Franklin Covey 2000 Annual Report 82 Proposals to Ratify Stock Purchase Plan The Purchase Plan is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Code, and the income and employment tax consequences of participating in the Purchase Plan will depend upon whether the Purchase Plan so qualifies. The Purchase Plan will only meet the qualification requirements of Code Section 423 if the shareholders of the Company approve the Amendment within twelve months after the date of its adoption by the Company. The Company intends to submit the Amendment for shareholder approval at the annual meeting of the shareholders later this year. Assuming a quorum is present at that meeting and that a majority of the shares present are voted in favor of the Amendment, the federal income tax consequences of participating in the Purchase Plan will be as follows:  runs through the later of one year after the purchase date or two years after the date the purchase right was granted. Except as noted below, if an employee disposes of shares of Common Stock acquired under the Purchase Plan before expiration of the above holding period, such as by gift or ordinary sale of such shares, the employee must recognize as ordinary compensation income in the year of disposition the difference between the shares’ fair market value as of the date of exercise and the exercise price paid, and the Company will be entitled to a corresponding compensation expense deduction. This amount must be recognized as income by the employee even if the fair market value of the shares as of the date of exercise exceeds the fair market value of the shares as of the date of disposition or the amount of the sales proceeds received. The employee’s tax basis in the shares, however, will be increased by the amount of ordinary income recognized, and the employee will recognize a capital gain or loss on the sale of the shares equal to the difference between (i) the sales price of the shares and (ii) the sum of the exercise price paid for the shares and the ordinary income recognized as a result of the disposition of the shares prior to the expiration of the holding period. The rules requiring recognition of ordinary income upon disposition within the one- and two-year holding periods do not apply to disposition of shares upon death, as part of a tax-free exchange of shares in a corporate reorgani- zation, or into joint tenancy with right of survivorship with one other person, or the mere pledge or hypothecation of shares. The disposition of shares of Common Stock after expiration of the required holding period will result in the recognition of gain or loss in the amount of the difference between the amount realized on the sale of the shares and the exercise price for such shares. Any loss on such a sale will be a long-term capital loss. Any gain on such sale will be included in gross income for the taxable year of the disposition as ordinary compen- sation income up to the lesser of (i) the amount by which the price paid at the time of exercising the purchase rights was exceeded by the fair market value of the shares at the time the purchase right was granted or (ii) the amount by which the price paid under the Purchase Plan at the time of exercising the purchase right was exceeded by the fair market value of the shares at the time of such disposition. Additional gain, if any, will be taxed as long-term capital gain. Disposition of the shares of Common Stock on account of death (at any time) will trigger a like amount of ordinary income recognition. 1. Election to Participate and Initial Grant of Options. Participants who have filed with the Company the proper enrollment materials will be deemed to have been granted rights to purchase Common Stock exercisable on the given purchase date. A recipient of such purchase rights under the Purchase Plan incurs no income tax liability, and the Company obtains no deduction, upon the grant of the purchase rights. 2. Payroll Deductions. Payroll deductions taken from Participant’s Base Pay and accumulated to pay the exercise price for shares purchased under the Purchase Plan, are made on an after-tax basis. Participants will not be entitled to deduct or exclude from income or their taxable social security wages any part of the payroll deductions withheld under the plan. 3. Exercise of Purchase Rights. An employee will not  be subject to federal income tax upon the exercise of purchase rights under the Purchase Plan, nor will the Company be entitled to a tax deduction by reason of such exercise, provided that the employee is still employed by the Company on the purchase date (or terminated employment no longer than three months before the purchase date). The employee will have a cost basis in the shares of Common Stock acquired upon such exercise equal to the exercise price paid. While the issue is not fully settled, the Company believes that no social security taxes will apply to the discount on shares of Common Stock purchased under the Purchase Plan. 4. Disposition of Shares Acquired Under Plan. The ta x consequences upon the disposition of shares acquired under the Purchase Plan will depend upon whether the employee has held the shares for the required holding period. The required holding period Federal Income Tax Consequences If Amendment Is Approved Within Twelve Months