection with any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act or transaction existing or
occurring on or prior to the Closing Date involving the Business or the Acquired
Assets, Buyer will cooperate in the contest or defense and provide such
testimony as may be necessary in connection with the contest or defense, all at
the sole cost and expense of the Company (unless and to the extent the Company
is entitled to indemnification therefor under Article IX).
6.5 Employment
Matters.
(a) Buyer
will offer employment, as of the close of business on the Closing Date, on an
at-will basis, to each employee (i) of any Selling Company who is actively and
exclusively employed in the operation of the Business and who is not listed on
Schedule 6.5(a)(i) and (ii) to each
employee of any Selling Company otherwise listed on Schedule 6.5(a)(ii) (each, an “Active
Employee”), with compensation
and employee benefits that are no less favorable, in the aggregate, than the
compensation and benefits that have been provided to such persons by the Selling
Companies immediately prior to the Closing, except for changes in the costs of
benefits required by third-party providers of such benefits. An
Active Employee who accepts an offer of employment as of the Closing Date with
Buyer is referred as a “Hired
Active Employee.”
(b) Without
limiting the generality of the foregoing, Buyer shall (i) waive any
preexisting condition limitations otherwise applicable to employees and their
eligible dependents under any plan of Buyer or its subsidiaries that provides
health benefits in which Hired Active Employees may be eligible to participate
following the Closing Date, other than any limitations that were in effect with
respect to such employees as of the Closing Date under the analogous Company
Plan, (ii) honor any deductible, co-payment and out-of-pocket maximums
incurred by the Hired Active Employees and their eligible dependents under the
health plans in which they participated immediately prior to the Closing Date
during the portion of the calendar year prior to the Closing Date in satisfying
any deductibles, co-payments or out-of-pocket maximums under health plans of
Buyer and its subsidiaries in which they are eligible to participate after the
Closing Date in the same plan year in which such deductibles, co-payments or
out-of-pocket maximums were incurred, (iii) waive any waiting period
limitation or evidence of insurability or at work requirement that would
otherwise be applicable to a Hired Active Employees and his or her eligible
dependents on or after the Closing Date, in each case to the extent such
employee or eligible dependent had satisfied any similar limitation or
requirement under an analogous Company Plan prior to the Closing Date, (iv)
with respect to any Company Plan, recognize the service with the Company prior
to the Closing (based upon the Company’s service records as provided to Buyer)
of the Hired Active Employees; provided, however, that such
recognition shall not result in a duplication of benefits, and (iv) credit
Hired Active Employees with the applicable amount of Rolled-Over Accrued
Vacation pursuant to Section 5.8(b).
6.6 Consents
and Authorizations. Buyer shall (and shall use its
commercially reasonable efforts to cause its affiliates, directors, officers,
employees, agents, attorneys, accountants and representatives to) consult and
fully cooperate with and provide assistance to the Company in obtaining the
Required Consents.
Article
VII. Conditions
to Closing
7.1 Conditions
to Buyer’s Obligations. The obligation of Buyer to take the
actions required to be taken by it at the Closing is subject to the satisfaction
or waiver, in whole or in part, in Buyer’s sole discretion, of each of the
following conditions at or prior to the Closing:
(a) The
representations and warranties of the Selling Companies contained in this
Agreement that are qualified by materiality shall be true and correct and the
representations and warranties of the Selling Companies that are not so
qualified shall be true and correct in all material respects on and as of the
Closing with the same force and effect as if made on and as of the Closing Date
(except to the extent such representations and warranties expressly relate to an
earlier date, in which case as of such earlier date);
(b) The
Company will have performed and complied in all material respects with its
agreements contained in this Agreement;
(c) Since
the date of this Agreement, there shall not have occurred and be continuing any
Material Adverse Effect;
(d) Each
Required Consent, except for Required Consents relating to the leasehold
interests in the real property leased or otherwise used or occupied by the
Company exclusively for the Business as listed on Schedule 2.1(a)(i), as such schedule may
have been updated pursuant to Section 10.11(b) prior to the Closing, will have
been obtained and be in full force and effect;
(e) At
least 70% of Required Consents relating to the leasehold interests in the real
property leased or otherwise used or occupied by the Company exclusively for the
Business as listed on Schedule 2.1(a)(i), as such schedule may
have been updated pursuant to Section 10.11(b) prior to the Closing will have
been obtained and be in full force and effect;
(f) Buyer
will have obtained each Governmental Authorization required to operate the
Business in the manner it was operated prior to the Closing Date;
(g) There
shall be no pending or threatened action by or before any Governmental Authority
or arbitrator seeking to restrain, prohibit or invalidate any of the
transactions contemplated under this Agreement or by any of the other Ancillary
Agreements or seeking monetary relief against any party hereto by reason of the
consummation of such transactions, and there shall not be in effect any
Governmental Order which has such effect or that prohibits the
Closing;
(h) The
conditions to the Financing contained in the Debt Commitment Letter have been
satisfied, provided this condition shall be deemed to be automatically satisfied
if Peterson Partners V is obligated to make the capital contribution
contemplated in the Equity Commitment Letter pursuant to the terms thereof;
and
(i) The
Company will have delivered each of the agreements, certificates, instruments
and other documents that it is obligated to deliver pursuant to
Section 2.9(b)(i) and the agreements so delivered will be in full force and
effect.
7.2 Conditions
to the Company’s Obligations. The obligation of the Company to
take the actions required to be taken by it at the Closing is subject to the
satisfaction or waiver, in whole or in part, in the Company’s sole discretion,
of each of the following conditions at or prior to the Closing:
(a) The
representations and warranties of Buyer contained in this Agreement that are
qualified by materiality shall be true and correct and the representations and
warranties of the Selling Companies that are not so qualified shall
be true and correct in all material respects as of the Closing Date as if made
on and as of the Closing Date (except to the extent such representations and
warranties expressly relate to an earlier date, in which case as of such earlier
date);
(b) Buyer
will have performed and complied in all material respects with each of its
agreements contained in this Agreement;
(c) There
shall be no pending or threatened action by or before any Governmental Authority
or arbitrator seeking to restrain, prohibit or invalidate any of the
transactions contemplated under this Agreement or by any of the other Ancillary
Agreements or seeking monetary relief against any party hereto by reason of the
consummation of such transactions, and there shall not be in effect any
Governmental Order which has such effect or that prohibits the Closing;
and
(d) Buyer
will have delivered each of the agreements, certificates, instruments and other
documents that it is obligated to deliver pursuant to Section 2.9(b)(ii)
and the agreements so delivered will be in full force and effect.
7.3 Election
of Remedies. Any waiver of any condition of Closing shall
constitute an election of remedies, and the party using such condition shall
have no claim for any breach of this Agreement to the extent of such
waiver.
Article
VIII. Termination
8.1 Termination. This
Agreement may be terminated prior to the Closing:
(a) by
the mutual written consent of Buyer and the Company;
(b) by
the Company, if
(i) Buyer
has breached any representation, warranty or agreement contained in this
Agreement in any material respect and such breach (A) would give rise to a
failure of a condition set forth in Section 7.2(a) or Section 7.2(b)
and (B) has not been cured within 30 days after notice thereof is received
by the Buyer;
(ii) the
transactions contemplated by this Agreement have not been consummated on or
before August 28, 2008 (the “Expiration Date”); provided, that the Company
will not be entitled to terminate this Agreement pursuant to this
Section 8.1(b)(ii) if the Company’s failure to comply fully with its
obligations under this Agreement has prevented the consummation of the
transactions contemplated by this Agreement;
(iii) a
Law or Governmental Order will have been enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated by
this Agreement by any Governmental Entity that prohibits the
Closing;
(iv) the
Company (A) has determined an Acquisition Proposal is a Superior Proposal
pursuant to Section 5.7 and (B) concurrently with a termination of
this Agreement pursuant to this 8.1(b)(iv), pays to Buyer a termination fee
of $1,000,000 (the “Buyer
Termination Fee”);
(v) if
(A) all of the conditions set forth in Section 7.1 have been satisfied (other
than those conditions that by their nature are to be satisfied at
the
Closing
provided that the Company is then able to satisfy such conditions) and (B) on or
before the Target Closing Date, Buyer fails to make the deliveries set forth in
Section 2.9(b)(ii); or
(vi) any
of the conditions set forth in Section 7.2 will have become impossible to
satisfy.
(c) by
Buyer, if
(i) the
Company has breached any representation, warranty or agreement contained in this
Agreement in any material respect and such breach (A) would give rise to a
failure of a condition set forth in Section 7.1(a) or Section 7.1(b)
and (B) has not been cured within 30 days after notice thereof is received
by the Company;
(ii) the
transactions contemplated by this Agreement have not been consummated on or
before the Expiration Date; provided, that Buyer will not
be entitled to terminate this Agreement pursuant to this Section 8.1(c)(ii)
if Buyer’s failure to comply fully with its obligations under this Agreement has
prevented the consummation of the transactions contemplated by this
Agreement;
(iii) a
Law or Governmental Order will have been enacted, entered, enforced,
promulgated, issued or deemed applicable to the transactions contemplated by
this Agreement by any Governmental Entity challenging or seeking to prevent or
delay consummation of any of the transactions contemplated by this Agreement;
or
(iv) any
of the conditions set forth in Section 7.1 will have become impossible to
satisfy.
8.2 Company
Termination Fee. If this Agreement is terminated by the
Company pursuant to Section 8.1(b)(v), Buyer shall pay to the Company a
termination fee of cash in immediately available funds in the amount of $250,000
within five (5) business days after such termination (the “Company Termination
Fee”).
8.3 Effect of
Termination. The right of termination under Section 8.1
is in lieu of any other rights the Purchasing Companies or the Selling Companies
may have under this Agreement or otherwise for failure of this Agreement to
close. If this Agreement is terminated, all obligations of the
parties under this Agreement will terminate except that Article X will
survive indefinitely unless sooner terminated or modified by the parties in
writing. If this Agreement is terminated by the Company pursuant to
Section 8.1(b)(iv), the payment of the Buyer Termination Fee will be the
exclusive remedy of the Purchasing Companies in the circumstances described
therein and that, except for such payment, no Selling Company shall have any
liability or obligation of any kind arising out of the termination of this
Agreement pursuant to Section 8.1(b)(iv), and if this Agreement is terminated by
the Company pursuant to Section 8.1(b)(v), the payment of the Company
Termination Fee will be the exclusive remedy of the Selling Companies in the
circumstances described therein and that, except for such payment,
no
Purchasing Company shall have any liability or obligation of any kind arising
out of the termination of this Agreement pursuant to Section
8.1(b)(v).
Article
IX. Indemnification
9.1 Indemnification
by the
Company.
(a) The
Company will indemnify the Purchasing Companies, their Affiliates, and their
agents and representatives (collectively, “Buyer Indemnified Parties”),
and hold each of them harmless against any Loss arising from, relating to or
constituting (i) a breach of any of the representations and warranties of
the Selling Companies contained in this Agreement, (ii) a material breach
of any of the agreements of the Company contained in this Agreement
and (iii) any Retained Liabilities (collectively, “Buyer Losses”).
(b) The
Company will indemnify the Buyer Indemnified Parties for Buyer Losses arising
under Section 9.1(a)(i) only if the aggregate amount of all the Buyer
Losses arising under Section 9.1(a)(i) exceeds $50,000 (the “Buyer Basket Amount”), in which
case the Company will be liable only for the aggregate amount of all such Buyer
Losses in excess of the Basket Amount; provided that the Basket
Amount will not apply to any claims arising out of any Retained Liabilities or a
breach of any representation contained in Section 3.1, 3.10 or 3.20 or
that are based on fraud or intentional misrepresentation.
(c) The
Company’s liability for any Buyer Loss arising under Section 9.1(a)(i) will
not exceed the Buyer Cap; provided that the Buyer Cap will not apply to any
claims arising out of any Retained Liabilities or a breach of any representation
contained in Section 3.1, 3.10 or 3.20 or that are based on fraud or
intentional misrepresentation.
(d) If
any Buyer Indemnified Party has a claim for indemnification under this
Section 9.1, such Buyer Indemnified Party will deliver to the Company one
or more written notices of Buyer Losses (each a “Buyer
Claim”). Such Buyer Claim must be delivered to the Company
prior to 18 months after the Closing Date, except for a Buyer Claim arising out
of Retained Liabilities or a breach of any representation contained in Section
3.1, Section 3.2, Section 3.10, or Section 3.19, in which case the Buyer Claim
may be delivered to the Company within the earlier of six years after the
Closing Date or the expiration of the applicable statute of
limitations. The Company will have no liability under this
Section 9.1 unless the written notices required by the preceding sentence
are given by the date specified. Any Buyer Claim will state in
reasonable detail the basis for such Buyer Losses to the extent then known by
the Buyer Indemnified Party and the nature of the Buyer Loss for which
indemnification is sought, and it may state the amount of the Buyer Loss
claimed. If such Buyer Claim (or an amended Buyer Claim) states the
amount of the Buyer Loss claimed and the Company notifies the Buyer Indemnified
Party that the Company does not dispute such Buyer Claim or fails to notify the
Buyer Indemnified Party within 20 business days after delivery of such
notice by the Buyer Indemnified Party that the Company disputes the such Buyer
Claim, the Buyer Loss in the amount specified in the Buyer Indemnified Party’s
notice will be admitted by the Company, and the Company will pay the amount of
such Buyer Loss to the Buyer Indemnified Party. If the Company has
timely disputed the liability of the Company with respect to a Buyer Claim (or
an amended Buyer Claim) stating the amount of a Buyer Loss claimed, the Company
and the Buyer
Indemnified
Party will proceed in good faith to negotiate a resolution of such
dispute. If a claim for indemnification has not been resolved
within 30 days after delivery of the Company’s notice, the Buyer
Indemnified Party may seek mediation, arbitration or judicial
recourse. If a Buyer Claim does not state the amount of the Buyer
Loss claimed, such omission will not preclude the Buyer Indemnified Party from
recovering from the Company the amount of the Buyer Loss described in such Buyer
Claim if any such amount is subsequently provided in an amended Buyer
Claim. In order to assert its right to indemnification under this
Article IX, the Buyer Indemnified Party will not be required to provide any
notice except as provided in this Section 9.1(d).
(e) The
Company will pay the amount of any Buyer Loss to the Buyer Indemnified Party
within 10 days following the determination of the Company’s liability for
and the amount of a Buyer Loss (whether such determination is made pursuant to
the procedures set forth in this Section 9.1(e), by agreement between the
Buyer Indemnified Party and the Company, by mediation or arbitration award or by
final adjudication).
9.2 Indemnification
by Buyer.
(a) Buyer
will indemnify the Selling Companies, their Affiliates, and their agents and
representatives (collectively, the “Company Indemnified
Parties”), and hold each of them harmless against any Loss arising from,
relating to or constituting (i) a breach of any of the representations and
warranties of Buyer contained in this Agreement, (ii) a material breach of
any of the agreements of Buyer contained in this Agreement, (iii) the
failure of Buyer to assume, pay and discharge the Assumed Liabilities
and (iv) any Liability resulting exclusively from the ownership or use of
the Acquired Assets after Closing (collectively, “Company
Losses”).
(b) Buyer
will indemnify the Company Indemnified Parties for Company Losses arising under
Section 9.2(a)(i) only if the aggregate amount of all the Company Losses
arising under Section 9.2(a)(i) exceeds $50,000 (the “Company Basket Amount”), in
which case Buyer will be liable for only for the aggregate amount of all such
the Company Losses in excess of the Company Basket Amount; provided that the Company
Basket Amount will not apply to any claims arising out of any Assumed
Liabilities or a breach of any representation contained in
Section 4.1, 4.2 or Section 4.5 or that are based on fraud or
intentional misrepresentation.
(c) Buyer’s
liability for any Company Loss arising under Section 9.2(a)(i) shall not
exceed the Company Cap; provided that the Company Cap
will not apply to any claims arising out of any Assumed Liabilities or a breach
of any representation contained in Section 4.1, 4.2 or Section 4.5 or
that are based on fraud or intentional misrepresentation.
(d) If
any Company Indemnified Party has a claim for indemnification under this
Section 9.2, the Company Indemnified Party will deliver to Buyer one or
more written notices of the Company Losses (each a “Company
Claim”). Such Company Claim must be delivered to Buyer prior
to 18 months after the Closing Date, except for a Company Claim arising out of
Assumed Liabilities or a breach of any representation contained in Section 4.1,
Section 4.2 or Section 4.5, in each of which cases the Company Claim may be
delivered to Buyer within the earlier of six years after the Closing Date or the
expiration of the applicable statute of limitations. Buyer will have
no liability under this Section 9.2 unless the written notices required by
the
preceding
sentence are given by the date specified. Any Company Claim will
state in reasonable detail the basis for the Company Losses to the extent then
known by the Company Indemnified Party and the nature of the Company Loss for
which indemnification is sought, and it may state the amount of the Company Loss
claimed. If such Company Claim (or an amended Company Claim) states
the amount of the Company Loss claimed and Buyer notifies the Company
Indemnified Party that Buyer does not dispute Company Claim or fails to notify
the Company Indemnified Party within 20 business days after delivery of
such notice by the Company Indemnified Party that Buyer disputes the Company
Claim, the Company Loss in the amount specified in the Company Indemnified
Party’s notice will be admitted by Buyer, and Buyer will pay the amount of the
Company Loss to the Company Indemnified Party. If Buyer has timely
disputed its liability with respect to Company Claim, Buyer and the Company
Indemnified Party will proceed in good faith to negotiate a resolution of such
dispute. If a claim for indemnification has not been resolved
within 30 days after delivery of Buyer’s notice, the Company Indemnified
Party may seek mediation, arbitration or judicial recourse. If a
Company Claim does not state the amount of the Company Loss claimed, such
omission will not preclude the Company Indemnified Party from recovering from
Buyer the amount of the Company Loss with respect to the claim described in such
Company Claim if any such amount is subsequently provided in an amended Company
Claim. In order to assert its right to indemnification under this
Article IX, the Company Indemnified Party will not be required to provide
any notice except as provided in this Section 9.2.
(e) Buyer
will pay the amount of any Company Loss to the Company Indemnified Party
within 10 days following the determination of Buyer’s liability for and the
amount of the Company Loss (whether such determination is made pursuant to the
procedures set forth in this Section 9.2, by agreement between the Company
Indemnified Party and Buyer, by mediation or arbitration award or by final
adjudication).
9.3 Third-Party
Action.
(a) Any
party (the “Indemnifying
Party”) will indemnify, defend and hold harmless the other party and its
officers, directors, employees, agents, shareholders and Affiliates
(collectively, the “Indemnified Parties”) against
any Loss arising from, relating to or constituting any Litigation instituted by
any third party arising out of the actions or inactions of the other party (or
allegations thereof) whether occurring prior to, on or after the Closing Date
that are or may be Losses, other than those relating solely to a breach by the
Buyer or the Company, as applicable, of this Agreement (any such third party
action or proceeding being referred to as a “Third-Party
Action”). An Indemnified Party will give the Indemnifying
Party prompt written notice of the commencement of a Third-Party
Action. The complaint or other papers pursuant to which the third
party commenced such Third-Party Action will be attached to such written
notice. The failure to give prompt written notice will not affect any
Indemnified Party’s right to indemnification unless such failure has materially
and adversely affected the Indemnifying Party’s ability to defend successfully
such Third-Party Action.
(b) The
Indemnifying Party will contest and defend such Third-Party Action on behalf of
any Indemnified Party that requests that they do so. Notice of the
intention to so contest and defend will be given by the Indemnifying Party to
the requesting Indemnified Party within 20 business days after the
Indemnified Party’s notice of such Third-Party Action (but, in
all
events, at least five business days prior to the date that a response to such
Third-Party Action is due to be filed). Such contest and defense will
be conducted by reputable attorneys retained by the Indemnifying
Party. An Indemnified Party will be entitled at any time, at its own
cost and expense, to participate in such contest and defense and to be
represented by attorneys of its own choosing. If the Indemnified
Party elects to participate in such defense, the Indemnified Party will
cooperate with the Indemnifying Party in the conduct of such
defense. An Indemnified Party will cooperate with the Indemnifying
Party to the extent reasonably requested by the Indemnifying Party in the
contest and defense of such Third-Party Action, including providing reasonable
access (upon reasonable notice) to the books, records and employees of the
Indemnified Party if relevant to the defense of such Third-Party
Action
(c) If
an Indemnified Party reasonably determines that the Indemnifying Party is not
adequately representing or, because of a conflict of interest, may not
adequately represent any interests of the Indemnified Party at any time after
requesting the Indemnifying Party to do so, such Indemnified Party will be
entitled to conduct its own defense and to be represented by attorneys of its
own choosing all at the Indemnifying Party’s cost and expense.
(d) Neither
an Indemnified Party nor the Indemnifying Party may concede, settle or
compromise any Third-Party Action without the consent of the other party, which
consent will not be unreasonably withheld.
9.4 Sole and
Exclusive Remedy. Except as provided in Section 8.3, prior to
or in connection with the earlier of (a) the termination of this Agreement
pursuant to Article VIII or (b) the Closing, the parties will have available to
them all remedies available at law or in equity, including specific performance
or other equitable remedies. After the Closing, the rights set forth
in Sections 9.1 and 9.2 will be the exclusive remedy for any Buyer
Loss or Company Loss.
9.5 Tax
Adjustment. Any payment to Buyer or the Company under this
Article IX will be, for Tax purposes, to the extent permitted by Law, an
adjustment to the Purchase Price. In calculating any Loss, the amount
will be increased to give effect to any Tax related to the receipt of any
payment and the amount will be decreased to give effect to any benefit related
to the increase of such Loss to the extent actually received by
Buyer.
Article
X. General
10.1 Press
Releases and Announcements. Each
of the parties hereto agrees that, promptly following the execution of this
Agreement, the Company shall (a) issue a press release in a form mutually
agreed to by the Company and Buyer announcing the execution of this
Agreement and the transactions contemplated
hereby and (b) file a current report with the SEC on Form 8-K
attaching such press release and a copy of this Agreement as
exhibits. Thereafter, the parties hereto agree to consult
promptly with each other prior to issuing any press release or otherwise making
any public statement with respect to this Agreement and the transactions
contemplated hereby, agree to provide to each other for review a copy of any such
press release or statement, and shall not issue any such press release or make
any such public statement prior to such consultation and review, unless required
by applicable Law.
10.2 Waiver of
Bulk Sales Requirement. Each of the parties hereto waives compliance with
any applicable bulk sales Laws, including without limitation the Uniform
Commercial Code Bulk Transfer provisions.
10.3 Transfer
Taxes; Cooperation.
(a) The
Company and Buyer will each be responsible for paying in a timely manner
one-half of all net transfer, documentary, sales, use, stamp, registration,
value added and other such Taxes and fees (including any penalties and interest)
resulting from or payable in connection with the sale of the Acquired Assets
pursuant to this Agreement, regardless of the Person on whom such Taxes are
imposed by Law. The Company shall file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration and other Taxes and fees, and, if required by applicable
law, Buyer shall, and shall cause the Company to, join in the execution of any
such Tax Returns and documentation. For purposes of this Section
10.3(a), the amount of such Taxes and the amount that each of the Company and
the Buyer shall be responsible for pursuant to this Section 10.3 shall be
determined taking into account any credit against Taxes that is available with
respect to such Taxes. The Company and Buyer shall cooperate to the
extent reasonably required to obtain the benefit of such credit.
(b) The
Company and Buyer will (i) each provide the other with such cooperation and
assistance as may reasonably be requested by either party in connection with the
preparation of any Tax Return (including, by making available to Buyer for
review copies of Tax Returns for any period through the Closing date, as
reasonably requested by the Buyer), or in connection with any audit or other
examination by any taxing authority or other Governmental Entity or judicial or
administrative proceedings relating to liability for Taxes, (ii) each
retain and provide the other with any records or other information that may be
relevant to such Tax Return, audit or examination, proceeding or determination,
and (iii) each provide the other with any final determination of any such
audit or examination, proceeding or determination that affects any amount
required to be shown on any Tax Return of the other for any period.
10.4 Expenses. Except
as otherwise expressly provided for in this Agreement, the Company, on the one
hand, and Buyer, on the other hand, will each pay all expenses directly incurred
by each of them in connection with the transactions contemplated by this
Agreement, including legal, accounting, investment banking and consulting fees
and expenses incurred in negotiating, executing and delivering this Agreement
and the other agreements, exhibits, documents and instruments contemplated by
this Agreement (whether the transactions contemplated by this Agreement are
consummated or not) (the “Expenses”).
10.5 Amendment
and Waiver. This Agreement may not be amended, a provision of
this Agreement or any default, misrepresentation or breach of warranty or
agreement under this Agreement may not be waived, and a consent may not be
rendered, except in a writing executed by the party against which such action is
sought to be enforced. Neither the failure nor any delay by any
Person in exercising any right, power or privilege under this Agreement will
operate as a waiver of such right, power or privilege, and no single or partial
exercise of any such right, power or privilege will preclude any other or
further exercise of such right, power or privilege or the exercise of any other
right, power or privilege. In addition, no course of dealing between
or
among any
Persons having any interest in this Agreement will be deemed effective to modify
or amend any part of this Agreement or any rights or obligations of any Person
under or by reason of this Agreement. The rights and remedies of the
parties to this Agreement are cumulative and not alternative.
10.6 Notices. All
notices, demands and other communications to be given or delivered under or by
reason of the provisions of this Agreement will be in writing and will be deemed
to have been given (i) when delivered if personally delivered by
hand, (ii) when received if sent by a nationally recognized overnight
courier service (receipt requested), (iii) five business days after being
mailed, if sent by first class mail, return receipt requested, or (iv) when
receipt is acknowledged by an affirmative act of the party receiving notice, if
sent by facsimile, telecopy or other electronic transmission device (provided
that such an acknowledgement does not include an acknowledgment generated
automatically by a facsimile or telecopy machine or other electronic
transmission device). Notices, demands and communications to Buyer
and the Company will, unless another address is specified in writing, be sent to
the address indicated below:
|
If
to Buyer:
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Franklin
Covey Products, LLC
2825
East Cottonwood Parkway, Suite 400
Salt
Lake City, Utah 84121
Attn:
James B. Nelson
Facsimile
No. (801) 365-0181
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With
a copy to (which shall not constitute notice):
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Snell
& Wilmer L.L.P.
15
West South Temple, Suite 1200
Salt
Lake City, Utah 84101
Attn: John
G. Weston
Facsimile
No. (801) 257-1800
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|
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If
to any Selling Company:
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|
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Franklin
Covey Co.
2200
West Parkway Blvd.
Salt
Lake City, Utah 84119
Attn: Stephen
D. Young
Facsimile
No. (801) 817-8747
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With
a copy to (which shall not constitute notice):
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Dorsey
& Whitney LLP
136
South Main Street, Suite 1000
Salt
Lake City, Utah 84010
Attn: Nolan
S. Taylor
Facsimile
No. (801) 933-7373
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10.7 Assignment. Unless
this Agreement is (a) assigned by Buyer to another Purchasing Company
or (b) assigned jointly and concurrently with the Master License
Agreement to the same assignee as the valid assignee of the Master License
Agreement subject to all of the terms and conditions of the Master License
Agreement, and any such assignee (whether under clause (a) or (b)) expressly
agrees in writing to assume all of the obligations of Buyer or the applicable
Purchasing Company under this Agreement, no Purchasing Company shall, or shall
have the right to, assign, sell, transfer, delegate or otherwise dispose of,
whether voluntarily or involuntarily, by operation of law or otherwise, this
Agreement or any of their rights or obligations under this Agreement without the
prior written consent of the Company in its sole discretion. Unless
this Agreement is assigned by any Selling Company to another Selling Company, by
operation of law or pursuant to a Change in Control, such Selling Company shall
not, nor have the right to, assign, sell, transfer, delegate or otherwise
dispose of this Agreement or any of their rights or obligations under this
Agreement to any third-party without the prior written consent of Buyer in its
sole discretion. Except as expressly provided herein, any purported
assignment, sale, transfer, delegation or other disposition hereunder shall be
null and void. Subject to the foregoing, this Agreement and all of
the provisions of this Agreement will be binding upon and inure to the benefit
of the parties to this Agreement and their respective successors and permitted
assigns.
10.8 No
Third-Party Beneficiaries. Nothing expressed or referred to in
this Agreement confers any rights or remedies upon any Person that is not a
party or permitted assign of a party to this Agreement.
10.9 Severability. Whenever
possible, each provision of this Agreement will be interpreted in such manner as
to be effective and valid under applicable Law, but if any provision of this
Agreement is held to be prohibited by or invalid under applicable Law, such
provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
10.10 Complete
Agreement. This Agreement, the Confidentiality Agreement and,
when executed and delivered, the Ancillary Agreements, contain the complete
agreement between the parties and supersede any prior understandings, agreements
or representations by or between the parties, written or oral. The
Company acknowledges that Buyer has made no representations, warranties,
agreements, undertakings or promises except for those expressly set forth in
this Agreement or in agreements referred to herein that survive the execution
and delivery of this Agreement.
10.11 Schedules.
(a) The
Disclosure Schedule contains a series of schedules corresponding to certain
sections contained in this Agreement. Nothing in the Agreement or in
the Disclosure Schedule constitutes an admission that any information disclosed,
set forth or incorporated by reference in the Disclosure Schedule or in the
Agreement is material, constitutes a Material Adverse Effect or is otherwise
required by the terms of the Agreement to be so disclosed, set forth or
incorporated by reference. Except as otherwise provided in this
Agreement with respect to the schedules delivered pursuant to Article II, and
without limiting in any way the effect of Section 7.1(a), all
information
and disclosures contained in the Disclosure Schedule are made as of the date of
the Agreement and their accuracy is confirmed only as of such date and not at
any time thereafter.
(b) Prior
to the Closing, (i) the Company shall have the right from time to time, by
notice in accordance with the terms of this Agreement, to supplement, modify or
update the schedules delivered pursuant to Article II of this Agreement, but
only with the prior written consent of Buyer, which consent shall not be
unreasonably withheld or delayed; and (ii) the parties otherwise may, acting in
good faith, jointly prepare supplements, modifications to or updates the
schedules delivered pursuant to Article II and Section 5.5(a), including to
provide for the assignment or transfer of database-related
licenses. If the Closing occurs, any such supplements, modifications
and updates shall supplement, amend and modify the Disclosure
Schedule.
10.12 Signatures;
Counterparts. This Agreement may be executed in one or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
instrument. A facsimile signature will be considered an original
signature.
10.13 Governing
Law. The domestic law, without regard to conflicts of laws
principles, of the State of Utah will govern all questions concerning the
construction, validity and interpretation of this Agreement and the performance
of the obligations imposed by this Agreement.
10.14 Specific
Performance. Each of the parties acknowledges and agrees that
prior to the earlier to occur of the Closing or the termination of this
Agreement pursuant to Article VIII, the subject matter of this Agreement,
including the business, assets and properties of the Company, is unique, that
the other parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached, and that the remedies at law would not be
adequate to compensate such other parties not in default or in
breach. Accordingly, each of the parties agrees that the other
parties will be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions of this Agreement in addition to any other remedy to
which they may be entitled, at law or in equity (without any requirement that
Buyer provide any bond or other security). The parties waive any
defense that a remedy at law is adequate and any requirement to post bond or
provide similar security in connection with actions instituted for injunctive
relief or specific performance of this Agreement.
10.15 Jurisdiction.
(a) Each
of the parties submits to the exclusive jurisdiction of any state or federal
court sitting in Salt Lake City, Utah, in any action or proceeding arising out
of or relating to this Agreement and agrees that all claims in respect of the
action or proceeding may be heard and determined in any such
court. Each party also agrees not to bring any action or proceeding
arising out of or relating to this Agreement in any other court. Each
of the parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and
waives
any bond, surety or other security that might be required of any other party
with respect to any such action or proceeding.
(b) The
parties shall attempt in good faith to resolve any dispute or claim arising out
of or relating to this Agreement promptly by confidential mediation under the
CPR Mediation Procedure in effect on the Effective Date, before resorting to
litigation. If such dispute or claim is not settled by the parties
through mediation within forty-five (45) days after the first meeting of the
parties with the mediator to discuss the matter, or if the parties agree to
terminate mediation sooner, then either party may initiate a litigation action
subject to all of the terms and conditions of this Agreement.
10.16 Waiver of
Jury Trial. EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED
AND DIFFICULT ISSUES, AND THEREFORE IT IRREVOCABLY AND UNCONDITIONALLY WAIVES
ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY
OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND ACKNOWLEDGES
THAT (I) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (II) IT
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (III) IT
MAKES SUCH WAIVER VOLUNTARILY AND (IV) IT HAS BEEN INDUCED TO ENTER INTO
THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN
THIS SECTION 10.16.
10.17 Construction. The
parties and their respective counsel have participated jointly in the
negotiation and drafting of this Agreement. In addition, each of the
parties acknowledges that it is sophisticated and has been advised by
experienced counsel and, to the extent it deemed necessary, other advisors in
connection with the negotiation and drafting of this Agreement. The
parties intend that each representation, warranty and agreement contained in
this Agreement will have independent significance. If any party has
breached any representation, warranty or agreement in any respect, the fact that
there exists another representation, warranty or agreement relating to the same
subject matter (regardless of the relative levels of specificity) that the party
has not breached will not detract from or mitigate the fact that the party is in
breach of the first representation, warranty or agreement. The
headings preceding the text of articles and sections included in this Agreement
and the headings to the schedules and exhibits are for convenience only and are
not be deemed part of this Agreement or given effect in interpreting this
Agreement. References to sections, articles, schedules or exhibits
are to the sections, articles, schedules and exhibits contained in, referred to
or attached to this Agreement, unless otherwise specified. The word
“including” means “including without limitation.” A statement that an
action has not occurred in the past means that it is also not presently
occurring. When any party may take any permissive action, including
the granting of a consent, the waiver of any provision of this Agreement or
otherwise, whether to take such action is in its sole and absolute
discretion. The use of the masculine, feminine or neuter gender or
the singular or plural form of words will not limit any provisions of this
Agreement. A statement that an item is listed, disclosed
or
described
means that it is correctly listed, disclosed or described, and a statement that
a copy of an item has been delivered means a true and correct copy of the item
has been delivered.
10.18 Time of
Essence. With regard to all dates and time periods set forth
or referred to in this Agreement, time is of the essence.
[Signature page
follows.]
|
BUYER:
|
|
|
FRANKLIN
COVEY PRODUCTS, LLC
|
|
|
By:
Name:
Title:
|
/s/ James B.
Nelson
James
B. Nelson
Manager
|
|
THE
COMPANY:
|
|
|
FRANKLIN
COVEY CO.
|
|
|
By:
Name:
Title:
|
/s/ Robert A.
Whitman
Robert
A. Whitman
Chairman
and Chief Executive Officer
|
|
THE
SELLING SUBSIDIARIES:
|
|
|
FRANKLIN
COVEY CANADA, LTD.
|
|
|
By:
Name:
Title:
|
/s/ Robert A.
Whitman
Robert
A. Whitman
President
|
|
FRANKLIN
COVEY DE MEXICO S. DE R.L. DE C.V.
|
|
|
By:
Name:
Title:
|
/s/ Robert A.
Whitman
Robert
A. Whitman
President
|
|
FRANKLIN
COVEY EUROPE, LTD.
|
|
|
By:
Name:
Title:
|
/s/ Robert A.
Whitman
Robert
A. Whitman
President
|
|
FRANKLIN
COVEY CLIENT SALES, INC.
|
|
|
By:
Name:
Title:
|
/s/ Sarah Merz
Sarah
Merz
President
|
|
FRANKLIN
COVEY CATALOG SALES, INC.
|
|
|
By:
Name:
Title:
|
/s/ Sarah Merz
Sarah
Merz
President
|
|
FRANKLIN
COVEY PRODUCT SALES, INC.
|
|
|
By:
Name:
Title:
|
/s/ Sarah Merz
Sarah
Merz
President
|
|
FRANKLIN
COVEY PRINTING, INC.
|
|
|
By:
Name:
Title:
|
/s/ Robert A. Whitman
Robert
A. Whitman
President
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Exhibit 99.1
FranklinCovey
and Peterson Partners Form New Company to Acquire FranklinCovey’s Consumer
Business Unit.
FranklinCovey
to Use Proceeds From Sale to Repurchase Common Stock.
SALT LAKE CITY, May 22,
2008, — FranklinCovey
(NYSE: FC) today
announced that it has entered into an agreement with Peterson Partners to create
a new company, Franklin Covey Products, LLC. This new company will
purchase substantially all of the assets of FranklinCovey’s Consumer
Solutions Business Unit (CSBU) and, pursuant to a comprehensive license
agreement, will continue expanding CSBU’s planner and other branded consumer
products businesses through its proprietary channels and through third-party
retailers worldwide. FranklinCovey will focus its full resources on
the continued expansion of its training, consulting, content-rich media and
thought leadership businesses, which currently operate in 147
countries.
The new
company, which will be controlled by Peterson Partners, will purchase the CSBU
assets for $32.0M in cash subject to adjustments for net working
capital. FranklinCovey will invest $1.7M to purchase a 19.5% voting
interest in the new company, will make a $1.0M interest bearing preferred
capital contribution and will also have the opportunity to earn contingent
license fees as the new company achieves certain performance objectives.
FranklinCovey intends to utilize the sale proceeds to repurchase a substantial
number of shares of its common stock pursuant to a Dutch auction tender offer,
which it anticipates would commence shortly after the closing of the
transaction.
Peterson
Partners, a leading Intermountain West investment firm based in Salt Lake City,
Utah, specializes in investing in small to mid-sized companies and has a track
record of successful investments including JetBlue, Making Memories,
EnergySolutions, 3form, Cranium, Asurion, Instashred, Winder Farms, MITY
Enterprises and Diamond Rental. Founded in 1995, Peterson Partners has managed
over $400 million in committed capital through five funds.
Sarah
Merz, current President of the CSBU, will be named Chief Executive Officer of
Franklin Covey Products, LLC and will serve on its board of
managers. Robert A. Whitman, Chairman and Chief Executive Officer of
Franklin Covey, has agreed to also serve as Chairman of the board of managers of
FranklinCovey Products, LLC for a period of three years. Whitman will serve
without compensation. The jobs and responsibilities of CSBU’s other
officers and employees are not expected to be affected by the
transaction. Merz and her other senior officers will own
significant equity interests in Franklin Covey Products, LLC.
The CSBU
is primarily focused on sales of the Company’s planners and other hard goods
products to individual customers and small business organizations and includes
the operations of the company’s domestic retail stores, consumer direct
channels, wholesale operations, international product channels and other related
distribution channels, including government product sales and domestic printing
and publishing operations. Some of the Company’s best-known consumer
products include the popular FranklinCovey Planning System™, PlanPlus Planning
Software,™ and PlanPlus Online™, as well as a line of binders,
business cases, totes, and other productivity and organizational tools and
accessories. Franklin Covey Products, LLC will assume all of CSBU’s
channels and offerings, and plans to further expand CSBU’s already strong
pipeline of new products and offerings.
FranklinCovey to Focus on
Accelerating Growth in its Training, Consulting, Content-Rich Media and Thought
Leadership Businesses
“Over the
past several years, the strategic focus of both our CSBU and Organizational
Solutions Business Unit (OSBU) has changed significantly. The OSBU’s
business has grown significantly, both domestically and
internationally," said Robert A. Whitman, Chairman and Chief Executive of
FranklinCovey. “While its historical time management and individual
effectiveness solutions have also grown, it has added new solution categories,
including Leadership, Execution, and Customer Loyalty, which have grown even
more rapidly. As a consequence, the extent of overlap between our
training and consulting offerings and our hard goods products has diminished.
Meanwhile, the CSBU has expanded its distribution into more than 13,000
third-party outlets, including office superstores and other large retail
chains. In the process, CSBU has grown its annual planner sales from
approximately 4.8M units to almost 5.2M units in the past three
years.
"Over the
last five years, FranklinCovey has achieved a very substantial financial
turnaround in both major business units. After significant analysis
and deliberation, however, it became apparent to us that the business units
would be able to operate more effectively as separate companies, each with clear
and distinct strategic objectives, market definitions, and competitive
sets. Each business can now focus its full attention on building
value within its own markets, while continuing to partner with each other on key
initiatives.”
Franklin Covey Products,
LLC
Jordan
Clements, Managing Partner, Peterson Partners, said, “This transaction
represents a tremendous opportunity for Peterson Partners to invest in the
premier company in the stable, billion-dollar planner industry. Franklin Covey
Products, LLC will be led by a smart and determined management team, which has
proven to be outstanding at the continuous process of building value in a
company. We’re tremendously impressed with our new CEO, Sarah
Merz. We anticipate that our human and investment capital will
augment Sarah’s already successful team. We are also looking forward to a long
and close relationship with FranklinCovey, an organization for which we have
enormous respect. Peterson Partners has tremendous regard for Bob Whitman and
his leadership abilities were integral to Peterson’s investment decision.
Bob’s continuing participation as Chairman of the new company is a huge
plus for Franklin Covey Products, LLC.”
Under the
terms of the transaction, all products to be sold by the new company will
continue to carry the FranklinCovey brand name. The FranklinCovey retail stores
will also continue to operate under the FranklinCovey name, which Franklin Covey
Products Co. will license from FranklinCovey. The licensing agreement makes the
transaction seamless with no negative effect on customers or clients of either
organization.
The
transaction is expected to close in approximately sixty days. While
closing is subject to customary conditions, due diligence and the negotiation of
key agreements has been largely completed prior to the signing of the sale
agreement. The management and operations of Franklin Covey Products,
LLC are expected to remain on FranklinCovey’s campus located in Salt Lake City,
Utah.
“Peterson
Partners has a proven track record of success. We are delighted that
Peterson Partners is excited about the strategic opportunity offered by Franklin
Covey Products, LLC, since Peterson Partners shares our commitment to the CSBU
employees, and to Salt Lake City. Because this is an intricate and
long-term relationship, it was important to find a partner committed to the
FranklinCovey brand, customers and employees,” said Bob Whitman.
Joel C.
Peterson, a founding general partner and significant investor in Peterson
Partners, is also a member of FranklinCovey’s board of directors. Mr.
Peterson insulated himself from any substantive knowledge about a possible
transaction, and recused himself from any involvement in discussions or
deliberations within both FranklinCovey or Peterson Partners. A
special recapitalization committee was formed more than a year ago to consider
the possibility of a transaction. This committee and the
FranklinCovey board, with guidance from their financial advisor, ThinkPanmure,
LLC, and their legal advisors Dorsey & Whitney, LLP, and Jones Day,
conducted a rigorous market due diligence and board review process prior to
authorizing execution of the agreement.
Audio Web
Cast
The
Company will hold an investor web cast on Friday, May 23, 2008 at 9:00 a.m.
(Mountain Daylight Time) to discuss the Sale Agreement and other business
matters. Interested parties may participate in the web cast by
calling (800) 435-1398, participant code: 38649130; or by logging on to http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=102601&eventID=1857100.
About
FranklinCovey
FranklinCovey
is a global leader in effectiveness training, productivity tools and assessment
services for organizations and individuals. FranklinCovey helps companies
succeed by unleashing the power of their workforce to focus and execute on top
business priorities. Clients include 90 percent of the Fortune 100,
more than 75 percent of the Fortune 500, thousands of small and mid-sized
businesses, as well as numerous government entities and educational
institutions. Organizations and individuals access FranklinCovey products and
services through corporate training, licensed client facilitators, one-on-one
coaching, public workshops, catalogs, more than 70 retail stores, and www.franklincovey.com.
FranklinCovey has nearly 1,500 associates providing professional services and
products in 39 offices and in 95 countries.
About Peterson
Partners
Peterson
Partners, a leading Intermountain West investment firm based in Salt Lake City,
Utah, specializes in investing in small to mid-sized companies, and has a track
record of successful investments including JetBlue, Making Memories,
EnergySolutions, 3form, Cranium, Asurion, Instashred, Winder Farms, MITY
Enterprises, and Diamond Rental. Founded in 1995, Peterson Partners has managed
over $400 million in committed capital through five funds.
Forward-Looking
Statements
This
press release contains forward-looking statements related to, among other
things, the completion of the sale of the CSBU, the tender offer, and the other
transactions contemplated by the sale agreement. These statements are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that forward-looking
statements inherently involve risks and uncertainties that could cause actual
results to differ materially from those contemplated in the forward-looking
statements. Such risks and uncertainties include, but are not limited to,
the ability of the parties to the sale agreement to satisfy the conditions to
closing specified in the sale agreement, and other risks and uncertainties
outlined in the Company’s documents filed with the SEC, including the Company’s
most recent annual report on Form 10-K for the fiscal year ended August 31, 2007
as filed with the Securities and Exchange Commission. All forward-looking
statements and other information in this press release are based upon
information available as of the date of this press release. Such
information may change or become invalid after the date of this press release,
and, by making these forward-looking statements, the Company undertakes no
obligation to update these statements after the date of this press release,
except as required by law.
Tender Offer
Statement
This
press release is for informational purposes only and is not an offer to buy, or
the solicitation of an offer to sell, any shares. The full details of any tender
offer, including complete instructions on how to tender shares, will be included
in the offer to purchase, the letter of transmittal and related materials, which
would be mailed to shareholders promptly following commencement of the offer.
Shareholders should read carefully the offer to purchase, the letter of
transmittal and other related materials when they are available because they
will contain important information. Shareholders may obtain free copies, when
available, of the offer to purchase and other related materials that will be
filed by FranklinCovey with the Securities and Exchange Commission at the
Commission’s website at www.sec.gov. When
available, shareholders also may obtain a copy of these documents, free of
charge, from FranklinCovey’s information agent to be appointed in connection
with the offer.
|
Investor
Contact:
FranklinCovey
Steve
Young
801-817-1776
Steve.Young@franklincovey.com
|
Media
Contact:
FranklinCovey
Debra
Lund
801-244-4474
Debra.Lund@franklincovey.com
|
|
Investor
Contact:
Peterson
Partners
Jordan
Clements
801-365-0180
Jordan@petersonpartnerslp.com
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