NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
To
Be Held
January
18, 2008
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 18, 2008 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:
(i)
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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 2010 and until their respective
successors shall be duly elected and shall qualify;
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(ii)
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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, 2008;
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(iii)
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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 16, 2007, 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.
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By
Order of the Board of
Directors |
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|
|
|
|
December
14,
2007
|
By:
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/s/ Robert
A. Whitman |
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Robert
A. Whitman |
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Chairman
of the Board of
Directors |
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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
18, 2008
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) for use at the Annual
Meeting of Shareholders of the Company to be held on Friday, January 18,
2008,
at 8:30 a.m., at the Hyrum 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 14,
2007.
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, 2008; 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 16, 2007 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 19,894,596 shares of Common 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.
Proxies
Shares
of
Common 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,
2008. 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 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 will vote 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 2010 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: Clayton
M.
Christensen, E. J. “Jake” Garn and Donald J. McNamara. 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.
Clayton
M. Christensen, 55, 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. Dr. Christensen also currently
serves as a director for Tata Consultancy Services (BSE and NSE Mumbai, India),
Harvard Business School, WR Hambrecht and Vanu, Inc.
E.
J. “Jake” Garn, 75, 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, 54, 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 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.
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. Joel
C. Peterson, E. Kay Stepp and Robert A. Whitman are currently serving terms
which expire at the annual meeting of the Company’s shareholders to be held
following the end of fiscal year 2009.
Stephen R.
Covey, 75, 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, Every Day Greatness, and is
the co-author of First Things First. His latest book,
The 8th
Habit: From Effectiveness to Greatness,
was released in November 2004.
Robert H.
Daines, 73, 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
received his MBA from Stanford and his DBA from Indiana University.
Dennis G.
Heiner, 64, 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 1979 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.
Joel C.
Peterson, 60, 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, 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 board of directors
of JetBlue Airways Corporation (NASDAQ). Mr. Peterson earned his MBA
from Harvard Business School.
E.
Kay Stepp, 62, 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, 54, has been a director of the Company since May 1997 and
has served as Chairman of the Board of Directors since June 1999 and Chairman
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.
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 (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 2007 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
2007.
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.
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 four times during the 2007 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 two times during the 2007 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 2007 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.
The
following table shows the current membership of each of the foregoing
committees.
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
one designee of Knowledge Capital for election to the Board of
Directors. Donald J. McNamara, a current member of the Board of
Directors, is the designee of Knowledge Capital pursuant to this
agreement. 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 designee to be nominated for election and will solicit
proxies
in favor of such nominee and vote all management proxies in favor of such
nominee except for proxies that specifically indicate to the
contrary.
The
Amended and Restated Shareholders Agreement also provides that the Company
is
obligated, if requested by Knowledge Capital, and 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. Knowledge Capital has not requested that its
designee serve on any committees of the Board and Donald J. McNamara does
not
currently serve on any Board of Director committees.
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 $3,000 for all other
committees;
|
·
|
Each
non-employee Board member receives an annual grant of a restricted
stock
award of 4,500 shares which vests over a 3-year term;
|
·
|
Directors
are reimbursed by the Company for their out-of-pocket travel and
related
expenses incurred in attending all Board and committee
meetings.
|
FY2007
Director Compensation
|
|
A
|
|
B
|
|
|
C
|
|
|
D
|
|
|
E
|
|
|
F
|
|
|
G
|
|
|
H
|
|
Name
|
|
Fees
earned or paid in cash ($)
|
|
|
Stock
awards ($)
|
|
|
Option
awards ($)
|
|
|
Non-stock
incentive plan compensation ($)
|
|
|
Change
in pension value and nonqualified deferred compensation earnings
($)
|
|
|
All
other compensation ($)
|
|
|
Total
($)
|
|
Clayton
Christensen
|
|
$ |
30,000
|
|
|
$ |
26,437
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$ |
56,437
|
|
Robert
H. Daines
|
|
$ |
51,000
|
|
|
$ |
26,437
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$ |
77,437
|
|
E.J.
“Jake” Garn
|
|
$ |
42,000
|
|
|
$ |
26,437
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$ |
68,437
|
|
Stephen
R. Covey
|
|
$ |
30,000
|
|
|
$ |
4,938
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$ |
34,938
|
|
Dennis
G. Heiner
|
|
$ |
44,000
|
|
|
$ |
26,437
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$ |
70,437
|
|
Joel
C. Peterson
|
|
$ |
47,000
|
|
|
$ |
26,437
|
|
|
|
-
|
|
|
|
-
|
|
|
$ |
74,818
|
|
|
|
-
|
|
|
$ |
148,255
|
|
E.
Kay Stepp
|
|
$ |
49,000
|
|
|
$ |
26,437
|
|
|
|
-
|
|
|
|
-
|
|
|
$ |
25,146
|
|
|
|
-
|
|
|
$ |
100,583
|
|
Donald
McNamara
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Robert
A. Whitman
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Column
C
amounts represent the share-based compensation expense recognized on
unvested
share awards under SFAS No. 123R in the Company’s fiscal 2007 financial
statements.
Director
Compensation
Director
fees include an annual retainer for membership on the Board of Directors,
a
separate annual retainer for participating on one or more committee of the
Board, and a separate annual retainer for chairing a committee of the
Board. The Board may, in its discretion, award an additional amount
to compensate a member for expertise in a specific area (such as an Audit
expert). Additionally, all independent members of the Board receive
an annual restricted stock award which vests after 3 years.
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., 51, has been President of the Organizational
Solutions Business Unit of the Company since March 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. Prior to joining Folio, Mr. Bennett spent 14 years with IBM in
various sales and management positions. Mr. Bennett earned his
Bachelor’s Degree in Government and Law from Lafayette College in
Pennsylvania.
Sarah
Merz, 43, 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, 54, 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.
COMPENSATION
COMMITTEE REPORT
The
Organization and Compensation Committee has reviewed and discussed with
management the contents of the Compensation Discussion and Analysis set forth
below. Based on this review and discussion, the Committee recommended
to the Board of Directors that the Compensation Discussion and Analysis be
included in FranklinCovey’s annual report on Form 10-K and proxy statement on
Schedule 14A filed with the Securities and Exchange Commission for the fiscal
year ended August 31, 2007.
Role
of the Compensation Committee
The
Compensation Committee, composed entirely of independent directors, administers
all elements of the Company’s executive compensation program, including the
Long-term 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 compensation for the other Named Executive
Officers. The Compensation Committee reports quarterly to the full
Board on decisions related to the Company’s executive compensation
program.
Compensation
Committee Membership and Process
The
Compensation Committee is composed of independent directors who are not
employees of the Company or its subsidiaries. For fiscal year 2007, 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 have any material business relationships with
the
Company.
The
Compensation Committee held five meetings during fiscal year 2007. The
Compensation Committee regularly meets without any employees present to discuss
executive compensation matters, including Mr. Whitman’s compensation
package.
Compensation
Committee Charter
The
Compensation Committee and the Board periodically review and revise the
Committee’s Charter to ensure it accurately reflects these responsibilities and
also conduct an annual committee assessment. A copy of the Charter is
available at www.FranklinCovey.com.
Compensation
Consultants
Within
its charter, the Committee has the authority to engage the services of outside
advisors, experts, and others to assist the Committee. Accordingly,
the Committee has engaged Mercer U.S., Inc. (Mercer) 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, Mercer’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,
Mercer assists with calibrating the executive compensation program targets
to
Company performance and the competitive market and monitors overall program
effectiveness.
|
|
|
|
|
THE
COMPENSATON COMMITTEE |
|
November
11, 2007
|
|
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.
COMPENSATION
DISCUSSION AND ANALYSIS
The
following compensation discussion and analysis contains information regarding
future performance targets and goals. These targets and goals are
disclosed in the limited context of FranklinCovey’s compensation programs and
should not be understood to be statements of management’s performance
expectations or guidance or anticipated results. Investors should not apply
these performance targets and goals to other contexts.
Executive
Compensation Philosophy
Guiding
Principles
Overall,
the same principles that govern the compensation of all our salaried associates
apply to the compensation of FranklinCovey’s Named Executive Officers
(NEOs). Specifically:
·
|
Franklin
Covey pays for performance. Executives – who have the
greatest direct influence on organizational performance – have a
significant portion of their compensation at risk based on annual
business
performance and each individual’s contribution to that performance.
Therefore, executives are held accountable through the compensation
program for overall organizational performance as well as specific
business unit results.
|
·
|
Compensation
rewards successful execution of the business strategy.
Therefore, the executive compensation program is 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 is
designed to promote shared destiny and reward entity/team success,
not
just individual effort.
|
·
|
All
compensation components are aligned 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 achieving business goals. Therefore, the Company’s
program is competitive and equity awards are granted with vesting
schedules designed to promote retention.
|
·
|
Executive
pay is aligned with the interests of shareholders. Equity
is used to reward executives for creating shareholder value over
a
multi-year horizon.
|
Importance
of Governing Values
The
FranklinCovey Governing Values guide the actions of the Company and its leaders
as they fulfill their responsibilities to the Company’s employees, customers,
our shareholders, and the communities we serve. The Governing Values
include:
1.
|
Commitment
to Principles
|
2.
|
Lasting
Customer Impact
|
3.
|
Respect
for the Whole Person
|
4.
|
Profitable
Growth
|
Each
component of the executive compensation program is supported by the Governing
Values. In assessing the contributions of its executive officers to
the Company’s performance, the Committee looks primarily to the quantitative
results obtained, but also considers how the results were achieved – and whether
the decisions and actions leading to the results are consistent with the
Governing Values.
Objectives
of the Executive Compensation Program
The
executive compensation program is designed to reward performance and goal
achievement and 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
long-term financial plan through annual, or short-term,
incentives.
|
3.
|
Maintain
focus on the long-term financial plan, 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.
|
Compensation
Reviews and Benchmarking
FranklinCovey
operations span several industries including consulting and training, retail,
and manufacturing. These operations draw their key people from
different segments of the marketplace. Our compensation programs are
designed to be flexible, competitive, and motivating while operating under
one
central system for plan design, approvals, and controls.
Executive
compensation is reviewed annually by the Organization and Compensation
Committee, which is supported by Mercer. The annual pay policy for the fiscal
year was set during the 4th quarter
of the
preceding fiscal year; long-term incentive grants were made in the first
quarter
of 2007. When determining the total compensation package for the Named Executive
Officers, the Committee considers the following:
Competitiveness
to the external market
To
assess
the competitiveness of executive compensation and given that FranklinCovey’s
business operations span across different industry segments, the committee
uses
a general industry cut from published compensation surveys. This normalizes
the
potential of compensation benchmarks to be biased one way or the other due
to
practices intrinsic to any one industry segment. Survey sources cover companies
similar to FranklinCovey in terms of size, revenues, and/or market
capitalization. For 2007 compensation decisions, the published survey data
used
is comprised of companies with revenues ranging from $150 - $300 million.
Specifically, the committee reviewed compensation data for base salary,
short-term incentives, total cash compensation, long-term incentives and
total
direct compensation for positions comparable to those of FranklinCovey from
a
job role and responsibility perspective from the following sources:
·
|
Mercer,
Americas Executive Remuneration Database
|
·
|
Watson
Wyatt, Report on Top Management
Compensation
|
In
addition to survey data, the Committee relies on current market pay practices,
trends, plan design, and consulting services. Mercer, the Committee’s
consultant, provides the published survey data and other general market trend
information pertaining to executive compensation.
As
a
starting point, the Compensation Committee targets the 50th percentile
of the
general industry group for total direct compensation (base pay, short-term
incentive pay at target, and long-term incentive pay) at 100% of budget,
i.e.,
for target level of performance.
Tally
sheets
The
compensation committee reviewed tally sheets prepared by the consultant for
all
NEOs. The tally sheets show the historical elements of compensation for the
period of time each executive has been in his or her position and provide
context for fiscal 2007 compensation discussions.
Recommendations
from the Chairman and Chief Executive Officer
While
the
Chief Executive Officer (CEO) makes recommendations regarding the total
compensation potential for those executives who report directly to him, the
Compensation Committee reviews each person’s compensation and makes all final
compensation decisions. The CEO does not participate in any decisions that
determine his compensation.
Committee
knowledge of the performance of each Named Executive and his/her division
as
reported quarterly to the committee during the fiscal
year.
Following
review of market data, tally sheets and recommendations, the Compensation
Committee takes into consideration individual contribution to the business,
experience and ability to impact the business results before determining
the
level of pay.
After
considering all the factors as described above, the Compensation Committee
set
final target direct compensation opportunity for each Named Executive Officer
at
approximately the 50th percentile
of the
market benchmarks. The NEOs could earn more or less relative to the opportunity
below based on actual performance and the incentive plans described
below:
FY2007
Target Total Direct Compensation
The
Target LTIP amount for each named executive officer is based on the number
of
shares granted multiplied by the share price at the time of the
grant.
For
determining the CEO’s compensation, the Compensation Committee met in an
executive session to consider the same inputs for the CEO’s
compensation. In addition to all of the above factors, the
Compensation Committee discussed the CEO Performance Feedback Survey
administered to the Board of Directors during the first quarter of 2007 and
the
CEO’s self assessment.
Elements
of Executive Compensation
FranklinCovey’s
Executive Compensation Plan incorporates five main elements:
1.
|
Base
Salary
|
2.
|
Short-Term
Incentive Plan (STIP)
|
3.
|
Long-term
Incentive Plan (LTIP) – Performance-Based Equity Grants
|
4.
|
Certain
other benefits
|
5.
|
Severance
and Change-in-Control benefits
|
Each
element of the company’s executive compensation program addresses different
purposes, as described below:
1.
Base Salary
Base
salaries for NEOs are determined by considering the relative importance of
the
position, the competitive marketplace, and the individual’s performance and
contribution. Base salaries are targeted to the market median,
reviewed annually, and may be adjusted to reflect changing market
levels.
None
of
the NEOs base salaries were adjusted during fiscal year 2007. For
fiscal year 2008, the Organization and Compensation Committee increased Mr.
Bennett’s base salary increased from $250,000 to $275,000 to align with market
competitive levels. Base compensation was also reviewed for Mr.
Whitman, Ms. Merz and Mr. Young; the Compensation Committee believes their
base
salaries are competitive with the market and made no changes for fiscal
2008.
2.
Short-Term Incentive Plan (STIP)
The
annual short-term incentive plan reinforces the Company’s pay for performance
philosophy and rewards the achievement of specific business and financial
goals
achieved during the fiscal year. The fiscal 2007 STIP program was designed
to
reward financial performance (Operating EBITDA and Operating Income) and
individual objectives. Operating EBITDA is defined as EBITDA less certain
revenues and expenses that the committee determines should not be included
in
the calculation of compensation. The individual objectives were set by the
CEO
for the other NEOs. The Board determined the individual objectives for the
CEO.
The
STIP
payout consists of 70% based on corporate or divisional financial goals,
while
30% of the payout is based on achievement of individual goals. The 70/30
split
in the STIP is focused on achieving line-of-sight performance tied to the
Company’s strategic objectives. The largest weighting (70%) is aligned with
achieving financial results (Operating EBITDA and Operating Income), which
the
Compensation Committee believes are the best drivers of shareholder
value.
The
target annual short-term incentive payouts for fiscal 2007 as a percentage
of
base salary for the NEOs are tabulated below. These targets are established
to
position the target total cash compensation of NEOs at the 50th percentile
of the
market median when performance is at target.
Target
Annual Incentive at Different Performance Levels as a Percentage of Base
Salary
(1)
|
Financial
Performance is defined as Operating Income for Mr. Whitman and
Mr. Young,
and Operating EBITDA for Ms. Merz and Mr.
Bennett.
|
In
July,
the committee determined to increase Mr. Young’s short-term incentive
compensation target for fiscal 2008. Effective September 1, 2007, his
STIP increased from $125,000 to $175,000 per year to equal 70% of his base
salary, reflecting market changes and greater parity with other Named Executive
Officers.
For
Mr.
Bennett and Ms. Merz, the maximum STIP payout can only be achieved based
on the
achievement of their respective business unit’s annual financial goals. In the
event of performance greater than target, the maximum payout percent will
be
applied to both financial and individual portions of the STIP.
For
Mr.
Whitman and Mr. Young, the maximum STIP payout can only be achieved based
on the
achievement of the Company’s annual financial goals. In the event of performance
greater than target, the maximum payout percent will be applied to both
financial and individual portions of the STIP.
Performance
Measures
Financial
Performance Measures
As
described above, the STIP payouts are based on corporate/business unit financial
performance and individual objectives. The table below presents the
corporate/business unit financial measures for each executive:
Individual
Performance Objectives
The
individual objectives for the NEOs are determined by the CEO for his direct
reports and by the Board for the CEO. These goals are confidential in nature
and
disclosing them could cause potential competitive harm. Named executive officers
generally average three to four individual goals per year which are related
to
the Company’s strategy. Achievement of the goals is not automatic.
To
maintain operating flexibility and enable rapid responses to changing market
conditions, the plan was structured so that Mr. Whitman may establish new
goals
every quarter for his direct reports.
Achievement
of individual performance objectives accounts for up to 30% of the target
STIP
amount for each named executive officer. As shown in the following
example, if an executive has three individual performance objectives,
achievement of each objective would count toward one-third of the STIP amount
tied to his or her individual performance objectives. Similarly, if an executive
has four performance objectives, achievement of each objective would count
toward one-quarter of the STIP amount tied to his or her individual performance
objectives.
Payout
Calculations Tied to Individual Performance Objectives – Example Based on 3
Individual Performance Objectives
Number
of Individual Performance
Objectives
Achieved
|
Number
of Individual
Performance
Objectives
|
Percentage
of STIP Payout for
Individual
Performance
(30%
portion)
|
1
|
3
|
33.33%
|
2
|
3
|
66.67%
|
3
|
3
|
100.00%
|
Based
on
actual performance relative to performance goals for fiscal 2007, NEOs can
earn
from 0% to 150% of their target bonus per the payout scaling tabulated below.
The committee has established the payout scale illustrated below with the
goal
of the plan paying out at target five to six times every ten years and paying
out at maximum one to two times every ten years. Maximum payout under the
plan
would result in annual STIP payouts at or above the market 75th
percentile.
Actual
Performance and Short-Term Incentive Plan (STIP)
Payouts
For
fiscal 2007, actual payouts relative to targets were as follows:
The
above
STIP payouts resulted in actual total short-term incentive plan compensation
that was approximately 122% above target, averaged for all
NEOs.
STIP
Plan Changes for Fiscal 2008 and 2009
For
fiscal 2008 the following changes will be made to the STIP:
·
|
Gradual
move to an annual payout. Named executive officers who report
to the CEO will receive, based on performance, up to one-quarter
of their
target annual STIP following the first and second quarters of the
year,
and up to one-half of their target annual STIP following the fourth
quarter of the year.
|
·
|
The
maximum payout for any executive for overachievement will be 200%
of
target. This change maintains the emphasis on paying for
performance and drives each named executive officer to achieve
stretch
goals that enhance shareholder
value.
|
For
fiscal 2009, the annual short-term incentive for all Named Executive Officers
will be paid, based on performance, following the end of the fiscal
year.
3.
Long-Term Incentive Plan (LTIP)
FranklinCovey’s
long-term incentive plan has evolved over the last several years and rewards
progress toward achieving our long-term financial plan. The grants made in
2006
and 2007 were 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. For the target number of shares granted to each
executive, please refer to the “Grants of Plan Based Awards Table” presented in
this report.
In
fiscal
2005, the Compensation Committee worked with its 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 solely using performance-based
shares. Under this plan, shares are awarded only after specific goals are
attained.
The
CEO
and his direct reports participate in the LTIP program. The final payout
is
based on revenue growth and cumulative operating income over three years.
Each
participant can earn 0% to 200% of target shares. The target number of shares
is
calculated by dividing the target LTIP opportunity expressed as a percentage
of
base salary. Target LTIP Opportunity for the NEOs is tabulated
below:
Similar
to the STIP targets, the LTIP targets were determined based on the long-term
financial plan.
Additionally,
the LTIP agreements with each named executive officer include non-compete
and
non-hire provisions.
Performance
measures
The
performance measures are revenue growth and cumulative operating income weighted
equally and measured over a 3-year performance period. For the grants made
in
2006, the three-year revenue growth and operating income goals were 15% and
$72.3 million, respectively. For grants made in 2007, the three-year
revenue growth and operating income goals were 20% and $82.6 million,
respectively.
The
Compensation Committee will determine the number of shares awarded based
on
actual financial results in accordance with performance during the measurement
period.
The
committee postponed review of the LTIP for fiscal 2008 to allow additional
time
to ensure appropriate alignment with the Company’s emerging
strategy.
Stock
Ownership Guidelines. Philosophically, we believe that Company stock
ownership is important for executives and outside directors and further aligns
their interests with those of our shareholders. Through the Long-Term
Incentive Plan and Restricted Share Awards (RSAs), executives 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, executives are encouraged to maintain stock
ownership where the market value of shares held is equivalent to at least
2
times base salary; outside directors are encouraged to maintain stock ownership
equal to at least 2 times annual retainer. Based on the share price
as of August 31, 2007, multiplied by the number of shares (including common
shares, vested and unvested RSAs, and LTIP awards) held by each executive
and
director, all executives and directors meet the recommended
guideline.
4.
Other Benefits and Perquisites
The
Company maintains a number of other broad-based employee benefit plans in
which,
consistent with company values, executive officers participate on the same
terms
as other employees who meet the eligibility requirements, subject to any
legal
limitations on amounts that may be contributed to or benefits payable under
the
plans. These include:
·
|
The
Company’s cafeteria plan administered pursuant to Section
125 of the Internal Revenue Code of 1986, as amended (“the
Code”).
|
·
|
The
Company’s 401(k) plan, in 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 7% 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 cash compensation (base salary
+ target annual incentive).
|
·
|
Supplemental
Disability Insurance. The Company provides Mr. Whitman with
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.
Executives and other highly compensated associates may purchase
voluntary
supplemental disability insurance at their own expense.
|
The
Company believes that these benefits are critical to retaining key executive
talent and are required as part of a competitive executive compensation and
benefits package.
Perquisites:
Keeping with the spirit of partnership at FranklinCovey, there are no executive
perquisites.
5.
Severance and Change–in-Control Benefits
FranklinCovey
does not have an employment agreement with any of its Named Executive Officers,
including Robert A. Whitman, the Chief Executive Officer and Chairman of
the Board.
Severance
Policy
Franklin
Covey Co. implemented a severance policy to establish in advance the appropriate
treatment for terminating executives and to ensure market competitiveness.
Named
executive officers who are terminated involuntarily without cause receive
an
equivalent of one year of base salary and target annual short-term incentive
compensation. Additionally, FranklinCovey pays COBRA medical and
dental insurance premiums for the term of the severance. Consistent
with FranklinCovey’s severance payment policy, all severance payments are made
as a lump sum. Franklin Covey does not gross-up severance payments to
compensate for taxes withheld.
Change-in-Control
Severance Agreements
A
written
change-in-control agreement exists for each executive officer. The
change-in-control policy is designed to retain executives of the Company
in the
event a change-in-control transaction is proposed. 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.
Based
on
a market assessment, the Organization and Compensation committee determined
the
following change-in-control severance benefits to be appropriate for a company
of FranklinCovey’s size and revenues. In addition, the annual
on-going compensation is designed to reward executives for the Company’s and
their individual performance and does not impact the level of benefits that
become payable in the event of a contingent event like a change in
control.
Specifically,
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 equal to two
times his or her current
annual target compensation (base salary + STIP).
Executive Officers would also be entitled to reimbursement for the payment
of
premiums to secure continuation coverage pursuant
to Section 4980B of the 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. LTIP awards will vest in accordance with the terms and
provisions of the plan and award documents.
FranklinCovey
does not gross-up change in control payments to compensate for taxes
withheld.
Section
162(m) Implications for Executive Compensation
Section
162(m) of the Internal Revenue Code of 1986, as amended, imposes a $1 million
limit on the amount that a public company may deduct for compensation paid
to
the company’s principal executive officer or any of the company’s three other
most highly compensated executive officers who are employed as of the end
of the year. This limitation does not apply to compensation that meets the
requirements under Section 162(m) for “qualifying performance-based”
compensation (i.e., compensation paid only if the individual’s performance meets
pre-established objective goals based on performance criteria approved by
shareowners).
Franklin
Covey’s long-term incentive plan is compliant with Section 162(m) for
Performance Share awards established in fiscal years 2006 and 2007. The
Company’s short-term incentive plan is not compliant with Section 162(m).
To maintain flexibility in compensating executive officers in a manner designed
to promote varying corporate goals, the Compensation Committee reserves the
right to recommend and award compensation that is not deductible under Section
162(m).
COMPENSATION
TABLES
Summary
Compensation Table
The
salary, bonus, other compensation, long-term compensation and share-based
awards
for Robert A. Whitman, the Company’s Chairman and Chief Executive Officer,
and the other named executive officers listed below (collectively, the Named
Executive Officers) as of August 31, 2007, the most recent fiscal year end,
are shown on the following Summary Compensation Table. For a complete
understanding of the data on the table, please refer to the narrative
disclosures that follow.
2007
Summary Compensation Table
|
|
A
|
B
|
|
C
|
|
|
D
|
|
|
E
|
|
|
F
|
|
|
G
|
|
H
|
|
I
|
|
|
J
|
|
Name
and Principal Position
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards ($)
|
|
|
Option
Awards ($)
|
|
|
Non-Equity
Incentive Plan Compensation ($)
|
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
|
All
Other Compensation ($)
|
|
|
Total
($)
|
|
Robert
A. Whitman
|
2007
|
|
$ |
500,000
|
|
|
$ |
-
|
|
|
$ |
264,776
|
|
|
$ |
-
|
|
|
$ |
668,012
|
|
-
|
|
$ |
56,870
|
|
|
$ |
1,489,658
|
|
Chairman
and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
D. Young
|
2007
|
|
$ |
250,000
|
|
|
$ |
50,000
|
|
|
$ |
74,093
|
|
|
$ |
-
|
|
|
$ |
167,003
|
|
-
|
|
$ |
12,318
|
|
|
$ |
553,414
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sarah
Merz
|
2007
|
|
$ |
250,000
|
|
|
$ |
-
|
|
|
$ |
75,527
|
|
|
$ |
9,375
|
|
|
$ |
97,970
|
|
-
|
|
$ |
16,567
|
|
|
$ |
449,439
|
|
President
CSBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
William Bennett
|
2007
|
|
$ |
250,000
|
|
|
$ |
-
|
|
|
$ |
75,527
|
|
|
$ |
-
|
|
|
$ |
258,325
|
|
$7,790
|
|
$ |
14,938
|
|
|
$ |
606,580
|
|
President
OSBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salary
(Column C)
The
amounts reported in column C represent base salaries paid to each of the
Named
Executive Officers for fiscal 2007.
Bonus
(Column D)
The
bonus
amount in Column D for Mr. Young is a discretionary bonus for exceptional
work
performed during FY07, as recommended by the CEO and approved by the
committee.
Stock
Awards (Column E)
The
amounts in Column E represent the compensation expense recognized for financial
statement reporting purposes with respect to long-term incentive plan awards
and
unvested share awards granted in fiscal 2007 and in prior years in accordance
with SFAS No. 123R. Pursuant to SEC rules and regulations, the
amounts shown exclude the impact of estimated forfeitures for these
awards.
Option
Awards (Column F)
This
column represents the dollar amount recognized for financial statement reporting
purposes with respect to the fair value of stock options granted to each
of the
Named Executive Officers in accordance with SFAS No. 123R. The
Company did not award any stock options during fiscal 2007. Pursuant
to SEC rules and regulations, the amounts shown exclude the impact of estimated
forfeitures for these awards.
Non-Equity
Incentive Plan Compensation (Column G)
The
amounts reported in column G represent the amounts paid to each Named Executive
Officer based on completing objectives established quarterly or annually
and
meeting quarterly and annual financial targets. Incentive amounts were approved
by the Organization and Compensation Committee and were paid following each
fiscal quarter and at the conclusion of the fiscal year.
Change
in Pension Value and Nonqualified Deferred Compensation Earnings (Column
H)
FranklinCovey
does not maintain any pension plans.
The
Nonqualified Deferred Compensation (NQDC) plan was frozen to new contributions
as of January 1, 2005. To mitigate the impact of variable accounting rules,
effective August 15, 2005, NQDC balances invested in FranklinCovey stock
will be
distributable to participants only in the form of shares of Company
stock. Mr. Bennett is the only named executive officer who has
participated in the NQDC plan. Changes in his account balance are due to
market
fluctuations of the underlying securities used to value his
account.
All
Other Compensation (Column I)
The
amounts reported in column I represent the aggregate dollar amount for each
Named Executive Officer for perquisites and other personal benefits, tax
reimbursements, company contributions to each person’s 401(k) account, and
insurance premiums. The 2007 All Other Compensation Table shows the specific
amounts included in column I for fiscal 2007.
Total
Compensation (Column J)
The
amounts reported in column J reflect the sum of columns C through I for each
Named Executive Officer, including all amounts paid and deferred. The
Organization and Compensation committee made the following compensation changes
for named executive officers:
Effective
September 1, 2007, Mr.
Bennett’s base compensation increased from $250,000 to $275,000 per year as a
result of market changes; his short-term incentive compensation target remained
at 70% of base salary, which will increase his overall incentive opportunity
from $175,000 to $192,500.
All
Other Compensation Table
The
All
Other Compensation Table provides numerical information that is incorporated
into Column I, All Other Compensation, on the 2007 Summary Compensation Table.
For a complete understanding of the data on the table, please refer to the
narrative disclosures that follow.
2007
All Other Compensation Table
|
|
A
|
B
|
|
C
|
|
|
D
|
|
|
E
|
|
|
F
|
|
|
G
|
|
|
H
|
|
Name
|
Year
|
|
Company
Contributions to DC Plans
($)
|
|
|
Executive
Life Insurance Premiums ($)
|
|
|
Executive
Disability Premiums
($)
|
|
|
President’s
Club
($)
|
|
|
Other
($)
|
|
|
Total
($)
|
|
Robert
A. Whitman
|
2007
|
|
$ |
6,750
|
|
|
$ |
7,310
|
|
|
$ |
38,560
|
|
|
$ |
4,250
|
|
|
$ |
-
|
|
|
$ |
56,870
|
|
Chairman
and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
D. Young
|
2007
|
|
$ |
6,750
|
|
|
$ |
2,270
|
|
|
$ |
-
|
|
|
$ |
3,298
|
|
|
$ |
-
|
|
|
$ |
12,318
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sarah
Merz
|
2007
|
|
$ |
6,750
|
|
|
$ |
644
|
|
|
$ |
-
|
|
|
$ |
1,778
|
|
|
$ |
7,395
|
|
|
$ |
16,567
|
|
President
CSBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
William Bennett
|
2007
|
|
$ |
6,750
|
|
|
$ |
2,196
|
|
|
$ |
-
|
|
|
$ |
4,414
|
|
|
$ |
1,578
|
|
|
$ |
14,938
|
|
President
OSBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
Contribution to Defined Contribution Plans (Column C)
The
Company matches dollar for dollar the first 1% contributed to the 401(k)
plan,
and 50 cents on the dollar of the next 4% contributed. The company
match for executives is the same match received by all associates who
participate in the 401(k) plan. The maximum company match for
contributions made during fiscal 2007 is $6,750.
Executive
Life Insurance Premiums (Column D)
The
Organization and Compensation committee evaluated the market competitiveness
of
the executive benefit package to determine the most critical and essential
benefits necessary to retain executives. Based on information on benefits
prevalence from Mercer, the committee determined to include executive life
insurance for each Named Executive Officer. For each Named Executive
Officer, FranklinCovey maintains an executive life insurance policy with
a face
value of approximately 2.5 times his or her target annual cash
compensation. The amounts in Column D show the annual premiums paid
for each 20-year term executive life insurance policy.
Executive
Disability Premiums (Column E)
The
Company provides Mr. Whitman with 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. The amount in Column E shows the premiums paid for Mr. Whitman’s
supplemental long-term disability policy.
President’s
Club (Column F)
Payments
in column F for President’s Club refer to travel and travel-related awards
received during fiscal 2007 for performance during fiscal 2006.
Other
(Column G)
The
amount shown in Column G for Sarah Merz is a performance award earned in
fiscal
2006 and paid in fiscal 2007.
The
amount shown in Column G for Bill Bennett includes a fiscal 2006 year-end
bonus
and gift that he received in fiscal 2007.
Total
(Column H)
The
amounts reported in Column HK reflect the sum of columns C – G for each Named
Executive Officer.
Grants
of Plan-Based Awards
The
following table summarizes annual Short- and Long-Term Incentive Plan awards
made to each of the Named Executive Officers in fiscal 2007. For a
complete understanding of the data on the table, please refer to the narrative
disclosures that follow.
FY2007
Grants of Plan-Based Awards
|
|
|
|
|
Estimated
future payouts under non-equity incentive plan awards
|
|
|
Estimated
future payouts under equity incentive plan awards
|
|
|
|
|
|
|
|
|
|
|
A
|
B
|
|
C
|
|
|
D
|
|
|
E
|
|
|
F
|
|
|
G
|
|
|
H
|
|
|
I
|
|
|
J
|
|
|
K
|
|
Name
|
Grant
Date
|
|
Threshold
($)
|
|
|
Target
($)
|
|
|
Maximum
($)
|
|
|
Threshold
(#)
|
|
|
Target
(#)
|
|
|
Maximum
(#)
|
|
|
All
other stock awards: Number of shares of stock or units (#)
|
|
|
All
other option awards: Number of securities underlying options
(#)
|
|
|
Exercise
or base price of option awards ($/Sh)
|
|
Robert
A. Whitman
|
2007
|
|
|
-
|
|
|
$ |
500,000
|
|
|
$ |
750,000
|
|
|
|
25,245
|
|
|
|
84,151
|
|
|
|
168,302
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
D. Young
|
2007
|
|
|
-
|
|
|
$ |
125,000
|
|
|
$ |
187,500
|
|
|
|
7,826
|
|
|
|
26,087
|
|
|
|
52,174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sarah
Merz
|
2007
|
|
|
-
|
|
|
$ |
175,000
|
|
|
$ |
262,500
|
|
|
|
7,826
|
|
|
|
26,087
|
|
|
|
52,174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
President
CSBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
William Bennett
|
2007
|
|
|
-
|
|
|
$ |
175,000
|
|
|
$ |
262,500
|
|
|
|
7,826
|
|
|
|
26,087
|
|
|
|
52,174
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
President
OSBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
future payouts under non-equity incentive plan awards (Columns C-E) refer
to
target awards under the Short-Term Incentive Plan:
Threshold
(Column C)
Column
C
shows the threshold STIP payment for each NEO based on achievement of financial
and individual objectives established for fiscal 2007.
Target
(Column D)
Column
D
shows the target STIP payment for each NEO based on achievement of financial
and
individual objectives established for fiscal 2007.
Maximum
(Column E)
Column
E
shows the maximum STIP payment for each NEO based on financial performance
ranging from 100.01% to 110% of target and 100% of individual objectives
established for fiscal 2007.
Estimated
future payouts under equity incentive plan awards (Columns F-H) refer to
Long-Term Incentive Plan grants made in fiscal 2007:
Threshold
(Column F)
Column
F
shows the threshold number of shares to be awarded based on performance or
30%
for the target number of shares. The minimum threshold for performance is
60% of
target.
Target
(Column G)
Column
G
shows the target number of shares to be awarded when the Named Executive
Officer
achieves 100% of target performance.
Maximum
(Column H)
Column
H
shows the maximum number of shares (200% of target) to be paid to the named
executive officer based on performance from 100.01% to 200% of
target.
Outstanding
Equity Awards at Fiscal Year-End
The
following table provides information concerning the unexercised stock options
outstanding and unvested restricted share awards for each of the Named Executive
Officers as of the end of fiscal 2007.
2007
Outstanding Equity Awards at Fiscal Year-End
|
|
A
|
|
B
|
|
|
C
|
|
|
D
|
|
|
E
|
|
F
|
|
G
|
|
|
H
|
|
|
I
|
|
|
J
|
|
|
|
|
|
|
|
|
|
Option
Awards
|
|
|
|
|
|
|
|
|
|
Stock
Awards
|
|
|
|
|
|
|
|
Name
|
|
Number
of securities underlying unexercised options (#)
Exercisable
|
|
|
Number
of securities underlying unexercised options (#)
Unexercisable
|
|
|
Equity
incentive plan awards: Number of securities underlying unexercised
unearned options (#)
|
|
|
Option
exercise price
($)
|
|
Option
expiration date
|
|
Number
of shares or units of stock that have not vested (#)
|
|
|
Market
value of shares or units of stock that have not vested ($)
|
|
|
Equity
incentive plan awards: Number of unearned shares, units or other
rights
that have not vested (#)
|
|
|
Equity
incentive plan awards: Market or payout value of unearned shares,
units or
other rights that have not vested ($)
|
|
Robert
A. Whitman
|
|
|
1,602,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14.00
|
|
8/31/2010
|
|
|
112,500
|
|
|
$ |
842,625
|
|
|
|
168,302
|
|
|
|
-
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stephen
D. Young
|
|
|
35,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8.00
|
|
1/16/2011
|
|
|
23,625
|
|
|
$ |
176,951
|
|
|
|
52,174
|
|
|
|
-
|
|
Chief
Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sarah
Merz
|
|
|
-
|
|
|
|
12,500
|
|
|
|
-
|
|
|
|
1.70
|
|
11/14/2013
|
|
|
26,250
|
|
|
$ |
196,613
|
|
|
|
52,174
|
|
|
|
-
|
|
President
CSBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
William Bennett
|
|
|
50,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6.88
|
|
7/11/2010
|
|
|
26,250
|
|
|
$ |
196,613
|
|
|
|
52,175
|
|
|
|
-
|
|
President
OSBU
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Options
Exercised and Stock Vested
The
following table provides information concerning the exercises of stock options
during fiscal 2007 for each of the Named Executive Officers.
Non-Qualified
Deferred Compensation Earnings
The
following chart shows the market changes for the respective holdings in the
Non-Qualified Deferred Compensation Plan (NQDC). As discussed
earlier, the NQDC plan was frozen to new contributions as of January 1,
2005. Each participant in the NQDC determines the timing of NQDC
payouts at the time he or she enrolls in the plan. Mr. Bennett
is the only named executive officer who participates in the NQDC.
Aggregate
Earnings in Last FY (Column D)
Changes
in Mr. Bennett’s aggregate earnings are due to market fluctuations in the
underlying securities in his account.
Change-in-Control
Severance Benefits
A
change-in-control agreement exists for each named executive
officer. Under the terms of the agreement, each executive officer
would receive two times his or her current target compensation plus
reimbursement of premiums to secure benefit continuation coverage.
Target
Total CIC Payment (Column B)
The
target total change in control (CIC) payment in column B equals (target annual
cash compensation x 2) + COBRA premiums.
Severance
Benefits
Under
the
FranklinCovey severance policy, named executive officers who terminate
involuntarily without cause receive an equivalent to 1 year of base salary
and
target annual incentive. Additionally, FranklinCovey pays COBRA
medical and dental premiums for the term of the severance.
Target
Total Severance Payment (Column B)
The
target total severance payment in Column B equals target annual cash
compensation + target COBRA premiums.
PRINCIPAL
HOLDERS OF VOTING SECURITIES
The
following table sets forth information as of November 16, 2007, with
respect to the beneficial ownership of shares of Common Stock by each person
known by the Company to be the beneficial owner of more than five percent
of
Common 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 16, 2007. 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 19,894,596 shares of Common Stock outstanding as of November 16,
2007. There are no shares of Series A or B Preferred Stock
outstanding.
|
|
|
BENEFICIAL
OWNERSHIP
As
of November 16, 2007
|
|
Number
of
Common
Shares
|
|
Percentage
of
Class
|
|
|
|
|
|
|
|
Donald J.
McNamara (1)(2)(3)
c/o
Franklin Covey Co.
2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2331
|
|
7,249,138
|
|
27.2
|
%
|
Knowledge
Capital Investment
Group
(1)(2)
3232
McKinney Ave,
Dallas,
Texas 75204
|
|
6,928,404
|
|
26.9
|
%
|
Robert A.
Whitman (5)(7)
c/o
Franklin Covey Co.
2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2331
|
|
2,264,143
|
|
10.5
|
%
|
Dimensional
Fund Advisors, Inc. (4)
1299
Ocean Avenue
Santa
Monica, California 90401
|
|
1,536,528
|
|
7.7
|
%
|
Stephen R.
Covey (3)
c/o
Franklin Covey Co.
2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2331
|
|
1,050,884
|
|
5.3
|
%
|
Joel C.
Peterson
|
|
207,549
|
|
1.0
|
%
|
Robert W.
Bennett, Jr. (5)(7)
|
|
125,774
|
|
*
|
%
|
Sarah
Merz (5)(7)
|
|
122,026
|
|
*
|
%
|
Dennis G.
Heiner
|
|
113,257
|
|
*
|
%
|
Stephen D.
Young (5)(7)
|
|
104,312
|
|
*
|
%
|
Robert H.
Daines (6)
|
|
49,632
|
|
*
|
%
|
E.
Kay Stepp
|
|
38,409
|
|
*
|
%
|
Clayton
M. Christensen
|
|
26,382
|
|
*
|
%
|
E.
J. “Jake” Garn
|
|
24,957
|
|
*
|
%
|
All
directors and executive officers as a group (5)(7)(12
persons)
|
|
11,376,463
|
|
41.0
|
%
|
*
Less
than 1%.
(1)
|
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.
|
(2)
|
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 warrants of Common Stock held by Knowledge
Capital. Mr. McNamara disclaims beneficial ownership of the
Common Stock and the warrants of Common Stock held by Knowledge
Capital.
|
(3)
|
The
share amounts include those held 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. McNamara
is the trustee of his foundation, having sole voting and dispositive
control of all shares held by the foundation, 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.
|
(4)
|
Dimensional
Fund Advisors’ information is provided as of September 30, 2007, the
filing of its last 13F report.
|
(5)
|
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,
12,500 shares; Stephen D. Young, 35,000 shares; Robert A. Whitman,
1,602,000 shares; and all executive officers and directors as a
group,
1,699,500 shares.
|
(6)
|
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.
|
(7)
|
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 except for an amended
Form 3 for Sarah Merz correcting the number of shares beneficially owned
by Ms.
Merz that was filed in November 2007 and a Form 3 for Robert W. Bennett that
should have been filed in February 2002 and was filed in November
2007.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Review
and Approval of Related Party Transactions
The
Company reviews all relationships and transactions in which the Company and
our
directors, Named Executive Officers, or their immediate family members are
participants to determine whether such persons have a direct or indirect
material interest. Our legal and accounting departments have
responsibility for the development and implementation of processes and controls
to obtain information from the directors and Named Executive Officers with
respect to related party transactions and for then determining, based upon
the
facts and circumstances, whether the Company or a related party has a direct
or
indirect material interest in the transaction. As required under SEC
rules, transactions that are determined to be directly or indirectly material
to
the Company or the related party are disclosed in the Company’s proxy
statement. In addition, a disinterested majority of the full Board of
Directors or Compensation Committee of the Board reviews and approves any
related party transaction that is required to be disclosed.
Related
Party 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 expenses totaling $2.0 million during the
fiscal
year ended August 31, 2007.
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, 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. In conjunction
with the recapitalization of the Company’s Series A Preferred Stock completed in
March 2005, the monitoring fee was reduced by redemptions made of outstanding
shares of the Series A Preferred Stock that was held by Knowledge
Capital. The Company paid $0.1 million to Hampstead Interests, LP
during the fiscal year ended August 31, 2007, pursuant to the Amended and
Restated Monitoring Agreement. Since all of the Preferred Stock has
been redeemed, the Company no longer pays this fee.
We
pay
Sean Covey, who is a son of the Vice-Chairman of the Board of Directors,
and is
also an employee of the Company, a percentage of the royalty proceeds received
from the sales of certain books authored by him. During fiscal 2007 we
expensed $0.4 million for these royalty payments.
During
fiscal 2006, we signed a non-exclusive license agreement for certain
intellectual property with Stephen M.R. Covey, who is a son of the Vice-Chairman
of the Board of Directors, and was previously an officer of the Company and
a
member of our Board of Directors. We are required to pay Stephen M.R.
Covey royalties for the use of certain intellectual property developed by
him. Our payments to Stephen M.R. Covey totaled $0.2 million during fiscal
2007.
Robert
A.
Whitman, Chairman of the Board, President and Chief Executive Officer of
the
Company, beneficially owns a partnership interest of Knowledge
Capital.
Each
of
these listed transactions was approved according to the procedures cited
above.
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,
2008, 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 2008 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 2007 and 2006:
|
|
Fiscal
2007
|
|
|
Fiscal
2006
|
|
Audit
Fees (1)
|
|
$ |
1,237,000
|
|
|
$ |
1,805,697
|
|
Audit-Related
Fees (2)
|
|
|
13,000
|
|
|
|
-
|
|
Tax
Fees (3)
|
|
|
41,000
|
|
|
|
37,334
|
|
All
Other Fees
|
|
|
-
|
|
|
|
-
|
|
|
|
$ |
1,291,000
|
|
|
$ |
1,843,031
|
|
(1)
|
Audit
Fees represent fees and expenses for professional services provided
in
connection with the audit of the Company’s consolidated financial
statements and the effectiveness 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 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 year 2007 and fiscal year 2006 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. 114, The Auditors Communication with Those
Charged with Governance, with and without management present, and 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, 2007, 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, 2007, for filing with the Securities
and Exchange Commission. The Audit Committee also recommended the
reappointment, subject to shareholder approval, of KPMG.
|
|
|
|
|
|
|
Date:
November
11, 2007
|
|
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, 2008.
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 2009 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, 2008, 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 2009 is changed by more than 30 days from the date of the annual meeting
of
shareholders to be held in calendar year 2008. 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 2009 but fails to notify the Company of that intention prior
to
October 31, 2008, 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 2009 is changed by more than 30 days from the
date
of the annual meeting of shareholders to be held in calendar year
2008.
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 2007 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. Stephen D.
Young.
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.