Notes to Consolidated Financial Statements 47 Franklin Covey 2000 Annual Report Restricted Stock Deferred Compensation Stock Options Deferred compensation represents restricted stock granted to key executives. The stock vests in full four years from the date of grant and was recorded at the fair market value at the date of grant. Compensation expense is recognized ratably over the corresponding four-year vesting period. Deferred compensation is included as a reduction to shareholders’ equity in the accompanying consolidated balance sheets. The Company’s Board of Directors has approved an incentive stock option plan whereby shares of common stock are issued to key employees at a price not less than the fair market value of the Company’s common stock at the date of grant. The term, not to exceed ten years, and exercise period of each incentive stock option awarded under the plan are determined by a committee appointed by the Company’s Board of Directors. At August 31, 2000, approximately 570,000 shares were available for grant under the current incentive stock option plan. A summary of nonqualified and incentive stock option activity is set forth below: The following table summarizes exerciseable option information for the periods indicated: In an effort to reduce the potentially dilutive effect of outstanding options on the Company’s capital structure, the Company actively sought to reacquire outstanding stock options from both current and former employees. The majority of option purchase costs were incurred in connection with a tender offer made by the Company during the third quarter of fiscal 2000 to purchase all outstanding options with an exercise price of $12.25 or higher. The tender offer expired on May 3, 2000 with a total of 2,319,000 option shares tendered. Under terms of the offer, the Company paid cash for the outstanding options, which were priced using a market valuation methodology. The total cost of the tender offer was $6.9 million. As a result of the tender offer and previously pur- chased option shares, the Company purchased 3,294,476 option shares for a total cost of $8.7 million in cash. The Company applies Accounting Principles Board (“APB”) Opinion 25 and related interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock option plans or employee stock purchase plan. Had compensation cost for the Company’s stock option plans and employee stock purchase plan been determined in accordance with the provisions of SFAS No. 123, “Accounting for Stock- Based Compensation,” the Company’s net income (loss) and earnings per share would have been the pro forma amounts indicated below (in thousands, except per  share data): AUGUST 31, 2000 1999 1998 Exerciseable options 757,656 2,683,966 2,261,935 Weighted average  exercise price per  share $14.83 $23.87 $22.65 Number of Weighted Avg. Options Exercise Price Outstanding at August 31, 1997 3,901,928 $20.24 Granted 434,800 23.64 Exercised (200,024) 13.62 Forfeited (466,974) 23.72 Outstanding at August 31, 1998 3,669,730 21.89 Granted 2,058,825 12.02 Exercised (231,931) 3.59 Forfeited (212,459) 18.89 Outstanding at August 31, 1999 5,284,165 19.05 Granted 354,685 7.59 Exercised (22,334) 4.38 Repurchased (3,294,476) 22.54 Forfeited (574,033) 15.69 Outstanding at August 31, 2000 1,748,007 $11.59 YEAR ENDED AUGUST 31, 2000 1999 1998 Net (loss) income  available to common  shareholders as  reported $(12,414) $(10,647) $40,058 Net (loss) income  available pro forma (11,404) (16,181) 34,978 Diluted (loss) earnings  per share as reported (.61) (.51) 1.62 Diluted (loss) earnings  per share pro forma (.57) (.80) 1.41