UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of
The
Securities Exchange Act of 1934
Date of
Report (Date of Earliest Event Reported):
June
30, 2009
FRANKLIN
COVEY CO.
(Exact
name of registrant as specified in its charter)
Commission
File No. 1-11107
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Utah
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87-0401551
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(State
or other jurisdiction of incorporation)
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(IRS
Employer Identification Number)
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2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2099
(Address
of principal executive offices)(Zip Code)
Registrant’s
telephone number, including area code: (801) 817-1776
Former
name or former address, if changed since last report: Not Applicable
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[
] Written communications pursuant to Rule 425
under the Securities Act (17 CFR 230.425)
[
] Soliciting material pursuant to Rule 14a-12
under the Exchange Act (17 CFR 240.14a-12)
[
] Pre-commencement communications pursuant to
Rule 14d-2(b) under the Exchange Act (17 CFR240.14d-2(b))
[
] Pre-commencement communications pursuant to
Rule 13e-4(c) under the Exchange Act (17 CFR240.13e-4(c))
Item
1.01 Entry into a Material Definitive
Agreement
On June
30, 2009, Franklin Covey Co. (the Company) entered into a second modification
agreement with JPMorgan Chase Bank, N.A. (the Lender) on its line of credit
facility (the Second Modification Agreement). The Lender also
provides the majority of the Company’s day-to-day banking
services. Under terms of the Second Modification Agreement, the
Company’s borrowing capacity will reduced as follows (dollars in
thousands):
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Effective
Date
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Borrowing
Capacity
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|||
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June
30, 2009
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$ | 20,000 | ||
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August
31, 2009
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18,000 | |||
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November
30, 2009
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13,500 | |||
In
addition, any payments made to the Company by Franklin Covey Products, LLC from
the working capital settlement and reimbursable costs associated with the sale
transaction note receivable are required to be paid on the line of credit and
will also reduce the available borrowing capacity as shown above by the amount
of the payments. For example, a $2.0 million payment received from
Franklin Covey Products, LLC prior to August 31, 2009 would reduce the borrowing
capacity on the line of credit at August 31, 2009 to $16.0 million.
The
Second Modification Agreement also increases the effective interest rate on the
line of credit facility from LIBOR plus 1.50 percent to LIBOR plus 2.00 percent,
effective on the date of the Second Modification Agreement.
In
addition to customary non-financial terms and conditions, the line of credit
requires the Company to be in compliance with specified financial covenants,
including: (i) a funded debt to earnings ratio; (ii) a fixed charge coverage
ratio; (iii) a limitation on annual capital expenditures; and (iv) a defined
amount of minimum net worth. In the event of noncompliance with these
financial covenants and other defined events of default, the Lender is entitled
to certain remedies, including acceleration of the repayment of amounts
outstanding on the line of credit. The Second Modification Agreement
also modified the funded debt to earnings ratio and fixed charged coverage ratio
over the quarterly periods ended August 2009 and November 2009.
The
foregoing description of the Second Modification Agreement does not purport to
be complete and is qualified in its entirety by reference to the text of the
Second Modification Agreement, which is filed as Exhibit 10.1 attached
hereto.
The
original credit agreements with the Lender are described in further detail, and
the corresponding agreements are attached as exhibits to the Form 8-K filed with
the Securities and Exchange Commission on March 19, 2007.
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Item
2.03
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Creation
of a Direct Financial Obligation or an Obligation Under an Off-Balance
Sheet Arrangement
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On June
30, 2009, the Company entered into a second modification agreement with the
Lender on its line of credit facility as described above in Item
1.01. The information in Item 1.01 is incorporated by reference
herein.
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Item
9.01
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Financial
Statements and Exhibits
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(d)
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Exhibits:
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10.1
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Second
Modification Agreement by and among Franklin Covey Co. and JPMorgan Chase
Bank, N.A., dated June 30, 2009.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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FRANKLIN
COVEY CO.
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||||
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Date:
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July 7, 2009
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By:
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/s/ Stephen D.
Young
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Stephen D.
Young
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||||
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Chief Financial
Officer
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Exhibit 10.1
SECOND
MODIFICATION AGREEMENT
This
SECOND MODIFICATION AGREEMENT (the
“Modification
Agreement”) is made effective as of June 30, 2009, by and among FRANKLIN COVEY CO., a Utah
corporation (“Borrower”), whose address is
2200 West Parkway Blvd., Salt Lake City, Utah 84119, each undersigned Guarantor,
other than the Dissolved Guarantors, and JPMORGAN CHASE BANK, N.A., a
national banking association (“Lender” and “Collateral Agent”), whose
address is 201 South Main Street, Suite 300, Salt Lake City, Utah
84111.
RECITALS:
A. Lender
has previously extended to Borrower a revolving line of credit loan (the “Loan”) in the maximum
principal amount of TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00)
pursuant to a Revolving Line of Credit Agreement dated as of March 14, 2007 (as
amended and modified from time to time, the “Loan Agreement”), and
evidenced by a Secured Promissory Note dated March 14, 2007 (as amended and
modified from time to time, the “Note”). Capitalized
terms used herein without definition shall have the meanings given to such terms
in the Loan Agreement and Note.
B. Repayment
of the Loan is guaranteed pursuant to the terms of a Repayment Guaranty dated as
of March 14, 2007 (as amended and modified from time to time, the “Guaranty”), executed by FRANKLIN COVEY PRINTING, INC.,
a Utah corporation, FRANKLIN
DEVELOPMENT CORPORATION, a Utah corporation, FRANKLIN COVEY TRAVEL, INC., a
Utah corporation, FRANKLIN
COVEY CATALOG SALES, INC., a Utah corporation, FRANKLIN COVEY CLIENT SALES,
INC., a Utah corporation, and FRANKLIN COVEY PRODUCT SALES,
INC., a Utah corporation (individually and collectively, as the context
requires, and jointly and severally, “Guarantor”), in favor of
Lender.
C. The Loan
is secured by, among other things, (i) a Security Agreement dated as of March
14, 2007 (as amended and modified from time to time, the “Security Agreement”),
executed by Borrower and Guarantor, as “debtor,” in favor of JPMORGAN CHASE BANK, N.A., a
national banking association, not in its individual capacity, but solely as
collateral agent (in such capacity, the “Collateral Agent”) for
Lender; (ii) a Pledge and Security Agreement dated as of March 14, 2007 (as
amended and modified from time to time, the “Pledge and Security Agreement”),
executed by Borrower, as “pledgor,” in favor of Collateral Agent; and (iii) an
Account Control Agreement dated as of March 14, 2007 (as amended and modified
from time to time, the “Account Control Agreement”), executed by
Borrower and Guarantor, as “debtor,” Collateral Agent, as “creditor,” and ZIONS FIRST NATIONAL BANK, a
national banking association, as “bank” (collectively, the “Security
Documents”).
D. The Loan
Agreement, the Note, the Guaranty, the Security Documents, and all other
agreements, documents, and instruments governing, evidencing, securing,
guaranteeing or otherwise relating to the Loan, as modified in this Modification
Agreement, are sometimes referred to individually and collectively as the “Loan Documents.”
E. Borrower
and/or one or more of the Guarantors have previously sold substantially all of
the assets of Borrower’s Consumer Solutions Business Unit (the “CSBU Asset Sale”) to Franklin
Covey Products, LLC (“Franklin
Covey Products”) pursuant to one or more written agreements (the “CSBU Asset Sale
Documents”). Under the CSBU Asset Sale Documents, Borrower is
entitled to receive reimbursement for certain costs. As of February
28, 2009, Borrower had a note receivable from Franklin Covey Products of
approximately $3,600,000.00 resulting from a working capital settlement with
Franklin Covey Products and reimbursable costs associated with the CSBU Asset
Sale. Borrower anticipates that it will collect such working capital
settlement and accrued interest thereon (collectively, the “Franklin Covey Products
Payment”).
F. Subsequent
to the CSBU Asset Sale, the following Subsidiaries were dissolved: FRANKLIN COVEY PRINTING, INC.,
a Utah corporation, FRANKLIN
COVEY CATALOG SALES, INC., a Utah
1
corporation,
and FRANKLIN COVEY PRODUCT
SALES, INC., a Utah corporation (collectively, the “Dissolved
Guarantors”).
G. Subject
to the terms and conditions contained herein, Borrower and Lender now desire to
modify the Loan Documents to: (i) modify the schedule pursuant to which the Loan
Amount will be reduced; (ii) increase the interest rate applicable under the
Loan Documents from the LIBO Rate in effect from time to time plus 1.50% per
annum to LIBO Rate in effect from time to time plus 2.00% per annum; (iii)
modify the funded debt to EBITDAR ratio and the fixed charge coverage ratio as
set forth herein; (iv) consent to the dissolution of the Dissolved Guarantors
and release the Dissolved Guarantors and any Collateral owned by the Dissolved
Guarantors from the Security Documents; (v) modify the Lender’s notice address
in the Loan Documents; and (vi) make such other modifications as are set forth
herein.
AGREEMENT:
For good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower, Guarantor, Lender and Collateral Agent agree as
follows:
1. ACCURACY
OF RECITALS. Each of Borrower and each Guarantor acknowledges
the accuracy of the Recitals which are incorporated herein by
reference.
2. MODIFICATION
OF LOAN DOCUMENTS. The Loan Documents are modified as
follows:
(a) Loan Amount
Reductions.
(1) Loan
Agreement. The definition of “Loan Amount” set forth in
Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety
to read as follows:
“Loan Amount” means the amount
of up to TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00), plus any sum
in addition thereto advanced by Lender in its sole and absolute discretion in
accordance with the Loan Documents, to be disbursed pursuant to the terms and
conditions of this Agreement; provided, however, that such
amount shall be reduced effective as of the dates listed below to the amounts
listed below.
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Effective
Date
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Reduced
Loan Amount
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June
30, 2009
August
31, 2009
November
30, 2009
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$20,000,000.00
$18,000,000.00
$13,500,000.00
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(2) Note. Notwithstanding
anything to the contrary contained in that Section 2(a)(2) of that certain
Modification Agreement dated as of July 8, 2008 between Borrower and Lender (the
“First Modification
Agreement”), (A) the reference to “$25,000,000.00” in the heading of the
Note is hereby amended to provide that such amount shall be reduced in
accordance with the provisions of Section 1 of the Note; and (B) the reference
in Section 1 of the Note to “TWENTY-FIVE MILLION AND NO/100 DOLLARS
($25,000,000.00)” shall be amended to provide that such amount shall be reduced
effective as of the dates listed below to the amounts listed below.
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Effective
Date
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Reduced
Loan Amount
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June
30, 2009
August
31, 2009
November
30, 2009
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$20,000,000.00
$18,000,000.00
$13,500,000.00
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2
(3) Franklin Covey Products
Payment. Borrower agrees that upon the receipt of any portion
of the Franklin Covey Products Payment (A) Borrower will make a payment on the
outstanding balance of the Loan equal to the amount so received; and (B) the
Loan Amount shall be further reduced by the amount so received; provided, however, that in
each case such amount shall be limited to the lesser of (i) the aggregate amount
of the Franklin Covey Products Payment actually received by Borrower and (ii)
$3,500,000.00 (such lesser amount, the “Additional Reduction
Amount”). The parties agree that if Borrower receives any
portion of the Additional Reduction Amount prior to any of the “Effective Dates”
set forth in subsections (1) and (2) above, the corresponding “Reduced Loan
Amounts” set forth in such subsections shall be further reduced by the aggregate
Additional Reduction Amount received on or before such Effective
Date. For example, if Borrower were to receive the full Additional
Reduction Amount on November 15, 2009, the Loan Amount would be reduced as of
such date from $18,000,000.00 to $14,500,000.00; and as of November 30, 2009 the
Loan Amount would be further reduced from $14,500,000.00 to
$10,000,000.00
An
original of this Modification Agreement may be attached to the original Note as
an allonge and made a part of the Note, provided, however, that
failure to attach an original of this Modification Agreement as an allonge to
the Note shall not impact the effectiveness of this Modification Agreement and
this Modification Agreement shall nonetheless be valid, binding and
enforceable.
(b) Interest Rate
Increase. The definition of “Interest Rate” set forth in
Section 1.1 of the Loan Agreement is hereby amended and restated in its entirety
to read as follows:
“Interest Rate” means a
variable rate equal to the LIBO Rate in effect from time to time plus Two
Percent (2.00%) per annum.
(c) Financial
Covenants.
(1) Funded Debt to EBITDAR
Ratio. Section 6.8(a) of the Loan Agreement is hereby amended
to provide that the funded debt to EBITDAR ratio described therein shall not be
greater than (A) 4.00 to 1.00 as of the end of the fiscal quarter of Borrower
ending on August 31, 2009, (B) 3.00 to 1.00 as of the end of the fiscal quarter
of Borrower ending on November 30, 2009, and (C) 2.75 to 1.00 as of the end of
the fiscal quarter of Borrower ending on February 28, 2010 and each fiscal
quarter thereafter.
(2) Fixed Charge Coverage
Ratio. Section 6.8(b) of the Loan Agreement is hereby amended
to provide that the fixed charge coverage ratio described therein shall not be
less than (A) 1.25 to 1.00 as of the end of the fiscal quarter of Borrower
ending on August 31, 2009 and (B) 1.50 to 1.00 as of the end of the fiscal
quarter of Borrower ending on November 30, 2009 and each fiscal quarter
thereafter
(d) Dissolved
Guarantors. Lender and Collateral Agent hereby consent to the
dissolution of the Dissolved Guarantors and hereby release the Dissolved
Guarantors and any Collateral owned by the Dissolved Guarantors from the
Guaranty and the Security Documents, and all references in the Loan Documents to
any of the Dissolved Guarantors are hereby deleted and of no further force or
effect.
(e) Lender’s Notice
Address. Each of the Loan Documents is hereby amended to
provide that Lender’s address for the giving of any notices in connection with
the Loan is as follows:
3
JPMorgan
Chase Bank, N.A.
201 South
Main Street, Suite 300
Salt Lake
City, Utah 84111
Attn: Paul
Sommer
(f) Conforming
Modifications. Each of the Loan Documents is modified to be
consistent herewith and to provide that it shall be a default or an Event of
Default thereunder if Borrower shall fail to comply with any of the covenants of
Borrower herein or if any representation or warranty by Borrower herein or by
any guarantor in any related Consent and Agreement of Guarantor(s) is materially
incomplete, incorrect, or misleading as of the date hereof. In order
to further effect certain of the foregoing modifications, Borrower and Guarantor
agree to execute and deliver such other documents or instruments as Lender
reasonably determines are necessary or desirable.
(g) References. Each
reference in the Loan Documents to any of the Loan Documents shall be a
reference to such document as modified herein or as modified on or about the
date hereof.
3. RATIFICATION
OF LOAN DOCUMENTS AND COLLATERAL. The Loan Documents are ratified
and affirmed by Borrower and shall remain in full force and effect as modified
herein. Any property or rights to or interests in property granted as
security in the Loan Documents shall remain as security for the Loan and the
obligations of Borrower in the Loan Documents.
4. FEES AND
EXPENSES.
(a) Fees and
Expenses. In consideration of Lender’s agreement to amend the
Loan Documents as set forth herein, and in addition to any other fees or amounts
payable by Borrower hereunder, Borrower has agreed to pay to Lender (i) all
legal fees and expenses incurred by Lender in connection herewith; and (ii) all
other costs and expenses incurred by Lender in connection with executing this
Modification Agreement and otherwise modifying the Loan
Documents. Borrower acknowledges and agrees that such fees are fully
earned and nonrefundable as of the date this Modification Agreement is executed
and delivered by the parties hereto.
(b) Method of
Payment. Such fees shall be paid by Borrower to Lender on the
date hereof or at such later date as such fees, costs and expenses are incurred
by Lender. Borrower and Lender agree and acknowledge that the
foregoing shall not relieve Borrower of its obligation to make future monthly
payments of interest and other amounts as required under the terms of the
Loan.
5. BORROWER
REPRESENTATIONS AND WARRANTIES. Each of Borrower and Guarantor
represents and warrants to Lender: (a) No default or event of default
under any of the Loan Documents as modified herein, nor any event, that, with
the giving of notice or the passage of time or both, would be a default or an
event of default under the Loan Documents as modified herein has occurred and is
continuing; (b) There has been no material adverse change in the financial
condition of Borrower or Guarantor or any other person whose financial statement
has been delivered to Lender in connection with the Loan from the most recent
financial statement received by Lender; (c) Each and all representations and
warranties of Borrower and Guarantor in the Loan Documents are accurate on the
date hereof; (d) Neither Borrower nor Guarantor has any claims, counterclaims,
defenses, or set-offs with respect to the Loan or the Loan Documents as modified
herein; (e) The Loan Documents as modified herein are the legal, valid, and
binding obligation of Borrower and Guarantor, enforceable against Borrower and
Guarantor in accordance with their terms; (f) Each of Borrower and each
Guarantor is validly existing under the laws of the State of its formation or
organization, has not changed its legal name as set forth above, and has the
requisite power and authority to execute and deliver this Modification Agreement
and to perform the Loan Documents as modified herein; (g) The execution and
delivery of this Modification Agreement and the performance of the Loan
Documents as modified herein have been duly authorized by all requisite action
by or on behalf of Borrower and Guarantor; and (h) This Modification Agreement
has been duly executed and delivered on behalf of Borrower and
Guarantor.
4
6. BORROWER
AND
GUARANTOR COVENANTS. Each
of Borrower and Guarantor covenants with Lender:
(a) Each of
Borrower and Guarantor shall execute, deliver, and provide to Lender such
additional agreements, documents, and instruments as reasonably required by
Lender to effectuate the intent of this Modification Agreement.
(b) Each of
Borrower and Guarantor fully, finally, and forever releases and discharges
Lender and its successors, assigns, directors, officers, employees, agents, and
representatives from any and all actions, causes of action, claims, debts,
demands, liabilities, obligations, and suits, of whatever kind or nature, in law
or equity, that either Borrower or Guarantor has or in the future may have,
whether known or unknown, (i) in respect of the Loan, the Loan Documents, or the
actions or omissions of Lender in respect of the Loan or the Loan Documents and
(ii) arising from events occurring prior to the date of this Modification
Agreement.
(c) Contemporaneously
with the execution and delivery of this Modification Agreement, Borrower has
paid to Lender all of the internal and external costs and expenses incurred by
Lender in connection with this Modification Agreement (including, without
limitation, inside and outside attorneys, appraisal, appraisal review,
processing, title, filing, and recording costs, expenses, and
fees).
(d) On or
prior to the execution and delivery of this Modification Agreement, each of
Borrower and Guarantor shall have executed and delivered, or caused to be
executed and delivered, to Lender, each in form and substance satisfactory to
Lender, such other documents, instruments, resolutions, subordinations, and
other agreements as Lender may require in its sole discretion.
7. EXECUTION
AND DELIVERY OF AGREEMENT BY LENDER. Lender shall not be bound by
this Modification Agreement until (a) Lender has executed and delivered this
Modification Agreement to Borrower and Guarantor, (b) each of Borrower and
Guarantor has performed all of the obligations of Borrower and Guarantor under
this Modification Agreement to be performed contemporaneously with the execution
and delivery of this Modification Agreement, if any, and (c) Borrower has paid
all fees and costs required under Section 4 hereof.
8. INTEGRATION,
ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. The
Loan Documents as modified herein contain the complete understanding and
agreement of Borrower, Guarantor, Lender and Collateral Agent in respect of the
Loan and supersede all prior representations, warranties, agreements,
arrangements, understandings, and negotiations. No provision of the
Loan Documents as modified herein may be changed, discharged, supplemented,
terminated, or waived except in a writing signed by the parties
thereto.
9. BINDING
EFFECT. The Loan Documents, as modified herein, shall be binding
upon and shall inure to the benefit of Borrower, Guarantor and Lender and their
successors and assigns; provided, however, neither
Borrower nor Guarantor may assign any of its rights or delegate any of its
obligations under the Loan Documents and any purported assignment or delegation
shall be void.
10. CHOICE OF
LAW. THIS MODIFICATION AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF UTAH WITHOUT GIVING EFFECT TO CONFLICT OF LAWS
PRINCIPLES. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING
IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED
AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE COUNTY OF SALT
LAKE, STATE OF UTAH OR, AT THE SOLE OPTION OF LENDER, IN ANY OTHER COURT
IN
5
WHICH
LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF THE
PARTIES WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION.
11. COUNTERPART
EXECUTION. This Modification Agreement may be executed in one
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same document. Signature pages
may be detached from the counterparts and attached to a single copy of this
Modification Agreement to physically form one document. Receipt by the Lender of
an executed copy of this Modification Agreement by facsimile shall constitute
conclusive evidence of execution and delivery of the Modification by the
signatory thereto.
[Remainder
of Page Intentionally Left Blank]
6
DATED as
of the date first above stated.
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FRANKLIN
COVEY CO.
a
Utah corporation
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By: /s/ Stephen D.
Young
Name:
Stephen D. Young
Title:
Chief Financial Officer
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“Borrower”
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FRANKLIN
DEVELOPMENT CORPORATION
a
Utah corporation
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By: /s/ Stephen D.
Young
Name:
Stephen D. Young
Title:
Vice President
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FRANKLIN
COVEY TRAVEL, INC.
a
Utah corporation
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By: /s/ Stephen D.
Young
Name:
Stephen D. Young
Title:
Vice President
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FRANKLIN
COVEY CLIENT SALES, INC.
a
Utah corporation
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By: /s/ Stephen D.
Young
Name:
Stephen D. Young
Title:
Vice President
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“Guarantor”
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JPMORGAN
CHASE BANK, N.A.
a
national banking association
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By: /s/ Paul Sommer
Name:
Paul Sommer
Title:
Vice President
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“Lender”
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