SECONDMODIFICATION AGREEMENT

 

 

 

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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

 

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.

 

 

(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.

 

 

 

(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:

 

 

        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.

 

 

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

 

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.

 

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DATED as of the date first above stated.