Franklin Covey 2000 Annual Report Notes to Consolidated Financial Statements 45 10. COMMITMENTS AND CONTINGENCIES Purchase Commitments At August 31, 2000, the Company had contracts with various builders, totaling $3.2 million, for construction related to new and remodeled retail stores. The Company also has various purchase commitments for materials, supplies, and other items incident to the ordinary conduct of business. In aggregate, such com- mitments are immaterial to the Company’s operations. The Company is the subject of certain legal actions, which it considers routine to its business activities. As of August 31, 2000, management believes that, after discus- sion with its legal counsel, any potential liability to the Company under such actions will not materially affect the Company’s financial position or results of operations. During the fiscal year ended August 31, 2000, the Company sold 121,250 shares of its common stock to a former CEO of the Company for $0.9 million. In consid- eration for the common stock, the Company received a non-recourse promissory note, due September 2003, bearing interest at 10.0 percent. Additionally, all of the former CEO’s stock options were canceled and the issuance of common stock is being accounted for as a variable security, due to its stock option characteristics. The note receivable from the sale of this stock has been recorded as a reduction to shareholders’ equity in the accompanying fiscal 2000 consolidated balance sheet. During fiscal 2000, the Company actively sought to reacquire outstanding options to purchase the Company’s common stock (Note 12). Included in the total number of option shares reacquired, the Company purchased 150,000 option shares from a Vice-Chairman of the Board of Directors for $0.4 million. In addition, 358,000 option shares were purchased from two officers and one former officer of the Company for a total of $0.8 million. These options were reacquired using the same valuation meth- odology as other stock options purchased by the Company. As part of the preferred stock offering completed during fiscal 1999 (Note 12), an affiliate of the investor was named Chairman of the Board of Directors and Chief Executive Officer. The new Chairman and CEO was previously a member of the Company’s Board. In addition, two affiliates of the investor were appointed to the Board of Directors. In connection with the preferred stock offering, the Company pays an affiliate of the investor a monitoring fee of $100,000 per quarter. Premier Agendas (“Premier”), a subsidiary of the Company, had trade accounts payable to various companies which are partially owned by certain former owners of Premier totaling $2.1 million and $3.3 million at August 31, 2000 and 1999, respectively. In addition, Premier had notes payable to key employees and former key employees totaling $1.4 million and $1.5 million as of August 31, 2000 and 1999, respectively (Note 6). The notes payable were used for working capital, are due upon demand, and have interest rates which approximate prevailing market rates. The Company pays a Vice-Chairman of the Board of Directors a percentage of the proceeds received for sem- inars that are presented by him. During the fiscal years ended August 31, 2000, 1999, and 1998, the Company paid $3.3 million, $3.0 million, and $2.4 million, respectively, to the Vice-Chairman for such seminars. The Company, under a long-term agreement, leases buildings from a partnership that is partially owned by a Vice-Chairman of the Board of Directors and certain officers of the Company. Rental expense paid to the partnership totaled $2.1 million, $2.1 million, and $1.8 million, during the fiscal years ended August 31, 2000, 1999, and 1998, respectively. During fiscal years 2000 and 1998, the Company pur- chased 9,000 shares and 500,000 shares of its common stock for $0.1 million and $12.0 million in cash, respec- tively, from a Vice-Chairman of the Board of Directors. All shares were purchased at the existing fair market value on the dates of the transactions. In January 1999, the Company issued 1,450 shares of its common stock to each member of the Board of Directors for $17.25 per share. The purchase price was to be paid in the form of secured promissory notes that were payable in three annual installments. During fiscal 2000, the promissory notes were canceled and the Company retained the shares of stock. During the fiscal year ended August 31, 1999, the Company purchased 130,000 shares of its common stock for $2.3 million in cash, from an officer of the Company. The shares were purchased at the existing fair market value on the date of the transaction. During the fiscal years ended August 31, 1999 and 1998, the Company purchased 92,000 and 100,000 shares of its common stock for $1.2 million and $2.5 million in cash, respectively, from a former officer and director of the Company. The shares were purchased at the existing fair market value on the dates of the transactions. 11. RELATED PARTY TRANSACTIONS Legal Matters