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Exhibit 10.7
 
 
 
MODIFICATION AGREEMENT
 
This MODIFICATION AGREEMENT (the “Modification Agreement”) is made effective as
of July 8, 2008, between FRANKLIN COVEY CO., a Utah corporation (“Borrower”),
whose address is 2200 West Parkway Blvd., Salt Lake City, Utah 84119, and
JPMORGAN CHASE BANK, N.A., a national banking association (“Lender”), whose
address is 80 West Broadway, Suite 200, Salt Lake City, Utah 84101.
 
RECITALS:
 
A. Lender has previously extended to Borrower a revolving line of credit loan
(the “Loan”) in the original maximum principal amount of EIGHTEEN MILLION AND
NO/100 DOLLARS ($18,000,000.00) 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, FRANKLIN
COVEY PRODUCT SALES, INC., a Utah corporation, FRANKLIN COVEY SERVICES, L.L.C.,
a Utah limited liability company, and FRANKLIN COVEY MARKETING, LTD., a Utah
limited partnership (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 and ZIONS FIRST NATIONAL BANK, a national banking association
(“Zions”); (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, Lender and Zions, as “creditor,” and
Zions, as “bank” (collectively, the “Security Documents”).
 
D. Lender, Zions and Collateral Agent have entered into an Intercreditor
Agreement dated as of March 14, 2007 (as amended or modified from time to time,
the “Intercreditor Agreement”), the terms of which were acknowledged and agreed
to by Borrower and Guarantor.
 
E. The Loan Agreement, the Note, the Guaranty, the Security Documents, the
Intercreditor Agreement, 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.”  All capitalized terms
used herein and not otherwise defined shall have the meanings given to such
terms in the Loan Agreement.
 
F. Borrower and/or one or more of the Guarantors have sold substantially all of
the assets of Borrower’s Consumer Solutions Business Unit (the “Asset Sale”) to
a third-party purchaser (the “Purchaser”) pursuant to one or more written
agreements (the “Asset Sale Documents”).  None of the assets to be sold in the
Asset Sale include any of the Pledged Securities.  Borrower has acquired an
approximately nineteen and one-half percent (19.5%) ownership interest in
Purchaser, such that Purchaser will not be considered a Subsidiary of Borrower
under the Loan Documents.
 

 
 

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G. Upon or prior to the closing of the Asset Sale, the revolving line of credit
loan made by Zions to Borrower in the maximum principal amount of up to
$7,000,000.00 (the “Zions Loan”) shall be irrevocably terminated (the “Zions
Loan Termination”).
 
H. As a result of the Asset Sale, Borrower has proposed to dissolve each of the
following Subsidiaries: FRANKLIN COVEY SERVICES, L.L.C., a Utah limited
liability company, and FRANKLIN COVEY MARKETING, LTD., a Utah limited
partnership (collectively, the “Dissolved Guarantors”).
 
I. Subject to the terms and conditions contained herein, Borrower, Guarantor,
and Lender now desire to modify the Loan Documents to: (i) approve an increase
to the maximum principal amount of the Loan, effective as of the date hereof,
from $18,000,000.00 to $25,000,000.00 (the “Loan Amount Increase”); (ii) approve
a subsequent reduction to the maximum principal amount of the Loan, effective as
of June 30, 2009, from $25,000,000.00 to $15,000,000.00 (the “Loan Amount
Reduction”); (iii) increase the interest rate applicable under the Loan
Documents from the LIBO Rate in effect from time to time plus 1.10% per annum to
LIBO Rate in effect from time to time plus 1.50% per annum (the “Interest Rate
Increase”); (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; and (v) remove any references to Zions,
the Zions Loan, and the Zions Loan Documents, except that Zions, as the
depository bank, shall continue to be a party in such capacity to the Account
Control Agreement.
 
AGREEMENT:
 
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Borrower, Guarantor and Lender 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 Increase and Subsequent Reduction.
 
(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 effective as of June 30, 2009, the aforementioned amount shall be
reduced to FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00).
 
(2)           Note.  The reference to “$18,000,000.00” in the heading of the
Note is hereby amended to read “$25,000,000.00”; provided however, that
effective as of June 30, 2009, the aforementioned amount shall be reduced to
“$15,000,000.00”.  In addition, the reference in Section 1 of the Note to
“EIGHTEEN MILLION AND NO/100 DOLLARS ($18,000,000.00)” is hereby amended to read
“TWENTY-FIVE MILLION AND NO/100 DOLLARS ($25,000,000.00)”; provided, however,
that effective as of June 30, 2009, the aforementioned amount shall be reduced
to “FIFTEEN MILLION AND NO/100 DOLLARS ($15,000,000.00)”.
 
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
 

 
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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 One and One-Half Percent (1.50%) per annum.
 
(c) 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.
 
(d) Zions Loan Termination.  Provided that Borrower has delivered to Lender the
information required by Section 7(d) hereof, all references in the Loan
Documents to Zions as a “Creditor” or a “Lender”, the Zions Loan, or the Zions
Loan Documents are hereby deleted and of no further force or
effect.  Notwithstanding the foregoing, Zions, as the depository bank, shall
continue to be a party in such capacity to the Account Control Agreement.
 
(e) Intercreditor Agreement; References to Collateral Agent.  The Intercreditor
Agreement shall remain in effect solely to preserve the appointment of
Collateral Agent as collateral agent for Lender, but any agreements,
representations, or other provisions made by Zions to or for the benefit of
Lender or Collateral Agent, or by Lender to or for the benefit of Zions, are
hereby deleted and of no further force or effect.  In addition, any reference in
the Loan Documents to the Collateral Agent are hereby deleted and of no further
force or effect.
 
(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.
 

 
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(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, enforceable against Borrower in accordance with
their terms; (f) Borrower 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 (h) This Modification Agreement has been
duly executed and delivered on behalf of Borrower.
 
6. BORROWER COVENANTS. Borrower and Guarantor covenant 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,
respectively, under this Modification Agreement to be performed
contemporaneously with the execution and delivery of this Modification
Agreement, if any, (c) Borrower has paid all fees and costs required under
Section 4 hereof, and (d) the Zions Loan Termination shall have been completed
and Lender shall have received evidence of the same which is reasonably
acceptable to Lender.
 

 
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8. INTEGRATION, ENTIRE AGREEMENT, CHANGE, DISCHARGE, TERMINATION, OR WAIVER. The
Loan Documents as modified herein contain the complete understanding and
agreement of Borrower, Guarantor and Lender 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 BORROWER AND LENDER 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 10.
 
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]

 
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DATED as of the date first above stated.
 
 
 
FRANKLIN COVEY CO.
a Utah corporation
 
 
By:
  /s/ Stephen D. Young
Name:
Stephen D. Young
Title:
Chief Financial Officer
 
 
“Borrower”
 
 
FRANKLIN COVEY PRINTING, INC.
a Utah corporation
 
 
By:
  /s/ Stephen D. Young
Name:
Stephen D. Young
Title:
Chief Financial Officer
 
 
FRANKLIN DEVELOPMENT CORPORATION
a Utah corporation
 
 
By:
  /s/ Stephen D. Young
Name:
Stephen D. Young
Title:
Chief Financial Officer
 
 
FRANKLIN COVEY TRAVEL, INC.
a Utah corporation
 
 
By:
  /s/ Stephen D. Young
Name:
Stephen D. Young
Title:
Chief Financial Officer
 
 
FRANKLIN COVEY CATALOG SALES, INC.
a Utah corporation
 
 
By:
  /s/ Stephen D. Young
Name:
Stephen D. Young
Title:
Chief Financial Officer

 
 

 
 
 

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FRANKLIN COVEY CLIENT SALES, INC.
a Utah corporation
 
 
By:
  /s/ Stephen D. Young
Name:
Stephen D. Young
Title:
Chief Financial Officer
 
 
FRANKLIN COVEY PRODUCT SALES, INC.
a Utah corporation
 
 
By:
  /s/ Stephen D. Young
Name:
Stephen D. Young
Title:
Chief Financial Officer
 
 
FRANKLIN COVEY SERVICES, L.L.C.
a Utah limited liability company
 
 
By:
FRANKLIN COVEY CLIENT SALES, INC.
a Utah corporation, its member
 
 
By:
  /s/ Stephen D. Young
Name:
Stephen D. Young
Title:
Chief Financial Officer
 
 
By:
FRANKLIN DEVELOPMENT CORPORATION
a Utah corporation, its member
 
 
By:
  /s/ Stephen D. Young
Name:
Stephen D. Young
Title:
Chief Financial Officer
 
 
FRANKLIN COVEY MARKETING, LTD.
a Utah limited partnership
 
 
By:
FRANKLIN DEVELOPMENT CORPORATION
a Utah corporation, its general partner
 
 
By:
  /s/ Stephen D. Young
Name:
Stephen D. Young
Title:
Chief Financial Officer
 
 
“Guarantor”

 
 

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JPMORGAN CHASE BANK, N.A.
a national banking association
 
 
By:
  /s/ Tony C. Nielsen
Name:
Tony C. Nielsen
Title:
Senior Vice President
 
 
“Lender”