þ
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE FISCAL YEAR ENDED AUGUST 31, 2008.
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OR
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¨
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM ___
TO ___
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Utah
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1-11107
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87-0401551
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||
(State
or other jurisdiction of incorporation or organization)
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(Commission
File No.)
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(IRS
Employer Identification No.)
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Title
of Each Class
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Name
of Each Exchange on Which Registered
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Common
Stock, $.05 Par Value
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New
York Stock Exchange
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Large
accelerated filer
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£
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Accelerated
filer
|
þ
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||
Non-accelerated
filer
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£
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(Do
not check if a smaller reporting company)
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Smaller
reporting company
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£
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Business
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Risk
Factors
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Unresolved
Staff Comments
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Properties
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|||
Legal
Proceedings
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Submission
of Matters to a Vote of Security Holders
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Market
For the Registrant's Common Equity, Related Shareholder
Matters, and Issuer Purchases of Equity
Securities
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Selected
Financial Data
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|||
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
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|||
Quantitative and
Qualitative Disclosures About Market Risk
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|||
Financial
Statements and Supplementary Data
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Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure
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Controls
and Procedures
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|||
Item 9B. | Other Information | ||
Directors,
Executive Officers and Corporate Governance
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|||
Executive Compensation
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|||
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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Certain
Relationships and Related Transactions, and Director
Independence
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|||
Principal
Accountant Fees and Services
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Exhibits
and Financial Statement Schedules
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■
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People are
inherently capable, aspire to greatness, and have the power to
choose.
|
■
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Principles are
timeless and universal and are the foundation to lasting
effectiveness.
|
■
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Leadership is a
choice, built inside-out on a foundation of character. Great
leaders unleash the collective talent and passion of people toward the
right goal.
|
■
|
Habits of effectiveness come only
from the committed use of integrated processes and
tools.
|
■
|
Sustained superior performance
requires
a balance of performance and performance capability (P/PC
BalanceÒ) - a
focus on achieving results and building
capability.
|
YEAR
ENDED
AUGUST
31,
|
2008
|
Percent
change from prior year
|
2007
|
Percent
change from prior year
|
2006
|
|||||||||||||||
Organizational
Solutions Business Unit:
|
||||||||||||||||||||
Domestic
|
$ | 91,287 | (2 | ) | $ | 93,308 | 10 | $ | 84,904 | |||||||||||
International
|
59,100 | 2 | 57,674 | 18 | 48,984 | |||||||||||||||
150,387 | - | 150,982 | 13 | 133,888 | ||||||||||||||||
Consumer
Solutions Business Unit:
|
||||||||||||||||||||
Retail stores
|
42,167 | (22 | ) | 54,316 | (13 | ) | 62,156 | |||||||||||||
Consumer direct
|
38,662 | (19 | ) | 48,018 | (8 | ) | 52,171 | |||||||||||||
Wholesale
|
16,970 | (6 | ) | 17,991 | 1 | 17,782 | ||||||||||||||
CSBU International
|
7,295 | (1 | ) | 7,342 | (5 | ) | 7,716 | |||||||||||||
Other CSBU
|
4,611 | (16 | ) | 5,476 | 12 | 4,910 | ||||||||||||||
109,705 | (18 | ) | 133,143 | (8 | ) | 144,735 | ||||||||||||||
Total
net sales
|
$ | 260,092 | (8 | ) | $ | 284,125 | 2 | $ | 278,623 |
1.
|
Our
consultants provide on-site coaching, consulting or training
classes. In these situations, our consultants tailor the
curriculum to our client’s specific business and
objectives.
|
|
2.
|
Our
programs are also designed to be facilitated by licensed professional
trainers and managers in client organizations, reducing dependence on our
professional presenters, and creating knowledgeable advocates of our
curriculum in organizations.
|
|
3.
|
Our
consultants provide training to individuals or small groups of individuals
through executive coaching sessions. In these sessions, our
consultants are able to deliver course content in greater detail and can
help adapt our course principles to the specific needs of the
organization.
|
|
4.
|
We
conduct public seminars in more than 100 cities throughout the United
States, where organizations can send their employees in smaller
numbers. These public seminars are also marketed directly to
individuals through our Internet web-site and by direct mail.
|
|
5.
|
We
also offer The 7 Habits of Highly
Effective People® training course in online and CD-ROM
formats. These products provide the flexibility required by
many organizations.
|
·
|
Governmental
entities typically fund projects through appropriated
monies. While these projects are often planned and executed as
multi-year projects, the government entities usually reserve the right to
change the scope of or terminate these projects for lack of approved
funding and at their convenience. Changes in government or political
developments could result in changes in scope or in termination of our
projects.
|
·
|
Government
entities often reserve the right to audit our contract costs, including
allocated indirect costs, and conduct inquiries and investigations of our
business practices with respect to our government contracts. If the
governmental entity finds that the costs are not reimbursable, then we
will not be allowed to bill for those costs or the cost must be refunded
to the client if it has already been paid to us. Findings from an audit
also may result in our being required to prospectively adjust previously
agreed rates for our work and may affect our future
margins.
|
·
|
If
a government client discovers improper activities in the course of audits
or investigations, we may become subject to various civil and criminal
penalties and administrative sanctions, which may include termination of
contracts, forfeiture of profits, suspension of payments, fines and
suspensions or debarment from doing business with other agencies of that
government. The inherent limitations of internal controls may
not prevent or detect all improper or illegal activities, regardless of
their adequacy.
|
·
|
Political
and economic factors such as pending elections, revisions to governmental
tax policies and reduced tax revenues can affect the number and terms of
new government contracts signed.
|
·
|
Our
clients’ perceptions of our ability to add value through our programs and
products
|
·
|
Competition
|
·
|
General
economic conditions
|
·
|
Introduction
of new programs or services by us or our
competitors
|
·
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Our
ability to accurately estimate, attain, and sustain engagement sales,
margins, and cash flows over longer contract
periods
|
·
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Seasonal
trends, primarily as a result of scheduled
training
|
·
|
Our
ability to forecast demand for our products and services and thereby
maintain an appropriate headcount in our employee
base
|
·
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Our
ability to manage attrition
|
·
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Restrictions
on the movement of cash
|
·
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Burdens
of complying with a wide variety of national and local
laws
|
·
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The
absence in some jurisdictions of effective laws to protect our
intellectual property rights
|
·
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Political
instability
|
·
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Currency
exchange rate fluctuations
|
·
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Longer
payment cycles
|
·
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Price
controls or restrictions on exchange of foreign
currencies
|
·
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Fluctuations
in our quarterly results of operations and cash
flows
|
·
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Increased
overall market volatility
|
·
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Variations
between our actual financial results and market
expectations
|
·
|
Changes
in our key balances, such as cash and cash
equivalents
|
·
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Currency
exchange rate fluctuations
|
·
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Unexpected
asset impairment charges
|
·
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Lack
of analyst coverage
|
·
|
Develop
new services, programs, or
offerings
|
·
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Take
advantage of opportunities, including expansion of the
business
|
·
|
Respond
to competitive pressures
|
·
|
During
the fourth quarter of fiscal 2008, we completed the sale of our Consumer
Solutions Business Unit, which operated retail stores both domestically
and in certain international
locations.
|
·
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In
connection with a restructuring plan initiated in the fourth quarter of
fiscal 2008, we closed one domestic regional sales office and intend to
close our Canadian facility in fiscal
2009.
|
High
|
Low
|
|||||||
Fiscal
Year Ended August 31, 2008:
|
||||||||
Fourth Quarter
|
$ | 9.32 | $ | 7.35 | ||||
Third Quarter
|
8.76 | 6.72 | ||||||
Second Quarter
|
8.00 | 6.86 | ||||||
First Quarter
|
7.75 | 5.91 | ||||||
Fiscal
Year Ended August 31, 2007:
|
||||||||
Fourth Quarter
|
$ | 8.99 | $ | 6.97 | ||||
Third Quarter
|
9.01 | 7.10 | ||||||
Second Quarter
|
8.15 | 5.66 | ||||||
First Quarter
|
6.18 | 4.96 |
Period
|
Total
Number of Shares Purchased
|
Average
Price Paid Per Share
|
Total
Number of Shares Purchased as Part of Publicly Announced Plans or
Programs
|
Maximum
Dollar Value of Shares That May Yet Be Purchased Under the Plans or
Programs
(in
thousands)
|
||||||||||||
June
1, 2008 to
July 5, 2008
|
- | $ | - |
none
|
$ | 2,413 | ||||||||||
July
6, 2008 to
August 2, 2008
|
- | - |
none
|
2,413 | ||||||||||||
August
3, 2008 to
August 31, 2008
|
3,027,027 | (1) | 9.32 | 3,027,027 | 2,413 | (2) | ||||||||||
Total
Common
Shares
|
3,027,027 | $ | 9.32 | 3,027,027 |
(1)
|
During
August 2008, we completed a modified “Dutch Auction” tender offer in which
we were able to purchase 3,027,027 shares of our common stock for $9.25
per share plus costs necessary to conduct the tender
offer.
|
(2)
|
In
January 2006, our Board of Directors approved the purchase of up to $10.0
million of our outstanding common stock. All previous
authorized common stock purchase plans were canceled. Following
the approval of this common stock purchase plan, we have purchased a total
of 1,009,300 shares of our common stock for $7.6 million through August
31, 2008 under the terms of this
plan.
|
August
31,
|
2008
|
2007
|
2006
|
2005
|
2004
|
|||||||||||||||
In
thousands, except per share data
|
||||||||||||||||||||
Income
Statement Data:
|
||||||||||||||||||||
Net
sales
|
$ | 260,092 | $ | 284,125 | $ | 278,623 | $ | 283,542 | $ | 275,434 | ||||||||||
Income
(loss) from operations
|
16,760 | 18,084 | 14,046 | 8,443 | (9,064 | ) | ||||||||||||||
Net
income (loss) before income taxes
|
13,834 | 15,665 | 13,631 | 9,101 | (8,801 | ) | ||||||||||||||
Income
tax benefit (provision)(1)
|
(7,986 | ) | (8,036 | ) | 14,942 | 1,085 | (1,349 | ) | ||||||||||||
Net
income (loss)(1)
|
5,848 | 7,629 | 28,573 | 10,186 | (10,150 | ) | ||||||||||||||
Net
income (loss) available to common shareholders(1)
|
5,848 | 5,414 | 24,188 | (5,837 | ) | (18,885 | ) | |||||||||||||
Earnings
(loss) per share:
|
||||||||||||||||||||
Basic
|
$ | .30 | $ | .28 | $ | 1.20 | $ | (.34 | ) | $ | (.96 | ) | ||||||||
Diluted
|
$ | .29 | $ | .27 | $ | 1.18 | $ | (.34 | ) | $ | (.96 | ) | ||||||||
Balance
Sheet Data:
|
||||||||||||||||||||
Total
current assets
|
$ | 67,911 | $ | 70,103 | $ | 87,120 | $ | 105,182 | $ | 92,229 | ||||||||||
Other
long-term assets
|
11,768 | 14,542 | 12,249 | 9,051 | 7,305 | |||||||||||||||
Total
assets
|
178,927 | 196,631 | 216,559 | 233,233 | 227,625 | |||||||||||||||
Long-term
obligations
|
38,762 | 35,178 | 35,347 | 46,171 | 13,067 | |||||||||||||||
Total
liabilities
|
100,173 | 95,712 | 83,210 | 100,407 | 69,146 | |||||||||||||||
Preferred
stock(2)
|
- | - | 37,345 | 57,345 | 87,203 | |||||||||||||||
Shareholders’
equity
|
78,754 | 100,919 | 133,349 | 132,826 | 158,479 |
(1)
|
Net
income in fiscal 2006 includes the impact of deferred tax asset valuation
allowance reversals totaling $20.3
million.
|
(2)
|
During
fiscal 2007, we redeemed all remaining outstanding shares of Series A
preferred stock at its liquidation preference of $25 per share plus
accrued dividends.
|
·
|
Sales
Performance –
Our consolidated sales decreased $24.0 million compared to the
prior year primarily due to the sale of CSBU and declining product sales
that occurred during fiscal 2008. Our training and consulting
services sales increased by $0.4 million compared to fiscal 2007, which
was primarily attributable to improvements in sales through our
international delivery
channels.
|
·
|
Gross
Profit – Consolidated gross profit decreased to $161.8 million
compared to $175.1 million in fiscal 2007. However, our gross
margin, which is gross profit stated as a percentage of sales, increased
to 62.2 percent compared to 61.6 percent in the prior year. The
increase in gross margin was due to increased training and consulting
services as a percent of total sales during fiscal 2008 since the majority
of our training and consulting services have higher gross margins than our
product sales.
|
·
|
Operating
Costs – Our operating costs, excluding the gain on the sale of CSBU
and the fiscal 2007 gain on the manufacturing facility, decreased by $4.1
million compared to fiscal 2007. The decrease in operating
costs was attributable to a $7.9 million decrease in selling, general, and
administrative expense, which was primarily due to the sale of CSBU, that
was partially offset by a $2.1 million restructuring charge, a $1.5
million impaired asset charge, and a $0.3 million increase in depreciation
expense.
|
YEAR
ENDED
AUGUST
31,
|
2008
|
2007
|
2006
|
|||||||||
Training
and consulting services sales
|
53.1 | % | 48.5 | % | 43.9 | % | ||||||
Product
sales
|
46.9 | 51.5 | 56.1 | |||||||||
Total
sales
|
100.0 | 100.0 | 100.0 | |||||||||
Training
and consulting services cost of sales
|
17.2 | 15.2 | 14.6 | |||||||||
Product
cost of sales
|
20.6 | 23.2 | 25.1 | |||||||||
Total
cost of sales
|
37.8 | 38.4 | 39.7 | |||||||||
Gross
profit
|
62.2 | 61.6 | 60.3 | |||||||||
Selling,
general, and administrative
|
54.3 | 52.5 | 52.0 | |||||||||
Gain
on sale of CSBU assets
|
(3.5 | ) | - | - | ||||||||
Gain
on sale of manufacturing facility
|
- | (0.4 | ) | - | ||||||||
Restructuring
costs
|
0.8 | - | - | |||||||||
Impairment
of assets
|
0.6 | - | - | |||||||||
Depreciation
|
2.2 | 1.8 | 1.9 | |||||||||
Amortization
|
1.4 | 1.3 | 1.4 | |||||||||
Total
operating expenses
|
55.8 | 55.2 | 55.3 | |||||||||
Income
from operations
|
6.4 | 6.4 | 5.0 | |||||||||
Interest
income
|
0.1 | 0.3 | 0.5 | |||||||||
Interest
expense
|
(1.2 | ) | (1.2 | ) | (0.9 | ) | ||||||
Recovery
from legal settlement
|
- | - | 0.3 | |||||||||
Income
before income taxes
|
5.3 | % | 5.5 | % | 4.9 | % |
YEAR
ENDED
AUGUST
31,
|
2008
|
Percent
change from prior year
|
2007
|
Percent
change from prior year
|
2006
|
|||||||||||||||
Sales
by Category:
|
||||||||||||||||||||
Training
and consulting services
|
$ | 138,112 | - | $ | 137,708 | 12 | $ | 122,418 | ||||||||||||
Products
|
121,980 | (17 | ) | 146,417 | (6 | ) | 156,205 | |||||||||||||
$ | 260,092 | (8 | ) | $ | 284,125 | 2 | $ | 278,623 | ||||||||||||
Organizational
Solutions Business Unit:
|
||||||||||||||||||||
Domestic
|
$ | 91,287 | (2 | ) | $ | 93,308 | 10 | $ | 84,904 | |||||||||||
International
|
59,100 | 2 | 57,674 | 18 | 48,984 | |||||||||||||||
150,387 | - | 150,982 | 13 | 133,888 | ||||||||||||||||
Consumer
Solutions Business Unit:
|
||||||||||||||||||||
Retail stores
|
42,167 | (22 | ) | 54,316 | (13 | ) | 62,156 | |||||||||||||
Consumer direct
|
38,662 | (19 | ) | 48,018 | (8 | ) | 52,171 | |||||||||||||
Wholesale
|
16,970 | (6 | ) | 17,991 | 1 | 17,782 | ||||||||||||||
CSBU International
|
7,295 | (1 | ) | 7,342 | (5 | ) | 7,716 | |||||||||||||
Other CSBU
|
4,611 | (16 | ) | 5,476 | 12 | 4,910 | ||||||||||||||
109,705 | (18 | ) | 133,143 | (8 | ) | 144,735 | ||||||||||||||
Total
net sales
|
$ | 260,092 | (8 | ) | $ | 284,125 | 2 | $ | 278,623 |
·
|
Domestic –
Our domestic training sales decreased $2.0 million, or two percent,
compared to fiscal 2007, primarily due to lower sales from our sales
performance group, public programs, and our book and audio
divisions. Decreased sales from these groups were partially
offset by increased sales from our combined geographical and vertical
market sales offices and by increased sales from specialized seminar
events. During fiscal 2008, sales through our direct sales
offices improved over the prior year as acceptance of our core product
offerings, which includes The Seven Habits of Highly
Effective People, Leadership: Great Leaders, Great Teams, Great Results,
and The 4
Disciplines of Execution, continued to
strengthen.
|
·
|
International –
International sales increased $1.4 million compared to the prior
year. Sales from our four remaining directly owned foreign
offices as well as from licensee royalty revenues increased $6.9 million,
or 14 percent, compared to the prior year as each of these units achieved
double-digit growth. Partially offsetting these increases
was the elimination of sales from our wholly owned subsidiary in Brazil
and our training operations located in Mexico. We sold these
operations to external licensees during fiscal 2007 and we now only
receive royalty revenue from their operations based upon gross
sales. The conversion of these operations to licensees had a
$5.4 million unfavorable impact on our international sales but improved
our income from these operations compared to the prior
year. The translation of foreign sales to United States dollars
had a $3.7 million favorable impact on our consolidated sales as foreign
currencies strengthened against the United States dollar during fiscal
2008.
|
·
|
Retail Stores – Prior to
the sale of the CSBU operations, our retail sales decreased compared to
the prior year primarily due to reduced traffic in our retail locations,
which was partially due to a significant increase in the number of
wholesale outlets that sold our products and competed directly against our
retail stores, reduced demand for technology and related products, and
fewer store locations, which had a $2.5 million impact on retail
sales. Our retail store traffic, or the number of consumers
entering our retail locations, declined by approximately 18 percent on a
comparable basis (for stores which were open during the comparable
periods) and resulted in decreased sales of “core” products (e.g.
planners, binders, totes, and accessories). Due to declining
demand for electronic handheld planning products, during late fiscal 2007
we decided to exit the low-margin
handheld
|
·
|
Consumer Direct – Sales
through our consumer direct channels (primarily the Internet and call
center) decreased primarily due to a decline in the number of customers
visiting our website and a decline in the number of orders that are being
processed through the call center. Visits to our website
decreased from the prior year by approximately 12
percent. Declining consumer orders through the call center
continues a long-term trend and decreased by approximately 14 percent
compared to the prior year, which we believe was partially the result
of a transition of customers to our other product
channels.
|
·
|
Wholesale – Sales
through our wholesale channel, which included sales to office superstores
and other retail chains, decreased primarily due to the transition of a
portion of our wholesale business to a new distributor and the timing of
sales as the new distributor built
inventories.
|
·
|
CSBU International –
This channel includes the product sales of our directly owned
international offices in Canada, the United Kingdom, Mexico, and
Australia. Product sales were flat through these channels
compared to the prior year before the sale of
CSBU.
|
·
|
Other CSBU – Other CSBU
sales consist primarily of domestic printing and publishing sales and
building sublease revenues. The decline in other CSBU sales was
primarily due to decreased external printing sales, which was partially
offset by a $0.3 million increase in sublease
revenue.
|
·
|
Domestic –
Our domestic training, consulting, and related sales reported
through the OSBU continued to show improvement over the prior year and
increased by $8.4 million, or 10 percent. The improvement was
primarily due to the December 2006 launch of our new course, Leadership: Great
Leaders, Great Teams, Great Results and increased sales in our
individual effectiveness product lines, which contain our signature course
based upon principles found in The 7 Habits of Highly
Effective People. Our execution product lines, which are
primarily based on our 4
Disciplines of Execution curriculum and our Helping Clients Succeed
sales training program also showed year-over-year improvements and
contributed to improved training and consulting service
sales.
|
·
|
International –
International sales increased $8.7 million compared to fiscal
2006. Sales from our wholly-owned foreign offices and royalty
revenues from third-party licensees all grew compared to fiscal
2006. The translation of foreign sales to the United States
dollar also helped to improve reported sales and had a $0.6 million
favorable impact on our consolidated sales as certain foreign currencies
strengthened against the United States dollar during the year ended August
31, 2007. Our wholly-owned subsidiary in Japan generated the
largest year-over-year improvement, and grew its revenues 12 percent,
including the effects of foreign exchange, compared to the prior
year.
|
·
|
Retail Sales – The $7.8
million decline in retail sales was primarily due to the impact of closed
stores, reduced sales of technology and specialty products, and decreased
store traffic. Based upon various analyses, we closed certain
retail store locations in late fiscal 2006 and during fiscal 2007, which
had a $4.6 million unfavorable impact on our overall retail sales in
fiscal 2007. Due to declining demand for electronic handheld
planning products, we decided to exit the low margin handheld device and
accessories business, which reduced retail sales by $2.1 million compared
to the prior year. For the remaining retail stores, the decline
in sales was primarily due to reduced traffic, or consumers entering our
retail locations. Our retail store traffic declined by
approximately 12 percent from fiscal 2006 and resulted in decreased sales
of “core” products (e.g. planners, binders, totes, and accessories)
compared to the prior year. These factors combined to produce a
six percent decline in year-over-year comparable store sales in fiscal
2007 as compared to fiscal 2006. At August 31, 2007, we were
operating 87 domestic retail locations compared to 89 locations at August
31, 2006.
|
·
|
Consumer Direct – Sales
through our consumer direct channels decreased $4.2 million, primarily due
to a decline in the conversion rate of customers visiting our website,
decreased consumer traffic through the call center channel, and decreased
public seminar sales. Although visits to
our
|
·
|
Wholesale Sales – Sales
through our wholesale channel, which includes sales to office superstores
and other retail chains, were up approximately one percent over the prior
year. The increase was primarily due to an increase in the
number of retail outlets serviced through our wholesale channel and
increased demand for our products in those
locations.
|
·
|
CSBU International –
This channel includes the product sales of our directly owned
international offices in Canada, the United Kingdom, Mexico, and
Australia. Sales performance through these channels decreased
slightly compared with the prior year. We separated the product
sales operations from the OSBU in these international locations during
fiscal 2007 to utilize existing product sales and marketing expertise in
an effort to improve overall product sales performance at these
offices.
|
·
|
Other CSBU Sales – Other
CSBU sales primarily consist of domestic printing and publishing sales and
building sublease revenues. The increase in other CSBU sales
was primarily due to improved external domestic printing sales, which
increased $0.4 million compared to the prior year. The increase
was due to additional printing contracts obtained during fiscal
2007. In fiscal 2007, we reported $2.1 million of sublease
revenues as a component of product sales in our consolidated financial
statements compared to $1.9 million in the prior
year.
|
YEAR
ENDED AUGUST 31, 2008
|
||||||||||||||||
December
1
|
March
1
|
May
31
|
August
31
|
|||||||||||||
In
thousands, except per share amounts
|
||||||||||||||||
Net
sales
|
$ | 73,574 | $ | 75,127 | $ | 59,061 | $ | 52,330 | ||||||||
Gross
profit
|
46,127 | 46,870 | 35,939 | 32,853 | ||||||||||||
Selling,
general, and administrative expense
|
38,771 | 37,652 | 34,210 | 30,685 | ||||||||||||
Gain
on sale of consumer solutions business unit
|
- | - | - | (9,131 | ) | |||||||||||
Restructuring
costs
|
- | - | - | 2,064 | ||||||||||||
Impairment
of assets
|
- | - | - | 1,483 | ||||||||||||
Depreciation
|
1,380 | 1,532 | 1,679 | 1,101 | ||||||||||||
Amortization
|
899 | 901 | 902 | 901 | ||||||||||||
Income
(loss) from operations
|
5,077 | 6,785 | (852 | ) | 5,750 | |||||||||||
Income
(loss) before income taxes
|
4,176 | 6,039 | (1,522 | ) | 5,141 | |||||||||||
Net
income (loss)
|
2,059 | 3,082 | (1,511 | ) | 2,218 | |||||||||||
Earnings
(loss) per share available to common shareholders:
|
||||||||||||||||
Basic
|
$ | .11 | $ | .16 | $ | (.09 | ) | $ | .11 | |||||||
Diluted
|
$ | .10 | $ | .16 | $ | (.09 | ) | $ | .11 | |||||||
YEAR
ENDED AUGUST 31, 2007
|
||||||||||||||||
December
2
|
March
3
|
June
2
|
August
31
|
|||||||||||||
In
thousands, except per share amounts
|
||||||||||||||||
Net
sales
|
$ | 75,530 | $ | 76,876 | $ | 64,509 | $ | 67,210 | ||||||||
Gross
profit
|
46,573 | 47,364 | 39,811 | 41,330 | ||||||||||||
Selling,
general, and administrative expense
|
40,849 | 36,666 | 35,287 | 36,418 | ||||||||||||
Gain
on sale of manufacturing facility
|
- | (1,227 | ) | - | - | |||||||||||
Depreciation
|
1,212 | 1,541 | 1,235 | 1,406 | ||||||||||||
Amortization
|
902 | 900 | 906 | 899 | ||||||||||||
Income
from operations
|
3,610 | 9,484 | 2,383 | 2,607 | ||||||||||||
Income
before income taxes
|
3,150 | 9,166 | 1,640 | 1,709 | ||||||||||||
Net
income
|
1,416 | 4,714 | 887 | 612 | ||||||||||||
Preferred
stock dividends
|
(934 | ) | (934 | ) | (348 | ) | - | |||||||||
Income
available to common shareholders
|
482 | 3,780 | 539 | 612 | ||||||||||||
Earnings
per share available to common shareholders:
|
||||||||||||||||
Basic
|
$ | .02 | $ | .19 | $ | .03 | $ | .03 | ||||||||
Diluted
|
$ | .02 | $ | .19 | $ | .03 | $ | .03 |
YEAR
ENDED AUGUST 31,
|
2008
|
2007
|
2006
|
|||||||||
Total
cash provided by (used for):
|
||||||||||||
Operating
activities
|
$ | 7,828 | $ | 13,358 | $ | 17,009 | ||||||
Investing
activities
|
18,520 | (11,480 | ) | (8,267 | ) | |||||||
Financing
activities
|
(16,159 | ) | (26,376 | ) | (29,903 | ) | ||||||
Effect
of exchange rates on cash
|
(411 | ) | 37 | 58 | ||||||||
Increase
(decrease) in cash and cash equivalents
|
$ | 9,778 | $ | (24,461 | ) | $ | (21,103 | ) |
Fiscal
|
Fiscal
|
Fiscal
|
Fiscal
|
Fiscal
|
||||||||||||||||||||||||
Contractual
Obligations
|
2009
|
2010
|
2011
|
2012
|
2013
|
Thereafter
|
Total
|
|||||||||||||||||||||
Required
lease payments on corporate campus
|
$ | 3,045 | $ | 3,055 | $ | 3,116 | $ | 3,178 | $ | 3,242 | $ | 43,537 | $ | 59,173 | ||||||||||||||
Minimum
required payments to EDS for outsourcing services(1)
|
4,138 | 4,138 | 4,138 | 4,138 | 4,138 | 11,246 | 31,936 | |||||||||||||||||||||
Minimum
operating lease payments(2)
|
1,671 | 1,620 | 1,608 | 1,517 | 1,178 | 3,427 | 11,021 | |||||||||||||||||||||
Tender
offer obligation(3)
|
28,222 | - | - | - | - | - | 28,222 | |||||||||||||||||||||
Long-term
mortgage payments(4)
|
136 | 131 | 126 | 121 | 116 | 154 | 784 | |||||||||||||||||||||
Purchase
obligations
|
4,564 | - | - | - | - | - | 4,564 | |||||||||||||||||||||
Total
expected contractual
obligation
payments
|
$ | 41,776 | $ | 8,944 | $ | 8,988 | $ | 8,954 | $ | 8,674 | $ | 58,364 | $ | 135,700 |
(1)
|
Our
obligation for outsourcing services contains an annual escalation based
upon changes in the Employment Cost Index, the impact of which was not
estimated in the above table. We are also contractually allowed
to collect amounts from Franklin Covey Products that reduce the amounts
shown in the table above.
|
(2)
|
The
operating agreement with Franklin Covey Products provides for
reimbursement of a portion of the warehouse leasing costs, the impact of
which is not included in the lease obligations in the table
above.
|
(3)
|
We
completed a tender offer for shares of our common stock near the end of
the fourth quarter of fiscal 2008 and recorded a $28.2 million current
liability for the shares acquired. We paid for the shares
acquired through the tender offer subsequent to August 31,
2008.
|
(4)
|
Our
long-term variable-rate mortgage obligation includes interest payments at
4.8 percent, which was the applicable interest rate at August 31,
2008.
|
·
|
Training and Consulting
Services – We provide training and consulting services to both
organizations and individuals in leadership, productivity, strategic
execution, goal alignment, sales force performance, and communication
effectiveness skills. These training programs and services are
primarily sold through our OSBU
channels.
|
·
|
Products – We sold
planners, binders, planner accessories, handheld electronic devices, and
other related products that were primarily sold through our CSBU channels
prior to the fourth quarter of fiscal
2008.
|
YEAR
ENDED
AUGUST
31,
|
2008
|
2007
|
2006
|
|||||||||
Losses
on foreign exchange
contracts
|
$ | (487 | ) | $ | (249 | ) | $ | (346 | ) | |||
Gains
on foreign exchange
contracts
|
36 | 119 | 415 | |||||||||
Net
gain (loss) on foreign
exchange contracts
|
$ | (451 | ) | $ | (130 | ) | $ | 69 |
Contract
Description
|
Notional
Amount in Foreign Currency
|
Notional
Amount in U.S. Dollars
|
||||||
British
Pounds
|
450 | $ | 809 | |||||
Japanese
Yen
|
27,000 | 254 | ||||||
Australian
Dollars
|
125 | 117 |
AUGUST
31,
|
2008
|
2007
|
||||||
In
thousands, except per share data
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 15,904 | $ | 6,126 | ||||
Accounts
receivable, less allowance for doubtful accounts of $1,066 and
$821
|
28,019 | 27,239 | ||||||
Inventories
|
8,742 | 24,033 | ||||||
Deferred
income taxes
|
2,472 | 3,635 | ||||||
Receivable
from equity method investee
|
7,672 | - | ||||||
Prepaid
expenses and other assets
|
5,102 | 9,070 | ||||||
Total
current assets
|
67,911 | 70,103 | ||||||
Property
and equipment, net
|
26,928 | 36,063 | ||||||
Intangible
assets, net
|
72,320 | 75,923 | ||||||
Other
long-term assets
|
11,768 | 14,542 | ||||||
$ | 178,927 | $ | 196,631 | |||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Current
portion of long-term debt and financing obligation
|
$ | 670 | $ | 629 | ||||
Line
of credit
|
- | 15,999 | ||||||
Accounts
payable
|
8,713 | 12,190 | ||||||
Income
taxes payable
|
1,057 | 2,244 | ||||||
Tender
offer obligation
|
28,222 | - | ||||||
Accrued
liabilities
|
23,419 | 30,101 | ||||||
Total
current liabilities
|
62,081 | 61,163 | ||||||
Long-term
debt and financing obligation, less current portion
|
32,291 | 32,965 | ||||||
Other
liabilities
|
1,229 | 1,019 | ||||||
Deferred
income tax liabilities
|
4,572 | 565 | ||||||
Total
liabilities
|
100,173 | 95,712 | ||||||
Commitments
and contingencies (Notes 1, 8, 9, and 12)
|
||||||||
Shareholders’
equity:
|
||||||||
Common
stock, $.05 par value; 40,000 shares authorized, 27,056 shares
issued
|
1,353 | 1,353 | ||||||
Additional
paid-in capital
|
184,313 | 185,890 | ||||||
Common
stock warrants
|
7,597 | 7,602 | ||||||
Retained
earnings
|
25,337 | 19,489 | ||||||
Accumulated
other comprehensive income
|
1,058 | 970 | ||||||
Treasury
stock at cost, 10,203 shares and 7,296 shares
|
(140,904 | ) | (114,385 | ) | ||||
Total
shareholders’ equity
|
78,754 | 100,919 | ||||||
$ | 178,927 | $ | 196,631 |
YEAR
ENDED AUGUST 31,
|
2008
|
2007
|
2006
|
|||||||||
In
thousands, except per share amounts
|
||||||||||||
Net
sales:
|
||||||||||||
Training and consulting
services
|
$ | 138,112 | $ | 137,708 | $ | 122,418 | ||||||
Products
|
121,980 | 146,417 | 156,205 | |||||||||
260,092 | 284,125 | 278,623 | ||||||||||
Cost
of sales:
|
||||||||||||
Training and consulting
services
|
44,738 | 43,132 | 40,722 | |||||||||
Products
|
53,565 | 65,915 | 69,940 | |||||||||
98,303 | 109,047 | 110,662 | ||||||||||
Gross
profit
|
161,789 | 175,078 | 167,961 | |||||||||
Selling,
general, and administrative
|
141,318 | 149,220 | 144,747 | |||||||||
Gain
on sale of consumer solutions business unit
|
(9,131 | ) | - | - | ||||||||
Gain
on sale of manufacturing facility
|
- | (1,227 | ) | - | ||||||||
Restructuring
costs
|
2,064 | - | - | |||||||||
Impairment
of assets
|
1,483 | - | - | |||||||||
Depreciation
|
5,692 | 5,394 | 5,355 | |||||||||
Amortization
|
3,603 | 3,607 | 3,813 | |||||||||
Income from
operations
|
16,760 | 18,084 | 14,046 | |||||||||
Interest
income
|
157 | 717 | 1,334 | |||||||||
Interest
expense
|
(3,083 | ) | (3,136 | ) | (2,622 | ) | ||||||
Recovery
from legal settlement
|
- | - | 873 | |||||||||
Income before income
taxes
|
13,834 | 15,665 | 13,631 | |||||||||
Income
tax benefit (provision)
|
(7,986 | ) | (8,036 | ) | 14,942 | |||||||
Net income
|
5,848 | 7,629 | 28,573 | |||||||||
Preferred
stock dividends
|
- | (2,215 | ) | (4,385 | ) | |||||||
Net income available to common
shareholders
|
$ | 5,848 | $ | 5,414 | $ | 24,188 | ||||||
Net
income available to common shareholders per share:
|
||||||||||||
Basic
|
$ | .30 | $ | .28 | $ | 1.20 | ||||||
Diluted
|
$ | .29 | $ | .27 | $ | 1.18 | ||||||
Weighted
average number of common shares:
|
||||||||||||
Basic
|
19,577 | 19,593 | 20,134 | |||||||||
Diluted
|
19,922 | 19,888 | 20,516 | |||||||||
COMPREHENSIVE
INCOME
|
||||||||||||
Net
income
|
$ | 5,848 | $ | 7,629 | $ | 28,573 | ||||||
Foreign
currency translation adjustments
|
88 | 458 | 97 | |||||||||
Comprehensive
income
|
$ | 5,936 | $ | 8,087 | $ | 28,670 |
YEAR
ENDED AUGUST 31,
|
2008
|
2007
|
2006
|
|||||||||
In
thousands
|
||||||||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||||||
Net income
|
$ | 5,848 | $ | 7,629 | $ | 28,573 | ||||||
Adjustments to reconcile net
income to net cash provided by operating activities:
|
||||||||||||
Depreciation and
amortization
|
9,533 | 10,030 | 10,289 | |||||||||
Gain on sale of consumer
solutions business unit assets
|
(9,131 | ) | - | - | ||||||||
Deferred income
taxes
|
4,152 | 5,274 | (15,435 | ) | ||||||||
Share-based compensation cost
(benefit)
|
(259 | ) | 1,394 | 843 | ||||||||
Loss (gain) on disposals of
assets
|
460 | (1,247 | ) | - | ||||||||
Restructuring
charges
|
2,064 | - | - | |||||||||
Impairment of
assets
|
1,483 | - | - | |||||||||
Changes in assets and
liabilities:
|
||||||||||||
Increase in accounts receivable,
net
|
(7,204 | ) | (3,574 | ) | (1,919 | ) | ||||||
Decrease (increase) in
inventories
|
2,853 | (2,427 | ) | (845 | ) | |||||||
Increase in receivable from
investment in equity method investee
|
(7,672 | ) | - | - | ||||||||
Decrease in prepaid expenses and
other assets
|
7,109 | 514 | 1,458 | |||||||||
Decrease in accounts payable and
accrued liabilities
|
(1,512 | ) | (4,388 | ) | (3,697 | ) | ||||||
Increase (decrease) in income
taxes payable
|
255 | 304 | (2,081 | ) | ||||||||
Increase (decrease) in other
long-term liabilities
|
(151 | ) | (151 | ) | (177 | ) | ||||||
Net cash provided by operating
activities
|
7,828 | 13,358 | 17,009 | |||||||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||||||
Proceeds from the sale of
consumer solutions business unit assets, net
|
28,241 | - | - | |||||||||
Purchases of property and
equipment
|
(4,164 | ) | (9,138 | ) | (4,350 | ) | ||||||
Capitalized curriculum
development costs
|
(4,042 | ) | (5,088 | ) | (4,010 | ) | ||||||
Investment in equity method
investee
|
(2,755 | ) | - | - | ||||||||
Proceeds from disposal of
consolidated subsidiaries
|
1,180 | 150 | - | |||||||||
Proceeds from sales of property
and equipment, net
|
60 | 2,596 | 93 | |||||||||
Net cash provided by (used for)
investing activities
|
18,520 | (11,480 | ) | (8,267 | ) | |||||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||||||
Proceeds from line of credit
borrowing
|
69,708 | 50,951 | - | |||||||||
Payments on line of credit
borrowings
|
(85,707 | ) | (34,952 | ) | - | |||||||
Redemptions of Series A preferred
stock
|
- | (37,345 | ) | (20,000 | ) | |||||||
Change in restricted
cash
|
- | - | 699 | |||||||||
Principal payments on long-term
debt and financing obligation
|
(622 | ) | (605 | ) | (1,111 | ) | ||||||
Purchases of common stock for
treasury
|
- | (2,625 | ) | (5,167 | ) | |||||||
Proceeds from sales of common
stock from treasury
|
462 | 388 | 427 | |||||||||
Proceeds from management stock
loan payments
|
- | 27 | 134 | |||||||||
Payment of preferred stock
dividends
|
- | (2,215 | ) | (4,885 | ) | |||||||
Net cash used for financing
activities
|
(16,159 | ) | (26,376 | ) | (29,903 | ) | ||||||
Effect
of foreign currency exchange rates on cash and cash
equivalents
|
(411 | ) | 37 | 58 | ||||||||
Net
increase (decrease) in cash and cash equivalents
|
9,778 | (24,461 | ) | (21,103 | ) | |||||||
Cash
and cash equivalents at beginning of the year
|
6,126 | 30,587 | 51,690 | |||||||||
Cash
and cash equivalents at end of the year
|
$ | 15,904 | $ | 6,126 | $ | 30,587 | ||||||
Supplemental
disclosure of cash flow information:
|
||||||||||||
Cash paid for income
taxes
|
$ | 3,549 | $ | 2,370 | $ | 2,615 | ||||||
Cash paid for
interest
|
3,146 | 2,973 | 2,662 | |||||||||
Non-cash
investing and financing activities:
|
||||||||||||
Acquisition of treasury stock
from tender offer through liabilities
|
$ | 28,222 | $ | - | $ | - | ||||||
Accrued preferred stock
dividends
|
- | - | 934 | |||||||||
Promissory notes received from
sales of consolidated subsidiaries
|
- | 1,513 | - | |||||||||
Purchases of property and
equipment financed by accounts payable
|
314 | 895 | - |
Series
A Preferred Stock Shares
|
Series
A Preferred Stock Amount
|
Common
Stock Shares
|
Common
Stock Amount
|
Additional
Paid-In Capital
|
Common
Stock Warrants
|
Retained
Earnings (Accumulated Deficit)
|
Deferred
Compensa-tion
|
Accumulated
Other Comprehensive Income
|
Treasury
Stock Shares
|
Treasury
Stock Amount
|
||||||||||||||||||||||||||||||||||
In
thousands
|
||||||||||||||||||||||||||||||||||||||||||||
Balance
at August 31, 2005
|
2,294 | $ | 57,345 | 27,056 | $ | 1,353 | $ | 190,760 | $ | 7,611 | $ | (14,498 | ) | $ | (1,055 | ) | $ | 556 | (6,465 | ) | $ | (109,246 | ) | |||||||||||||||||||||
Preferred
stock dividends
|
(4,385 | ) | ||||||||||||||||||||||||||||||||||||||||||
Preferred
stock redemptions
|
(800 | ) | (20,000 | ) | ||||||||||||||||||||||||||||||||||||||||
Issuance
of common stock from treasury
|
(334 | ) | 69 | 743 | ||||||||||||||||||||||||||||||||||||||||
Purchase
of treasury shares
|
(690 | ) | (5,167 | ) | ||||||||||||||||||||||||||||||||||||||||
Unvested
share award
|
(458 | ) | 27 | 458 | ||||||||||||||||||||||||||||||||||||||||
Share-based
compensation
|
862 | |||||||||||||||||||||||||||||||||||||||||||
Reclassification
of deferred compensation upon adoption of SFAS 123R
|
(1,055 | ) | 1,055 | |||||||||||||||||||||||||||||||||||||||||
Receipt
of common stock as consideration for payment on management common stock
loans
|
301 | (24 | ) | (167 | ) | |||||||||||||||||||||||||||||||||||||||
Cumulative
translation adjustments
|
97 | |||||||||||||||||||||||||||||||||||||||||||
Net
income
|
28,573 | |||||||||||||||||||||||||||||||||||||||||||
Balance
at August 31, 2006
|
1,494 | $ | 37,345 | 27,056 | $ | 1,353 | $ | 185,691 | $ | 7,611 | $ | 14,075 | $ | - | $ | 653 | (7,083 | ) | $ | (113,379 | ) | |||||||||||||||||||||||
Preferred
stock dividends
|
(2,215 | ) | ||||||||||||||||||||||||||||||||||||||||||
Preferred
stock redemptions
|
(1,494 | ) | (37,345 | ) | ||||||||||||||||||||||||||||||||||||||||
Issuance
of common stock from treasury
|
(708 | ) | 100 | 1,096 | ||||||||||||||||||||||||||||||||||||||||
Purchase
of treasury shares
|
(345 | ) | (2,603 | ) | ||||||||||||||||||||||||||||||||||||||||
Unvested
share award
|
(501 | ) | 32 | 501 | ||||||||||||||||||||||||||||||||||||||||
Share-based
compensation
|
1,394 | |||||||||||||||||||||||||||||||||||||||||||
Payments
on management common stock loans
|
27 | |||||||||||||||||||||||||||||||||||||||||||
Cumulative
translation adjustments
|
458 | |||||||||||||||||||||||||||||||||||||||||||
Common
stock warrant activity
|
(13 | ) | (9 | ) | ||||||||||||||||||||||||||||||||||||||||
Sale
of Brazil subsidiary
|
(141 | ) | ||||||||||||||||||||||||||||||||||||||||||
Net
income
|
7,629 | |||||||||||||||||||||||||||||||||||||||||||
Balance
at August 31, 2007
|
- | $ | - | 27,056 | $ | 1,353 | $ | 185,890 | $ | 7,602 | $ | 19,489 | $ | - | $ | 970 | (7,296 | ) | $ | (114,385 | ) | |||||||||||||||||||||||
Issuance
of common stock from treasury
|
(746 | ) | 96 | 1,234 | ||||||||||||||||||||||||||||||||||||||||
Purchase
of treasury shares
|
(12 | ) | (103 | ) | ||||||||||||||||||||||||||||||||||||||||
Treasury
shares acquired through tender offer
|
(3,027 | ) | (28,222 | ) | ||||||||||||||||||||||||||||||||||||||||
Unvested
share award
|
(572 | ) | 36 | 572 | ||||||||||||||||||||||||||||||||||||||||
Share-based
compensation
|
(259 | ) | ||||||||||||||||||||||||||||||||||||||||||
Cumulative
translation adjustments
|
88 | |||||||||||||||||||||||||||||||||||||||||||
Common
stock warrant activity
|
(5 | ) | ||||||||||||||||||||||||||||||||||||||||||
Net
income
|
5,848 | |||||||||||||||||||||||||||||||||||||||||||
Balance
at August 31, 2008
|
- | $ | - | 27,056 | $ | 1,353 | $ | 184,313 | $ | 7,597 | $ | 25,337 | $ | - | $ | 1,058 | (10,203 | ) | $ | (140,904 | ) |
1.
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
AUGUST
31,
|
2008
|
2007
|
||||||
Finished
goods
|
$ | 8,329 | $ | 20,268 | ||||
Work
in process
|
- | 743 | ||||||
Raw
materials
|
413 | 3,022 | ||||||
$ | 8,742 | $ | 24,033 |
Description
|
Useful
Lives
|
Buildings
|
15-39
years
|
Machinery
and equipment
|
3-7
years
|
Computer
hardware and software
|
3
years
|
Furniture,
fixtures, and leasehold improvements
|
5-8
years
|
AUGUST
31,
|
2008
|
2007
|
||||||
Unearned
revenue
|
$ | 4,564 | $ | 4,709 | ||||
Outsourcing
contract costs payable
|
4,446 | 4,357 | ||||||
Accrued
compensation
|
4,152 | 6,807 | ||||||
Customer
credits
|
2,191 | 2,570 | ||||||
Restructuring
costs
|
2,055 | - | ||||||
Other
accrued liabilities
|
6,011 | 11,658 | ||||||
$ | 23,419 | $ | 30,101 |
Description
|
Accrued
Restructuring Costs
|
|||
Balance
at August 31, 2007
|
$ | - | ||
Restructuring
charges
|
2,064 | |||
Amounts
utilized – employee severance
|
(9 | ) | ||
Balance
at August 31, 2008
|
$ | 2,055 |
2.
|
SALE
OF THE CONSUMER SOLUTIONS BUSINESS
UNIT
|
Description
|
||||
Cash
and cash equivalents
|
$ | 38 | ||
Accounts
receivable, net
|
6,675 | |||
Inventories
|
12,665 | |||
Other
current assets
|
2,291 | |||
Property
and equipment, net
|
8,435 | |||
Other
assets
|
158 | |||
Total
assets sold
|
$ | 30,262 | ||
Accounts
payable
|
$ | 3,589 | ||
Accrued
liabilities
|
6,748 | |||
Total
liabilities sold
|
$ | 10,337 |
Balance
Sheet
|
||||
Total
assets
|
$ | 45,588 | ||
Total
liabilities
|
37,013 | |||
Income
Statement
|
||||
Sales
|
13,149 | |||
Net
loss
|
(1,437 | ) |
3.
|
PROPERTY
AND EQUIPMENT
|
AUGUST
31,
|
2008
|
2007
|
||||||
Land
and improvements
|
$ | 1,626 | $ | 1,639 | ||||
Buildings
|
34,573 | 34,536 | ||||||
Machinery
and equipment
|
2,969 | 29,026 | ||||||
Computer
hardware and software
|
20,010 | 45,623 | ||||||
Furniture,
fixtures, and leasehold improvements
|
9,640 | 32,579 | ||||||
68,818 | 143,403 | |||||||
Less
accumulated depreciation
|
(41,890 | ) | (107,340 | ) | ||||
$ | 26,928 | $ | 36,063 |
4.
|
INTANGIBLE
ASSETS
|
AUGUST
31, 2008
|
Gross
Carrying Amount
|
Accumulated
Amortization
|
Net
Carrying Amount
|
|||||||||
Definite-lived
intangible assets:
|
||||||||||||
License
rights
|
$ | 27,000 | $ | (9,292 | ) | $ | 17,708 | |||||
Curriculum
|
58,237 | (29,896 | ) | 28,341 | ||||||||
Customer
lists
|
14,684 | (11,413 | ) | 3,271 | ||||||||
Trade
names
|
377 | (377 | ) | - | ||||||||
100,298 | (50,978 | ) | 49,320 | |||||||||
Indefinite-lived
intangible asset:
|
||||||||||||
Covey
trade name
|
23,000 | - | 23,000 | |||||||||
$ | 123,298 | $ | (50,978 | ) | $ | 72,320 | ||||||
AUGUST
31, 2007
|
||||||||||||
Definite-lived
intangible assets:
|
||||||||||||
License
rights
|
$ | 27,000 | $ | (8,355 | ) | $ | 18,645 | |||||
Curriculum
|
58,230 | (28,361 | ) | 29,869 | ||||||||
Customer
lists
|
18,124 | (13,715 | ) | 4,409 | ||||||||
Trade
names
|
1,277 | (1,277 | ) | - | ||||||||
104,631 | (51,708 | ) | 52,923 | |||||||||
Indefinite-lived
intangible asset:
|
||||||||||||
Covey
trade name
|
23,000 | - | 23,000 | |||||||||
$ | 127,631 | $ | (51,708 | ) | $ | 75,923 |
Category
of Intangible Asset
|
Range
of Remaining Estimated Useful Lives
|
Weighted
Average Amortization Period
|
||
License
rights
|
18
years
|
30
years
|
||
Curriculum
|
11
to 18 years
|
26
years
|
||
Customer
lists
|
3
years
|
14
years
|
YEAR
ENDING
AUGUST
31,
|
||||
2009
|
$ | 3,601 | ||
2010
|
3,598 | |||
2011
|
3,456 | |||
2012
|
2,458 | |||
2013
|
2,449 |
6.
|
CURRENT
LINES OF CREDIT
|
7.
|
LONG-TERM
DEBT AND FINANCING OBLIGATION
|
AUGUST
31,
|
2008
|
2007
|
||||||
Financing
obligation on corporate campus, payable in monthly installments of $254
for the first five years with two percent annual increases thereafter
(imputed interest at 7.7%), through June 2025
|
$ | 32,283 | $ | 32,807 | ||||
Mortgage
payable in monthly installments of $9 CDN ($9 USD at August 31, 2008),
plus interest at the CDN prime rate (4.8% at August 31, 2008) through
January 2015, secured by real estate
|
678 | 787 | ||||||
32,961 | 33,594 | |||||||
Less
current portion
|
(670 | ) | (629 | ) | ||||
Total
long-term debt and financing obligation, less current
portion
|
$ | 32,291 | $ | 32,965 |
YEAR
ENDING
AUGUST
31,
|
||||
2009
|
$ | 670 | ||
2010
|
726 | |||
2011
|
839 | |||
2012
|
963 | |||
2013
|
1,097 | |||
Thereafter
|
28,666 | |||
$ | 32,961 |
YEAR
ENDING
AUGUST
31,
|
||||
2009
|
$ | 3,045 | ||
2010
|
3,055 | |||
2011
|
3,116 | |||
2012
|
3,178 | |||
2013
|
3,242 | |||
Thereafter
|
43,537 | |||
Total
future minimum financing obligation payments
|
59,173 | |||
Less
interest
|
(28,202 | ) | ||
Present
value of future minimum financing obligation payments
|
$ | 30,971 |
8.
|
OPERATING
LEASES
|
YEAR
ENDING
AUGUST
31,
|
Required
Minimum Lease Payments
|
Receivable
from Franklin Covey Products
|
Net
Required Minimum Lease Payments
|
|||||||||
2009
|
$ | 1,671 | $ | (390 | ) | $ | 1,281 | |||||
2010
|
1,620 | (404 | ) | 1,216 | ||||||||
2011
|
1,608 | (422 | ) | 1,186 | ||||||||
2012
|
1,517 | (475 | ) | 1,042 | ||||||||
2013
|
1,178 | (529 | ) | 649 | ||||||||
Thereafter
|
3,427 | (1,751 | ) | 1,676 | ||||||||
$ | 11,021 | $ | (3,971 | ) | $ | 7,050 |
YEAR
ENDING
AUGUST
31,
|
||||
2009
|
$ | 3,585 | ||
2010
|
2,897 | |||
2011
|
2,020 | |||
2012
|
2,085 | |||
2013
|
1,837 | |||
Thereafter
|
15,361 | |||
$ | 27,785 |
9.
|
COMMITMENTS
AND CONTINGENCIES
|
YEAR
ENDING
AUGUST
31,
|
Estimated
Gross Minimum and Fixed Charges
|
Receivable
from Franklin Covey Products
|
Estimated
Net Minimum and Fixed Charges
|
|||||||||
2009
|
$ | 4,138 | $ | (2,159 | ) | $ | 1,979 | |||||
2010
|
4,138 | (2,159 | ) | 1,979 | ||||||||
2011
|
4,138 | (2,159 | ) | 1,979 | ||||||||
2012
|
4,138 | (2,159 | ) | 1,979 | ||||||||
2013
|
4,138 | (2,159 | ) | 1,979 | ||||||||
Thereafter
|
11,246 | (6,114 | ) | 5,132 | ||||||||
$ | 31,936 | $ | (16,909 | ) | $ | 15,027 |
10.
|
SHAREHOLDERS’
EQUITY
|
Fiscal
Year
|
Shares
of Preferred Stock Redeemed
|
Carrying
Value of Redeemed Preferred Shares
|
||||||
2007
|
1,494 | $ | 37,345 | |||||
2006
|
800 | 20,000 | ||||||
2005
|
1,200 | 30,000 | ||||||
3,494 | $ | 87,345 |
Fiscal
Year
|
Shares
Issued to ESPP Participants
|
Shares
Issued from the Exercise of Stock Options and Warrants
|
Total
Treasury Shares Issued for Stock Options, Warrants and
ESPP
|
Cash
Proceeds Received from the Issuance of Treasury Shares
|
||||||||||||
2008
|
68,702 | 15,371 | 84,073 | $ | 462 | |||||||||||
2007
|
55,513 | 37,500 | 93,013 | 321 | ||||||||||||
2006
|
32,993 | 38,821 | 71,814 | 424 |
11.
|
MANAGEMENT
COMMON STOCK LOAN PROGRAM
|
·
|
On
the Breakeven Date, the Company has the right to purchase and redeem from
the loan participants the number of loan program shares necessary to
satisfy the participant’s obligation under the promissory
note. The redemption price for each such loan program share
will be equal to the closing price of the Company’s common stock on the
Breakeven Date.
|
·
|
If
the Company’s stock has not closed at or above the breakeven price on or
before March 30, 2013, the Company has the right to purchase and redeem
from the participants all of their loan program shares at the closing
price on that date as partial payment on the participant’s
obligation.
|
12.
|
FINANCIAL
INSTRUMENTS
|
YEAR
ENDED
AUGUST
31,
|
2008
|
2007
|
2006
|
|||||||||
Losses
on foreign exchange contracts
|
$ | (487 | ) | $ | (249 | ) | $ | (346 | ) | |||
Gains
on foreign exchange contracts
|
36 | 119 | 415 | |||||||||
Net
gain (loss) on foreign exchange contracts
|
$ | (451 | ) | $ | (130 | ) | $ | 69 |
Contract
Description
|
Notional
Amount in Foreign Currency
|
Notional
Amount in U.S. Dollars
|
||||||
British
Pounds
|
450 | $ | 809 | |||||
Japanese
Yen
|
27,000 | 254 | ||||||
Australian
Dollars
|
125 | 117 |
YEAR
ENDED
AUGUST
31,
|
2008
|
2007
|
2006
|
|||||||||
Performance
awards
|
$ | (1,338 | ) | $ | 835 | $ | 503 | |||||
Unvested
share awards
|
969 | 481 | 296 | |||||||||
Compensation
cost of the ESPP
|
79 | 75 | 37 | |||||||||
Stock
options
|
31 | 3 | 7 | |||||||||
$ | (259 | ) | $ | 1,394 | $ | 843 |
Number
of Shares
|
Weighted-Average
Grant-Date Fair Value Per Share
|
|||||||
Unvested
stock awards at August 31, 2007
|
410,670 | $ | 3.80 | |||||
Granted
|
36,000 | 7.50 | ||||||
Forfeited
|
- | - | ||||||
Vested
|
(352,170 | ) | 3.13 | |||||
Unvested
stock awards at August 31, 2008
|
94,500 | $ | 7.73 |
Number
of Stock Options
|
Weighted
Avg. Exercise Price Per Share
|
Weighted
Avg. Remaining Contractual Life (Years)
|
Aggregate
Intrinsic Value (thousands)
|
|||||||||||||
Outstanding
at August 31, 2007
|
2,058,300 | $ | 12.72 | |||||||||||||
Granted
|
- | |||||||||||||||
Exercised
|
(12,500 | ) | 1.70 | |||||||||||||
Forfeited
|
(18,000 | ) | 9.69 | |||||||||||||
Outstanding
at August 31, 2008
|
2,027,800 | $ | 12.82 | 1.8 | $ | 439 | ||||||||||
Options
vested and exercisable at August 31, 2008
|
2,027,800 | $ | 12.82 | 1.8 | $ | 439 |
Range
of
Exercise
Prices
|
Number
Outstanding at August 31, 2008
|
Weighted
Average Remaining Contractual Life (Years)
|
Weighted
Average Exercise Price
|
Options
Exercisable at August 31, 2008
|
Weighted
Average Exercise Price
|
|||||||||||||||||
$ | 2.78 – $8.19 | 226,300 |
1.6
|
$ | 7.01 | 226,300 | $ | 7.01 | ||||||||||||||
$ | 9.69 – $9.69 | 194,500 | 0.7 | 9.69 | 194,500 | 9.69 | ||||||||||||||||
$ | 14.00 – $14.00 | 1,602,000 | 2.0 | 14.00 | 1,602,000 | 14.00 | ||||||||||||||||
$ | 17.69 – $17.69 | 5,000 | 0.3 | 17.69 | 5,000 | 17.69 | ||||||||||||||||
2,027,800 | 2,027,800 |
Description
|
Brazil
|
Mexico
|
Total
|
|||||||||
Cash
|
$ | 95 | $ | - | $ | 95 | ||||||
Accounts
receivable, net
|
374 | 210 | 584 | |||||||||
Inventories
|
155 | 134 | 289 | |||||||||
Other
current assets
|
220 | 28 | 248 | |||||||||
Property
and equipment, net
|
365 | 43 | 408 | |||||||||
Other
assets
|
51 | 375 | 426 | |||||||||
Total
assets sold
|
$ | 1,260 | $ | 790 | $ | 2,050 | ||||||
Accounts
payable
|
$ | 127 | $ | - | $ | 127 | ||||||
Accrued
liabilities
|
260 | - | 260 | |||||||||
Total
liabilities sold
|
$ | 387 | $ | - | $ | 387 |
15.
|
LEGAL
SETTLEMENT
|
16.
|
EMPLOYEE
BENEFIT PLANS
|
17.
|
INCOME
TAXES
|
YEAR
ENDED
AUGUST
31,
|
2008
|
2007
|
2006
|
|||||||||
Current:
|
||||||||||||
Federal
|
$ | (39 | ) | $ | (350 | ) | $ | 1,433 | ||||
State
|
(248 | ) | (135 | ) | (23 | ) | ||||||
Foreign
|
(3,346 | ) | (2,318 | ) | (1,903 | ) | ||||||
(3,633 | ) | (2,803 | ) | (493 | ) | |||||||
Deferred:
|
||||||||||||
Federal
|
$ | (4,276 | ) | $ | (4,880 | ) | $ | (4,380 | ) | |||
State
|
(205 | ) | (433 | ) | (376 | ) | ||||||
Foreign
|
12 | 49 | (132 | ) | ||||||||
Change
in valuationallowance
|
116 | 31 | 20,323 | |||||||||
(4,353 | ) | (5,223 | ) | 15,435 | ||||||||
$ | (7,986 | ) | $ | (8,036 | ) | $ | 14,942 |
YEAR
ENDED
AUGUST
31,
|
2008
|
2007
|
2006
|
|||||||||
United
States
|
$ | 8,857 | $ | 11,914 | $ | 10,881 | ||||||
Foreign
|
4,977 | 3,751 | 2,750 | |||||||||
$ | 13,834 | $ | 15,665 | $ | 13,631 |
YEAR
ENDED
AUGUST
31,
|
2008
|
2007
|
2006
|
|||||||||
Federal
statutory income tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State
income taxes, net of federal effect
|
3.3 | 3.6 | 2.9 | |||||||||
Deferred
tax valuation allowance
|
- | - | (149.1 | ) | ||||||||
Foreign
jurisdictions tax differential
|
3.8 | 1.6 | 2.2 | |||||||||
Tax
differential on income subject to both U.S. and foreign
taxes
|
8.0 | 4.2 | 1.5 | |||||||||
Uncertain
tax positions
|
(1.5 | ) | (0.9 | ) | (9.4 | ) | ||||||
Tax
on management stock loan interest
|
5.0 | 5.0 | 4.5 | |||||||||
Non-deductible
executive compensation
|
2.1 | - | 0.6 | |||||||||
Other
|
2.0 | 2.8 | 2.2 | |||||||||
57.7 | % | 51.3 | % | (109.6 | )% |
YEAR
ENDED
AUGUST
31,
|
2008
|
2007
|
||||||
Deferred
income tax assets:
|
||||||||
Sale
and financing of corporate headquarters
|
$ | 11,912 | $ | 12,078 | ||||
Net
operating loss carryforward
|
7,815 | 9,818 | ||||||
Investment
in Franklin Covey Products
|
2,986 | - | ||||||
Foreign
income tax credit carryforward
|
2,159 | 2,246 | ||||||
Impairment
of investment in Franklin Covey Coaching, LLC
|
1,701 | 2,249 | ||||||
Bonus
and other accruals
|
1,135 | 1,432 | ||||||
Alternative
minimum tax carryforward
|
881 | 863 | ||||||
Inventory
and bad debt reserves
|
832 | 1,515 | ||||||
Deferred
compensation
|
503 | 912 | ||||||
Sales
returns and contingencies
|
414 | 468 | ||||||
Other
|
559 | 810 | ||||||
Total
deferred income tax assets
|
30,897 | 32,391 | ||||||
Less:
valuation allowance
|
(2,475 | ) | (2,591 | ) | ||||
Net
deferred income tax assets
|
28,422 | 29,800 | ||||||
Deferred
income tax liabilities:
|
||||||||
Intangibles
step-ups – definite lived
|
(11,863 | ) | (12,821 | ) | ||||
Intangibles
step-ups – indefinite lived
|
(8,647 | ) | (8,633 | ) | ||||
Property
and equipment depreciation
|
(7,294 | ) | (3,574 | ) | ||||
Intangible
asset impairment and amortization
|
(2,018 | ) | (893 | ) | ||||
Unremitted
earnings of foreign subsidiaries
|
(586 | ) | (630 | ) | ||||
Other
|
(85 | ) | (78 | ) | ||||
Total
deferred income tax liabilities
|
(30,493 | ) | (26,629 | ) | ||||
Net
deferred income taxes
|
$ | (2,071 | ) | $ | 3,171 |
YEAR
ENDED
AUGUST
31,
|
2008
|
2007
|
||||||
Current
assets
|
$ | 2,472 | $ | 3,635 | ||||
Long-term
assets
|
29 | 101 | ||||||
Long-term
liabilities
|
(4,572 | ) | (565 | ) | ||||
Net
deferred income tax asset (liability)
|
$ | (2,071 | ) | $ | 3,171 |
YEAR
ENDED
AUGUST
31,
|
2008
|
2007
|
2006
|
|||||||||
Domestic
pre-tax book income
|
$ | 8,857 | $ | 11,914 | $ | 10,881 | ||||||
Deferred
taxable loss on sale of assets to Franklin Covey Products
|
5,203 | - | - | |||||||||
Deferred
gain for book purposes on sale of assets to Franklin Covey
Products
|
2,755 | - | - | |||||||||
Interest
on management common stock loans
|
1,968 | 2,243 | 1,771 | |||||||||
Property
and equipment depreciation and dispositions
|
(10,459 | ) | 1,170 | (3,114 | ) | |||||||
Amortization/write-off
of intangible assets
|
(2,028 | ) | (2,814 | ) | (1,944 | ) | ||||||
Changes
in accrued liabilities
|
(2,373 | ) | (1,217 | ) | (4,096 | ) | ||||||
Share-based
compensation
|
(1,144 | ) | 933 | 599 | ||||||||
Other
book versus tax differences
|
(541 | ) | (468 | ) | (1,297 | ) | ||||||
$ | 2,238 | $ | 11,761 | $ | 2,800 |
Description
|
||||
Balance
at September 1, 2007
|
$ | 4,349 | ||
Additions
based on tax positions related to fiscal 2008
|
267 | |||
Additions
for tax positions in prior years
|
31 | |||
Reductions
for tax positions of prior years resulting from the lapse of applicable
statute of limitations
|
(292 | ) | ||
Other
reductions for tax positions of prior years
|
(123 | ) | ||
Balance
at August 31, 2008
|
$ | 4,232 |
2001-2008
|
Canada
|
2003-2008
|
Japan,
United Kingdom
|
2004-2008
|
United
States – state and local income tax
|
2005-2008
|
United
States – federal income tax
|
18.
|
EARNINGS
PER SHARE
|
YEAR
ENDED
AUGUST
31,
|
2008
|
2007
|
2006
|
|||||||||
Net
income
|
$ | 5,848 | $ | 7,629 | $ | 28,573 | ||||||
Preferred
stock dividends
|
- | (2,215 | ) | (4,385 | ) | |||||||
Net
income available to common shareholders
|
$ | 5,848 | $ | 5,414 | $ | 24,188 | ||||||
Weighted
average common shares outstanding – Basic
|
19,577 | 19,593 | 20,134 | |||||||||
Effect
of dilutive securities:
|
||||||||||||
Stock
options
|
10 | 29 | 52 | |||||||||
Unvested
stock awards
|
213 | 266 | 281 | |||||||||
Common
stock warrants(1)
|
122 | - | 49 | |||||||||
Weighted
average common shares outstanding – Diluted
|
19,922 | 19,888 | 20,516 | |||||||||
Basic
EPS
|
$ | .30 | $ | .28 | $ | 1.20 | ||||||
Diluted
EPS
|
$ | .29 | $ | .27 | $ | 1.18 |
|
(1)
|
For
the fiscal year ended August 31, 2007, the conversion of 6.2 million
common stock warrants is not assumed because such conversion would be
anti-dilutive.
|
19.
|
SEGMENT
INFORMATION
|
(in
thousands)
|
||||||||||||||||||||||||||||
Fiscal
Year Ended
August
31, 2008
|
Sales
to External Customers
|
Gross
Profit
|
EBITDA
|
Depreciation
|
Amortization
|
Segment
Assets
|
Capital
Expenditures
|
|||||||||||||||||||||
Organizational
Solutions Business Unit:
|
||||||||||||||||||||||||||||
Domestic
|
$ | 91,287 | $ | 56,684 | $ | 259 | $ | 1,364 | $ | 3,596 | $ | 80,916 | $ | 4,782 | ||||||||||||||
International
|
59,100 | 42,517 | 16,892 | 754 | 7 | 21,540 | 535 | |||||||||||||||||||||
Total
OSBU
|
150,387 | 99,201 | 17,151 | 2,118 | 3,603 | 102,456 | 5,317 | |||||||||||||||||||||
Consumer
Solutions Business Unit:
|
||||||||||||||||||||||||||||
Retail
|
42,167 | 25,474 | 2,849 | 697 | - | - | 263 | |||||||||||||||||||||
Consumer
direct
|
38,662 | 22,657 | 14,667 | 233 | - | - | 110 | |||||||||||||||||||||
Wholesale
|
16,970 | 9,266 | 8,788 | - | - | - | - | |||||||||||||||||||||
CSBU
International
|
7,295 | 3,837 | 1,279 | 40 | - | - | - | |||||||||||||||||||||
Other
CSBU
|
4,611 | 1,354 | (18,943 | ) | 1,188 | - | - | 912 | ||||||||||||||||||||
Total
CSBU
|
109,705 | 62,588 | 8,640 | 2,158 | - | - | 1,285 | |||||||||||||||||||||
Total
operating segments
|
260,092 | 161,789 | 25,791 | 4,276 | 3,603 | 102,456 | 6,602 | |||||||||||||||||||||
Corporate
and eliminations
|
- | - | (8,867 | ) | 1,416 | - | 76,471 | 401 | ||||||||||||||||||||
Consolidated
|
$ | 260,092 | $ | 161,789 | $ | 16,924 | $ | 5,692 | $ | 3,603 | $ | 178,927 | $ | 7,003 | ||||||||||||||
Fiscal
Year Ended
August
31, 2007
|
||||||||||||||||||||||||||||
Organizational
Solutions Business Unit:
|
||||||||||||||||||||||||||||
Domestic
|
$ | 93,308 | $ | 60,337 | $ | 10,161 | $ | 668 | $ | 3,599 | $ | 81,526 | $ | 6,166 | ||||||||||||||
International
|
57,674 | 39,566 | 13,280 | 839 | 8 | 22,588 | 655 | |||||||||||||||||||||
Total
OSBU
|
150,982 | 99,903 | 23,441 | 1,507 | 3,607 | 104,114 | 6,821 | |||||||||||||||||||||
Consumer
Solutions Business Unit:
|
||||||||||||||||||||||||||||
Retail
|
54,316 | 31,932 | 4,666 | 735 | - | 8,607 | 1,761 | |||||||||||||||||||||
Consumer
direct
|
48,018 | 27,829 | 18,509 | 222 | - | 620 | 358 | |||||||||||||||||||||
Wholesale
|
17,991 | 10,087 | 9,475 | - | - | - | - | |||||||||||||||||||||
CSBU
International
|
7,342 | 4,373 | 894 | - | - | - | - | |||||||||||||||||||||
Other
CSBU
|
5,476 | 954 | (22,283 | ) | 1,963 | - | 9,052 | 5,503 | ||||||||||||||||||||
Total
CSBU
|
133,143 | 75,175 | 11,261 | 2,920 | - | 18,279 | 7,622 | |||||||||||||||||||||
Total
operating segments
|
284,125 | 175,078 | 34,702 | 4,427 | 3,607 | 122,393 | 14,443 | |||||||||||||||||||||
Corporate
and eliminations
|
- | - | (8,844 | ) | 967 | - | 74,238 | 678 | ||||||||||||||||||||
Consolidated
|
$ | 284,125 | $ | 175,078 | $ | 25,858 | $ | 5,394 | $ | 3,607 | $ | 196,631 | $ | 15,121 | ||||||||||||||
Fiscal
Year Ended
August
31, 2006
|
||||||||||||||||||||||||||||
Organizational
Solutions Business Unit:
|
||||||||||||||||||||||||||||
Domestic
|
$ | 84,904 | $ | 54,479 | $ | 7,828 | $ | 376 | $ | 3,747 | $ | 83,292 | $ | 4,614 | ||||||||||||||
International
|
48,984 | 32,074 | 9,337 | 1,197 | 9 | 21,860 | 701 | |||||||||||||||||||||
Total
OSBU
|
133,888 | 86,553 | 17,165 | 1,573 | 3,756 | 105,152 | 5,315 | |||||||||||||||||||||
Consumer
Solutions Business Unit:
|
||||||||||||||||||||||||||||
Retail
|
62,156 | 36,059 | 4,953 | 1,270 | - | 6,616 | 855 | |||||||||||||||||||||
Consumer
direct
|
52,171 | 30,462 | 21,308 | 48 | - | 538 | 517 | |||||||||||||||||||||
Wholesale
|
17,782 | 8,820 | 8,240 | - | - | - | - | |||||||||||||||||||||
CSBU
International
|
7,716 | 4,682 | 1,131 | - | - | - | - | |||||||||||||||||||||
Other
CSBU
|
4,910 | 1,385 | (22,871 | ) | 1,850 | 57 | 6,107 | 1,520 | ||||||||||||||||||||
Total
CSBU
|
144,735 | 81,408 | 12,761 | 3,168 | 57 | 13,261 | 2,892 | |||||||||||||||||||||
Total
operating segments
|
278,623 | 167,961 | 29,926 | 4,741 | 3,813 | 118,413 | 8,207 | |||||||||||||||||||||
Corporate
and eliminations
|
- | - | (6,712 | ) | 614 | - | 98,146 | 153 | ||||||||||||||||||||
Consolidated
|
$ | 278,623 | $ | 167,961 | $ | 23,214 | $ | 5,355 | $ | 3,813 | $ | 216,559 | $ | 8,360 |
YEAR
ENDED
AUGUST
31,
|
2008
|
2007
|
2006
|
|||||||||
Reportable
segment EBITDA
|
$ | 25,791 | $ | 34,702 | $ | 29,926 | ||||||
Corporate
expenses
|
(8,867 | ) | (8,844 | ) | (6,712 | ) | ||||||
Consolidated
EBITDA
|
16,924 | 25,858 | 23,214 | |||||||||
Gain
on sale of CSBU assets
|
9,131 | - | - | |||||||||
Gain
on sale of manufacturing facility
|
- | 1,227 | - | |||||||||
Depreciation
|
(5,692 | ) | (5,394 | ) | (5,355 | ) | ||||||
Amortization
|
(3,603 | ) | (3,607 | ) | (3,813 | ) | ||||||
Consolidated
income from operations
|
16,760 | 18,084 | 14,046 | |||||||||
Interest
income
|
157 | 717 | 1,334 | |||||||||
Interest
expense
|
(3,083 | ) | (3,136 | ) | (2,622 | ) | ||||||
Legal
settlement
|
- | - | 873 | |||||||||
Income
before income taxes
|
$ | 13,834 | $ | 15,665 | $ | 13,631 |
AUGUST
31,
|
2008
|
2007
|
2006
|
|||||||||
Reportable
segment assets
|
$ | 102,456 | $ | 122,393 | $ | 118,413 | ||||||
Corporate
assets
|
78,010 | 76,047 | 99,763 | |||||||||
Intercompany
accounts receivable
|
(1,539 | ) | (1,809 | ) | (1,617 | ) | ||||||
$ | 178,927 | $ | 196,631 | $ | 216,559 |
YEAR
ENDED
AUGUST
31,
|
2008
|
2007
|
2006
|
|||||||||
Net
sales:
|
||||||||||||
United
States
|
$ | 197,181 | $ | 219,152 | $ | 221,880 | ||||||
Japan
|
26,510 | 24,166 | 21,569 | |||||||||
Canada
|
10,389 | 8,400 | 8,197 | |||||||||
United
Kingdom
|
10,174 | 9,843 | 8,587 | |||||||||
Australia
|
4,313 | 4,016 | 3,439 | |||||||||
Mexico
|
1,905 | 4,362 | 3,799 | |||||||||
Singapore
|
1,443 | 1,306 | 1,072 | |||||||||
Brazil/South
America
|
1,283 | 4,314 | 3,078 | |||||||||
Korea
|
1,234 | 1,377 | 1,403 | |||||||||
Indonesia/Malaysia
|
794 | 710 | 624 | |||||||||
Others
|
4,866 | 6,479 | 4,975 | |||||||||
$ | 260,092 | $ | 284,125 | $ | 278,623 |
AUGUST
31,
|
2008
|
2007
|
2006
|
|||||||||
Long-lived
assets:
|
||||||||||||
United States
|
$ | 106,878 | $ | 121,279 | $ | 124,208 | ||||||
Americas
|
2,230 | 2,433 | 2,661 | |||||||||
Japan
|
1,509 | 1,453 | 1,489 | |||||||||
United Kingdom
|
258 | 976 | 735 | |||||||||
Australia
|
141 | 387 | 346 | |||||||||
$ | 111,016 | $ | 126,528 | $ | 129,439 |
20.
|
RELATED
PARTY TRANSACTIONS
|
YEAR
ENDING
AUGUST
31,
|
||||
2009
|
$ | 100 | ||
2010
|
100 | |||
2011
|
150 | |||
$ | 350 | |||
Each
fiscal year of extended term
|
$ | 150 |
1.
|
pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of our
assets;
|
2.
|
provide
reasonable assurance that the transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally
accepted accounting principles, and that our receipts and expenditures are
being made only in accordance with the authorization of management and/or
of our Board of Directors; and
|
3.
|
provide
reasonable assurance regarding the prevention or timely detection of any
unauthorized acquisition, use or disposition of our assets that could have
a material effect on our financial
statements.
|
[a]
|
[b]
|
[c]
|
||||
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants,
and rights
|
Weighted-average
exercise price of outstanding options, warrants, and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
[a])
|
|||
(in
thousands)
|
(in
thousands)
|
|||||
Equity
compensation plans approved by security holders(1)(2)
|
2,028
|
$12.82
|
1,944
|
(1)
|
Excludes 94,500 shares of unvested (restricted) stock awards that are
subject to forfeiture.
|
(2)
|
During the fourth quarter of fiscal 2008, we canceled all outstanding
long-term incentive plan (LTIP) awards granted in fiscal 2007 and fiscal
2006 and these previously granted awards have no impact upon
the amounts disclosed.
|
1.
|
Financial Statements.
The consolidated financial statements of the Company and Report of
Independent Registered Public Accounting Firm thereon included in the
Annual Report to Shareholders on Form 10-K for the year ended August 31,
2008, are as follows:
|
2.
|
Financial
Statement Schedules.
|
3.
|
Exhibit
List.
|
Exhibit
No.
|
Exhibit
|
Incorporated
By Reference
|
Filed
Herewith
|
2.1
|
Master
Asset Purchase Agreement between Franklin Covey Products, LLC and Franklin
Covey Co. dated May 22, 2008
|
(19)
|
|
2.2
|
Amendment
to Master Asset Purchase Agreement between Franklin Covey Products, LLC
and Franklin Covey Co. dated May 22, 2008
|
(20)
|
|
3.1
|
Articles
of Restatement dated March 4, 2005 amending and restating the Company’s
Articles of Incorporation
|
(8)
|
|
3.2
|
Amendment
to Amended and Restated Articles of Incorporation of Franklin Covey
(Appendix C)
|
(12)
|
3.3
|
Amended
and Restated Bylaws of the Registrant
|
(1)
|
|
4.1
|
Specimen
Certificate of the Registrant’s Common Stock, par value $.05 per
share
|
(2)
|
|
4.2
|
Stockholder
Agreements, dated May 11, 1999 and June 2, 1999
|
(5)
|
|
4.3
|
Registration
Rights Agreement, dated June 2, 1999
|
(5)
|
|
4.4
|
Restated
Shareholders Agreement, dated as of March 8, 2005, between the Company and
Knowledge Capital Investment Group
|
(8)
|
|
4.5
|
Restated
Registration Rights Agreement, dated as of March 8, 2005, between the
Company and Knowledge Capital Investment Group
|
(8)
|
|
10.1*
|
Amended
and Restated 1992 Employee Stock Purchase Plan
|
(3)
|
|
10.2*
|
Amended
and Restated 2000 Employee Stock Purchase Plan
|
(6)
|
|
10.3*
|
Amended
and Restated 2004 Employee Stock Purchase Plan
|
(15)
|
|
10.4*
|
Amended
and Restated 1992 Stock Incentive Plan
|
(4)
|
|
10.5*
|
First
Amendment to Amended and Restated 1992 Stock Incentive
Plan
|
(16)
|
|
10.6*
|
Third
Amendment to Amended and Restated 1992 Stock Incentive
Plan
|
(17)
|
|
10.7*
|
Fifth
Amendment to the Franklin Covey Co. Amended and Restated 1992 Stock
Incentive Plan (Appendix A)
|
(12)
|
|
10.8*
|
Forms
of Nonstatutory Stock Options
|
(1)
|
|
10.9*
|
Amended
and Restated Option Agreement, dated December 8, 2004, by and between the
Company and Robert A. Whitman
|
(7)
|
|
10.10*
|
Agreement
for the Issuance of Restricted Shares, dated as of December 8, 2004, by
and between Robert A. Whitman and the Company
|
(7)
|
|
10.11
|
Restated
Monitoring Agreement, dated as of March 8, 2005, between the Company and
Hampstead Interests, LP
|
(8)
|
|
10.12
|
Warrant,
dated March 8, 2005, to purchase 5,913,402 shares of Common Stock issued
by the Company to Knowledge Capital Investment Group
|
(8)
|
|
10.13
|
Form
of Warrant to purchase shares of Common Stock to be issued by the Company
to holders of Series A Preferred Stock other than Knowledge Capital
Investment Group
|
(8)
|
|
10.14*
|
Franklin
Covey Co. 2004 Non-Employee Directors’ Stock Incentive
Plan
|
(9)
|
|
10.15*
|
The
first amendment to the Franklin Covey Co. 2004 Non-Employee Director Stock
Incentive Plan, (Appendix B)
|
(12)
|
|
10.16*
|
Form
of Option Agreement for the 2004 Non-Employee Directors Stock Incentive
Plan
|
(9)
|
|
10.17*
|
Form
of Restricted Stock Agreement for the 2004 Non-Employees Directors Stock
Incentive Plan
|
(9)
|
10.18
|
Master
Lease Agreement between Franklin SaltLake LLC (Landlord) Franklin
Development Corporation (Tenant)
|
(10)
|
|
10.19
|
Purchase
and Sale Agreement and Escrow Instructions between Levy Affiliated
Holdings, LLC (Buyer) and Franklin Development Corporation (Seller) and
Amendments
|
(10)
|
|
10.20
|
Redemption
Extension Voting Agreement between Franklin Covey Co. and Knowledge
Capital Investment Group, dated October 20, 2005
|
(11)
|
|
10.21
|
Agreement
for Information Technology Services between each of Franklin Covey Co.
Electronic Data Systems Corporation, and EDS Information Services LLC,
dated April 1, 2001
|
(13)
|
|
10.22
|
Additional
Services Addendum No. 1 to Agreement for Information Technology Services
between each of Franklin Covey Co. Electronic Data Systems Corporation,
and EDS Information Services LLC, dated June 30, 2001
|
(13)
|
|
10.23
|
Amendment
No. 2 to Agreement for Information Technology Services between each of
Franklin Covey Co. Electronic Data Systems Corporation, and EDS
Information Services LLC, dated June 30, 2001
|
(13)
|
|
10.24
|
Amendment
No. 6 to the Agreement for Information Technology Services between each of
Franklin Covey Co., Electronic Data Systems Corporation, and EDS
Information Services L.L.C. dated April 1, 2006
|
(14)
|
|
10.25
|
Revolving
Line of Credit Agreement ($18,000,000) by and between JPMorgan Chase Bank,
N.A. and Franklin Covey Co. dated March 14, 2007
|
(18)
|
|
10.26
|
Secured
Promissory Note between JPMorgan Chase Bank, N.A. and Franklin Covey Co.
dated March 14, 2007
|
(18)
|
|
10.27
|
Security
Agreement between Franklin Covey Co., Franklin Covey Printing, Inc.,
Franklin Development Corporation, Franklin Covey Travel, Inc., Franklin
Covey Catalog Sales, Inc., Franklin Covey Client Sales, Inc., Franklin
Covey Product Sales, Inc., Franklin Covey Services LLC, Franklin Covey
Marketing, LTD., and JPMorgan Chase Bank, N.A. and Zions First National
Bank, dated March 14, 2007
|
(18)
|
|
10.28
|
Repayment
Guaranty between Franklin Covey Co., Franklin Covey Printing, Inc.,
Franklin Development Corporation, Franklin Covey Travel, Inc., Franklin
Covey Catalog Sales, Inc., Franklin Covey Client Sales, Inc., Franklin
Covey Product Sales, Inc., Franklin Covey Services LLC, Franklin Covey
Marketing, LTD., and JPMorgan Chase Bank N.A., dated March 14,
2007
|
(18)
|
|
10.29
|
Pledge
and Security Agreement between Franklin Covey Co. and JPMorgan Chase Bank,
N.A. and Zions First National Bank, dated March 14, 2007
|
(18)
|
|
10.30
|
Revolving
Line of Credit Agreement ($7,000,000) by and between Zions First National
Bank and Franklin Covey Co. dated March 14, 2007
|
(18)
|
|
10.31
|
Secured
Promissory Note between Zions First National Bank and Franklin Covey Co.
dated March 14, 2007
|
(18)
|
10.32
|
Repayment
Guaranty between Franklin Covey Co., Franklin Covey Printing, Inc.,
Franklin Development Corporation, Franklin Covey Travel, Inc., Franklin
Covey Catalog Sales, Inc., Franklin Covey Client Sales, Inc., Franklin
Covey Product Sales, Inc., Franklin Covey Services LLC, Franklin Covey
Marketing, LTD., and Zions First National Bank, dated March 14,
2007
|
(18)
|
|
10.33
|
Credit
Agreement between Franklin Covey Canada, Ltd. and Toronto-Dominion Bank
dated February 19, 2007
|
(18)
|
|
10.34
|
Master
License Agreement between Franklin Covey Co. and Franklin Covey Products,
LLC
|
(21)
|
|
10.35
|
Supply
Agreement between Franklin Covey Products, LLC and Franklin Covey Product
Sales, Inc.
|
(21)
|
|
10.36
|
Master
Shared Services Agreement between The Franklin Covey Products Companies
and the Shared Services Companies
|
(21)
|
|
10.37
|
Amended
and Restated Operating Agreement of Franklin Covey Products,
LLC
|
(21)
|
|
10.38
|
Sublease
Agreement between Franklin Development Corporation and Franklin Covey
Products, LLC
|
(21)
|
|
10.39
|
Sub-Sublease
Agreement between Franklin Covey Co. and Franklin Covey Products,
LLC
|
(21)
|
|
10.40
|
Loan
Modification Agreement between Franklin Covey Co. and JPMorgan Chase Bank,
N.A. dated July 8, 2008
|
(21)
|
|
General
Services Agreement between Franklin Covey Co. and Electronic Data Systems
(EDS) dated October 27, 2008
|
éé
|
||
Subsidiaries
of the Registrant
|
éé
|
||
Consent
of Independent Registered Public Accounting Firm
|
éé
|
||
Rule
13a-14(a) Certification of the Chief Executive Officer
|
éé
|
||
Rule
13a-14(a) Certification of the Chief Financial Officer
|
éé
|
||
Section
1350 Certifications
|
éé
|
||
Report
of KPMG LLP, Independent Registered Public Accounting Firm, on
Consolidated Financial Statement Schedule for the years ended August 31,
2008, 2007, and 2006
|
éé
|
||
Financial
Statement Schedule II – Valuation and Qualifying Accounts and
Reserves.
|
éé
|
(1)
|
Incorporated
by reference to Registration Statement on Form S-1 filed with the
Commission on April 17, 1992, Registration No.
33-47283.
|
(2)
|
Incorporated
by reference to Amendment No. 1 to Registration Statement on Form S-1
filed with the Commission on May 26, 1992, Registration No.
33-47283.
|
(3)
|
Incorporated
by reference to Report on Form 10-K filed November 27, 1992, for the year
ended August 31, 1992.
|
(4)
|
Incorporated
by reference to Registration Statement on Form S-1 filed with the
Commission on January 3, 1994, Registration No.
33-73728.
|
(5)
|
Incorporated
by reference to Schedule 13D (CUSIP No. 534691090 as filed with the
Commission on June 14, 1999). Registration No.
005-43123.
|
(6)
|
Incorporated
by reference to Report on Form S-8 filed with the Commission on May 31,
2000, Registration No. 333-38172.
|
(7)
|
Incorporated
by reference to Report on Form 8-K filed with the Commission on December
14, 2005.**
|
(8)
|
Incorporated
by reference to Report on Form 8-K filed with the Commission on March 10,
2005.**
|
(9)
|
Incorporated
by reference to Report on Form 8-K filed with the Commission on March 25,
2005.**
|
(10)
|
Incorporated
by reference to Report on Form 8-K filed with the Commission on June 27,
2005.**
|
(11)
|
Incorporated
by reference to Report on Form 8-K filed with the Commission on October
24, 2005.**
|
(12)
|
Incorporated
by reference to Definitive Proxy Statement on Form DEF 14A filed with the
Commission on December 12, 2005.**
|
(13)
|
Incorporated
by reference to Report on Form 10-Q filed July 10, 2001, for the quarter
ended May 26, 2001.**
|
(14)
|
Incorporated
by reference to Report on Form 8-K filed with the Commission on April 5,
2006.**
|
(15)
|
Incorporated
by reference to Definitive Proxy Statement on Form DEF 14A filed with the
Commission on February 1, 2005.**
|
(16)
|
Incorporated
by reference to Definitive Proxy Statement on Form DEF 14A dated November
5, 1993.**
|
(17)
|
Incorporated
by reference to Definitive Proxy Statement on Form DEF 14A filed with the
Commission on December 3, 1999.**
|
(18)
|
Incorporated
by reference to Report on Form 8-K filed with the Commission on March 19,
2007.**
|
(19)
|
Incorporated
by reference to Report on Form 8-K/A filed with the Commission on May 29,
2008.**
|
(20)
|
Incorporated
by reference to Report on Form 10-Q filed July 10, 2008, for the Quarter
ended May 31, 2008.**
|
(21)
|
Incorporated
by reference to Report on Form 8-K filed with the Commission on July 11,
2008.**
|
By:
|
/s/ Robert A. Whitman
|
Robert A. Whitman
|
|
Chairman and Chief Executive
Officer
|
Signature
|
Title
|
Date
|
/s/ Robert A. Whitman
|
Chairman
of the Board and Chief Executive Officer
|
November
14, 2008
|
Robert
A. Whitman
|
||
/s/ Stephen R. Covey
|
Vice-Chairman
of the Board
|
November
14, 2008
|
Stephen
R. Covey
|
||
/s/Clayton M. Christensen
|
Director
|
November
14, 2008
|
Clayton
M. Christensen
|
||
/s/ Robert H. Daines
|
Director
|
November
14, 2008
|
Robert
H. Daines
|
||
/s/ E.J. “Jake” Garn
|
Director
|
November
14, 2008
|
E.J.
“Jake” Garn
|
||
/s/ Dennis G. Heiner
|
Director
|
November
14, 2008
|
Dennis
G. Heiner
|
||
/s/ Donald J. McNamara
|
Director
|
November
14, 2008
|
Donald
J. McNamara
|
||
/s/ Joel C. Peterson
|
Director
|
November
14, 2008
|
Joel
C. Peterson
|
||
/s/ E. Kay Stepp
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Director
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November
14, 2008
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E.
Kay Stepp
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1.
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Term. Subject
to Section 11, the term of this Agreement will begin on October 27, 2008
(the “Effective
Date”), and, unless earlier terminated as provided in this
Agreement, will continue through June 30, 2016. Such original
term may be extended by mutual written agreement of the
Parties. In addition, if one or more Work Orders (as defined
below) are outstanding when this Agreement expires (whether after the
original term or otherwise), this Agreement will remain in full force and
effect solely for purposes of allowing the activities covered by such Work
Orders to be completed. The obligations of EDS set forth in
this Agreement will be performed by EDS, itself and through its
affiliates. All references to EDS in this Agreement will be
deemed to include all such affiliates, and EDS and FC may be referred to
in this Agreement individually as a “Party” and together as the
“Parties”.
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2.
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EDS
Services.
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(a)
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Work
Orders for Services. During
the term of this Agreement, FC may request EDS to provide FC with such
services, resources and deliverables as are mutually agreed upon from time
to time by EDS and FC and confirmed in a mutually acceptable written
authorization letter substantially
in
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the
form attached hereto as Exhibit A (the
“Work
Order”). This Agreement establishes the standard
provisions that will apply to each Work Order. Each Work Order
will include, at a minimum, (a) an Attachment 1
which will describe the services, resources and deliverables that EDS will
provide thereunder, (b) also in Attachment 1
will describe FC’s role and responsibilities, if any, in connection with
such services, resources and deliverables and (c) an Attachment 2
which will describe the charges to be paid by FC to EDS in consideration
for such services, resources and deliverables. Each Work Order
will be numbered sequentially beginning with the number one and, when
executed by the Parties, will be attached hereto and made a part hereof
for all purposes. In the event of any express conflict or
inconsistency between the provisions of an Work Order and the provisions
of this Agreement, the provisions of the Work Order will govern and
control with respect to the interpretation of that Work Order; provided, however, that
the provisions of the Work Order will be so construed to give effect to
the applicable provisions of this Agreement to the fullest extent
possible. Any changes or modifications made to this Agreement in
accordance with Section 19 will
apply to all Work Orders, and any changes or modifications made to any
Work Order in accordance with Section 19 will
apply only to that Work Order, unless the Parties otherwise expressly
agree in writing. The work to be performed by EDS under this
Agreement, as set forth in the Work Orders, is collectively referred to
herein as the “EDS
Services”.
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(b)
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Change
Control Procedures. Subject to the other
provisions of this Agreement, the Parties may revise, amend, alter or
otherwise change the nature and scope of the EDS Services being provided
under an Work Order from time to time by mutual written agreement and
otherwise in accordance with the procedures set forth in Exhibit
A-1. Such procedures do not apply to changes that result
in new services, which will be initiated, reviewed, approved, documented
and implemented in accordance with Section
2(a). The Parties agree to consider any proposed changes
in good faith and to make a good faith effort to accept equitable
adjustments to the affected Work Order where appropriate to accomplish the
mutual objectives of the Parties.
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(c)
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Service
Locations. Notwithstanding
anything to the contrary in this Agreement or any Work Order, EDS may
perform the EDS Services or any portion thereof from any location
determined by EDS or relocate any software or equipment used by EDS to
perform the EDS Services; provided, however, that
EDS will provide FC prior written notice of any change in service location
and provided,
further that any change in service location made by EDS will not
(i) materially and adversely impact EDS’ ability to perform its
obligations in accordance with the terms hereof, including the achievement
of any applicable service levels, (ii) increase FC’s fees or costs (unless
EDS agrees in writing to reimburse FC for such increase) or (iii)
materially and adversely impact the way in which FC conducts its business
or operations.
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3.
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Representatives. During
the term of this Agreement, EDS and FC will each maintain a representative
who will be its primary point of contact in dealing with the other under
this Agreement and will have the authority and power to make decisions
with respect to actions to be taken by it under this
Agreement. Either Party may change its representative by giving
notice to the other of the new representative and the date upon which such
change will become effective. In performing its obligations
under this Agreement, EDS will be entitled to rely upon any routine
instructions, authorizations, approvals or other information provided to
EDS by FC’s representative or, as to areas of competency specifically
identified by such representative, by any other FC personnel identified by
FC’s representative, from time to time, as having authority to provide the
same on behalf of FC in such person’s area of
competency. Unless EDS knew of any error, incorrectness or
inaccuracy in such instructions, authorizations, approvals or other
information, EDS will incur no liability or responsibility of any kind in
relying on or complying with any such instructions, authorizations,
approvals or other information.
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4.
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Certain
Financial Matters. In
consideration for the performance of the EDS Services, FC will pay to EDS
the charges set forth in Attachment 2 of
each Work Order, and such charges will be subject to periodic adjustment
in the manner and to the extent indicated therein. In addition,
FC will pay or reimburse EDS for (a) all pass-through and reasonable
out-of-pocket expenses incurred by EDS, with the prior written approval of
FC in writing, in the performance of the EDS Services and (b) any federal,
state, local, foreign or provincial taxes, assessments, claims and other
tax charges, including without limitation sales, use, property, fees,
surcharges, ad valorem, telecommunications, gross receipts, excise, stamp,
transaction, goods and services, customs, duties and/or value-added taxes,
and interest imposed in connection therewith, but excluding income taxes
that are based on or measured by EDS’ net income. EDS will
submit a written invoice to FC on a monthly basis in arrears reflecting
the amount owed to EDS by FC for the EDS Services, with such supporting
documentation as FC reasonably requests, and FC will pay the invoiced
amount within 30 days of the date of the invoice. Payment by FC
will be by check payable to the order of EDS, except that if any
outstanding amount exceeding $1,000,000 will be payable to EDS
electronically (either by wire transfer or ACH) in accordance with payment
instructions provided by EDS from time to time, so as in each case to
constitute immediately available funds by 12:00 p.m., local time in the
place of payment, on the payment date. If a due date does not
fall on a business day, payments must be received by EDS on or before one
business day after such date. Any past due amounts will bear
interest until paid at a rate of interest equal to the lesser of (i) the
prime rate established from time to time by Citibank of New York plus four
percent or (ii) the maximum rate of interest allowed by applicable
law. In addition, at EDS’ request, FC will provide EDS with an
explanation of why an undisputed amount is not paid when due and a
proposed payment plan for FC to bring such past due amount
current. If FC disputes an amount on an invoice in good faith,
FC will notify EDS in writing of the specific items in dispute and will
describe in detail FC’s reason for disputing each such item within 20 days
of the date of the invoice on which a disputed amount
appears. Within 20 days of EDS’ receipt of such notice, the
Parties will negotiate in good faith pursuant to the provisions of Section 10 to
reach settlement on any items that are the subject of such
dispute. If FC does not notify EDS of any items in dispute
within such 20-day period of time, FC will be deemed to have approved and
accepted such invoice. If any portion of an amount due to EDS under this
Agreement is subject to a bona fide dispute between the Parties as
provided above, FC will pay to EDS on the date such amount is due all
amounts not disputed in good faith by FC, and the disputed amount will be
paid pending resolution of the dispute into an escrow account that is
structured by agreement of the Parties. Notwithstanding
anything to the contrary in this Agreement, in no event may FC withhold in
any one month, as a disputed amount, more than 50% of EDS’ charges
(exclusive of reimbursable expenses) for that
month.
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5.
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Employees. The
EDS personnel performing the EDS Services will be and remain the employees
of EDS, and EDS will provide for and pay the compensation and other
benefits of such employees, including salary, health, accident and
workers’ compensation benefits and all taxes and contributions which an
employer is required to pay relating to the employment of
employees. During the term of this Agreement and for a period
of 12 months thereafter, neither Party will solicit, directly or
indirectly, for employment or employ any employee of the other Party who
is or was involved in the performance of the EDS Services without the
prior written consent of such other Party. For purposes of this
Section
5, “solicit” does not include advertisements or other publications
of general circulation or employment that results directly from responses
to such advertisements or publications, and such advertisements and
publications will not constitute a breach of this Section
5.
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6.
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Privacy
Laws. The
Parties acknowledge and agree that FC will be and remain the controller of
the information relating to FC and its customers that identifies or is
identifiable to an individual person
(the
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7.
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Confidentiality. EDS
and FC will have the confidentiality obligations set forth in Exhibit
B.
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8.
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Representations,
Warranties and Additional Covenants. EDS
and FC will have the obligations relating to the representations,
warranties and additional covenants set forth in Exhibit
C.
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(a)
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Developed
Software and Other Deliverables. Each party will
retain all rights, including trademarks, patents, trade secrets and
copyrights (“IP Rights”), in any software, ideas, concepts, know-how,
development tools, techniques or any other proprietary material or
information that it owned or developed prior to the date of this
Agreement, or acquired or developed after the date of this Agreement
without reference to or use of the intellectual property of the other
party. Subject to any third party rights or restrictions and
the other provisions of this Section 9, FC will own the IP Rights (either
as a work for hire or by assignment from EDS) in and to all deliverables
that (a) are developed and delivered by EDS under this Agreement and (b)
are paid for by FC. Notwithstanding anything to the contrary in
this Agreement, EDS (i) will retain all IP Rights in and to all software
development tools, know-how, methodologies, processes, technologies or
algorithms used in performing the Services which are based on previously
developed trade secrets or proprietary information of EDS or are otherwise
owned or licensed by EDS (collectively, “tools”), (ii) will be
free to use the ideas, concepts and know-how which are developed or
created in the course of performing the Services and may be retained by
EDS’ employees in intangible form, all of which constitute substantial
rights on the part of EDS in the technology developed as a result of the
Services performed under this Agreement, and (iii) will retain ownership
of any prior-developed EDS-owned software or tools (“EDS Tools”) that are
used in producing the deliverables and become embedded in the
deliverables. EDS hereby grants to FC a perpetual (subject to
compliance with this sentence), royalty-free, nontransferable,
nonexclusive license to use such embedded EDS Tools (if any) solely in
connection with FC’s internal use and exploitation of the deliverables and
only so long as such software and tools (if any) remain embedded in the
deliverables and are not separated there from. EDS will own
patent rights with respect to processes and methodologies developed by EDS
in connection with deliverables
other
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(b)
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Third
Party Software. To the extent that
EDS uses any third party software or documentation and such software or
documentation becomes embedded in a Deliverable, EDS will obtain for FC a
perpetual, royalty-free, nontransferable, nonexclusive, worldwide license
to use such software or documentation as part of the Deliverable, or such
other license as EDS and FC agree in writing. Nothing in this Agreement
will require EDS or FC to violate the proprietary rights of any third
party in any software or otherwise.
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(c)
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EDS
Development Tools; Residual Technology. Notwithstanding
anything to the contrary in this Agreement, EDS will retain all right,
title and interest in and to, and will be free to use, (a) the EDS
Development Tools and (b) subject to the confidentiality obligations set
forth in Section
7, the Residual Technology. The Parties acknowledge and
agree that EDS’ right, title and interest in and to the Residual
Technology constitute substantial rights in the technology developed as a
result of the Services performed under this Agreement. No licenses will be
deemed to have been granted by either Party to any of its patents, trade
secrets, trademarks or copyrights, except as otherwise expressly provided
in this Agreement. Nothing in this Agreement will require EDS
or FC to violate the proprietary rights of any third party in any software
or otherwise. The term “Residual Technology” means the ideas,
concepts, methodologies, processes and know-how which are developed or
created by EDS in the course of performing the Services and may be
retained by EDS’ employees in intangible
form.
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(d)
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Licenses. EDS
hereby grants to FC a perpetual, royalty-free, nontransferable,
nonexclusive, worldwide license to use any embedded Tools and Residual
Technology as part of the Deliverables. No licenses will be
deemed to have been granted by either Party to any of its patents, trade
secrets, trademarks or copyrights, except as otherwise expressly provided
in this Section
9.
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(e)
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Rights
in Software Outside this Agreement. Each
Party will retain all rights in any software, documentation, tools,
techniques, methodologies, trade secrets or any other proprietary material
or information that it owned as of the date of this Agreement or acquired
or developed after the date hereof without reference to or use of the
intellectual property of the other
Party.
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(f)
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Other. EDS
and FC agree to execute and deliver such other instruments and documents
as either Party reasonably requests to evidence or effect the transactions
contemplated by this Section
9.
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10.
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Dispute
Escalation and Resolution.
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11.
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Termination. If
either Party materially defaults in the performance of any of its
obligations under this Agreement or any Work Order, which default (a) if
of a non-monetary nature, is not substantially cured within 30 days
after notice is given to the defaulting Party specifying the default or,
with respect to those defaults that cannot reasonably be cured within 30
days, should the defaulting Party fail to proceed within 30 days to
commence curing the default and thereafter to proceed with all reasonable
diligence to substantially cure the default, or (b) if of a monetary
nature, is not cured within 10 days after notice is given to the
defaulting Party specifying the default, the Party not in default may, by
giving written notice thereof to the defaulting Party, terminate this
Agreement and all outstanding Work Orders as of a date specified in such
notice of termination. In addition to the requirements of Section 17, to
be effective and to commence the running of any applicable cure period,
any notice given pursuant to this Section 11 must
explicitly identify the type of notice being given, whether of default or
of termination, and reference this Section
11. In addition and except as otherwise set forth in a
specific Work Order, FC may terminate this Agreement at any time upon at
least six (6) months prior written notice to EDS. Upon
expiration or termination of this Agreement and all Work Orders for any
reason, except as set forth in the last sentence of Section 1, EDS
will cease to perform the EDS Services for FC, and FC will pay to EDS all
sums due to EDS as a result of the EDS Services performed and expenses
incurred (including those expenses that, instead of being concurrently
billed, have been included in future payments to be made by FC) through
the effective date of such expiration or termination (prorated as
appropriate). The expiration or termination of this Agreement
and all Work Orders for any reason will not release either Party from any
liabilities or obligations set forth herein or therein which (a) the
Parties have expressly agreed will survive any such expiration or
termination or (b) remain to be performed or by their nature would be
intended to be applicable following any such expiration or
termination. Any materials or equipment furnished by FC and any
materials or equipment, the cost are reimbursed to EDS by the FC
hereunder, are to be and remain the sole property of FC and are to be
returned to FC within thirty (30) days of the expiration or earlier
termination of this Agreement, or within ten (10) days after written
demand by FC, whichever first occurs.
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12.
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Indemnities. EDS
and FC will have the indemnity obligations set forth in Exhibit
D.
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13.
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Liability.
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(a)
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General
Limitation. Subject
to the last sentence of this Section 13(a),
the liability of each Party to the other for all damages arising out of or
related to an Work Order, regardless of the form of action that imposes
liability, whether in contract, equity, negligence, intended conduct, tort
or otherwise, will be limited to and will not exceed, in the aggregate for
all claims, actions and causes of action of every kind and nature, the
Work Order Damages Limit for such Work Order. The “Work Order
Damages Limit” for each Work Order will be stated in such Work
Order. However, if the Work Order Damages Limit is omitted from
an Work Order, the Work Order Damages Limit for such Work Order will be
equal to the charges paid by FC to EDS under such Work Order
for the 12 months preceding the last act or omission giving rise to such
liability or, if 12 months have not elapsed since the effective date of
such Work Order, an amount equal to the charges paid by FC for the number
of months that have elapsed. The liability of each Party
to the other for all damages arising out of or related to this Agreement
and all Work Orders, regardless of the form of action that imposes
liability, whether in contract, equity, negligence, intended conduct, tort
or otherwise, will be limited to and will not exceed, in the aggregate for
all claims, actions and causes of action of every kind and nature, the
lesser of sum of
$5,000,000.00 or the charges paid by FC to EDS under this Agreement
and all Work Orders for the 12 months preceding the last act or omission
giving rise to such liability or, if 12 months have not elapsed since the
Effective Date, an amount equal to the charges paid by FC for the number
of months that have elapsed (the “Aggregate Damages
Limit”).
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(b)
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Limitation
on Other Damages. In
no event will the measure of damages payable by either Party include, nor
will either Party be liable for, any amounts for loss of income, profit or
savings or indirect, incidental, consequential, exemplary, punitive or
special damages of any Party, including third parties, even if such Party
has been advised of the possibility of such damages in advance, and all
such damages are expressly
disclaimed.
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(c)
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Exceptions
to Limitations. The
limitations set forth in Sections 13(a)
and 13(b)
will not apply to (i) the liability of either Party to the extent
such liability results from (A) that Party’s acts of intentional tortious
conduct or gross negligence in the performance or nonperformance of its
obligations under this Agreement or (B) that Party’s nonperformance of its
payment obligations to the other expressly set forth in this Agreement
(including, with respect to FC, FC’s obligation to make payments to EDS
during the term of this Agreement as required hereby, whether in the form
of charges or for payment or reimbursement of taxes, out-of-pocket
expenses or pass-through expenses, and EDS’ lost profits on such payments)
or (ii) the tax-related liabilities of FC under Section
4 and Exhibit
D.
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(d)
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[Reserved]
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(e)
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Acknowledgement. The
Parties expressly acknowledge that the limitations and exclusions set
forth in this Section 13 have
been the subject of active and complete negotiation between the Parties
and represent the Parties’ agreement taking into account each Party’s
level of risk associated with the performance or nonperformance of its
obligations under this Agreement and the payments and other benefits to be
derived by each Party pursuant to this Agreement. The
provisions of this Section 13 will
survive the expiration or termination of this Agreement and each Work
Order for any reason.
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14.
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Excused
Performance. Neither
Party will be deemed to be in default hereunder, or will be liable to the
other, for failure to perform any of its non-monetary obligations under
this Agreement or any Work Order for any period and to the extent that
such failure results from any event or circumstance beyond that Party’s
reasonable control, including acts or omissions of the other Party or
third parties, natural disasters, health crises such as epidemics and
pandemics, riots, war, terroristic activity, civil disorder, court orders,
acts or regulations of governmental bodies, labor disputes or failures or
fluctuations in electrical power, heat, light, air conditioning or
telecommunications equipment or lines, or other equipment failure, and
which it could not have prevented by reasonable precautions or could not
have remedied by the exercise of reasonable efforts, provided that the
exercise of such reasonable precautions or reasonable efforts will not
require the incurrence of any additional cost or
expense.
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15.
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Export
Regulations. This
Agreement is expressly made subject to any United States and other
applicable laws, regulations, orders or other restrictions regarding
export from the United States or another country, and import into any
country, of computer hardware, software, technical data or other items, or
derivatives of such hardware, software, technical data or other
items. Notwithstanding anything to the contrary in this
Agreement, neither Party will directly or indirectly export (or re-export)
any computer hardware, software, technical data or any other item provided
to or by it for purposes of this Agreement, or any derivative of the same,
or permit the shipment of the same: (a) into (or to a national
or resident of) Cuba, North Korea, Iran, Iraq, Sudan, Syria or any other
country to which the United States has embargoed goods; (b) to anyone on
the U.S. Treasury Department’s List of Specially Designated Nationals,
List of Specially Designated Terrorists or List of Specially Designated
Narcotics Traffickers, or the U.S. Commerce Department’s Denied Parties
List; or (c) to any person, country or destination for which the United
States
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16.
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Right
to Engage in Other Activities. FC
acknowledges and agrees that EDS may provide technology services for third
parties at any EDS facility that EDS may utilize from time to time for
performing the EDS Services. Subject to the restrictions on the
disclosure of confidential information set forth in Exhibit B,
nothing in this Agreement or any Work Order will impair EDS’ right to
acquire, license, market, distribute, develop for itself or others or have
others develop for EDS similar technology performing the same or similar
functions as the technology and EDS Services contemplated by this
Agreement.
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17.
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Notices. All
notices under this Agreement and each Work Order will be in writing and
will be deemed to have been duly given if delivered personally or by a
nationally recognized courier service, faxed or mailed by registered or
certified national mail service, return receipt requested, postage
prepaid, to the Parties at the addresses set forth below. All
notices under this Agreement and each Work Order that are addressed as
provided in this Section 17, (a)
if delivered personally or by a nationally recognized courier service,
will be deemed given upon delivery, (b) if delivered by facsimile, will be
deemed given when confirmed and (c) if delivered by mail in the manner
described above, will be deemed given on the date received by the
recipient as reflected on the return receipt. Either Party may
change its address or designee for notification purposes by giving notice
to the other of the new address or designee and the date upon which such
change will become effective.
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18.
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Public
Relations and Marketing References. Each
Party will coordinate with the other regarding any media release, public
announcement or similar disclosure relating to this Agreement or any Work
Order or its subject matter and will give the other Party a reasonable
opportunity to review and comment on the content of such release,
announcement or disclosure prior to its release. This provision
does not alter the restrictions on the disclosure of confidential
information set forth in Exhibit B and,
subject to Exhibit B, will
not be construed so as to delay or restrict either Party from disclosing
any information required to be disclosed in order to comply with any
applicable laws, rules or regulations. Notwithstanding the
foregoing but subject to any applicable laws, rules or regulations, each
Party will have the right to list the name of the other Party, to make
general references to the basic nature of the relationship between the
Parties under this Agreement and to describe generally the type of
services being provided by EDS to FC under this Agreement and each Work
Order in such Party’s promotional and marketing materials, in such Party’s
oral or visual presentations to third parties, in interviews conducted by
the news media or securities analysts and in or through any other
available media channels, including print, internet, radio, cable and
broadcast mediums.
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19.
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Other. Where
agreement, approval, acceptance or consent of either Party is required by
this Agreement or any Work Order, such action will not be unreasonably
withheld, delayed or conditioned. The Parties are independent
contractors, and neither this Agreement nor any Work Order will be
construed as constituting either Party as partner, joint venturer or
fiduciary of the other. If any provision (other than a
provision relating to any payment obligation) of this Agreement or any
Work Order or the application hereof or thereof to any persons or
circumstances is, to any extent, held invalid or unenforceable, the
remainder of this Agreement and each Work Order or the application of such
provision to persons or circumstances other than those as to which it is
invalid or unenforceable will not be affected thereby, and each provision
of this Agreement and each Work Order will be valid and enforceable to the
extent permitted by law. The provisions of this Agreement will
be given equal weight regardless of the order in which they appear
herein. Nothing in this Agreement or any Work Order may be
relied upon or will benefit any party other than EDS and
FC. This Agreement and each Work Order (a) will be governed by
the substantive laws of the State
of
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20
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Audit
Rights.
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(a)
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General. Employees
of FC and its auditors who are from time to time designated by FC and who
agree in writing to the security and confidentiality obligations and
procedures reasonably required by EDS will be provided with reasonable
access to any facility at which the Services are being performed to enable
them to conduct audits of EDS’ performance of the Services and other
matters relevant to this Agreement, including (i) verifying the accuracy
of EDS’ charges to FC and (ii) verifying that the Services are being
provided in accordance with this Agreement, including any Service
Levels.
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(b)
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Procedures. Such
audits may be conducted once a year during reasonable business hours;
provided,
however,
that the Parties may agree to more frequent audits as deemed reasonably
necessary. FC will provide EDS with prior written notice of an
audit. EDS will cooperate in the audit, will make the
information reasonably required to conduct the audit available on a timely
basis and will assist the designated employees of FC or its auditors as
reasonably necessary. If FC requests resources beyond those
resources then assigned to the account team under this Agreement who are
able to provide reasonable assistance of a routine nature in connection
with such audit, such resources will be provided as Additional
Services. EDS will retain records that support EDS’ performance
of the Services and other matters relevant to this Agreement in accordance
with EDS’ retention guidelines. Notwithstanding anything to the
contrary in this Agreement, EDS will not be required to provide access to
the proprietary data of EDS or other EDS customers. All
information learned or exchanged in connection with the conduct of an
audit, as well as the results of any audit, is confidential and will be
subject to Section
7.
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(c)
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Results. Following
an audit, FC will conduct an exit conference with EDS to discuss issues
identified in the audit that pertain to EDS, and FC will give EDS a copy
of any portion of the audit report pertaining to EDS. The
Parties will review each EDS audit issue and will determine (i) what,
if any, actions will be taken in response to such audit issues, when and
by whom and (ii) which Party will be responsible for the cost of taking
the actions necessary to resolve such issues. Any such
determination will be based on the following criteria: (A) who
the owner of the original deficiency is; (B) who has contractual
responsibility for the improvement of internal controls; and (C) who owns
the standards against which the audit is done. EDS will not be
responsible for the cost of an audit, except to the extent the audit
expenses are incurred in connection with a specific audit limited to EDS
and the an original material deficiency discovered in the audit is
attributable
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FRANKLIN
COVEY CO
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ELECTRONIC
DATA SYSTEMS, LLP
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|||
By:
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/s/ Robert A. Whitman
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By:
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/s/ Bjoern Peterson
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Title:
|
Chairman
and CEO
|
Title:
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Regional
Manager of Retail Industries
|
|
Printed
Name:
|
Robert
A. Whitman
|
Printed
Name:
|
Bjoern
Peterson
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|
Address:
|
2200
West Parkway Blvd.
Salt
Lake City, UT 84119
|
Address:
|
5400
Legacy Drive
Plano,
TX 75024
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|
Date:
|
Date:
|
Date:
|
4/1/2001
|
Original
Agreement for Information Technology Services
|
Purpose:
|
Original
IT Outsource
|
|
2.1
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Employee
Offerees
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2.2
|
Key
Positions
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2.7(b)
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Franklin
Covey Competitors
|
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3.2
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Statement
of Work
|
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3.2(a)
|
Service
Levels
|
|
3.2(b)
|
Responsibility
Matrix
|
|
3.2(c)
|
Supported
Locations
|
|
5
|
Maintenance
Contracts
|
|
7
|
Supported
Products
|
|
9.1(a)
|
Charges
- Variable Monthly
|
|
9.1(b)
|
Charges
- Baseline Monthly
|
|
9.5(a)
|
Tax
Mapping
|
|
11.4
|
Termination
for Convenience
|
|
13.8
|
Address
for Notices
|
|
Date:
|
5/14/2001
|
Amendment
and Re-Incorporation Agreement
|
Purpose:
|
Add
ecommerce hosting to agreement
|
|
Date:
|
6/30/2001
|
Amendment
#2 to IT Agreement
|
Purpose:
|
Extend
term of IT services to CC & WH length
|
|
Date:
|
6/30/2001
|
Additional
Services Addendum #1
|
Purpose:
|
Add
Call Center & Warehouse Services
|
|
Date:
|
9/27/2002
|
Amendment
and Re-Incorporation Agreement #2
|
Purpose:
|
Modifies
pricing and SLAs on WH/CC
|
|
Date:
|
10/1/2002
|
Additional
Services Addendum #3
|
Purpose:
|
Tech
Support Call Center
|
|
Date:
|
1/12/2004
|
Addendum
#4: Project Implementation Resolution
|
Purpose:
|
Resolve
dispute re implementation
|
|
Date:
|
2/24/2004
|
Amend/Reincorp
|
Purpose:
|
Changes
WH/CC Pricing
|
Date:
|
10/1/2004
|
Amend/Reincorp
#3
|
Purpose:
|
Include
retail IT support
|
|
Date:
|
4/1/2006
|
Amendment
No. 6
|
Purpose:
|
IT
scope changes
|
|
Date:
|
2/21/2007
|
Amendment
No. 7
|
Purpose:
|
Adjust
fixed charges
|
|
Date:
|
7/23/2002
|
MOU-Retek/McHugh
and Oracle 11i
|
Purpose:
|
Implementation
of Oracle 11i
|
|
Date:
|
10/16/2002
|
MOU-Retek/McHugh
and Oracle 11i
|
Purpose:
|
GS160
and Project extension
|
|
Date:
|
07/06/2008
|
Addendum
#8
|
Purpose:
|
Acknowledgement
Of the divestiture of a business unit of FC and elimination of call center
services to FC
|
1.
|
This
Work Order No. _______ is entered into by the Parties under the provisions
of that certain General Services Agreement, dated as of _______________,
_______, between FC and EDS (the “Agreement”), and, except as otherwise
provided in this Work Order No. _______, all provisions of the Agreement
are applicable to this Work Order No.
_______.
|
2.
|
The
term of this Work Order No. _______ will begin on _______________,
_______, and, unless earlier terminated as provided in the Agreement, will
continue through _______________, _______. The term of this
Work Order No. _______ may be extended by mutual written agreement of the
Parties.
|
3.
|
During
the term of this Work Order No. _______, EDS will perform the services and
produce the deliverables described in Attachment
1.
|
4.
|
During
the term of this Work Order No. _______, FC will, at its own cost and
expense, have the obligations to EDS also as described in Attachment
1.
|
5.
|
For
the services performed and the deliverables produced by EDS under this
Work Order No. _______, FC will pay to EDS the charges described in Attachment 2,
[as such charges are
adjusted from time to time as provided in Attachment
2].
|
|
[Include any additional
provisions.]
|
7.
|
The
amount of the Work Order Damages Limit for this Work Order No. _______ is
$_______________.
|
FRANKLIN
COVEY CO.
|
ELECTRONIC
DATA SYSTEMS, LLP
|
|||
By:
|
By:
|
|||
Title:
|
Title:
|
|||
Printed
Name:
|
Printed
Name:
|
|||
Address:
|
|
Address:
|
||
Date:
|
Date:
|
|
Either
Party may request changes to the EDS Services in accordance with the
following requirements:
|
A-1-1.
|
Change
Request. A
Party will notify the other Party’s primary representative designated
pursuant to Section 3 of
this Agreement in writing of a requested change and will include in such
notice sufficient details of the change to enable such other Party to
evaluate it (the “Change
Request”).
|
A-1-2.
|
Preliminary
Estimate. If
EDS submits a Change Request to FC, it will include with such Change
Request an estimate (the “Preliminary Estimate”)
of the time and cost to make the requested change. If FC
submits a Change Request to EDS, EDS will, within a reasonable period of
time following the date of receipt of the Change Request, provide FC with
a Preliminary Estimate of the time and cost to make the requested
change.
|
A-1-3.
|
Response
Period. Within the time
frame specified by EDS in the Preliminary Estimate (the “Response Period”), FC
will notify EDS in writing whether or not to proceed with the assessment
of the Change Request. If, within the Response Period, FC
notifies EDS in writing not to proceed, the Change Request will be deemed
withdrawn, and EDS will take no further action on it. If EDS
does not receive any notice from FC within the Response Period, FC will be
deemed to have advised EDS not to
proceed.
|
A-1-4.
|
Change
Control Document. If,
within the Response Period, FC notifies EDS in writing to proceed with the
assessment of the Change Request, EDS will prepare a document (the “Change Control
Document”) in accordance with the Preliminary Estimate which
includes (i) a description of the change, (ii) the benefit of or reason
for the change, (iii) the issues or concerns with the change, (iv) the
priority of the change, (v) the modifications, additions and/or deletions
that need to be made to the affected Work Order in order to implement the
change, including the proposed increase or decrease in the charges to be
paid by FC thereunder, and (vi) the potential impact on the current nature
and scope of the EDS Services, including service levels and any project
delivery schedules.
|
A-1-5.
|
Acceptance
by EDS. EDS
will provide FC with the completed Change Control Document, signed by EDS,
which will constitute an offer by EDS to implement the Change Request with
all associated changes to the affected Work Order specified in the Change
Control Document. Such offer will be irrevocable for five
business days following the date of receipt of the offer by
FC.
|
A-1-6.
|
Acceptance
by FC. If
FC accepts EDS’ offer by acknowledging such acceptance in writing on the
Change Control Document, the Change Control Document will become an
amendment to the affected Work Order and will be binding on both
Parties. Each Change Control Document will be numbered
sequentially per Work Order and will be logged and tracked by EDS as part
of the EDS Services.
|
B-1.
|
Scope
of Obligation. Except
as otherwise expressly provided in this Agreement, EDS and FC each agrees
that (a) all information communicated to it by the other and identified as
confidential, whether before or after the date hereof, (b) all information
identified as confidential to which it has access in connection with the
EDS Services, whether before or after the date hereof, and (c) this
Agreement and the Parties' rights and obligations hereunder, will be and
will be deemed to have been received in confidence and will be used only
for purposes of this Agreement, and each of EDS and FC agrees to use the
same means as it uses to protect its own confidential information, but in
no event less than reasonable means, to prevent the disclosure and to
protect the confidentiality thereof. No such information
will be disclosed by the recipient Party without the prior written consent
of the other Party; provided, however, that
each Party may disclose this Agreement and the other Party's confidential
information to those of the recipient Party's attorneys, auditors,
insurers (if applicable), subcontractors and employees who have
a need to have access to such information in connection with their
employment (or engagement, if applicable) by the recipient Party, so long
as the recipient Party advises each such attorney, auditor, insurer,
subcontractor and employee of the confidentiality obligations set forth in
this Exhibit
B. In any event, compliance by each of the persons
referenced in the preceding sentence with the confidentiality obligations
set forth in this Exhibit B will
remain the responsibility of the Party employing or engaging such
persons. Notwithstanding the foregoing, EDS may disclose this
Agreement and other confidential information to which it has access
hereunder to professional advisers, financial institutions and other third
parties in connection with any proposed transaction to provide financing
related to this Agreement or the obligations of EDS hereunder, so long as
each of them execute a confidentiality agreement containing terms and
conditions no less restrictive than those set forth in this Exhibit
B.
|
B-2.
|
Exceptions. The
foregoing will not prevent either Party from disclosing or using
information (other than FC Personal Data) that belongs to such Party or
(i) is already known by the recipient Party without an obligation of
confidentiality other than under this Agreement, (ii) is publicly known or
becomes publicly known through no unauthorized act of the recipient Party,
(iii) is rightfully received from a third party, (iv) is independently
developed without use of the other Party's confidential information (v) is
disclosed without similar restrictions to a third party by the Party
owning the confidential information, or (vi) is disclosed to others in
accordance with the terms of prior written authorization of the disclosing
Party. If confidential information is required to be disclosed
pursuant to a requirement of a governmental authority, such confidential
information may be disclosed pursuant to such requirement so long as the
Party required to disclose the confidential information, to the extent
possible, provides the other Party with timely prior notice of such
requirement and coordinates with such other Party in an effort to limit
the nature and scope of such required disclosure. In addition,
and notwithstanding anything to the contrary in this Agreement, each Party
may disclose to taxing authorities and to such Party’s representatives,
outside counsel and advisors, any confidential information that is
required to be disclosed in connection with such Party’s tax filings,
reports, claims, audits or litigation without prior notice to, or approval
or consent of, the other Party. If confidential information is
required to be disclosed in connection with the conduct of any mediation
or arbitration proceeding carried out pursuant to Section 10 of
this Agreement, such confidential information may be disclosed pursuant to
and in accordance with the approval and at the direction of the mediator
or arbitrators, as the case may be, conducting such
proceeding. In addition, the results of any such mediation or
arbitration are confidential and will be subject to this Exhibit
B. Unless otherwise required by applicable law, upon
written request of the disclosing Party at the expiration or termination
of this Agreement and all Work Orders for any reason, all documented
confidential information (and all copies thereof) of the disclosing Party
will be returned to the disclosing Party or will be destroyed, with
written certification thereof being given to the disclosing
Party. The provisions of this Exhibit B will
survive the expiration or termination of this Agreement and each Work
Order for any reason.
|
C-1.
|
Performance. EDS
represents and warrants that all EDS Services will be performed in a
professional manner by personnel with training and experience appropriate
to the responsibilities they are to perform. Notwithstanding
the foregoing, (a) in all cases where EDS has committed to a specific
service level in an Work Order and where there is a conflict between that
service level and a service level obligation under this Section C-1,
the specific service level will apply, and (b) in all cases where EDS has
not committed to a specific performance standard for certain of the EDS
Services, EDS will use reasonable care in providing such EDS
Services.
|
C-2.
|
[RESERVED]
|
C-3.
|
Authorization. Each
Party represents and warrants to the other
that:
|
|
(a)
|
It
is duly formed, validly existing and in good standing under the laws of
its jurisdiction of formation;
|
|
(b)
|
It
has the requisite power and authority to execute, deliver and perform its
obligations under this Agreement;
|
|
(c)
|
It
has obtained all licenses, authorizations, approvals, consents or permits
required to perform its obligations under this Agreement and each Work
Order and to grant access to the other Party to systems and information as
provided in this Agreement and each Work Order under all applicable
federal, state, provincial or local laws and under all applicable rules
and regulations of all authorities having jurisdiction over the EDS
Services, except where the failure of a Party to so obtain any such item
is not material to such Party’s ability to perform its obligations
hereunder.
|
|
(d)
|
The
execution, delivery and performance of this Agreement and each Work Order
and the consummation of the transactions contemplated hereby and thereby
have been duly authorized by the requisite corporate action on the part of
such Party.
|
|
(e)
|
The
execution, delivery and performance of this Agreement and each Work Order
will not constitute a violation of any judgment, order or decree, a
material default under any material contract by which it or any of its
material assets are bound or an event that would, with notice or lapse of
time, or both, constitute such a
default.
|
C-4.
|
No
Inducements. EDS
has not violated any FC policy made available to EDS regarding the
offering of inducements in connection with this Agreement or any Work
Order.
|
C-5.
|
Viruses. Each Party
will use commercially reasonable measures to screen any software provided
or made available by it to the other Party hereunder for the purpose of
avoiding the introduction of any “virus” or other computer software
routine or hardware components which are designed (i) to permit access or
use by third parties to the software of the other Party not authorized by
this Agreement, (ii) to disable or damage hardware or damage, erase
or delay access to software or data of the other Party or (iii) to perform
any other similar actions. If a virus is found to have been
introduced into FC’s systems or the systems used to provide the EDS
Services as a result of a breach of the foregoing covenant, EDS will use
commercially reasonable efforts, at no additional charge, to reasonably
assist FC (within the scope of the EDS Services) (a) in eradicating the
virus and reversing its effects and (b) to the extent the virus causes a
loss of data or operational efficiency as a result of a breach of the
foregoing covenant, in mitigating and reversing such
losses.
|
C-6.
|
Disabling
Codes. EDS will
not, without informing FC’s representative, knowingly insert into the
software used by it hereunder any code or other device which would have
the effect of disabling, damaging, erasing, delaying or otherwise shutting
down all or any portion of the EDS Services or the hardware, software or
data used in providing the EDS Services. EDS will not invoke
such code or other device at any time, including upon expiration or
termination of this Agreement for any reason, without FC’s prior written
consent.
|
C-7.
|
Use
of Software. EDS
has sufficient right, title and interest in and to all EDS software
provided by EDS and used in connection with the EDS
Services. FC’s sole remedy for breach of this Section C-7 is
through the indemnity set forth in Section
D-3.
|
C-8.
|
Disclaimer. EXCEPT AS OTHERWISE EXPRESSLY
PROVIDED IN THIS EXHIBIT
C OR THE AGREEMENT
TO WHICH THIS EXHIBIT
C IS ATTACHED, EDS
MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING ANY
MATTER, INCLUDING THE MERCHANTABILITY, SUITABILITY, ORIGINALITY, FITNESS
FOR A PARTICULAR USE OR PURPOSE, OR RESULTS TO BE DERIVED FROM THE USE, OF
ANY SERVICE, SOFTWARE, HARDWARE OR OTHER MATERIALS PROVIDED UNDER THIS
AGREEMENT, OR THAT THE OPERATION OF ANY SUCH SERVICE, SOFTWARE,
HARDWARE OR OTHER MATERIALS WILL BE UNINTERRUPTED OR
ERROR-FREE.
|
D-1.
|
Claims
Relating to Space and Taxes. Subject
to Section
13 of this Agreement and the procedures set forth below in Section D-6,
EDS and FC each agrees to indemnify and defend the other Party from any
and all claims, actions, damages, liabilities, costs and expenses,
including reasonable attorneys’ fees and expenses (collectively,
“Losses”), arising out of, under or in connection with (a) any third party
claim for rent or utilities at any location where the indemnitor is
financially responsible under this Agreement for such rent or utilities or
(b) any third party claim for wages, benefits, third party fees, taxes,
assessments, duties, permits or other charges of any nature for which the
indemnitor is responsible under this Agreement, as well as penalties,
interest, fees or other expenses incurred by the indemnitor as a result of
such items, including taxes, not being paid at the time or in the manner
required by applicable law.
|
D-2.
|
Claims Relating to
Personal Injury and Property
Damage.
|
(a)
|
Damage
to Property of Parties. EDS
and FC each will be responsible for any and all Losses, to their
respective tangible personal or real property (whether owned or leased),
and each Party agrees to look only to its own insuring arrangements (if
any) with respect to such Losses.
|
(b)
|
Personal
Injury; Damage to Property of Third Parties. EDS
and FC each will be responsible for Losses for the death of or personal
injury to any person (including any employee of either Party) and Losses
for damages to any third party’s tangible personal or real property
(whether owned or leased), in accordance with the law of the jurisdiction
in which such Loss is alleged to have occurred. Subject to
Section
13 of this Agreement and the procedures set forth below in Section D-6,
each Party will indemnify and defend the other Party from any and all
Losses arising out of, under or in connection with third party claims for
which the indemnitor is responsible under this Section
D-2(b).
|
|
(c)
|
Waiver
of Subrogation. To
the extent permitted at no additional cost, EDS and FC waive all rights to
recover against each other for any Loss to their respective tangible
personal property (whether owned or leased) from any cause covered by
insurance maintained by each of them, including their respective
deductibles or self-insured retentions. EDS and FC will cause
their respective insurers to issue appropriate waivers of subrogation
rights endorsements to all property insurance policies maintained by each
Party. Each Party will give the other written notice if a
waiver of subrogation is unobtainable or obtainable only at additional
expense. If the Party receiving such notice agrees to reimburse
the other Party for such additional expense, the other Party will obtain
such waiver of subrogation. If a waiver is unobtainable or if a
Party elects not to pay the additional expense of a waiver, then neither
Party nor their insurers will waive such subrogation
rights.
|
|
D-3.
|
Infringement
Claims.
|
|
(a)
|
General. Subject
to Section
13 of this Agreement, the exclusions and limitations set forth
below in this Section D-3 and
the procedures set forth below in Section D-6,
EDS and FC each agrees to defend the other Party against any third party
action to the extent that such action is based upon a claim that the
software (other than third party software) or confidential information
provided by the indemnitor, or any part thereof, (i) infringes a copyright
perfected under United States statute, (ii) infringes a patent granted
under United States law or (iii) constitutes an unlawful disclosure,
use or misappropriation of another party's trade secret. The
indemnitor will bear the expense of such defense and pay any Losses that
are attributable to such claim finally awarded by a court of competent
jurisdiction.
|
(b)
|
Exclusions. The
indemnitor will have no liability to the indemnitee hereunder if (i) the
claim of infringement is based upon the use of software provided by the
indemnitor hereunder in connection or in combination with equipment,
devices or software not supplied by the indemnitor or used in a manner for
which the software was not designed, (ii) the indemnitee modifies any
software provided by the indemnitor hereunder and such infringement would
not have occurred but for such modification, or uses the software in the
practice of a patented process and there would be no infringement in the
absence of such practice, or (iii) the claim of infringement arises out of
the indemnitor's compliance with specifications provided by the indemnitee
and such infringement would not have occurred but for such
compliance. In addition, EDS will only be liable to FC for
claims of infringement arising out of, under or in connection with, gross
negligence by EDS in the provision of help desk services, call center
services or automated attendant services involving computer telephony
integration.
|
|
(c)
|
Additional
Remedy. If
software or confidential information becomes the subject of an
infringement claim under this Section D-3, or
in the indemnitor’s opinion is likely to become the subject of such a
claim, then, in addition to defending the claim and paying any damages and
attorneys’ fees as required above in this Section D-3,
the indemnitor may, at its option and in its sole discretion, (A) replace
or modify the software or confidential information to make it
noninfringing or cure any claimed misuse of another’s trade secret or (B)
procure for the indemnitee the right to continue using the software or
confidential information pursuant to this Agreement. Any costs
associated with implementing either of the above alternatives will be
borne by the indemnitor but will be subject to Section 13 of
this Agreement. If neither alternative is pursued by, or (if
pursued) available to, the indemnitor, (x) the indemnitee will return such
software or confidential information to the indemnitor and (y) if
requested by the indemnitee in good faith, the Parties will negotiate,
pursuant to Section 10 of
this Agreement but subject to Section 13 of
this Agreement, to reach a written agreement on what, if any, monetary
damages (in addition to the indemnitor’s obligation to defend the claim
and pay any damages and attorneys’ fees as required above in this Section D-3)
are reasonably owed by the indemnitor to the indemnitee as a result of the
indemnitee no longer having use of such software or confidential
information. The payment of any such monetary damages will be
the indemnitee’s sole and exclusive remedy for the inability of the
indemnitor to implement either of the above
alternatives.
|
|
D-4.
|
Claims
Relating to Internet Usage. FC warrants that the
publication of any material delivered by or through it under this
Agreement or any Work Order will not violate the copyright laws of the
United States or any other jurisdiction, unlawfully infringe or interfere
in any way with the literary property or rights of another or contain
libelous or indecent matter. FC will indemnify and defend EDS
from any and all Losses, including those associated with claims for
indirect or contributory infringement, arising out of, under or in
connection with any third party claims relating to (i) content, whether of
an editorial, advertising or other nature, (ii) the provision, use,
alteration or distribution thereof, the accessibility thereto or the
exchange of information over the Internet in connection therewith,
including copyright infringement, libel, indecency, false light,
misrepresentation, invasion of privacy or image or personality rights,
(iii) statements or other materials made or made available by readers of
the content or by persons to whom the content is linked at the request of
FC or (iv) the conduct of FC’s
business.
|
D-5.
|
Procedures. The
indemnification obligations set forth in this Exhibit D will
not apply unless the Party claiming indemnification: (a)
notifies the other promptly in writing of any matters in respect of which
the indemnity may apply and of which the notifying Party has knowledge, in
order to allow the indemnitor the opportunity to investigate and defend
the matter; provided, however, that
the failure to so notify will only relieve the indemnitor of its
obligations under this Exhibit D if
and to the extent that the indemnitor is prejudiced thereby; and (b) gives
the other Party full opportunity to control the response thereto and the
defense thereof, including any agreement relating to the settlement
thereof; provided, however, that
the indemnitee will have the right to participate in any legal proceeding
to contest and defend a claim
for
|
1.
|
I
have reviewed this annual report on Form 10-K of Franklin Covey
Co.;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4.
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date: November
14, 2008
|
||
/s/Robert A. Whitman | ||
Robert
A. Whitman
President
and Chief Executive Officer
|
1.
|
I
have reviewed this annual report on Form 10-K of Franklin Covey
Co.;
|
2.
|
Based
on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
|
3.
|
Based
on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
report;
|
4.
|
The
registrant’s other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and
have:
|
a)
|
Designed
such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
|
b)
|
Designed
such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
c)
|
Evaluated
the effectiveness of the registrant’s disclosure controls and procedures
and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
|
d)
|
Disclosed
in this report any change in the registrant’s internal control over
financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
|
5.
|
The
registrant’s other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to
the registrant’s auditors and the audit committee of the registrant’s
board of directors (or persons performing the equivalent
functions):
|
|
a)
|
All
significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record,
process, summarize and report financial information;
and
|
b)
|
Any
fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant’s internal control
over financial reporting.
|
Date: November
14, 2008
|
||
/s/Stephen D. Young | ||
Stephen
D. Young
Chief
Financial Officer
|
1.
|
The
Report fully complies with the requirements of Section 13(a) or 15(d), as
applicable, of the Securities Exchange Act of 1934, and
|
2.
|
The
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company
at the dates and for the periods
indicated.
|
/s/Robert A. Whitman | /s/Stephen D. Young | ||
Robert
A. Whitman
President
and Chief Executive Officer
|
Stephen
D. Young
Chief
Financial Officer
|
||
Date:
November 14, 2008
|
Date:
November 14, 2008
|
Column A
|
Column B
|
Column C
|
Column D
|
Column E
|
||||||||||||||||
Additions
|
||||||||||||||||||||
Description
|
Balance
at Beginning of Period
|
Charged
to Costs and Expenses
|
Charged
to Other Accounts
|
Deductions
|
Balance
at End of Period
|
|||||||||||||||
Year
ended August 31, 2006:
|
||||||||||||||||||||
Allowance
for doubtful accounts
|
$ | 1,425 | $ | 365 | $ | 564 | (3) | $ | (1,375 | )(1) | $ | 979 | ||||||||
Allowance
for inventories
|
5,324 | 989 | - | (2,990 | )(2) | 3,323 | ||||||||||||||
$ | 6,749 | $ | 1,354 | $ | 564 | $ | (4,365 | ) | $ | 4,302 | ||||||||||
Year
ended August 31, 2007:
|
||||||||||||||||||||
Allowance
for doubtful accounts
|
$ | 979 | $ | 207 | $ | - | $ | (365 | )(1) | $ | 821 | |||||||||
Allowance
for inventories
|
3,323 | 2,631 | - | (1,702 | )(2) | 4,252 | ||||||||||||||
$ | 4,302 | $ | 2,838 | $ | - | $ | (2,067 | ) | $ | 5,073 | ||||||||||
Year
ended August 31, 2008:
|
||||||||||||||||||||
Allowance
for doubtful accounts
|
$ | 821 | $ | 501 | $ | - | $ | (256 | )(1)(4) | $ | 1,066 | |||||||||
Allowance
for inventories
|
4,252 | 1,029 | - | (4,202 | )(2)(5) | 1,079 | ||||||||||||||
$ | 5,073 | $ | 1,530 | $ | - | $ | (4,458 | ) | $ | 2,145 | ||||||||||
(4)
Includes $23 of the allowance for doubtful accounts that was sold with the
Consumer Solutions Business Unit
assets
|
(5)
Includes $3,058 of inventory reserves that were sold with the Consumer
Solutions Business Unit assets
|