NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
To
Be Held
January
19, 2007
FRANKLIN
COVEY CO.
You
are
cordially invited to attend the Annual Meeting of Shareholders of Franklin
Covey
Co. (the “Company”), which will be held on Friday, January 19, 2007 at 8:30
a.m., at the Hyrum W. Smith Auditorium, 2200 West Parkway Boulevard, Salt
Lake City, Utah 84119-2331 (the “Annual Meeting”), for the following
purposes:
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(i)
|
To
elect three directors of the Company, each to serve a term of three
years
expiring at the annual meeting of shareholders of the Company to
be held
following the end of fiscal year 2009 and until their respective
successors shall be duly elected and shall
qualify;
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|
(ii)
|
To
consider and vote on a proposal to ratify the appointment of KPMG
LLP as
the Company’s independent registered public accountants for the fiscal
year ending August 31, 2007;
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|
(iii)
|
To
transact such other business as may properly come before the Annual
Meeting or at any adjournment or postponement
thereof.
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The
Board
of Directors has fixed the close of business on November 24, 2006, as the
record date for the determination of shareholders entitled to receive notice
of
and to vote at the Annual Meeting and at any adjournment or postponement
thereof.
All
shareholders are urged to attend the meeting.
By
Order
of the Board of Directors
Robert
A.
Whitman
Chairman
of the Board of Directors
December 15,
2006
IMPORTANT
Whether
or not you expect to attend the Annual Meeting in person, to assure that
your
shares will be represented, please promptly complete, date, sign and return
the
enclosed proxy card without delay in the enclosed envelope, which requires
no
additional postage if mailed in the United States. Your proxy will not be
used
if you are present at the Annual Meeting and desire to vote your shares
personally.
Franklin
Covey Co.
2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2331
PROXY
STATEMENT
Annual
Meeting of Shareholders
January 19,
2007
SOLICITATION
OF PROXIES
This
Proxy Statement is being furnished to the shareholders of Franklin Covey
Co., a
Utah corporation (“FranklinCovey” or the “Company”), in connection with the
solicitation by the board of directors (the “Board” or “Board of Directors”) of
the Company of proxies from holders of outstanding shares of the Company’s
Common Stock, $0.05 par value per share (the “Common Stock”) and outstanding
shares of the Company’s Series A Preferred
Stock, no par value (the “Series A Preferred Stock”) for use at the Annual
Meeting of Shareholders of the Company to be held on Friday, January 19,
2007,
at 8:30 a.m., at the Hyum W. Smith Auditorium, 2200 West Parkway Boulevard,
Salt
Lake City, Utah 84119-2331, and at any adjournment or postponement thereof
(the
“Annual Meeting”). This Proxy Statement, the Notice of Annual Meeting of
Shareholders and the accompanying form of proxy are first being mailed to
shareholders of the Company on or about December 15, 2006.
PURPOSE
OF THE ANNUAL MEETING
Shareholders
of the Company will consider and vote on the following proposals: (i) to
elect three directors to serve for a term of three years; (ii) to consider
and
vote on a proposal to ratify the appointment of KPMG LLP (“KPMG”) as the
Company’s independent registered public accountants for the fiscal year ending
August 31, 2007; and (iii) to transact such other business as may
properly come before the Annual Meeting or at any adjournment or postponement
thereof.
COSTS
OF SOLICITATION
The
Company will bear all costs and expenses relating to the solicitation of
proxies, including the costs of preparing, printing and mailing to shareholders
this Proxy Statement and accompanying materials. In addition to the solicitation
of proxies by use of the mails, the directors, officers and employees of
the
Company, without receiving additional compensation therefore, may solicit
proxies personally or by telephone, facsimile or electronic mail. Arrangements
will be made with brokerage firms and other custodians, nominees and fiduciaries
for the forwarding of solicitation materials to the beneficial owners of
the
shares of Common Stock held by such persons, and the Company will reimburse
such
brokerage firms, custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection therewith.
VOTING
The
Board
of Directors has fixed the close of business on November 24, 2006 as the
record date for determination of shareholders entitled to notice of and to
vote
at the Annual Meeting (the “Record Date”). As of the Record Date, there were
issued and outstanding 20,109,886 shares of Common Stock and 1,493,776 shares
of
Series A Preferred Stock. The holders of record of the shares of Common
Stock on the Record Date are entitled to cast one vote per share on each
matter
submitted to a vote at the Annual Meeting. The holders of record of
Series A Preferred Stock on the Record Date are entitled to cast two votes
for each share of Series A Preferred Stock they hold. In the aggregate, the
holders of outstanding shares of Series A Preferred Stock are entitled to
2,987,552 votes for all of the outstanding Series A Preferred Stock. The
shares of Common Stock and Series A Preferred Stock vote together as a
single class on all matters to be presented at the Annual Meeting. There
are no
shares of Series B Preferred Stock outstanding.
Proxies
Shares
of
Common Stock and Series A Preferred Stock which are entitled to be voted at
the Annual Meeting and which are represented by properly executed proxies
will
be voted in accordance with the instructions indicated on such proxies. If
no
instructions are indicated, such shares will be voted (i) FOR
the
election of each of the three director nominees, and (ii) FOR
the
ratification of the appointment of KPMG as the Company’s independent registered
public accountants for the fiscal year ending August 31, 2007. It is not
anticipated that any other matters will be presented at the Annual Meeting.
If
other matters are presented, proxies will be voted in accordance with the
discretion of the proxy holders.
A
shareholder who has executed and returned a proxy may revoke it at any time
prior to its exercise at the Annual Meeting by executing and returning a
proxy
bearing a later date, by filing with the Secretary of the Company, at the
address set forth above, a written notice of revocation bearing a later date
than the proxy being revoked, or by voting the Common Stock or Series A
Preferred Stock covered thereby in person at the Annual Meeting.
Vote
Required
A
majority of the votes entitled to be cast at the Annual Meeting is required
for
a quorum at the Annual Meeting. Abstentions and broker non-votes are counted
for
purposes of determining the presence or absence of a quorum for the transaction
of business. Holders of Common Stock and Series A Preferred Stock will vote
together as a single class.
In
the
election of the directors, the three nominees receiving the highest number
of
votes will be elected. Accordingly, abstentions and broker non-votes will
not
affect the outcome of the election for directors.
The
ratification of the appointment of KPMG as the Company’s independent registered
public accountants requires that the number of votes cast in favor of the
proposals exceed the number of votes cast in opposition. Abstentions and
broker
non-votes will not affect the outcome of this proposal.
PROPOSAL
I
TO
APPROVE THE ELECTION OF THE THREE NOMINEES AS DIRECTORS
At
the
Annual Meeting, three directors are to be elected to serve three-year terms
expiring at the annual meeting of shareholders to be held following the end
of
fiscal year 2009 and until their successors shall be duly elected and qualified.
Unless the shareholder indicates otherwise, the accompanying proxy will be
voted
in favor of the following persons: Joel C. Peterson, E. Kay Stepp and Robert
A.
Whitman. If any of the nominees should be unavailable to serve, which is
not now
anticipated, the proxies solicited hereby will be voted for such other persons
as shall be designated by the present Board of Directors. The three nominees
receiving the highest number of votes at the Annual Meeting will be
elected.
THE
BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH OF THE THREE
NOMINEES TO THE BOARD OF DIRECTORS.
Nominees
for Election to the Board of Directors
Certain
information with respect to the nominees is set forth below.
Joel C.
Peterson,
59, has
been a director of the Company since May 1997. Mr. Peterson served as a director
of Covey Leadership Center from 1993 to 1997 and as Vice Chairman of Covey
Leadership Center from 1994 to 1997. Mr. Peterson founded Peterson Partners
LP,
and its predecessor Private Equity Investment Enterprises, a privately-held
equity investment firm in 1996 and has served as its Founding Partner from
its
inception. Mr. Peterson also has taught MBA courses at Stanford Business
School
since 1992. Mr. Peterson also serves on the boards of directors of Asurion
and
JetBlue Airways Corporation (NASDAQ). Mr. Peterson earned his MBA from Harvard
Business School.
E.
Kay Stepp,
61, has
been a director of the Company since May 1997. Ms. Stepp served as a director
of
Covey Leadership Center from 1992 to 1997. Ms. Stepp is the chairperson of
the
board of Providence Health and Services, and is the former President and
Chief
Operating Officer of Portland General Electric, an electric utility. Ms.
Stepp
is also currently a director of StanCorp Financial Group (NYSE) and Planar
Systems, Inc. (NASDAQ). She formerly was principal of Executive Solutions,
an
executive coaching firm, and was a director of the Federal Reserve Bank of
San
Francisco. She received her Bachelor of Arts degree from Stanford University
and
a Master of Arts in Management from the University of Portland and attended
the
Stanford Executive Program and the University of Michigan Executive
Program.
Robert A.
Whitman,
53, has
been a director of the Company since May 1997 and has served as Chairman
of the
Board of Directors since June 1999 and President and Chief Executive Officer
of
the Company since January 2000. Mr. Whitman served as a director of Covey
Leadership Center from 1994 to 1997. Prior to joining the Company, Mr. Whitman
served as President and Co-Chief Executive Officer of The Hampstead Group
from
1992 to 2000. Mr. Whitman received his Bachelor of Arts degree in Finance
from
the University of Utah and his MBA from Harvard Business School.
Directors
Whose Terms of Office Continue
In
addition to the directors to be elected at the Annual Meeting, the directors
named below will continue to serve their respective terms of office as
indicated. Stephen R. Covey, Robert H. Daines and Dennis G. Heiner are currently
serving terms which expire at the annual meeting of the Company’s shareholders
to be held following the end of fiscal year 2008.
Clayton
M. Christensen, E. J. “Jake” Garn and Donald J. McNamara are currently
serving terms which expire at the annual meeting of the Company’s shareholders
to be held following the end of fiscal year 2007.
Stephen R.
Covey,
74, has
been Vice Chairman of the Board of Directors since June 1999. He served as
Co-Chairman of the Board of Directors from May 1997 to June 1999. Dr. Covey
founded Covey Leadership Center and served as its Chief Executive Officer
and
Chairman of the Board from 1980 to 1997. Dr. Covey received his MBA degree
from
Harvard Business School and his doctorate from Brigham Young University,
where
he was a professor of organizational behavior and business management from
1957
to 1983, except for periods in which he was on leave from teaching, and served
as Assistant to the President and Director of University Relations. Dr. Covey
is
the author of several acclaimed books, including The
7
Habits of Highly Effective People,
Principle-Centered
Leadership,
The 7
Habits of Highly Effective Families,
and
Living
the 7 Habits: Stories of Courage and Inspiration,
and is
the co-author of First
Things First.
His
latest book, The
8th
Habit:
From Effectiveness to Greatness,
was
released in November 2004. He is also a director of the Points of Light
foundation and a fellow of the Center for Organizational and Technological
Advancement at Virginia Tech.
Robert H.
Daines,
72, has
been a director of the Company since April 1990. Dr. Daines is an Emeritus
Driggs Professor of Strategic Management at Brigham Young University, where
he
was employed for 44 years. While employed by Brigham Young University, Dr.
Daines taught courses in finance, strategic financial management and advanced
financial management. During that time, Dr. Daines also taught financial
strategy and management controls courses for corporations such as Chase
Manhattan Bank, Bank of America and British Petroleum. He also co-authored
the
finance textbook Strategic
Financial Management,
published by Irwin as well as several articles and cases. Additionally, Dr.
Daines served as a consultant to Aetna Life and Casualty where he managed
their
treasury services including cash management, accounting controls and financial
policies and procedures. Dr. Daines also currently serves on the board of
directors for Volvo Commercial Credit Corporation. Dr. Daines received his
MBA
from Stanford and his DBA from Indiana University.
Dennis G.
Heiner,
63,
was
appointed as a director of the Company in January 1997. Mr. Heiner served
from 1999 to 2004 as President and Chief Executive Officer of Werner Holding
Co., a leading manufacturer of climbing products and aluminum extrusions.
Prior
to joining Werner, he was employed by Black & Decker Corporation from 1985
to 1999 where he served as Executive Vice President and President of the
Hardware and Home Improvement Group, a world leader in residential door hardware
and plumbing fixtures. From 1979 to 1985 Mr. Heiner was employed by Beatrice
Foods where he served as a Division President. From 1972 to 1999 Mr. Heiner
was
employed by Conroy Inc, a manufacturer of recreational vehicles, where he
held
positions of Director of Marketing and Vice President of Finance and
International Marketing. Mr. Heiner received his Bachelor of Arts degree
from
Weber State University and his MBA degree from Brigham Young University.
He also
completed Executive programs at Northwestern's Kellogg School of Management
and
Harvard Business School.
Clayton
M. Christensen, 54,
was
appointed as a director of the Company in March 2004 and began his service
in
July 2004. Dr. Christensen is the Robert and Jane Cizik Professor of Business
Administration at the Harvard Business School where he has been a faculty
member
since 1992. His research and teaching interests center on the management
issues
related to the development and commercialization of business model innovation
and technology. His specific area of focus is in developing organizational
capabilities. Dr. Christensen was a Rhodes Scholar and received his Masters
of
Philosophy degree from Oxford and his MBA and DBA from the Harvard Business
School. He also served as President and Chairman of Ceramics Process Systems
from 1984 to 1989. From 1979 to 1984 he worked as a consultant and project
manager for the Boston Consulting Group.
E.
J. “Jake” Garn,
74, was
elected to serve as a director of the Company in January 1993. Mr. Garn is
a
self-employed consultant. From December 1974 to January 1993, Mr. Garn was
a
United States Senator from the State of Utah. During his term in the Senate,
Mr.
Garn served six years as Chairman of the Senate Banking, Housing and Urban
Affairs Committee and served on the Appropriations, Energy and Natural
Resources, and Senate Rules Committees. Prior to his election to the Senate,
Mr.
Garn served as Mayor of Salt Lake City, Utah, from January 1972 to December
1974. Mr. Garn also currently serves as a director for Headwaters, Inc. (NYSE),
and Nu Skin Enterprises, Inc. (NYSE).
Donald J.
McNamara,
53, was
appointed to serve as a director of the Company in June 1999. Mr. McNamara
is
the founder of
The
Hampstead Group, LLC (“The Hampstead Group”), a private equity investor based in
Dallas, Texas,
and has
served as its Chairman since its inception in 1989. He
currently serves as a Director of FelCor Lodging Trust, a NYSE listed hotel
REIT, as well as Kimpton Hotel Company. He received an undergraduate degree
in
architecture from Virginia Tech in 1976 and an MBA from Harvard University
in
1978. The Hampstead Group is the sponsor of Knowledge Capital, and Mr. McNamara
serves as a designee of Knowledge Capital.
CORPORATE
GOVERNANCE
FranklinCovey
upholds a set of basic values and principles to guide its actions and is
committed to maintaining the highest standards of business conduct and corporate
governance. We have adopted a code of business conduct and ethics for our
directors, officers, senior financial officers that include the Chief Executive
Officer and Chief Financial Officer and other members of the Company’s financial
leadership team and other employees. The Corporate Governance Guidelines
and
Code of Business Conduct and Ethics are available on the Company’s website at
www.franklincovey.com.
In
addition, each of the Corporate Governance Guidelines and the Code of Business
Conduct and Ethics are available in print to any shareholder who requests
it by
making a written request to Investor Relations, Franklin Covey Co., 2200
West
Parkway Boulevard, Salt Lake City, Utah 84119-2331. The Code of Business
Conduct
and Ethics applies to all directors, officers and employees of
FranklinCovey.
Affirmative
Determination Regarding Board Independence
The
Board
of Directors has determined each of the following directors to be an
“independent director” under the listing standards of the New York Stock
Exchange (the “NYSE”): Clayton M. Christensen, Robert H. Daines, Jake Garn,
Dennis G. Heiner, Joel C. Peterson and E. Kay Stepp.
In
assessing the independence of the directors, the Board of Directors determines
whether or not any director has a material relationship with the Company
(either
directly or as a partner, shareholder or officer of an organization that
has a
relationship with the Company). The Board of Directors considers all relevant
facts and circumstances in making independence determinations, including
the
director independence standards adopted by the Board of Directors.
BOARD
OF DIRECTOR MEETINGS AND COMMITTEES
During
the 2006 fiscal year, there were five meetings held by the Board of Directors
of
the Company. All directors attended more than 75 percent of the Board meetings.
No director attended fewer than 75 percent of the total number of meetings
of
the committees on which he or she served. Although the Company encourages
Board
members to attend the Annual Meetings, it does not have a formal policy
regarding director attendance at annual shareholder meetings. There were
eight
members of the Board of Directors in attendance at the Annual Meeting held
in
January 2006.
The
non-management directors meet regularly in executive sessions, as needed,
without the management directors or other members of management. Joel C.
Peterson,
chairperson of the Nominating and Corporate Governance Committee and the
Lead
Independent Director, generally presides over these meetings.
The
Board
of Directors has a standing Audit Committee, Nominating and Corporate Governance
Committee (the “Nominating Committee”), and an Organization and Compensation
Committee (the “Compensation Committee”). The members of the Audit Committee are
Messrs. Jake Garn, Chairperson, Robert H. Daines and Joel C. Peterson. The
Nominating Committee consists of Messrs. Joel C. Peterson, Chairperson, Robert
H. Daines, Dennis G. Heiner and Ms. E. Kay Stepp. The Compensation Committee
consists of Ms. E. Kay Stepp, Chairperson, and Messrs. Dennis G. Heiner and
Robert H. Daines.
The
Board
of Directors has adopted a written charter for each of the committees. These
charters are available at the Company’s website at www.franklincovey.com.
In
addition, shareholders may obtain a printed copy of any of these charters
by
making a written request to Investor Relations, Franklin Covey Co., 2200
West
Parkway Boulevard, Salt Lake City, Utah 84119-2331. A copy of the Audit
Committee Charter is attached as Appendix A to this proxy
statement.
The
Audit
Committee functions on behalf of the Board of Directors in accordance with
Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and met six times during the 2006 fiscal year. Its functions
are: (i) to
review
and approve the selection of, and all services performed by, the Company’s
independent registered public accountants; (ii) to
review
the Company’s internal controls and audit functions; and (iii) to
review
and report to the Board of Directors with respect to the scope of internal
and
external audit procedures, accounting practices and internal accounting,
and
financial and risk controls of the Company. Each of the members of the Audit
Committee is independent as described under NYSE rules. The Board of Directors
has determined that one of the Audit Committee members, Robert Daines, is
a
“financial expert” as defined in Item 401(h) of Regulation S-K.
The
Nominating Committee met three times during the 2006 fiscal year. The
Nominating Committee assists the Board of Directors by: (i) identifying
individuals who are qualified and willing to become Board members;
(ii) recommending
that the Board nominate as many identified individuals as needed for appointment
as a director for each annual Company shareholder meeting; (iii) ensuring
that the Audit Committee, the Compensation Committee, and the Nominating
Committees of the Board are comprised of qualified and experienced “independent”
directors; (iv) developing
and recommending succession plans for the Chief Executive Officer;
and
(v) developing
corporate governance policies and procedures applicable to the Company and
recommending that the Board adopt said policies and procedures. All of the
members of the Nominating Committee are “independent” as defined under NYSE
rules.
The
Compensation Committee met five times during the 2006 fiscal year. Its functions
are: (i) to review, and make recommendations to the Board of Directors
regarding the salaries, bonuses and other compensation of the Company’s Chairman
of the Board and executive officers; and (ii) to review and administer any
stock option plan, stock purchase plan, stock award plan and employee benefit
plan or arrangement established by the Board of Directors for the benefit
of the
executive officers, employees and the independent directors of the Company.
All
of
the Compensation Committee members are “independent” as defined under NYSE
rules.
OUR
DIRECTOR NOMINATION PROCESS
As
indicated above, the Nominating Committee of the Board of Directors oversees
the
director nomination process. This committee is responsible for identifying
and
evaluating candidates for membership on the Board of Directors and recommending
to the Board of Directors nominees to stand for election. Each
candidate to serve on the Board of Directors must meet the expectations for
directors set out in the Corporate Governance Guidelines approved by the
Board
of Directors. In addition to the qualifications set forth in the Corporate
Governance Guidelines, nominees for Director will be selected on the basis
of
such attributes as their integrity, experience, achievements, judgment,
intelligence, personal character, ability to make independent analytical
inquiries, willingness to devote adequate time to Board duties, and the
likelihood that he or she will be able to serve on the Board for a sustained
period. In connection with the selection of nominees for director, consideration
will be given to the Board’s overall balance of diversity of perspectives,
backgrounds and experiences. Accordingly, the Board will consider factors
such
as global experience, experience as a director of a large public company
and
knowledge of particular industries.
Although
not an automatically disqualifying factor, the inability of a candidate to
meet
independence standards of the NYSE will weigh negatively in any assessment
of a
candidate’s suitability, as will a candidate’s service on a number of boards
exceeding the standards contained in the Company’s Corporate Governance
Guidelines.
The
Nominating Committee intends to use a variety of means of identifying nominees
for director, including outside search firms and recommendations from current
Board members and from shareholders. In determining whether to nominate a
candidate, the Nominating Committee will consider the current composition
and
capabilities of serving Board members, as well as additional capabilities
considered necessary or desirable in light of existing Company needs and
then
assess the need for new or additional members to provide those
capabilities.
Unless
well known to one or more members of the Nominating Committee, normally at
least
one member of the Nominating Committee will interview a prospective candidate
who is identified as having high potential to satisfy the expectations,
requirements, qualities and capabilities for Board membership.
Shareholder
Nominations
The
Nominating
Committee,
which
is responsible for the nomination of candidates for appointment or election
to
the Board of Directors, will consider, but shall not be required to nominate,
candidates recommended by the Company’s shareholders who beneficially own at the
time of the recommendation not less than one percent of the Company’s
outstanding stock (“Qualifying Shareholders”).
Generally
speaking, the manner in which the Nominating
Committee
evaluates nominees for director recommended by a Qualifying Shareholder will
be
the same as that for nominees from other sources. However, the Nominating
Committee
will
seek and consider information concerning the relationship between a Qualifying
Shareholder’s nominee and that Qualifying Shareholder to determine whether the
nominee can effectively represent the interests of all
shareholders.
Qualifying
Shareholders wishing to make such recommendations to the Nominating
Committee
for its
consideration may do so by submitting a written recommendation, including
detailed information on the proposed candidate, including education,
professional experience and expertise, via mail addressed as
follows:
c/o
Stephen
D. Young,
Corporate Secretary, Franklin Covey Co., 2200 West Parkway Boulevard, Salt
Lake
City, Utah 84119-2331.
Contractual
Rights of Knowledge Capital to Designate Nominees
Currently,
under the Amended and Restated Shareholders Agreement dated March 8, 2005
between the Company and Knowledge Capital, the Company is obligated to nominate
two designees of Knowledge Capital for election to the Board of Directors
and
all such designees must be nominated to be elected in different classes.
Currently, only one designee of Knowledge Capital is a member of the Board
of
Directors, Donald J. McNamara. Upon the mutual agreement of the Company and
Knowledge Capital, Robert A. Whitman, the Chairman of the Board of Directors,
does not currently serve as a designee of Knowledge Capital. To the extent
requested by Knowledge Capital, the Company is obligated at each meeting
of the
shareholders of the Company at which directors are elected to cause the
Knowledge Capital designees to be nominated for election and will solicit
proxies in favor of such nominees and vote all management proxies in favor
of
such nominees except for proxies that specifically indicate to the
contrary.
The
Amended and Restated Shareholders Agreement also provides that the Company
is
obligated, to the extent permitted by law and applicable rules of the New
York
Stock Exchange, to ensure that at least one designee of Knowledge Capital
is a
member of all committees of the Board other than any special committee of
directors formed as a result of any conflict of interest arising from any
Knowledge Capital designee’s relationship with Knowledge Capital. No designee of
Knowledge Capital currently serves on any committee of the Board. Knowledge
Capital is not currently exercising their rights of additional designees,
other
than Mr. McNamara, and committee membership under the Stockholders Agreement
and
we do not anticipate that they will do so in the foreseeable
future.
COMMUNICATIONS
WITH DIRECTORS
Shareholders
or other interested parties wishing to communicate with the Board of Directors,
the non-management directors as a group, or any individual director may do
so in
writing by addressing the correspondence to that individual or group, c/o
Stephen D. Young, Corporate Secretary, Franklin Covey Co., 2200 West Parkway
Boulevard, Salt Lake City, Utah 84119-2331 or by using the Company’s website at
www.franklincovey.com.
All
such communications will initially be received and processed by the office
of
the Corporate Secretary. The Secretary or Assistant Secretary will initially
review such correspondence and either (i) immediately forward the correspondence
to the indicated director and to the Chair of the Nominating Committee, or
(ii)
hold for review for before or after the next regular meeting of the Board
of
Directors.
DIRECTOR
COMPENSATION
Messrs.
Robert A. Whitman and Donald J. McNamara do not currently receive
compensation for Board or committee meetings. The remaining directors are
paid
as follows:
·
|
Each
Board member is paid an annual retainer of $30,000 paid quarterly
for
service on the Board and attending Board meetings;
|
·
|
Each
Board member is paid an additional annual retainer of $7,000 for
service
on each committee that they serve in lieu of committee meeting
fees;
|
·
|
Committee
chairpersons are paid an additional annual retainer of $5,000 for
the
Audit and Compensation committees and $3,000 for all other
committees;
|
·
|
Each
non-employee Board member receives an annual grant of a restricted
stock
award of 4,500 shares which vests over a 3-year term;
|
·
|
Directors
are reimbursed by the Company for their out-of-pocket travel and
related
expenses incurred in attending all Board and committee
meetings.
|
EXECUTIVE
OFFICERS
In
addition to Mr. Whitman, certain information is furnished with respect to
the
following executive officers of the Company:
Robert
W. Bennett, Jr.,
50,
has been President of the Organizational Solutions Business Unit of the Company
since July 2002. Mr. Bennett joined the Company in February 2000 as Vice
President of Sales and later served as Senior Vice President of Global Sales
and
Delivery. Prior to joining the Company, Mr. Bennett served as President of
PowerQuest from 1998 to 2000 and as General Manager and President of Folio
from
1993 to 1998. Mr. Bennett has 24 years of sales and sales management experience
with Fortune 500 companies including IBM. Mr. Bennett earned his Bachelor
of
Arts in Government and Law from Lafayette College in Pennsylvania.
Sarah
Merz,
42, has
been President
and General Manager of the Consumer Solutions Business Unit since
October 2003. Ms.
Merz
joined the Company in May 2000 as Vice President of Marketing. Prior to joining
the Company, Ms. Merz was a Partner and co-owner of Kannon Consulting, Inc.
and
an associate for Booz, Allen & Hamilton, where she created marketing
strategies for Fortune 100 businesses throughout the U.S. as well as major
corporations overseas. Ms. Merz also served as Vice President of International
Sales and Business Development for Revell-Monogram, Inc. Ms. Merz received
an
MBA with honors from Northwestern’s Kellogg Graduate School of Management and
earned her Bachelor of Arts with honors in Economics from the University
of
Chicago.
Stephen
D. Young,
53,
joined the Company as Executive Vice President of Finance, was appointed
Chief
Accounting Officer and Controller in January 2001, Chief Financial Officer
in
November 2002 and Corporate Secretary in March 2005. Prior to joining the
Company he served as Senior Vice-President of Finance, Chief Financial Officer
and director of international operations for Weider Nutrition for seven years.
Mr. Young has 25 years of accounting and management experience. Mr. Young
is a
CPA and holds a Bachelor of Science in Accounting degree from Brigham Young
University.
EXECUTIVE
COMPENSATION
The
compensation of Robert A. Whitman, the Company’s Chairman, President and
Chief Executive Officer, and the other named executive officers listed below
(collectively, the “Named Executive Officers”) at August 31, 2006, the most
recent fiscal year end, is shown below.
Summary
Compensation Table
|
|
|
|
Annual
Compensation
|
|
Long
Term Compensation Awards
|
|
Name
and Position
|
|
Fiscal
Year
|
|
Salary($)
|
|
Bonus($)
|
|
Other
Annual Compensation ($)(1)
|
|
Unvested
Stock Awards ($)(2)
|
|
Fully
Vested Stock Award ($)(3)
|
|
Securities
Underlying Options/SARs (#)(4)
|
|
All
Other Compensation ($)(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
A. Whitman
|
|
|
2006
|
|
|
500,000
|
|
|
415,500
|
|
|
43,601
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
5,769
|
|
Chairman,
President and
|
|
|
2005
|
|
|
500,000
|
|
|
728,000
|
|
|
194,400
|
|
|
486,000
|
|
|
403,920
|
|
|
-
|
|
|
-
|
|
Chief
Executive Officer
|
|
|
2004
|
|
|
500,004
|
|
|
281,250
|
|
|
5,041
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
William Bennett, Jr.
|
|
|
2006
|
|
|
250,000
|
|
|
105,149
|
|
|
4,333
|
|
|
-
|
|
|
|
|
|
-
|
|
|
6,467
|
|
President,
Organizational
|
|
|
2005
|
|
|
250,000
|
|
|
232,896
|
|
|
30,442
|
|
|
-
|
|
|
|
|
|
-
|
|
|
9,419
|
|
Solutions
Business Unit
|
|
|
2004
|
|
|
250,000
|
|
|
126,875
|
|
|
1,957
|
|
|
143,325
|
|
|
|
|
|
-
|
|
|
7,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sarah
Merz
|
|
|
2006
|
|
|
250,000
|
|
|
262,500
|
|
|
1,951
|
|
|
-
|
|
|
|
|
|
-
|
|
|
8,531
|
|
President,
Consumer
|
|
|
2005
|
|
|
250,000
|
|
|
262,500
|
|
|
1,005
|
|
|
-
|
|
|
|
|
|
-
|
|
|
7,791
|
|
Solutions
Business Unit
|
|
|
2004
|
|
|
226,154
|
|
|
98,438
|
|
|
58,691
|
|
|
143,325
|
|
|
|
|
|
50,000
|
|
|
8,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
D. Young
|
|
|
2006
|
|
|
249,038
|
|
|
104,875
|
|
|
2,270
|
|
|
-
|
|
|
|
|
|
-
|
|
|
8,015
|
|
Executive
Vice President
|
|
|
2005
|
|
|
222,115
|
|
|
146,667
|
|
|
19,090
|
|
|
-
|
|
|
|
|
|
-
|
|
|
6,342
|
|
and
Chief Financial Officer
|
|
|
2004
|
|
|
221,154
|
|
|
86,875
|
|
|
53,280
|
|
|
128,993
|
|
|
|
|
|
-
|
|
|
8,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Other
amounts relate to miscellaneous benefits paid during the year,
reimbursement of taxes that were paid during the year and insurance
premiums. Fiscal year 2006 amounts included for each Named Executive
Officer the following insurance premiums: Robert A. Whitman, $36,180
for
disability insurance and $7,310 for life insurance; Robert William
Bennett, Jr., $2,196 for life insurance; Sarah Merz, $644 for life
insurance; and Stephen D. Young, $2,270 for life insurance.
|
(2)
|
Restricted
stock awards vest in full five years from the date of grant. Vesting
may
occur earlier, either partially or in full, if certain financial
targets
are met. Holders of restricted shares are entitled to vote the
shares.
Value was determined by the market price on the grant date. At
August 31,
2006, the total number of shares (and value as of that date) of
restricted
stock (excluding performance-based restricted stock) by each Named
Executive Officer was: Robert A. Whitman, 112,500 shares ($646,875);
Robert William Bennett, Jr., 26,250 shares ($150,938); Sarah Merz,
26,250
shares ($150,938); and Stephen D. Young, 23,625 ($135,844). The
excluded
performance-based restricted stock for each Named Executive Officer
is
listed in the table below.
|
(3)
|
Mr.
Whitman was granted 187,000 shares of fully vested common stock.
Value was
determined by the market price on the grant date.
|
(4)
|
Amounts
shown reflect options granted to the Named Executive Officers pursuant
to
the Franklin Covey 1992 Stock Incentive Plan (the “Incentive Plan”). As of
August 31, 2006, the Company had not granted any stock appreciation
rights.
|
(5)
|
Amounts
shown reflect contributions made by the Company for the benefit
of the
Named Executive Officers under the Franklin Covey 401(k) Profit
Sharing
Plan.
|
Aggregated
Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR
Values
The
following table sets forth number of shares of Common Stock acquired during
the
fiscal year ended August 31, 2006 upon exercise of stock options, the values
realized upon such exercise, the number of unexercised stock options held
on
August 31, 2006, and the aggregate value of such options held by the Named
Executive Officers. This table reflects options to acquire shares of Common
Stock granted to the Named Executive Officers by the Company and by certain
affiliates of the Company. As of August 31, 2006, the Company had not granted
any stock appreciation rights to any of the Named Executive
Officers.
Name
|
|
Number
of Shares Acquired on Exercise
|
|
Value
Realized on Exercise
|
|
Number
of Unexercised
Options
at
August 31,
2006
|
|
Value
of Unexercised
In-the-Money
Options at
August 31,
2006 (1)
|
|
|
|
|
|
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
Robert A.
Whitman
|
|
|
-
|
|
|
-
|
|
|
1,602,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Robert
W. Bennett, Jr.
|
|
|
-
|
|
|
-
|
|
|
50,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Sarah
Merz
|
|
|
-
|
|
|
-
|
|
|
37,500
|
|
|
12,500
|
|
$
|
151,875
|
|
$
|
50,625
|
|
Stephen
D. Young
|
|
|
-
|
|
|
-
|
|
|
35,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
(1) |
Value
of unexercised options was determined by the fair market value of
the
Common Stock at fiscal year end. |
Long-Term
Incentive Plans - Awards in Last Fiscal Year
The
table
below sets forth information concerning long-term incentive compensation
awarded
to the Named Executive Officers during fiscal year 2006.
|
|
|
|
|
|
Estimated
Future Payouts Under Non-Stock Priced-Based
Plans(1)
|
|
Name
|
|
|
Number
of Shares, Units or Other Rights (#)
|
|
|
Performance
or Other Period Until Maturation or Payout
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
Robert
A. Whitman
|
|
|
84,151
|
|
|
August
31, 2008
|
|
|
0
|
|
|
84,151
|
|
|
168,302
|
|
Robert
William Bennett, Jr.
|
|
|
21,038
|
|
|
August
31, 2008
|
|
|
0
|
|
|
21,038
|
|
|
42,076
|
|
Sarah
Merz
|
|
|
21,038
|
|
|
August
31, 2008
|
|
|
0
|
|
|
21,038
|
|
|
42,076
|
|
Stephen
D. Young
|
|
|
21,038
|
|
|
August
31, 2008
|
|
|
0
|
|
|
21,038
|
|
|
42,076
|
|
(1) |
Performance
shares were awarded in January 2006, following shareholder approval
of the
Long-Term Incentive Plan (LTIP). Shares awarded under the plan do
not have
voting rights and do not receive dividends. The number of shares
actually
awarded is based upon the performance of the Company during the three
following fiscal years. The Board has established a matrix of business
performance and financial objectives, including a combination of
revenue
growth and operating margin, which will determine the number of shares
that will be awarded at the end of the three-year term. |
Equity
Compensation Plan Information
The
Company has not issued options with an exercise price less than the market
price
since 1992. The following table sets forth equity compensation plan information
as of August 31, 2006.
|
|
[a]
|
|
[b]
|
|
[c]
|
Plan
Category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants,
and rights
(in
thousands)
|
|
Weighted-average
exercise price of outstanding options, warrants, and
rights
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in
column [a])
(in
thousands)
|
|
|
|
|
|
|
|
Equity
compensation plans approved by security holders (1)(2)
|
|
2,585
|
|
$11.28
|
|
1,869
|
|
|
|
|
|
|
|
(1)
|
Includes
431,295 unvested restricted stock awards which were valued at the
August
31, 2006 closing Common Stock price of $5.75 per share.
|
(2)
|
Excludes
performance awards issued under a shareholder approved long-term
incentive
plan. At August 31, 2006, the Company expected to award 337,588
shares of
Common Stock to participants in the long-term incentive plan. The
ultimate
number of shares awarded is variable and may change between August
31,
2006 and the vesting date of the performance awards. For further
information on our stock-based compensation plans, please refer
to Note 11
to our consolidated financial statements presented in Item 8 of
the
Company’s report on Form 10K for fiscal year
2006.
|
Employment
Agreements
The
Company does not have an employment agreement with any of its Named Executive
Officers, including Robert A. Whitman, the President, Chief Executive
Officer and Chairman of the Board. The Company does have Change in Control
and
Severance agreements with each of the Named Executive Officers and is described
in further detail in the Compensation Committee Report below.
COMPENSATION
COMMITTEE
REPORT
The
following report was prepared by the Compensation Committee, which administers
all elements of the Company’s executive compensation program, including the
Incentive Plan. The Compensation Committee has responsibility for all
compensation-related matters, including equity awards, for Robert A. Whitman,
the Company’s Chairman, President and Chief Executive Officer. It also
determines any equity awards under the Incentive Plan for all other executive
officers. In consultation with the Committee, Mr. Whitman annually reviews
and
establishes the amount of cash compensation for the other executive officers.
The Compensation Committee reports at least annually to the full Board on
the
Company’s executive compensation program. The Committee recognizes the
importance of developing and administering executive compensation and benefit
programs that link executive pay to individual and organizational performance.
The Compensation Committee and the Board periodically review and revise the
Committee’s Charter to ensure it accurately reflects these responsibilities. A
copy of the Charter is available at www.franklincovey.com.
Compensation
Committee Membership and Process.
Members
of the Compensation Committee are composed of independent directors who are
not
employees of the Company or its subsidiaries. For fiscal year 2006 the members
of the Compensation Committee were E. Kay Stepp, who serves as Chairperson,
Robert H. Daines and Dennis G. Heiner. None of the Compensation Committee
members has any material business relationships with the Company.
The
Compensation Committee held five meetings during fiscal year 2006. The
Compensation Committee regularly meets without any employees present to discuss
executive compensation matters, including Mr. Whitman’s compensation package.
Within
its charter, the Committee has the authority to engage the services of outside
advisors, experts, and others to assist the Committee. Accordingly, the
Compensation Committee has retained the services of an independent compensation
consulting firm to advise the Committee on matters related to CEO, executive,
and Board compensation. The Compensation Committee has the authority to
determine the scope of the consulting firm’s services and retains the right to
terminate the consultant’s contract at any time. Currently, the consulting
firm’s services include:
·
|
Executive
compensation program design
|
·
|
Total
rewards benchmarking
|
·
|
Long-term
incentive plan design
|
·
|
Executive
severance policy design
|
·
|
Change-in-control
policy design
|
Additionally,
the consulting firm calibrates the executive compensation program to Company
performance and the competitive market and monitors overall program
effectiveness.
The
Compensation Committee’s report on executive compensation matters includes a
general overview of executive compensation at FranklinCovey and describes
the
compensation philosophy and objectives that drive compensation-related
decisions. The report describes the compensation elements utilized and the
purpose for each of the elements. Further, the report identifies the
performance-based compensation awarded to the Named Executive Officers during
fiscal year 2006, and reports on material actions taken by the Committee
in
fiscal 2006 and early fiscal 2007.
General
Overview of Executive Compensation.
Executive compensation at FranklinCovey is designed to reward achievement
of our
strategic plan and reward the annual milestones that drive the strategic
plan.
To this end, the Company annually establishes Wildly Important Goals or WIGs
-
the most powerful and highly leveraged goals that we believe will have the
most
positive impact on the organization achieving the strategic plan. As the
WIGS
are defined, performance measures are established for each Named Executive
Officer.
The
Executive Compensation program is designed to reward performance - the
successful short-term and long-term execution of each executive’s
responsibilities and the achievement of the company’s WIGs. Under the direction
and oversight of the Compensation Committee of the Board of Directors, executive
compensation has five main components: base salary, annual incentives, long-term
incentives (stock awards and option awards), benefits, and severance and
change-in-control benefits. Each of these areas will be discussed in greater
detail in the following sections of this report.
Consistent
with FranklinCovey’s pay for performance philosophy, the CEO’s compensation
package is approximately 67% at risk. For the other Named Executive Officers,
about 50% of target compensation is at risk.
Executive
Compensation Philosophy.
The
Compensation Committee established an executive compensation strategy and
structure based on the following principles:
·
|
FranklinCovey
pays for performance.
Executives - who have the greatest direct influence on organizational
performance - should have the greatest portion of their compensation
at
risk. Therefore, executives are held accountable through the compensation
program for organizational performance;
|
·
|
Compensation
should reward successful execution of the business
strategy.
Therefore, the executive compensation program should be both aligned
with
achieving the Company’s strategic business plan and directly related to
Company performance;
|
·
|
Company
success depends on teamwork from the executive level down through
the
organization.
Therefore, the compensation program should be designed to promote
shared
destiny and reward entity/team success, not just individual effort;
|
·
|
A
critical objective must be to attract and retain qualified executive
talent.
Successful execution of the business strategy necessitates keeping
the
Company’s management team in place and focused on business goals.
Therefore, the Company’s program must be competitive and equity awards
granted with vesting schedules designed to promote retention;
|
·
|
Executive
pay should be aligned with the interests of
shareholders.
Equity is used to reward executives for creating shareholder value
over a
several year horizon.
|
The
Company intends to continue its strategy of compensating its executives through
programs that emphasize performance-based compensation. To that end, the
Committee reviews quarterly and annual performance targets and achievements
for
the executive team and approves variable compensation targets tied to the
achievement of annual goals and quarterly milestones.
Philosophically,
we believe that Company stock ownership is important for executives and outside
directors. Through the Long-Term Incentive Plan (“LTIP”) and Restricted Share
Awards (“RSA”), executives and outside directors have the opportunity to
increase stock ownership as the Company achieves specific sales and operating
income targets. As a general guideline and consistent with industry best
practices, we believe executives should be encouraged to maintain stock
ownership where the market value of shares held is equivalent to 2-3 times
their
base salary; outside directors are encouraged to maintain stock ownership
equal
to 2-3 times their annual retainer. Based on the current share price multiplied
by the number of shares (common shares, vested and unvested RSAs, and LTIP
awards) held by each executive and director, all executives and directors
meet
the recommended guideline.
Objectives
of the Executive Compensation Program.
The
executive compensation program is designed to achieve four primary
objectives:
|
1.
|
Ensure
base pay is competitive for the role or job to be
done.
|
|
2.
|
Reward
performance of annual objectives and milestones achieved toward
the 5-year
strategy through annual incentives.
|
|
3.
|
Maintain
focus on the 5-year strategy, reward achievement of long-term objectives,
and build wealth through the long-term incentive
program.
|
|
4.
|
Provide
a competitive benefits package as part of a great work
environment.
|
Discussion
of Compensation Elements.
FranklinCovey’s Executive Compensation Plan incorporates five main
elements:
|
3.
|
Long-term
Incentive Compensation
|
|
4.
|
Certain
Other Benefits
|
|
5.
|
Severance
and Change in Control Benefits
|
Each
element of the company’s executive compensation program serves a somewhat
different purpose, as described below:
Base
Salary. Base
salary payments compensate ongoing performance throughout the year.
Annual
Incentive. Annual
incentives reward the achievement of specific business and financial goals
achieved during the fiscal year. Because of the way goals are cascaded
throughout the organization, if a business unit fails to achieve one or more
of
its goals, the executive’s annual incentive will be adjusted accordingly. If the
business unit exceeds its goals, incentive payouts may be increased by up
to 50
percent.
For
executives (excluding the CEO):
·
|
Thirty
percent
of
total target annual incentive is based on completing objectives
established quarterly between the executive and the CEO.
|
l |
Seventy
percent
of
total target annual incentive is based on meeting financial targets.
|
The
Chief
Executive Officer’s goals and target payouts are established annually between
the CEO and the Board of Directors.
Long-Term
Incentive Compensation. FranklinCovey’s
long-term incentive compensation strategy has evolved over the last several
years. The current plan includes restricted share awards and the long-term
incentive plan approved by shareholders in January 2006.
Restricted
Share Awards.
Restricted
shares were awarded to key employees, including the named executive officers,
on
December 8, 2004. The restricted shares vest at the end of a five-year period
and if the executive’s employment terminates prior to vesting, the officer
generally forfeits all restricted shares that have not yet vested. Vesting
was
accelerated 50 percent during fiscal 2005 due to the Company achieving specific
financial performance objectives. The Company did not meet the performance
objectives required to accelerate additional vesting in fiscal 2006. If specific
financial goals are met prior to the five-year vest date, all remaining unvested
shares shall vest. If the specific financial goals are not met, shares will
remain unvested until the end of the five-year period.
Long-Term
Incentive Plan.
In
fiscal
2005, the Compensation Committee worked with its independent consultant and
outside legal counsel to further align the compensation program with the
business strategy, executive compensation philosophy and the changing
competitive marketplace. Taking into account emerging financial accounting
changes, the evolving expectations of shareholders, market trends, and improved
Company performance, the Organization and Compensation Committee adopted
in
fiscal 2005 a new long-term incentive strategy using performance shares.
Shares
are awarded only after specific goals are attained.
The
FranklinCovey Long-Term Incentive Program (LTIP) is designed to reward specific
improvements in revenue growth and Operating Income over a three-year period.
The Committee believes the LTIP will:
·
|
Reward
those who have the greatest impact on the financial results of
the
company.
|
·
|
Retain
senior leaders and other key leaders identified by the CEO.
|
·
|
Align
senior leaders with creating shareholder value.
|
The
LTIP
is a 3-year rolling plan with new stretch goals established each year. The
number of shares is determined based upon the performance of the Company
during
the three following fiscal years. The Board has established a matrix of business
performance and financial objectives, including a combination of revenue
growth
and operating margin, which will determine the number of shares that will
be
awarded at the end of the three-year term.
These
awards are granted in accordance with the terms of the Company’s Amended and
Restated 1992 Stock Incentive Plan which was last approved by the shareholders
in January 2006.
Other
Benefits. The
Company maintains a number of other broad-based employee benefit plans in
which
executive officers participate on the same terms as other employees meeting
the
eligibility requirements, subject to any legal limitations on amounts that
may
be contributed to or benefits payable under the plans. Benefits
include:
·
|
The
Company’s cafeteria
plan
administered pursuant to Section 125 of the Internal Revenue Code
of 1986,
as amended (“the Code”). The cafeteria plan includes FranklinCovey’s
medical and dental insurance, medical reimbursement, and dependent
care
reimbursement plans.
|
·
|
The
Company’s 401(k)
plan,
pursuant to which the Company matches 100 percent of the first
1%
contributed and 50 percent of the next 4% contributed for a net
3% match
on a 5% contribution. 401(k) contributions from highly compensated
employees are currently limited to a maximum of 5% of compensation,
subject to statutory limits.
|
·
|
The
Company’s Employee
Stock Purchase Plan
implemented and administered pursuant to Section 423 of the
Code.
|
In
addition to the benefits available to all full-time associates, FranklinCovey
provides the following benefits to the Named Executive Officers:
·
|
Term
Life Insurance.
FranklinCovey provides a portable 20-year term life policy for
each named
executive officer. The coverage amount is 2.5 times each executive’s
target annual cash compensation (base salary + target annual
incentive).
|
·
|
Supplemental
Disability Insurance.
Executives and other highly compensated associates may purchase
voluntary
supplemental disability insurance. The Company provides Mr. Whitman
with
sufficient funds to enable him to procure long-term disability
insurance
which, combined with the Company’s current group policy, provides, in
aggregate, monthly long-term disability benefits equal to 75 percent
of
his fiscal 2006 target cash compensation.
|
Severance
and Change in Control Benefits.
During
fiscal 2005, the Compensation Committee established a new executive severance
compensation policy as well as a new change in control severance compensation
policy for all executive officers, including Mr. Whitman. The Board, acting
on
the Committee's recommendation, adopted the FranklinCovey Co. Severance
Compensation Policy and the FranklinCovey Co. Change in Control Severance
Compensation Policy. The Severance Compensation Policy entitles an executive
officer to receive, in the event of involuntary employment termination without
just cause, an amount equal to his or her current base salary and target
annual
incentive. Additionally, FranklinCovey pays COBRA medical and dental insurance
premiums for the term of the severance. Consistent with FranklinCovey’s
severance policy, all severance payments are made as a lump sum. FranklinCovey
does not gross-up severance payments to compensate for taxes withheld.
A
written
change-in-control agreement exists for each executive officer. The
change-in-control policy is designed to encourage senior executives of the
Company to remain employees of the Company in the event a change-in-control
transaction is proposed or threatened. In such situations, the change-in-control
benefit may alleviate some of the financial and career concerns normally
associated with a change in control and assure executives of fair
treatment.
Pursuant
to the Change in Control Severance Policy, in the event an executive officer’s
or key employee’s employment were terminated, without good reason, and as the
result of a change in control of the Company, as defined in the policy, the
executive officer would be entitled to receive a lump sum cash payment in
an
amount equal to two times his
or
her current annual target
cash compensation, while a key employee would be entitled to receive an amount
equal to his or her current annual target cash compensation. Executive officers
and key employees would also be entitled to reimbursement for the payment
of
premiums to secure continuation
coverage pursuant to Section 4980B of the Internal Revenue Code (or any
successor provision thereto) under the Company’s medical, dental and other group
health plans, and would be entitled to have immediately vested, as of his
or her
employment termination date, all Awards granted by the Company which at that
time are not yet vested according to their terms. FranklinCovey does not
gross-up change-in-control payments to compensate for taxes withheld.
Annual
Chief Executive Officer Performance Review.
Mr.
Whitman has served as Chairman of the Board of Directors since June 1999
and
President and Chief Executive Officer of the Company since January 2000.
The
Compensation Committee has identified specific criteria for evaluating Mr.
Whitman’s performance to be considered in addition to the Company’s financial
results. The criteria include specific leadership competencies, specific
competencies related to the role of the Chief Executive Officer, and specific
non-financial business objectives. The Chair of the Compensation Committee
annually surveys board members and executive management and reports her findings
on each objective to Mr. Whitman, the Compensation Committee and the Board
of
Directors.
Employment
Agreements. FranklinCovey
does not have
an
employment agreement with any of its Named Executive Officers, including
Robert A. Whitman, the President, Chief Executive Officer and Chairman of
the Board.
Compensation
Reviews and Benchmarking.
Executive compensation is reviewed annually by the Organization and Compensation
Committee supported by an external compensation consulting firm who provides
market data, plan design, and other consulting services. When determining
the
total compensation package for Named Executive Officers, the Committee considers
the recommendations from the Chairman and CEO regarding total compensation
for
those executives who report directly to him.
Consistent
with FranklinCovey’s overall compensation strategy, executive compensation (base
pay + annual incentive + long-term incentive compensation + benefits) is
targeted at the median of a general industry peer group comprised of companies
similar in size and/or revenues to FranklinCovey. When warranted by performance
and/or value creation that exceed the target, executives have the potential
to
receive additional performance-based compensation. Under these circumstances,
total compensation may be greater than the median.
Section
162(m) Implications for Executive Compensation.
The
Committee is responsible to address the issues raised by Section 162(m) of
the
Internal Revenue Code of 1986, as amended (the “Code”), which makes certain
“non-performance-based” compensation to certain executives of the Company in
excess of $1,000,000 non-deductible to the Company. To qualify as
“performance-based” under Section 162(m), compensation payments must be
determined pursuant to a plan, by a committee of at least two “outside”
directors (as defined in the regulations promulgated under the Code) and
must be
based on achieving objective performance goals. In addition, the material
terms
of the plan must be disclosed to and approved by stockholders, and the outside
directors or the Committee, as applicable, must certify that the performance
goals were achieved before payments can be awarded.
The
Committee will continue to examine the effects of Section 162(m), to monitor
the
level of compensation paid to the Company's executive officers and take
appropriate action in response to the provisions of Section 162(m) to the
extent
practicable while maintaining competitive compensation practices.
To
maintain flexibility in compensating executive officers in a manner designed
to
promote varying corporate goals, the Committee reserves the right to recommend
and award compensation that is not deductible under Section 162(m).
Fiscal
2006 Compensation Program.
In
fiscal
2006, the Compensation Committee worked with its independent consultant and
outside legal counsel to further align the compensation program with the
executive compensation philosophy and the changing competitive marketplace.
Taking
into account emerging financial accounting changes, the evolving expectations
of
shareholders, market trends and improved Company performance, the Compensation
Committee introduced the FranklinCovey Long-Term Incentive Program (LTIP)
designed to reward specific improvements in revenue growth and Operating
Income
over a three-year period through the use of Performance Share awards.
In
addition to assessing the long-term component, the Compensation Committee
also
reviewed the salary and annual incentive program for the executive officers.
The
Compensation Committee found the program to be generally well-aligned with
market practice.
The
Company’s financial performance continued to become more closely aligned with
the Company’s target business model during fiscal 2006. Annual cash incentives
were paid to the management team at rates that reflect individual and business
unit or corporate performance against pre-determined goals, as
follows:
Executive
|
Target
Annual Incentive at 100% of Goal ($)(1)
|
Actual
Performance Against Individual Goals (%)(2)
|
Actual
Performance Against Financial Goals (%)(3)
|
Total
Fiscal Year 2006 Incentive Received ($)(4)
|
Robert
A. Whitman
|
500,000
|
97.33
|
77.00
|
415,500
|
Robert
William Bennett, Jr.
|
175,000
|
90.00
|
69.00
|
105,149
|
Sarah
Merz
|
175,000
|
100.00
|
122.00
|
262,500
|
Stephen
D. Young
|
125,000
|
100.00
|
77.00
|
104,875
|
(1)
|
If
actual results are greater than 100% of goal, the executive may
receive an
accelerator of up to an additional 50% of the targeted
amount.
|
(2)
|
Thirty
percent of each executive’s total annual incentive is based on completing
objectives established between the executive and the CEO or between
the
CEO and the Board of Directors.
|
(3)
|
Seventy
percent of each executive’s total annual incentive is based on achieving
specific Operating EBITDA or Operating Income results. Mr. Bennett
and Ms.
Merz receive this portion of their annual incentive based on their
respective business unit’s overall Operating EBITDA results. Mr. Whitman
and Mr. Young are compensated based on the entire company’s Operating
Income results.
|
(4)
|
The
total incentive receive includes the accelerator, if
applicable.
|
The
cost
of the annual incentive plan is included in the calculation of performance
levels.
Mr.
Whitman’s Compensation.
Cash
Compensation.
For
fiscal year 2007, the Compensation Committee agreed to continue Mr. Whitman’s
base salary at $500,000. His target annual incentive for achieving predetermined
Company financial and operation goals will also remain at $500,000.
Stock
Awards.
The
Compensation Committee decided to use Performance Share awards as part of
its
long-term incentive plan. The Performance Shares would be awarded to Mr.
Whitman
and other executive officers with a three-year vesting period. The number
of
shares shall be determined based upon the performance of the Company during
the
three following fiscal years. The Board has established the matrix of business
performance and financial objectives, including a combination of revenue
growth
and operating margin, that will determine the number of shares that will
be
awarded at the end of the three-year term.
The
Compensation Committee has decided to continue the use of Performance Share
awards as a part of its long-term incentive plan for fiscal 2007. The Board
has
granted a target number of performance shares of 429,312 and established
the
matrix of business performance and financial objectives for the three fiscal
years beginning in fiscal 2007 that will determine the number of shares that
will be awarded at the end of the three-year term. The business performance
and
financial objectives include a combination of revenue growth and operating
profits.
Life
Insurance and Long Term Disability Benefits.
The
Company procured, at its expense, a portable 20-year level term life insurance
policy on Mr. Whitman’s life with a death benefit of $2,500,000. The Company
also provides Mr. Whitman with sufficient funds to enable him to procure
long
term disability insurance which, combined with the Company’s current group
policy, provides, in aggregate, monthly long-term disability benefits equal
to
75 percent of his fiscal 2007 target cash compensation.
Mr.
Whitman’s Fiscal 2006 Compensation.
The
Compensation Committee continued Mr. Whitman’s base salary at the previous
annual rate of $500,000 in fiscal 2006. Mr. Whitman was also entitled to
receive
a performance bonus of $415,500 based on the Company’s results compared to the
performance objectives determined by the Compensation Committee. As a result
of
the Company’s financial performance and achieving performance lower than the
targeted goals in fiscal 2006, Mr. Whitman received 83.1 percent of his targeted
annual incentive of $500,000.
Stock
Program.
As of
August 31, 2006, executive officers held incentive stock options to purchase
an
aggregate of 1,737,000 shares of Common Stock granted under the direction
of the
Compensation Committee pursuant to the Incentive Plan since its inception
in
1992 and the Non-Qualified Executive Stock Option Plan of 2000. Of those
options, 1,712,000 were exercisable as of the end of fiscal 2006.
The
Incentive plan provides multiple vehicles for making equity awards to executive
officers, including performance shares, incentive stock options, non-qualified
stock options, stock appreciation rights and restricted share
awards.
Other
Compensation Plans. The
Company has a number of other broad-based employee benefit plans in which
executive officers participate on the same terms as other employees meeting
the
eligibility requirements, subject to any legal limitations on amounts that
may
be contributed to or benefits payable under the plans. These include (i)
the
Company’s cafeteria plan administered pursuant to Section 125 of the Internal
Revenue Code of 1986, as amended (“the Code”); (ii) the Company’s 401k plan,
pursuant to which the Company makes matching contributions; and (iii) the
Company’s Employee Stock Purchase Plan implemented and administered pursuant to
Section 423 of the Code.
Perquisites.
Keeping
with the spirit of partnership at FranklinCovey, Named Executive Officers
do not
receive perquisites that are not available to the general employee
population.
For
fiscal year 2007, the Organization and Compensation Committee proposed that
no
changes be made to the overall compensation program.
Respectfully
submitted,
E.
Kay
Stepp, Chairperson
Robert H.
Daines
Dennis G.
Heiner
Compensation
Committee Interlocks and Insider Participation
No
member
of the Compensation
Committee was
or is
an officer or employee of the Company or any of its subsidiaries. The Company
is
not aware of any Compensation
Committee
interlocks.
PERFORMANCE
GRAPH
The
following graph shows a comparison of cumulative total shareholder return
indexed to August 31, 2001, calculated on a dividend reinvested basis, for
the
five fiscal years ended August 31, 2006, for the Common Stock, the S&P
SmallCap 600 Index and the S&P Diversified Commercial Services Index. The
Company was previously included in the S&P 600 SmallCap Index and was
assigned to the S&P Diversified Commercial and Professional Services Index
within the S&P 600 SmallCap Index. The Company believes that if it were
included in an index it would be included in the indices where it was previously
listed. The Diversified Commercial Services Index consists of 18 companies
similar in size and nature to Franklin Covey. The Company is no longer a
part of
the S&P 600 SmallCap Index but believes that the S&P 600 SmallCap Index
and the Diversified Commercial Services Index continues to provide appropriate
benchmarks with which to compare the Company’s stock performance.
PRINCIPAL
HOLDERS OF VOTING SECURITIES
The
following table sets forth information as of November 24, 2006, with
respect to the beneficial ownership of shares of Common Stock and Series A
Preferred Stock by each person known by the Company to be the beneficial
owner
of more than five percent of Common Stock or Series A Preferred Stock, by
each director, by the Named Executive Officers and by all directors and officers
as a group. Unless noted otherwise, each person named has sole voting and
investment power with respect to the shares indicated. In
computing the number of shares of common stock beneficially owned by a person
or
entity and the percentage ownership of that person or entity, we deemed
outstanding shares of common stock subject to options or warrants held by
that
person or entity that are currently exercisable or exercisable within 60
days of
November 24, 2006. We did not deem these shares outstanding, however, for
the
purpose of computing the percentage ownership of any other person or entity.
The
percentages set forth below have been computed without taking into account
treasury shares held by the Company and are based on 20,109,886
shares
of Common Stock and 1,493,776 shares of Series A Preferred
Stock outstanding as of November 24, 2006. There are no shares of Series B
Preferred Stock outstanding. The shares of Series A Preferred Stock are
entitled to two votes for each whole share on all matters on which the Common
Stock and Series A Preferred Stock vote as a single class.
|
|
Beneficial
Ownership as of November 24, 2006
|
|
|
|
Number
of
Preferred
Shares
|
|
Percentage
of
Class
|
|
Number
of
Common
Shares
|
|
Percentage
of
Class
|
|
|
|
|
|
|
|
|
|
|
|
Donald J.
McNamara (3)(4)
c/o
Franklin Covey Co.
2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2331
|
|
|
1,375,039
|
|
|
92.1
|
%
|
|
7,249,138
|
|
|
27.2
|
%
|
Knowledge
Capital Investment
Group
(1)(2)
3232
McKinney Ave,
Dallas,
Texas 75204
|
|
|
1,375,039
|
|
|
92.1
|
%
|
|
6,928,404
|
|
|
26.6
|
%
|
Robert A.
Whitman (7)(9)
c/o
Franklin Covey Co.
2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2331
|
|
|
|
|
|
|
|
|
2,329,210
|
|
|
10.7
|
%
|
Dimensional
Fund Advisors, Inc. (6)
1299
Ocean Avenue
Santa
Monica, California 90401
|
|
|
|
|
|
|
|
|
1,225,195
|
|
|
6.1
|
%
|
Stephen R.
Covey (4)
c/o
Franklin Covey Co.
2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2331
|
|
|
|
|
|
|
|
|
1,046,384
|
|
|
5.2
|
%
|
Dennis R.
Webb (4)(5)
2626
Hillsden Drive
Holladay,
Utah 84117
|
|
|
|
|
|
|
|
|
1,015,712
|
|
|
5.1
|
%
|
Joel C.
Peterson
|
|
|
|
|
|
|
|
|
203,049
|
|
|
1.0
|
%
|
Robert
W. Bennett, Jr. (7)(9)
|
|
|
|
|
|
|
|
|
130,294
|
|
|
*
|
%
|
Sarah
Merz (7)(9)
|
|
|
|
|
|
|
|
|
116,873
|
|
|
*
|
%
|
Dennis G.
Heiner
|
|
|
|
|
|
|
|
|
108,757
|
|
|
*
|
%
|
Stephen D.
Young (7)(9)
|
|
|
|
|
|
|
|
|
104,312
|
|
|
*
|
%
|
Robert H.
Daines (8)
|
|
|
|
|
|
|
|
|
45,132
|
|
|
*
|
%
|
E.
Kay Stepp
|
|
|
|
|
|
|
|
|
33,909
|
|
|
*
|
%
|
Clayton
M. Christensen
|
|
|
|
|
|
|
|
|
30,457
|
|
|
*
|
%
|
E.
J. “Jake” Garn
|
|
|
|
|
|
|
|
|
20,457
|
|
|
*
|
%
|
All
directors and executive officers as a group (7)(9)(12
persons)
|
|
|
1,375,039
|
|
|
92.1
|
%
|
|
11,417,972
|
|
|
41.1
|
%
|
*
Less
than 1%.
(1)
|
Each
share of Series A Preferred Stock is entitled to two votes for each
whole share on all matters in which the Series A Preferred Stock
and
Common stock vote as a single class. As a result, in addition to
the
shares of Common Stock listed in the beneficial ownership table,
Knowledge
Capital’s ownership of its Series A Preferred Stock entitles it to
2,750,078 votes on matters in which the Series A Preferred Stock
and
Common Stock vote as a single class.
|
(2)
|
The
Common Stock shares indicated for Knowledge Capital include 5,913,402
warrants. The warrants are exercisable into a share of Common Stock
at
$8.00 each.
|
(3)
|
Mr.
McNamara, who is a director of the Company, is a principal of The
Hampstead Group, the private investment firm that sponsors Knowledge
Capital, and therefore may be deemed the beneficial owner of the
Common
Stock and the Series A Preferred Stock and the warrants of Common
Stock held by Knowledge Capital. Mr. McNamara disclaims beneficial
ownership of the Common Stock and the Series A Preferred Stock held
by Knowledge Capital.
|
(4)
|
The
share amounts indicated include those for Dennis R. Webb, by
Dennis R. Webb as trustee of The Lighthouse Foundation with respect
to 52,000 shares; those indicated for Stephen R. Covey by SRSMC
Properties LLC with respect to 40,000 shares; those indicated for
Stephen
R. Covey by SANSTEP Properties, L.C. with respect to 1,006,384
shares; and
those indicated by Donald J. McNamara by the Donald J. and Joan
P.
McNamara Foundation with respect to 23,000 shares. Mr. Webb and
Mr.
McNamara are the respective trustees of their foundations, having
sole
voting and dispositive control of all shares held by the respective
foundations, and may be deemed to have beneficial ownership of
such
shares. Mr. Covey, as co-manager of SRSMC Properties LLC and SANSTEP
Properties, L.C., has shared voting and dispositive control over
the
shares held by those entities and may be deemed to have beneficial
ownership of such shares.
|
(5)
|
Of
the share amount indicated as beneficially owned by Dennis R. Webb,
18,000 shares are subject to options granted to a former employee
of the
Company.
|
(6)
|
Dimensional
Fund Advisors’ information is provided as of September 30, 2006, the
filing of its last 13F report.
|
(7)
|
The
share amounts indicated include shares subject to options currently
exercisable held by the following persons in the following amounts:
Robert
W. Bennett, Jr., 50,000 shares; Sarah Merz, 37,500 shares; Stephen
D.
Young, 35,000 shares; Robert A. Whitman, 1,602,000 shares and all
executive officers and directors as a group, 1,724,500
shares.
|
(8)
|
The
share amounts indicated for Robert H. Daines include 5,000 shares
owned by Tahoe Investments, L.L.C., of which Mr. Daines is a
member.
|
(9)
|
The
share amounts indicated include Restricted Stock Awards currently
not
vested held by the following persons in the following amounts:
Robert W.
Bennett, Jr., 26,250 shares; Sarah Merz, 26,250 shares; Robert
A. Whitman,
112,500 shares; Stephen D. Young, 23,625 shares; and all officers and
directors as a group, 188,625 shares.
|
SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a)
of the Exchange Act requires the Company’s directors and executive officers, and
persons who own more than 10 percent of the Common Stock, to file with the
Securities and Exchange Commission (the “Commission”) initial reports of
ownership and reports of changes in ownership of the Common Stock and other
securities which are derivative of the Common Stock. Executive officers,
directors and holders of more than 10 percent of the Common Stock are required
by Commission regulations to furnish the Company with copies of all such
reports
they file. Based upon a review of the copies of such forms received by the
Company and information furnished by the persons named above, the Company
believes that all reports were filed on a timely basis.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Stephen R.
Covey, who is Vice Chairman of the Board of Directors, receives book royalties
and has a Speaker Services Agreement with the Company pursuant to which Dr.
Covey receives 80 percent of the net proceeds from personal speaking
engagements, which resulted in a payment of $1.7 million to Dr. Covey for
the
fiscal year ended August 31, 2006.
Donald J.
McNamara, a director of the Company as a designee of Knowledge Capital pursuant
to its contract rights, is a principal of The Hampstead Group, the private
investment firm that sponsors Knowledge Capital, the holder of 92 percent
of the
Company’s outstanding Series A Preferred Stock, and of Hampstead Interests,
LP, a Texas limited partnership. On March 8, 2005, the Company and Hampstead
Interests, LP entered into an Amended and Restated Monitoring Agreement that
provides for payment of a monitoring fee to Hampstead Interests, LP for
assisting the Company in strategic planning, including acquisitions,
divestitures, new development and financing matters. The agreement continues
so
long as Knowledge Capital owns more than 880,000 shares of Series A
Preferred Stock (as adjusted for stock splits, stock dividends and similar
events). In conjunction with the recapitalization of the Company’s Series A
Preferred Stock completed in March 2005, the monitoring fee has been and
will
continue to be reduced by redemptions made of outstanding shares of the Series
A
Preferred Stock held by Knowledge Capital. The Company paid $0.2 million
to
Hampstead Interests, LP during the fiscal year ended August 31, 2006,
pursuant to the Amended and Restated Monitoring Agreement.
Robert
A.
Whitman, Chairman of the Board, President and Chief Executive Officer of
the
Company, beneficially owns a partnership interest of Knowledge
Capital.
Each
transaction described above was entered into pursuant to arm’s length
negotiations with the party involved and was approved by disinterested
majorities of the Board of Directors or the Compensation Committee of the
Board.
PROPOSAL
II
TO
APPROVE THE RATIFICATION OF THE INDEPENDENT REGISTERED PUBLIC
ACCOUNTANTS
The
Audit
Committee of the Board of Directors has selected the firm of KPMG to audit
the
financial statements of the Company for the fiscal year ending August 31,
2007, and is seeking the ratification of that choice by the
shareholders of the Company. However, the Audit Committee is responsible
for the
selection and ongoing oversight of the auditors and has the authority
to replace KPMG as the auditors for the 2007 fiscal year, if it deems it
appropriate to do so. Any such change subsequent to the annual meeting will
not
be submitted to the shareholders for ratification. The Board of Directors
anticipates that one or more representatives of KPMG will be present at the
Annual Meeting and will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
Principal
Accountant Fees
The
following table shows the fees paid or accrued by the Company for audit and
other services provided by KPMG for fiscal years 2006 and 2005:
|
|
Fiscal
2006
|
|
Fiscal
2005
|
|
Audit
Fees (1)
|
|
$
|
1,805,697
|
|
$
|
684,436
|
|
Audit-Related
Fees (2)
|
|
|
-
|
|
|
3,655
|
|
Tax
Fees (3)
|
|
|
37,334
|
|
|
42,820
|
|
All
Other Fees
|
|
|
-
|
|
|
-
|
|
|
|
$
|
1,843,031
|
|
$
|
730,911
|
|
(1)
|
Audit
Fees represent fees and expenses for professional services provided
in
connection with the audit of the Company’s consolidated financial
statements and management’s assessment of internal control over financial
reporting found in the Annual Report on Form 10-K and reviews of the
Company’s financial statements contained in the Quarterly Reports on
Form 10-Q, procedures related to registration statements, and
accounting consultations on actual transactions.
|
(2)
|
Audit-Related
Fees primarily consisted of fees and expenses for the Company’s employee
benefit plan audits and accounting consultation on proposed
transactions.
|
(3)
|
Tax
Fees consisted primarily of fees and expenses for services related
to tax
compliance, tax planning, and tax consulting.
|
The
Audit
Committee pre-approves all services to be performed by the Company’s independent
registered public accountants and subsequently reviews the actual fees and
expenses paid to KPMG. All the audit-related and non-audit services provided
by
KPMG during fiscal 2006 and fiscal 2005 were pre-approved by the Audit
Committee. The Audit Committee has determined that the fees paid to KPMG
for
non-audit services are compatible with maintaining KPMG’s independence as the
Company’s independent registered public accountants.
AUDIT
COMMITTEE REPORT
In
accordance with its written charter adopted by the Board of Directors, the
Audit
Committee assists the Board in fulfilling its responsibility for oversight
of
the quality and integrity of the accounting, auditing and financial reporting
practices of the Company.
In
discharging its oversight responsibility as to the audit process, the Audit
Committee obtained from the independent registered public accountants a formal
written statement describing all relationships between the auditors and the
Company that might bear on the auditors’ independence consistent with
Independence Standards Board Standard No. 1, “Independence Discussions with
Audit Committees,” discussed with the auditors any relationships that may impact
their objectivity and independence and satisfied itself as to the auditors’
independence.
The
Audit
Committee discussed and reviewed with the independent registered public
accountants all communications required by auditing standards generally accepted
in the United States of America, including those described in Statement on
Auditing Standards No. 61, as amended, Communication
with Audit Committees
and,
with and without management present, discussed and reviewed the results of
the
independent registered public accountants’ work.
The
Audit
Committee reviewed the audited financial statements of the Company as of
and for
the fiscal year ended August 31, 2006, and met with and discussed such
financial statements with management and the independent registered public
accountants.
Based
on
the above-mentioned review and discussions with management and the independent
auditors, the Audit Committee recommended to the Board that the Company’s
audited financial statements be included in its Annual Report on Form 10-K
for the fiscal year ended August 31, 2006, for filing with the Securities
and Exchange Commission. The Audit Committee also recommended the reappointment,
subject to shareholder approval, of KPMG.
Date:
November 10, 2006
E.
J. “Jake” Garn,
Chairperson
Robert H.
Daines
Joel C.
Peterson
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE PROPOSAL TO RATIFY THE
SELECTION OF KPMG AS INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE COMPANY
FOR THE FISCAL YEAR ENDING AUGUST 31, 2007.
OTHER
MATTERS
As
of the
date of this Proxy Statement, the Board of Directors knows of no other matters
to be presented for action at the meeting. However, if any further business
should properly come before the meeting, the persons named as proxies in
the
accompanying form of proxy will vote on such business in accordance with
their
best judgment.
PROPOSALS
OF SHAREHOLDERS
Proposals
which shareholders intend to present at the annual meeting of shareholders
to be
held in calendar year 2008 must be received by the Company, at the Company’s
executive offices (2200 West Parkway Boulevard, Salt Lake City, Utah 84119-2331)
no later than August 17, 2007, provided that this date may be changed in
the
event that the date of the annual meeting of shareholders to be held in calendar
year 2008 is changed by more than 30 days from the date of the annual meeting
of
shareholders to be held in calendar year 2007. Such proposals must also comply
with the requirements as to form and substance established by the Commission
if
such proposals are to be included in the Company’s proxy statement and form of
proxy.
Pursuant
to rules adopted by the Commission, if a shareholder intends to propose any
matter for a vote at the Company's annual meeting of shareholders to be held
in
calendar year 2008 but fails to notify the Company of that intention prior
to
October 31, 2007, then a proxy solicited by the Board of Directors may be
voted
on that matter in the discretion of the proxy holder, provided that this
date
may be changed in the event that the date of the annual meeting of shareholders
to be held in calendar year 2008 is changed by more than 30 days from the
date
of the annual meeting of shareholders to be held in calendar year
2007.
WHERE
YOU CAN FIND MORE INFORMATION
The
Company files annual, quarterly and current reports, proxy statements and
other
information with the SEC. You may read and copy any document the Company
files
at the SEC’s public reference room, 100 F Street NE, Washington, D.C. 20549. You
can also request copies of the documents, upon payment of a duplicating fee,
by
writing the Public Reference Section of the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. These
SEC
filings are also available to the public from the SEC’s web site at http://www.sec.gov.
The
Company will provide without charge to any person from whom a Proxy is solicited
by the Board of Directors, upon the written request of such person, a copy
of
the Company’s 2006 Annual Report on Form 10-K, including the financial
statements and schedules thereto (as well as exhibits thereto, if specifically
requested), required to be filed with the Securities and Exchange Commission.
Written requests for such information should be directed to Franklin Covey
Co.,
Investor Relations Department, 2200 West Parkway Boulevard, Salt Lake City,
Utah
84119—2331, Attn: Mr. Richard Putnam.
You
should rely only on the information contained in this Proxy Statement. The
Company has not authorized anyone to provide you with information different
from
that contained in this Proxy Statement. The information contained in this
Proxy
Statement is accurate only as of the date of this Proxy Statement, regardless
of
the time of delivery of this Proxy Statement.
PROXY
This
Proxy is Solicited on Behalf of the Board of Directors
FRANKLIN
COVEY CO.
The
undersigned hereby appoints Richard R. Putnam _________ proxies, with full
power
of substitution, to vote, as designated below, all shares of Common Stock
and
Series A Preferred Stock of Franklin Covey Co. (the "Company"), which the
undersigned is entitled to vote at the Annual Meeting of shareholders of
the
Company ("Annual Meeting") to be held at the Hyrum W. Smith Auditorium, 2200
West Parkway Boulevard, Salt Lake City, Utah 84119-2331, on January 19, 2007,
at
8:30 a.m., local time, or any adjournment(s) thereof. This
proxy is solicited on behalf of the Board of Directors of the Company. If
no
instructions are specified, this proxy will be voted “FOR” all proposals in
accordance with the recommendation of the board of
directors.
1. Election
of three directors of the Company, each to serve a term of three years expiring
at the annual meeting of shareholders of the Company to be held following
the
end of fiscal year 2009 and until their respective successors shall be duly
elected and shall qualify;
FOR
|
|
o all
nominees
|
WITHHOLD
AUTHORITY
|
|
o all
nominees
|
FOR
|
|
o all
nominees,
except WITHHOLD AUTHORITY for the nominees(s) whose names are lined
out
below:
Nominees:
Joel C. Peterson, E. Kay Stepp, and Robert A. Whitman
|
2. Proposal
to ratify the appointment of KPMG LLP as the Company’s independent registered
public accountants for the fiscal year ending August 31, 2007;
FOR
o
|
|
AGAINST
o
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|
WITHHOLD
AUTHORITY o
|
|
3. To
transact such other business as may properly come before the Annual Meeting
or
any adjournment(s) thereof.
FOR
o
|
|
AGAINST
o
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|
WITHHOLD
AUTHORITY o
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|
The
Board
of Directors unanimously recommends that the shareholders vote "FOR" all
proposals. To vote in accordance with the Board of Directors' recommendations,
sign below. The "FOR" boxes may, but need not, be checked. To vote against
any
proposal or to abstain from voting on any proposal, check the appropriate
box
above.
PLEASE
PRINT YOUR NAME AND SIGN EXACTLY AS YOUR NAME APPEARS IN THE RECORDS OF THE
COMPANY. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING
AS AN ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE, OR GUARDIAN, PLEASE GIVE
FULL
TITLE AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT
OR OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP
NAME
BY AUTHORIZED PERSON.
PLEASE
MARK, SIGN, DATE, AND RETURN
THIS PROXY TO:
Richard
Putnam |
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|
|
Franklin
Covey Co. |
|
Dated: |
|
2200
West Parkway Boulevard |
|
Signature
|
|
Salt
Lake City, Utah 84119-2331 |
|
Signature
(if held jointly)
|
|
APPENDIX
A
Audit
Committee Charter
First
Amended Duties and Responsibilities of the
Audit
Committee
Adopted
November 12, 2004
Purpose
The
Audit
Committee (the “Committee”) of the Board of Directors (the “Board”) of Franklin
Covey Co. (the “Company”), at the direction of the Board, oversees the quality
and integrity of the accounting, auditing, and reporting practices of the
Company, and such other duties as directed by the Board. The Committee focuses
on, among other things, the qualitative aspects of the Company’s (a) financial
statements, (b) processes to manage business and financial risk, (c) internal
audit procedures and performance of the independent auditor, and
(d) compliance with legal, ethical, and regulatory requirements. The
Committee appoints, determines compensation for, and oversees the independent
auditor engaged to prepare or issue audit reports on the financial statements
of
the Company. The Committee prepares all Committee reports required pursuant
to
the Securities and Exchange Commission’s (“SEC”) rules and
regulations.
Membership
The
Committee shall consist of at least three members appointed by the Board
who
shall serve until their successors are appointed and qualify. Each member
shall
be an independent director who is knowledgeable in financial and auditing
matters, with at least one member who has expertise in accounting or related
financial management. A member shall be deemed “independent” if he or she
satisfies the requirements of the New York Stock Exchange (NYSE) and Section
10A
of the Securities Exchange Act of 1934, as amended by the Sarbanes-Oxley
Act of
2002 (the “Act”). The chairperson of the Committee (the “Chairperson”) shall be
appointed by the Board pursuant to its bylaws.
Communications/Reporting
The
independent auditor shall report directly to the Committee. The Committee
shall
have unrestricted communication with the independent auditor and the Company’s
internal auditors and management. The Committee shall meet privately with
each
of these parties at least annually. The chairperson shall report on Committee
activities to the Board at each Board meeting.
Education
The
Company shall keep the Committee informed, including providing such educational
resources as the Committee or any of its members deems necessary and
appropriate, as to accounting principles and procedures, laws, regulations
and
policies regarding financial reporting and any other accounting topics
applicable to the Company.
Authority
The
Committee has the authority, without Board approval, to investigate any matter
it deems reasonably appropriate, and may, at the Company’s expense, retain
outside counsel or other experts for this purpose.
Responsibilities
The
Audit
Committee Responsibilities Checklist set forth below (“Checklist”) identifies
the specific responsibilities of the Committee. The Checklist will be updated
as
needed, but at least annually, to reflect changes in regulatory requirements,
authoritative guidance, and generally accepted audit committee practices.
Each
Checklist, when amended, will be deemed an addendum to this Charter.
The
Committee may rely on the representations of management, the internal auditors
and the independent auditor in carrying out its oversight responsibilities.
The
Company’s management is responsible for determining the Company’s financial
statements are complete, accurate and in accordance with generally accepted
accounting principles and are filed in compliance with applicable laws and
regulations. The independent auditor is responsible for auditing the Company’s
financial statements. The Committee is not responsible for scheduling or
conducting audits, determining the accuracy of the Company’s financial
statements, conducting investigations, or assuring the Company’s compliance with
laws and regulations or internal policies and procedures.
“Whistleblowing”
Procedure
In
order
to enable employees of the Company and any other individuals to submit to
the
Committee, on a confidential and anonymous basis, any concerns regarding
questionable accounting or auditing matters, the Committee shall, in addition
to
other measures it deems appropriate, post on the Company’s general employment
information bulletin boards and on the Company’s Internet site, in a conspicuous
location, a toll-free telephone number and an email address to contact the
Committee, with a notice that any individual having concerns regarding
questionable accounting or auditing matters may communicate his or her concerns
to the Committee. The Committee shall investigate the matter, in such manner
and
involving such additional persons as it deems necessary, in every such instance
taking such steps as are reasonable and appropriate to preserve the anonymity
of
the informant and the confidentiality of the informant’s
communication.
Policy
for Pre-Approval of Audit and Non-Audit Services Provided by External Audit
Firm
The
Committee shall meet with management and the independent auditor to review
and
approve, before any such services may be rendered by the independent auditor
firm to the Company or to or for the benefit of an officer or director of
the
Company, (i) auditing services, which include providing comfort letters in
connection with securities underwritings, and (ii) any non-audit
services.
FRANKLIN
COVEY
AUDIT
COMMITTEE RESPONSIBILITIES CHECKLIST
General
❐
|
Perform
all functions required by law, the Company's charter or bylaws,
or as
requested by the Board.
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❐
|
Conduct
or authorize investigations into any matters within the Committee's
scope
of responsibilities, including matters brought to the Committee’s
attention by “whistleblowers”.
|
❐
|
Establish
unrestricted communication between the internal auditors, the independent
auditor, Company management and the Board. Report Committee actions
to the Board with any recommendations the Committee deems
appropriate.
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❐
|
Include
a copy of the Committee charter as an appendix to the proxy statement
at
least once every three years.
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❐
|
Develop
clear hiring policies for employees or former employees of the
independent
auditor, and review and approve the appointment or change in the
internal
auditors.
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❐
|
Appoint,
approve the compensation of, and oversee the independent auditor.
(The
independent auditor’s lead partner must be rotated every five years
pursuant to the Sarbanes-Oxley Act. The Committee should consider
a
rotation of the independent auditor to assure continued
independence.)
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❐
|
Review
the independent auditor’s non-audit services and related fees to determine
if such would be prohibited under the Sarbanes-Oxley Act.
|
❐
|
Review
policies and procedures with respect to transactions between the
Company
and officers and directors, or affiliates of officers or directors,
or
transactions that are not a normal part of the Company’s
business.
|
❐
|
Meet
with the independent auditor in executive session to discuss any
matters
that the Committee or the independent auditor believe should be
discussed
privately with the Committee.
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❐
|
Meet
with management in executive sessions to discuss any matters that
the
Committee or management believe should be discussed privately with
the
Committee.
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❐
|
Meet
with the internal auditors in executive sessions to discuss any
matters
that the Committee or the internal auditors believe should be discussed
privately with the Committee.
|
❐
|
Interview
Company management, internal auditors and the independent auditor
regarding any significant risks or exposures and assess the steps
Company
management has taken to minimize any risks or exposures.
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❐
|
Review,
approve and modify, if necessary, the Company’s policies relating to
appropriate codes of conduct with Company’s management and General Counsel
the adequacy of and compliance with such policies.
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❐
|
Review
legal and regulatory matters that may have a material impact on
the
financial statements, related Company compliance policies, and
programs
and reports received from regulators.
|
❐
|
Review
the Company’s policies and procedures regarding executive management
expense accounts.
|
❐
|
Review
the Committee’s charter to determine compliance with current NYSE and SEC
rules and regulations and the Sarbanes-Oxley Act.
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❐
|
Review
all proposed related-party transactions and make recommendation
to the
Board to approve or disapprove of each proposed transaction.
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❐
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Review
with Company management any significant changes to GAAP and/or
MAP
policies or standards.
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❐
|
Review
all proposed related-party transactions and make recommendation
to the
Board to approve or disapprove of each proposed transaction.
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FRANKLIN
COVEY
AUDIT
COMMITTEE RESPONSIBILITIES CHECKLIST
Annually
or More Frequently As Needed
❐
|
Review
with Company management and the independent auditor at the completion
of
the annual audit:
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❐
|
The
Company's annual financial statements and related
footnotes.
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❐
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The
independent auditor’s audit of the financial statements and its report
thereon, which must sufficiently
detail:
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❐
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The
independent auditor’s internal quality control
procedures;
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❐
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Any
material issues raised internally or by any regulatory agency regarding
the independent auditor’s quality control procedures and the steps taken
to correct any deficiencies; and
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❐
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All
relationships between the independent auditor and the
Company.
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❐
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Any
significant changes required in the independent auditor’s audit
plan.
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❐
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Any
serious difficulties or disputes with management encountered during
the
course of the audit.
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❐
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Any
accounting adjustments noted by the independent auditor but deemed
immaterial by management.
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❐
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Any
communications between the audit team and its national office regarding
the Company and the independent auditor’s engagement, including any
management letter issued by the independent auditor to the
Company.
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|
❐
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Other
matters related to the conduct of the audit that are to be communicated
to
the Committee under generally accepted auditing
standards.
|
❐
|
Review
with Company management, independent auditor and the internal
auditors:
|
|
❐
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Significant
findings during the year and management’s responses thereto, including an
analysis of the effects of alternative GAAP methods on the financial
statements.
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❐
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Any
significant changes in the Company’s selection or application of
accounting principles.
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❐
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The
adequacy of the Company’s internal controls and any steps taken to correct
any deficiencies.
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❐
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The
effect, if any, of regulatory and accounting initiatives and off-balance
sheet structures.
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❐
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Any
difficulties encountered in the course of their audits, including
any
restrictions on the scope of their work or access to required
information.
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❐
|
Any
changes required in planned scope of their audit
plan.
|
❐
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Consider
and review with the independent auditor and the internal
auditors:
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❐
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The
adequacy of the Company's internal controls including computerized
information system controls and security.
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❐
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Any
related significant findings and recommendations of the independent
public
accountants and internal auditors together with management's responses
thereto.
|
❐
|
Confirm
the independence of the independent auditor.
|
❐
|
Provide
a report for inclusion in the Company’s annual proxy that details the
Committee’s review and discussion of matters with management and the
independent auditor. The report should include a description of
any
non-audit services provided by the independent auditor to the
Company.
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❐
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Review
and update the Audit Committee Responsibilities Checklist at least
annually.
|
❐
|
Review
with Company management and the independent auditor at least annually
the
Company’s critical accounting policies.
|
❐
|
Review
with the internal auditors, the independent auditor and Company
management
the audit scope and plan, and coordination of audit efforts to
assure
completeness of coverage, reduction of redundant efforts, the effective
use of audit resources, and the use of independent public accountants
other than the appointed auditors of the Company.
|
❐
|
Confirm
each Committee member is financially literate, with at least one
member
who has financial expertise.
|
❐
|
Confirm
the independence of each Committee member based on NASD and other
applicable rules.
|
❐
|
Review
the Committee’s own performance.
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FRANKLIN
COVEY
AUDIT
COMMITTEE RESPONSIBILITIES CHECKLIST
Quarterly
❐
|
Meet
four times per year or more frequently as circumstances require.
The
Committee may require the attendance of the Company’s management or others
to attend any Committee meeting and to provide requested
information.
|
❐
|
Prepare
an agenda for each Committee meeting with input from the Chairperson,
Company management, and the independent auditor.
|
❐
|
Review
the periodic reports of the Company with management, the internal
auditors
and the independent auditor prior to filing of the reports with
the
SEC.
|
❐
|
In
connection with each periodic report of the Company,
review:
|
|
❐
|
Management’s
disclosure to the Committee under Section 302 of the Sarbanes-Oxley
Act.
|
|
❐
|
The
contents of the Chief Executive Officer and the Chief Financial
Officer
certificates to be filed under Sections 302 and 906 of the
Act.
|
❐
|
Review
filings (including interim reporting) with the SEC and other published
documents containing the Company’s financial statements and confirm the
information contained in these documents is consistent with the
information contained in the financial statements before it is
filed with
the SEC or other regulators.
|
❐
|
The
Chairperson shall participate in a telephonic meeting among Company
management and the independent auditor prior to earnings releases
to
review use of “pro forma” or “adjusted” non-GAAP information and the types
of information to be disclosed and presentation to be
made.
|
❐
|
Discuss
earnings press releases, as well as the types of financial information
and
earnings guidance that are given to analysts and rating
agencies.
|