def14a_083109.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
(RULE
14a-101)
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by
the Registrant ý
Filed by
a Party other than the Registrant ¨
Check the
appropriate box:
¨ Preliminary
Proxy Statement
¨ Confidential,
for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
ý Definitive
Proxy Statement
¨ Definitive
Additional Materials
¨ Soliciting
Material Pursuant to § 240.14a-12
FRANKLIN
COVEY CO.
(Name of
Registrant as Specified In Its Charter)
(Name of
Person(s) Filing Proxy Statement, if other than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
ý No
fee required.
¨ Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate
number of securities to which transaction applies:
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(3)
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Per
unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4)
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Proposed
maximum aggregate value of transaction:
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(5)
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Total
fee paid:
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¨ Fee
paid previously with preliminary materials.
¨
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Check
box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
To
Be Held
January
29, 2010
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 29, 2010 at 8:30 a.m.,
at the Hyrum W. Smith Auditorium, 2200 West Parkway Boulevard, Salt Lake City,
Utah 84119-2331 (the Annual Meeting), for the following purposes:
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(i)
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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 2012 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, 2010; and
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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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Important Notice Regarding the
Availability of Proxy Materials for the 2010 Annual Shareholders’
Meeting. This year, we will take advantage of the rules of the
Securities and Exchange Commission that allow us to furnish our proxy materials
over the Internet. As a result, for the first time, we are mailing a
notice of availability of the proxy materials over the Internet, rather than a
full paper set of the proxy materials, to many of our
shareholders. The notice of availability contains instructions on how
to access our proxy materials on the Internet, as well as instructions on how
shareholders may obtain a paper copy of the proxy materials. All
shareholders who do not receive such a notice of availability, including
shareholders who have previously requested to receive a paper copy of the
materials, will receive a full set of paper proxy materials by United States
mail. This distribution process will reduce the costs of printing and
distributing our proxy materials.
The Proxy
Statement and our 2009 Annual Report are available at:
www.shareholdermaterial.com/FC.
The Board
of Directors has fixed the close of business on December 1, 2009 as the record
date for the determination of shareholders entitled to receive notice of and to
vote at the Annual Meeting and at any adjournment or postponement
thereof.
All
shareholders are urged to attend the meeting.
By Order
of the Board of Directors,
/s/
Robert A. Whitman
Robert A.
Whitman
Chairman
of the Board of Directors
December
17, 2009
IMPORTANT
Whether
or not you expect to attend the Annual Meeting in person, to assure that your
shares will be represented, please promptly complete your proxy. 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
29, 2010
SOLICITATION
OF PROXIES
This
Proxy Statement is being made available to the shareholders of Franklin Covey
Co., a Utah corporation (FranklinCovey, the Company, us, our, or we), 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
our Common Stock, $0.05 par value per share (the Common Stock) for use at our
Annual Meeting of Shareholders to be held on Friday, January 29, 2010, 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). Directions to the Hyrum W. Smith Auditorium may be
obtained by calling (801) 817-1776, for shareholders who plan to vote in person
at the Annual Meeting. On or about December 18, 2009 we began mailing to
some of our shareholders a notice (the Notice) that these proxy materials are
available on the Internet. This Notice contains instructions on how
to access the proxy materials on the Internet. On or about December
18, 2009, we also began mailing a full set of proxy materials to certain
shareholders, including shareholders who have previously requested to receive a
paper copy of the proxy materials.
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 our independent
registered public accountants for the fiscal year ending August 31, 2010; 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
We will
bear all costs and expenses relating to the solicitation of proxies, including
the costs of preparation, assembly, printing, and mailing the Notice of Internet
Availability of Proxy Materials, this Proxy Statement, the proxy, and any
additional solicitation materials that we may provide to
shareholders. In addition to the solicitation of proxies by use of
the mails, our directors, officers, and employees, without receiving additional
compensation, 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
we will reimburse such brokerage firms, custodians, nominees and fiduciaries for
reasonable out-of-pocket expenses incurred by them in connection
therewith.
Internet
Availability of Proxy Materials
Under
rules recently adopted by the Securities and Exchange Commission, we are now
furnishing proxy materials on the Internet in addition to mailing paper copies
of the materials to each shareholder of record. Instructions on how
to access and review the proxy materials on the Internet can be found on the
proxy card sent to stockholders of record and on the Notice of Internet
Availability of Proxy Materials sent to shareholders who hold their shares in
“street name.” The notice will also include instructions for
stockholders who hold their shares in street name on how to access the proxy card to vote over the
Internet.
VOTING
Our Board
of Directors has fixed the close of business on December 1, 2009 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 16,958,483 shares of our Common Stock issued and
outstanding. 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.
Shareholders
of Record
If you
are a shareholder of record and you received printed proxy materials, you may
submit your vote by completing, signing and dating each proxy card received
before the Annual Meeting. Sign your name exactly as it appears on
the proxy card. If you provide specific voting instructions, your
shares will be voted as you have instructed. Proxy cards submitted by
mail must be received by our transfer agent no later than January 28, 2010 to be
voted at the Annual Meeting.
Beneficial
Shareholders
Beneficial
owners should have received a Notice or voting instructions from the broker,
bank, or other nominee holding their shares. You should follow the
instructions in the Notice or voting instructions provided by your bank, broker,
or nominee in order to instruct your broker, bank or other nominee on how to
vote your shares. The availability of Internet voting will depend on
the voting process of the bank, broker, or nominee holding your
shares. Shares held beneficially may also be voted in person at the
Annual Meeting only if you obtain a legal proxy from the broker, bank, or
nominee that holds your shares of record, giving you the right to vote the
shares.
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 our independent registered public accountants for the
fiscal year ending August 31, 2010, and in the discretion of the proxy holders
as to any other matters as may properly come before the Annual Meeting or at any
adjournment or postponement thereof. It is not anticipated that any
other matters will be presented at the Annual Meeting.
You may
revoke your proxy at any time prior to its exercise at the Annual Meeting by
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
proposal exceeds 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 2012 and until their successors shall be duly elected and
qualified. Unless the shareholder indicates otherwise, each proxy
will be voted in favor of the following persons: Joel C. Peterson, E. Kay Stepp,
and Robert A. Whitman. If any of the nominees should be unavailable
to serve, which is not now anticipated, the proxies solicited hereby will be
voted for such other persons as shall be designated by the present Board of
Directors. The three nominees receiving the highest number of votes
at the Annual Meeting will be elected.
THE
BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH OF THE THREE
NOMINEES TO THE BOARD OF DIRECTORS.
Nominees
for Election to the Board of Directors
Certain
information with respect to the nominees is set forth below.
Joel C.
Peterson, 62, 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, a Salt Lake City-based
private equity group with some $400 million under management, which focuses on
providing growth and buyout capital to businesses with strong management teams
and a track record of success. Separate from this private equity
business, Mr. Peterson founded Peterson Ventures to fulfill a passion for
partnering with talented entrepreneurs in earlier stage or smaller
ventures. Mr. Peterson has been on the faculty at the Graduate School
of Business at Stanford University since 1992 where he has taught courses in
real estate investment, entrepreneurship, and leadership. He was recently
selected by students to receive the Distinguished Teacher Award. He
currently serves as Director at Stanford’s Center for Leadership Development and
Research, as a member of the Dean’s Advisory Group, and as an Overseer at the
Hoover Institution. Between 1973 and 1991, he was Treasurer, Chief
Financial Officer (CFO), Board member, and Chief Executive Officer (CEO) of
Trammell Crow Company, the world’s largest private real estate development
firm. Mr. Peterson is currently Chairman of the Board at JetBlue
Airways (NASDAQ), and he is on the board of Ladder Capital Finance, a
billion-dollar real estate investment company. Over the past 35
years, he has served on dozens of public and private boards including Asurion,
the Dallas Market Center, Texas Commerce Bank (Dallas), the Advisory Board at
the GSB at Stanford, and on the President’s Council at Brigham Young
University. He was valedictorian at his undergraduate institution,
Brigham Young University, and earned an MBA from Harvard Business School in
1973.
E. Kay
Stepp, 64, 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 served as President and Chief Operating Officer of
Portland General Electric, an electric utility, from 1978 to
1992. 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, from 1994 to 2001,
and was a director of the Federal Reserve Bank of San Francisco from 1991 to
1995. She received her Bachelor of Arts degree from Stanford
University and a Master of Arts in Management from the University of
Portland. Ms. Stepp also attended the Stanford Executive Program and
the University of Michigan Executive Program.
Robert A.
Whitman, 56, has been a director of the Company since May
1997. Mr. Whitman has served as Chairman of the Board of Directors
since June 1999 and as President and Chief Executive Officer of the Company
since January 2000. Mr. Whitman previously served as a director of
the Covey Leadership Center from 1994 to 1997. Prior to joining us,
Mr. Whitman served as President and Co-Chief Executive Officer of The Hampstead
Group from 1992 to 2000. Mr. Whitman received his Bachelor of Arts
degree in Finance from the University of Utah and his MBA from Harvard Business
School.
Directors
Whose Terms of Office Continue
In
addition to the directors to be elected at the Annual Meeting, the directors
named below will continue to serve their respective terms of office as
indicated. Clayton M. Christensen, E.J. Jake
Garn, and
Donald J. McNamara are currently serving terms which expire at the Annual
Meeting to be held following the end of fiscal year 2010. Stephen R.
Covey, Robert H. Daines, and Dennis G. Heiner are currently serving terms which
expire at our Annual Meeting to be held following the end of fiscal year
2011.
Clayton M.
Christensen, 57,
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 building new growth businesses and sustaining the success of
companies. 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. He
serves on the boards of directors of Tata Consultancy Services (NYSE), W.R.
Hambrecht, and Vanu. Dr. Christensen is also the owner of Rose Park
Advisors.
E. J. “Jake”
Garn, 76, 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, 56, 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 and Restaurant Group, LLC. Mr.
McNamara 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.
Stephen R.
Covey, 77, 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, Living the 7 Habits: Stories of
Courage and Inspiration, The 8th Habit: From Effectiveness to
Greatness, The Nature
of Leadership, Everyday
Greatness, and The
Leader in
Me. Dr. Covey is
also the co-author of First
Things First. Dr. Covey is the father of David M.R. Covey and
Sean M. Covey, two of our executive officers.
Robert H.
Daines, 75, 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, 66, was appointed as a director of the Company in January
1997. Mr. Heiner currently serves as Managing Member of Sunrise Oaks
Capital Fund, LLC, a small private bridge loan financing fund. 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.
CORPORATE
GOVERNANCE
FranklinCovey
upholds a set of basic values and principles to guide our actions and we are
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 includes the Chief
Executive Officer and Chief Financial Officer and other members of our financial
leadership team, and other employees. The Corporate Governance
Guidelines and Code of Business Conduct and Ethics are available on our 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 free of charge to any shareholder 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, E.J.
“Jake” Garn, Dennis G. Heiner, Donald J. McNamara, 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 us (either
directly, or as a partner, shareholder, or officer of an organization that has a
relationship with us). 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 and the
existence of related party transactions as described in the section entitled
“Certain Relationships and Related Transactions” found in this
report.
BOARD
OF DIRECTOR MEETINGS AND COMMITTEES
During
the fiscal year ended August 31, 2009, there were four meetings held by our
Board of Directors. All of the members of our Board of Directors were
able to attend at least 75% of the Board and committee meetings for which they
were entitled to participate. Although we encourage Board members to
attend the Annual Meetings, we do not have a formal policy regarding director
attendance at our annual shareholder meetings. Eight members of our
Board of Directors attended the Annual Meeting held in January
2009.
The
non-management directors meet regularly in executive sessions, as needed,
without the management directors or other members of
management. Dennis G. Heiner, 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, Dennis G.
Heiner, and Ms. E. Kay Stepp. The Nominating Committee consists of
Messrs. Dennis G. Heiner, Chairperson, Robert H. Daines, 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 on our website at www.franklincovey.com. In
addition, shareholders may obtain a printed copy of any of these charters free
of charge by making a written request to Investor Relations, Franklin Covey Co.,
2200 West Parkway Boulevard, Salt Lake City, Utah 84119-2331.
The
Audit Committee
The Audit
Committee functions on behalf of the Board of Directors in accordance with
Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the
Exchange Act), and met six times during fiscal 2009. The Audit
Committee’s primary functions are: (i) to review and approve the selection of,
and all services performed by, our independent registered public accountants;
(ii) to review our internal controls and audit functions; and (iii) to review
and report to the Board of Directors with respect to the scope of our internal
and external audit procedures, accounting practices and internal accounting, and
financial and risk controls. 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 H.
Daines, is a “financial expert” as defined in Item 407(d)(5)(ii) of Regulation
S-K.
The
Nominating Committee
The
Nominating Committee met four times during the fiscal year ended August 31,
2009. 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
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 (CEO); (v) developing corporate
governance policies and procedures applicable to the Company and recommending
that the Board adopt said policies and procedures; and (vi) conducting the
annual board self-assessment. All of the members of the Nominating
Committee are “independent” as defined under NYSE rules.
The
Compensation Committee
The
Compensation Committee met eight times during fiscal 2009. Its
functions are: (i) to review and approve corporate goals and objectives relevant
to CEO compensation, evaluate CEO performance in light of those goals and
objectives, determine and approve CEO compensation (salaries, bonuses, and other
compensation) based on this evaluation, and ensure that the CEO’s compensation
plan is aligned with business strategies and designed to deliver shareholder
value; (ii) to review and approve compensation for executives other than the CEO
following recommendation by the CEO; (iii) to review and make recommendations to
the Board for any incentive compensation and equity-based plans that are subject
to Board approval; (iv) 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 our executive officers,
employees, and independent directors; and (v) to review management development
plans and succession plans to ensure business continuity. All of the
Compensation Committee members are “independent” as defined under NYSE
rules.
Role
of the Compensation Committee
The
Compensation Committee administers all elements of our 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, our Chairman of the Board of Directors and
CEO. This committee also determines any equity awards under the
incentive plan for all other executive officers. In consultation with
the Compensation Committee, Mr. Whitman annually reviews and establishes
compensation for the other Named Executive Officers (as defined
below). The Compensation Committee reports quarterly to the full
Board on decisions related to our executive compensation program.
Compensation
Committee Membership and Process
The
Compensation Committee is composed of independent directors who are not
employees of the Company or our subsidiaries. For fiscal 2009, the
members of the Compensation Committee were E. Kay Stepp, who serves as
Chairperson, Robert H. Daines, and Dennis G. Heiner. Except as
described below in “Compensation Committee Interlocks and Insider Participation”
and “Certain Relationships and Related Transactions,” none of the Compensation
Committee members have any material business relationships with
us. The Compensation Committee held eight meetings during fiscal year
2009 and 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 conducts an annual committee assessment. A copy of the
Compensation Committee charter is available at www.franklincovey.com.
Compensation
Consultants
Within
its charter, the Compensation Committee has the authority to engage the services
of outside advisors, experts, and others to assist the
committee. Accordingly, the Compensation Committee has engaged Mercer
U.S., Inc. (Mercer) for advice on matters related to CEO, executive, and Board
of Director 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. Mercer’s services included the following:
·
|
Executive
compensation program design
|
·
|
Total
rewards benchmarking
|
·
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Long-term
incentive plan design
|
·
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Executive
severance policy design
|
·
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Change-in-control
policy design
|
·
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Timing
of equity grant awards
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Additionally,
Mercer assists with calibrating the executive compensation program incentive
targets to our performance and the competitive market and monitors overall
program effectiveness.
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 our subsidiaries.
During
fiscal 2009, we employed Boyd Craig, who is the son-in-law of Robert H. Daines,
a member of the Compensation Committee, and paid him compensation totaling
$156,300.
The
following table shows the current membership of each of our
committees.
Director
|
|
Audit
|
Nominating
|
Compensation
|
Clayton
M. Christensen
|
|
-
|
-
|
-
|
Stephen
R. Covey
|
|
-
|
-
|
-
|
Robert
H. Daines
|
|
X
|
X
|
X
|
E.J.
“Jake” Garn
|
|
Chair
|
-
|
-
|
Dennis
G. Heiner
|
|
X
|
Chair
|
X
|
Donald
J. McNamara
|
|
-
|
-
|
-
|
Joel
C. Peterson
|
|
-
|
-
|
-
|
E.
Kay Stepp
|
|
X
|
X
|
Chair
|
Robert
A. Whitman
|
|
-
|
-
|
-
|
OUR
DIRECTOR NOMINATION PROCESS
As
indicated above, the Nominating Committee of the Board of Directors oversees the
director nomination process. The Nominating 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 be
able to fulfill the responsibilities for directors set out in the Corporate
Governance Guidelines approved by the Board of Directors. These
Corporate Governance Guidelines may be found on our website at www.franklincovey.com. 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.
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.
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 our shareholders who
beneficially own at the time of the recommendation not less than one percent of
our 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 nominating 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:
Franklin
Covey Co.
c/o
Stephen D. Young, Corporate Secretary
2200 West
Parkway Boulevard, Salt Lake City, UT 84119-2331
Contractual
Rights of Knowledge Capital to Designate Nominees
Under the
Amended and Restated Shareholders Agreement dated March 8, 2005 between
Knowledge Capital and us, we are obligated to nominate one designee of Knowledge
Capital for election to the Board of Directors. Donald J. McNamara, a
current member of our 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, we are
obligated at each meeting of our shareholders 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 we are 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 our website at www.franklincovey.com. All
such communications will initially be received and processed by the office of
the Corporate Secretary. Depending on the nature of the
correspondence, 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
In July
2008, the Compensation Committee received a report from Mercer regarding
competitive compensation practices for Boards of Directors of similar sized
public companies. Based upon this report, and to provide closer
alignment with current and emerging market practices which support the Board’s
stewardship role, the Compensation Committee recommended the following
modifications to the Board of Director compensation plan which were implemented
in fiscal 2009:
·
|
Maintain
current board, committee, and committee chair retainers at fiscal 2008
levels, which is consistent with the current philosophy of targeting board
compensation at the market median for similar sized
companies.
|
·
|
Modify
the annual stock award to a dollar denominated amount of $40,000, rather
than a fixed number of shares, to provide consistency during a time of
market and share price volatility. Further, shares awarded
under this plan shall vest one year from the date of
grant.
|
·
|
Modify
ownership guidelines for each Director to maintain Common Stock equivalent
to three years of the Board cash retainer or
$90,000.
|
Robert A.
Whitman, our Chairman of the Board of Directors and CEO, does not currently
receive compensation for Board or committee meetings. In fiscal
2009, the remaining directors were paid as follows:
·
|
Each
Board member was paid an annual retainer of $30,000, paid quarterly, for
service on the Board and attending Board
meetings.
|
·
|
In
lieu of committee meeting fees, each Board member was paid an additional
annual retainer of $7,000 for service on each committee on which he/she
served.
|
·
|
Committee
chairpersons were paid an additional annual retainer of $5,000 for the
Audit and Compensation Committees and $3,000 for all other
committees.
|
·
|
Each
non-employee member of the Board of Directors received a restricted stock
award of shares equivalent to $40,000 which vests over a one-year service
period.
|
·
|
Directors
were reimbursed by the Company for their out-of-pocket travel and related
expenses incurred in attending all Board and committee
meetings.
|
Fiscal
2009 Director Compensation
|
A |
|
|
|
B |
|
|
|
C |
|
|
|
D |
|
|
|
E |
|
|
|
F |
|
|
|
G |
|
|
|
H |
|
Name
|
|
|
Fees
earned or paid in cash
($)
|
|
|
Stock
awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-stock
Incentive Plan Compensation
($)
|
|
|
Change
in pension value and nonqualified deferred compensation
earnings
($)
|
|
|
All
other Comp
($)
|
|
|
Total
($)
|
|
|
|
|
$ |
30,000 |
|
|
$ |
56,625 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
86,625 |
|
|
|
|
$ |
51,000 |
|
|
$ |
56,625 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
107,625 |
|
|
|
|
$ |
42,000 |
|
|
$ |
56,625 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
98,625 |
|
|
|
|
$ |
30,000 |
|
|
$ |
49,765 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
79,765 |
|
|
|
|
$ |
54,000 |
|
|
$ |
56,625 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
110,625 |
|
|
|
|
$ |
30,000 |
|
|
$ |
56,625 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
86,625 |
|
|
|
|
$ |
56,000 |
|
|
$ |
56,625 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
112,625 |
|
|
|
|
$ |
30,000 |
|
|
$ |
37,915 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
$ |
67,915 |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Amounts
reported in Column C represent the share-based compensation expense recognized
under SFAS No. 123R in our fiscal 2009 financial
statements. Assumptions used in the calculation of these amounts are
included in Note 14 to our financial statements in the Form 10-K for the year
ended August 31, 2009 as filed with the SEC. Beginning in
fiscal 2009, all Board of Director restricted stock awards are made annually in
January following the Annual Meeting, and have one year vesting
terms. All restricted shares awarded during fiscal years 2006-2008
vest three years from the date of grant. Accordingly, restricted
shares awarded in March 2006 vested in March 2009;
and
restricted shares awarded in January 2009 will vest in January
2010. The grant date fair value of the stock awards granted under
SFAS No. 123R during fiscal 2009 was $4.84 per share. At August 31,
2009, the directors named above, other than Mr. Whitman, held a total of 133,612
shares of restricted stock. At August 31, 2009, each of the directors
held 17,264 shares or restricted stock, except for Mr. McNamara, who held 12,764
shares of restricted stock. Mr. Covey and Mr. McNamara began their
participation in the non-employee director stock award program subsequent to
other board members. We did not grant any stock options in fiscal
2009 and we have not granted stock options to members of the Board of Directors
in recent fiscal years.
EXECUTIVE
OFFICERS
In
addition to Mr. Whitman, whose biographical information was previously
presented, the following information is furnished with respect to our executive
officers, who served in the capacities indicated for all or part of fiscal
2009:
Jennifer
Colosimo, 40, joined FranklinCovey in 1996, became the Vice President for
Global Sales Effectiveness in September 2008, and was appointed Chief Learning
Officer in September 2009. Ms. Colosimo brings 19 years of
values-based change management, organizational and leadership development, and
global sales experience to her work with our clients and with internal sales
personnel. Prior to joining us, she was a Change Management
Consultant with Accenture. Jennifer earned her bachelors degree from
the University of Utah and holds a master’s degree in organizational
communication and business administration from Purdue University.
David M.R.
Covey, 43, currently serves as Co-Chief Operating Officer, Global
Operations. In this capacity, he is responsible for the success of
our eight directly owned offices and numerous licensees that operate in other
countries and territories around the world. Prior to this
appointment, David was Senior Vice President of U.S. Sales from September 2004
to August 2009, and was the President and General Manager of our International
Division from September 2001 to August 2004. David also served as the
Managing Director of Franklin Covey Australia 1997-1999. David earned
his MBA from Harvard University and prior to receiving his MBA, David worked for
two years for Procter & Gamble in Phoenix, Arizona as a Sales
Representative. David is the son of Stephen R. Covey, who currently
serves as Vice-Chairman of our Board of Directors, and he is the brother of Sean
Covey.
M. Sean
Covey, 45, currently serves as Chief Product Officer, a position that he
has held since September 2009. Prior to this appointment, he served
as Senior Vice President of Innovations and Product Development from April 2006
to September 2009. Prior to April 2006, Sean served as the leader of
our Innovations and Product Development group. Most of our current
organizational offerings, including: Focus; The 7 Habits curriculum; xQ; The 4
Disciplines of Execution; and Leadership were developed under Sean’s
leadership. Mr. Covey is also the author of several books, including
The 6 Most Important Decisions
You'll Ever Make, The 7 Habits of Happy Kids, and the international
bestseller, The 7 Habits of
Highly Effective Teens. Sean graduated with honors from
Brigham Young University with a Bachelor’s degree in English and later earned
his MBA from Harvard Business School. Sean is the son of Stephen R.
Covey, who serves as Vice-Chairman of our Board of Directors, and he is the
brother of David M.R. Covey.
C. Todd
Davis, 52, currently serves as Chief People Officer, and has over 27
years of experience in training, training development, executive recruiting,
human resources, and sales & marketing. Mr. Davis has been with
FranklinCovey for the past 13 years. While at FranklinCovey, Todd has
served as a director in the Innovations group, director of recruitment, and Vice
President of People Services. Prior to joining us, Todd worked in the
medical industry for nine years where he recruited physicians and medical
executives along with marketing physician services to hospitals and clinics
throughout the country.
Stephan
Mardyks, 46, became Co-Chief Operating Officer for Global Operations in
September 2009. In this role, he co-leads the global strategy, sales,
delivery and operations for FranklinCovey in over 140
countries. Stephan joined us as a Regional Director in International
Sales in April 2002. In August 2004 he was promoted to Vice President
of FranklinCovey International, and became Senior Vice President of
FranklinCovey International in April 2006. Prior to joining us,
Stephan served as Senior Vice President for Global Operations at Frontline
Group, Worldwide Managing Director for DOOR Training International, and Vice
President of Raytheon Training LLC, where he contributed to forming the global
business strategy and management of its corporate university. Mr.
Mardyks is a graduate of University of Paris-Nanterre with two postgraduate
degrees in Law and Educational Science.
Stephen D.
Young, 56, joined FranklinCovey as Executive Vice President of Finance,
was appointed Chief Accounting Officer in January 2001, Chief Financial Officer
in November 2002, and Corporate Secretary in March 2005. Prior to
joining us, 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 30 years of accounting and management
experience. Mr. Young is a Certified Public Accountant 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 Compensation
Committee recommended to the Board of Directors that the Compensation Discussion
and Analysis be included in FranklinCovey’s proxy statement on Schedule 14A
filed with the Securities and Exchange Commission for the fiscal year ended
August 31, 2009.
Date:
November 30,
2009 THE
COMPENSATION COMMITTEE
E. Kay
Stepp, Chairperson
Robert H.
Daines
Dennis G.
Heiner
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 our
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 our 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 our strategic business plan
and directly related to our
performance.
|
·
|
Our 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, as well as individual
effort.
|
·
|
All compensation components are
aligned to attract and retain qualified executive talent.
Successful execution of the business strategy necessitates keeping our
management team in place and focused on achieving business
goals. Therefore, our 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 awards are used to
reward executives for creating shareholder value over a multi-year
horizon.
|
Importance
of Governing Values
The
FranklinCovey Governing Values guide our actions and the actions of our leaders
as they fulfill their responsibilities to our employees, customers,
shareholders, and the communities they serve. These Governing Values
include the following:
1.
|
Commitment
to Principles
|
2.
|
Lasting
Customer Impact
|
3.
|
Respect
for the Whole Person
|
Each
component of the executive compensation program is supported by the Governing
Values. In assessing the contributions of our executive officers to
our 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
We began
fiscal 2009 with a simplified and streamlined organization focused on our
training and consulting business and a new corporate structure designed to adapt
quickly to new client opportunities and changing market
conditions. The compensation objectives have been adapted to support
the objectives of the new organization. These objectives are
specifically designed to:
1.
|
Ensure
total target compensation is both competitive, to attract and retain
executive talent, and affordable in support of increasing shareholder
value.
|
2.
|
Provide
wider ranges in the target positioning for executive total compensation,
recognizing that FranklinCovey puts more pay at risk than our market
comparators.
|
3.
|
Emphasize
incentive payouts tied to goal achievement over base salary when
structuring the total pay mix which results in a highly leveraged total
compensation program.
|
We
believe these refined compensation objectives will further position the
organization for success, enable greater consistency between the CEO and his
direct reports in terms of overall compensation structure, and provide
competitive pay to retain executive talent.
Compensation
Reviews
Executive
compensation is reviewed annually by the Compensation Committee. The
Committee requests analysis and data, as needed, from Mercer, an external
consultant. The executive compensation policy for fiscal 2009 was
established during the fourth quarter of fiscal 2008. While
determining the total compensation package for the Named Executive Officers in
fiscal 2009, the Compensation Committee considered the impact of a continued
sluggish economy, the smaller company size following the sale of the CSBU, and
the change in the number and makeup of the executive team, as well as the
following:
Competitiveness
to the External Market
To assess
the competitiveness of executive compensation, the Compensation Committee used
public survey data from general industry and professional services companies
similar in size to us, rather than relying on data from a specific peer
group. This procedure normalized the potential of market compensation
data to be biased one way or the other due to practices intrinsic to any one
industry segment. Survey sources covered companies similar to us in
terms of size, revenues, and/or market capitalization. For fiscal
2009 compensation decisions, the published survey data was comprised of
companies with revenues of approximately $150 million. Specifically,
the Compensation 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 using the following
sources:
·
|
Mercer,
2007 Americas Executive
Remuneration Database
|
·
|
Watson
Wyatt, 2007/2008 Report
on Top Management
Compensation
|
Market
data from the listed surveys was aged to September 1, 2008 by an annual rate of
4.1%. This represents a blend of aging factors for executives in
general industry (3.9%) and executives in the professional services industry
(4.2%). In addition to published survey data, the Compensation
Committee relied on current market pay practices, trends, plan design, and
consulting services pertaining to executive compensation which were provided by
Mercer.
The
Compensation Committee targeted the 50th to
75th
percentile (depending on maturity in the position and previous performance) 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 Mercer and
FranklinCovey management for all NEOs, which showed each NEO’s current
compensation components and provided context for fiscal 2009 compensation
discussions.
Recommendations
from the Chairman and Chief Executive Officer
While the
CEO made recommendations regarding the total compensation for those executives
who report directly to him, the Compensation Committee reviewed each person’s
compensation and made final compensation decisions. The CEO did not
participate in any decisions that determined his own compensation.
Compensation
Committee Knowledge of the Performance of Each NEO and His/Her Business Unit or
Group as Reported Quarterly to the Compensation Committee during the Fiscal
Year.
Following
review of market data, tally sheets, and CEO recommendations, the Compensation
Committee took into consideration individual contribution to the business,
experience, and ability to impact our financial results before determining the
level of pay. After considering all the factors as described above,
the Compensation Committee set the final target total direct compensation
opportunity for each NEO in fiscal 2009 within the approximate range of the
50th to
75th
percentile of the market (depending on role and previous
performance). The NEOs could earn more or less relative to the
opportunity described below based on actual performance:
Fiscal
2009 Target Total Direct Compensation
Name
|
Base
Salary
|
Target
STIP
|
Target
Total Cash
|
Target
LTIP
|
Total
Direct Compensation
|
Robert
A. Whitman
Chief
Executive Officer
|
500,000
|
500,000
|
1,000,000
|
-
|
1,000,000
|
Stephen
D. Young
Chief
Financial Officer
|
250,000
|
175,000
|
425,000
|
-
|
425,000
|
David
M.R. Covey
Co-Chief
Operating Officer,
Global
Operations
|
250,000
|
175,000
|
425,000
|
-
|
425,000
|
Stephan
Mardyks
Co-Chief
Operating Officer,
Global
Operations
|
250,000
|
175,000
|
425,000
|
-
|
425,000
|
M.
Sean Covey
Chief
Product Officer
|
250,000
|
150,000
|
400,000
|
-
|
400,000
|
The
target STIP for Mr. Whitman was set at 100% of his base salary. The
target STIP was set at 70% of base salary for Mr. Young, David M.R. Covey, and
Stephan Mardyks. The target STIP was set at 60% of base salary for M.
Sean Covey. Differences in target STIP amounts as a percentage of base salary
are linked to each NEO’s role and potential organizational
impact. The base salary plus target STIP for each NEO resulted
in target total direct compensation at approximately the 50th to
the 75th
percentile of the market.
During
the first quarter of fiscal 2009, the Compensation Committee approved LTIP
awards for 205,700 shares of common stock (the target award) to be awarded if we
achieved specified financial results of grant. However, due to
ongoing organizational changes, our structure evolved to the extent that the
fiscal 2009 LTIP award criteria were no longer consistent with our organization
and performance goals and, in some cases, the approved award criteria were no
longer measurable. As a result of these changes, we determined that
no shares would be awarded to any of the NEOs, other members of management, or
other employees and the fiscal 2009 LTIP grant was terminated. As a
result of this decision, the actual total direct compensation for each NEO in
fiscal 2009 was below the 50th
percentile of the market.
For
determining the CEO’s compensation, the Compensation Committee met in an
executive session to consider the same inputs for the CEO’s compensation as used
for the other NEOs. In addition to all of the foregoing factors, the
Compensation Committee discussed the CEO Performance Feedback Survey
administered to the Board of Directors and senior management during the first
quarter of 2009 and the CEO’s self assessment.
Elements
of Executive Compensation
Our
Executive Compensation Plan incorporates five main elements:
2.
|
Short-Term
Incentive Plan (STIP)
|
3.
|
Long-term
Incentive Plan (LTIP) – Performance-Based Equity
Grants
|
4.
|
Certain
other benefits
|
Each
element of our 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 between the 50th and
75th
percentiles, reviewed annually, and may be adjusted to reflect changing market
levels. For fiscal 2009, the Compensation Committee increased base
salaries from $200,000 to $250,000 for David M.R. Covey, Stephan Mardyks, and M.
Sean Covey, commensurate with each person’s expanded role and to align with
market competitive levels. Base compensation was also reviewed for
Mr. Whitman and Mr. Young; the Compensation Committee determined that their base
salaries were competitive with the market and no changes were made for fiscal
2009.
2.
Short-Term Incentive Plan
The
annual short-term incentive plan reinforces our pay for performance philosophy
and rewards the achievement of specific business and financial goals achieved
during the fiscal year.
For Mr.
Whitman and Mr. Young, whose primary focus is overall corporate performance, the
fiscal 2009 STIP program was designed to reward financial performance (Operating
Income) and the achievement of individual objectives aligned with our Wildly
Important Goals (WIGs). Their STIP payout is weighted so that 70% of
the incentive is based on corporate financial goals, while 30% of the incentive
is based on the achievement of individual goals. The 70/30 split
found in the STIP is focused on achieving line-of-sight performance tied to our
strategic and operational objectives. The largest portion of the
incentive (70%) is aligned with achieving financial results (Operating Income),
which the Compensation Committee believes is the best driver of shareholder
value.
M. Sean
Covey has primary responsibility for the development and success of all of our
products and programs. As such, his STIP is weighted so that 66-70% of the
incentive is based on product development, market research, book publishing, and
meeting overall SG&A and EBITDA budgets each
quarter. Approximately 30% of his incentive is tied to achieving
overall corporate operating results (Operating Income), thus maintaining focus
on our strategy while driving completion of products and programs in support of
the strategy.
For
fiscal 2009, the STIP for David M.R. Covey and Stephan Mardyks was focused 100%
on achieving EBITDA results domestically (Covey) and internationally (Mardyks)
in support of our strategy.
STIP
Payout Opportunities: Whitman, Young, and M. Sean Covey
The
annual STIP payout opportunities for fiscal 2009, as a percentage of base salary
for Robert Whitman, Stephen Young, and M. Sean Covey are shown
below. The target earnings opportunity is established to position
total cash compensation of these NEOs between the 50th and
75th
percentiles of the market when performance is at targeted levels.
Based on
actual performance relative to performance goals for fiscal 2009, these NEOs can
earn from 0% to 200% of their target incentive per the payout scaling tabulated
below. The Compensation 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 total cash
compensation at or above the market 75th
percentile.
The chart
below shows the target STIP payout at 100% is possible only when we reach our
financial performance targets and each NEO achieves his individual performance
objectives. Payouts tied to financial performance are a straight line
from threshold to target and from target to maximum.
Annual
STIP Payouts at Various Performance Levels as a Percentage of Base
Salary: Whitman, Young, and M. Sean Covey
Name
|
Minimum
Payout when Financial Performance is Less than 60% of
Budget
|
Threshold
Payout
when
Financial Performance is at 60% of Budget (1)
|
Target
Payout when Financial Performance is at 100% of Budget
|
Maximum
Payout when Financial Performance is at 110% of Budget
|
Robert
A. Whitman
Chief
Executive Officer
|
0
|
1%
|
100%
|
200%
|
Stephen
D. Young
Chief
Financial Officer
|
0
|
1%
|
70%
|
140%
|
M.
Sean Covey
Chief
Product Officer
|
0
|
1%
|
60%
|
120%
|
(1)
Financial Performance is defined as Operating Income for Mr. Whitman, Mr. Young,
and M. Sean Covey.
For Mr.
Whitman, Mr. Young, and M. Sean Covey, the maximum STIP payout could only be
achieved based on the achievement of our annual financial goals. In
the event of performance greater than target, the maximum payout percent would
be applied to both financial and individual portions of the STIP.
STIP
Payout Opportunities: David M.R. Covey and Stephan Mardyks
Fiscal
2009 was a transition year in the STIP for David M.R. Covey and Stephan Mardyks
as they move from an incentive structure based 100% on EBITDA, consistent with
their sales leadership roles, to a fiscal 2010 STIP that rewards EBITDA
performance as well as growing specific program areas in support of the business
strategy. For fiscal 2009, the annual STIP payout opportunities are
based 100% on domestic (Covey) and international (Mardyks)
EBITDA. Our EBITDA is calculated as earnings before interest, taxes,
depreciation, and amortization and may not be calculated the same as other
companies.
David
M.R. Covey and Stephan Mardyks receive a percentage of EBITDA from their
respective business unit’s performance. Once the unit EBITDA is
greater than the EBITDA achieved in the prior year, the respective manager
receives an accelerated percentage of EBITDA during the remainder of the fiscal
year. The target earnings opportunity is established to position
total cash compensation for David M.R. Covey and Stephan Mardyks between the
50th and
75th
percentiles of the market when performance is at targeted
levels. Commissions for EBITDA results greater than budget would
continue to be paid at the same accelerated percentage.
Based on
actual performance relative to performance goals for fiscal 2009, these NEOs can
earn from 0% to 140% of their target incentive per the payout scaling tabulated
below. The Compensation 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 total cash
compensation at or above the market 75th
percentile.
Annual
STIP Payouts at Various Performance Levels as a Percentage of Base Salary: David
M.R. Covey and Stephan Mardyks
Name
|
Minimum
Payout for no Financial Performance1
|
|
Payout
for Financial Performance equal to FY08 Revenues2
|
|
Target
Payout for Financial Performance at 100% of Budget
|
|
Maximum
Payout for Financial Performance at 110% of Budget
|
David
M.R. Covey
Co-Chief
Operating Officer,
Global
Operations
|
0
|
|
38%
|
|
70%
|
|
140%
|
Stephan
Mardyks
Co-Chief
Operating Officer,
Global
Operations
|
0
|
|
38%
|
|
70%
|
|
140%
|
|
(1)
|
Financial
Performance is defined as domestic sales EBITDA (Covey) and international
sales EBITDA (Mardyks).
|
|
(2)
|
Payouts
for performance up to and equal to prior year EBITDA is a straight line
calculation based on actual EBITDA and may range from 0 to approximately
38% of base salary.
|
David
M.R. Covey and Stephan Mardyks also are individually eligible for quarterly
bonuses based on the number of consecutive quarters in which domestic and/or
international EBITDA targets are achieved. As shown in the chart
below, these bonuses may range from $8,000 to $15,000 per quarter to a target
payout of $38,000 per year during fiscal 2009, or an amount approximately equal
to 15% of base salary. If the EBITDA target is missed during a
quarter, the payout is zero and the target quarterly bonus is reset to begin at
$8,000 the next time the quarterly EBITDA target is achieved.
Quarterly
EBITDA Budget Achievement
First
quarter of achieving EBITDA budget
|
$8,000
|
Second
successive quarter of achieving budget
|
$9,000
|
Third
successive quarter of achieving budget
|
$10,000
|
Fourth
successive quarter of achieving budget
|
$11,000
|
Fifth
successive quarter of achieving budget
|
$12,000
|
Sixth
successive quarter of achieving budget
|
$13,000
|
Seventh
successive quarter of achieving budget
|
$14,000
|
Eighth
and subsequent successive quarter of achieving
budget
|
$15,000
|
Performance
Measures
Financial Performance
Measures
Short-Term
Incentive Payouts are based on corporate financial performance and individual
objectives. The table below presents the corporate financial measures
for the NEOs:
Name
|
Financial
Measure
|
FY2009
Target
|
|
FY09
Quarterly Targets
|
Robert
A. Whitman
Chief
Executive Officer
|
Operating
Income for Franklin Covey Co.
|
$
9.2 million
|
|
n/a
|
Stephen
D. Young
Chief
Financial Officer
|
Operating
Income for Franklin Covey Co.
|
$
9.2 million
|
|
n/a
|
David
M.R. Covey
Co-Chief
Operating Officer,
Global
Operations
|
EBITDA
for Franklin Covey Domestic Sales
|
$
21.470 million
|
Q1
Q2
Q3
Q4
|
$
4.367 million
$
2.722 million
$
6.032 million
$
8.348 million
|
Stephan
Mardyks
Co-Chief
Operating Officer,
Global
Operations
|
EBITDA
for Franklin Covey International Sales
|
$
14.853 million
|
Q1
Q2
Q3
Q4
|
$
4.478 million
$
2.335 million
$
3.159 million
$
4.880 million
|
M.
Sean Covey
Chief
Product Officer
|
Operating
Income for Franklin Covey Co.
|
$
9.2 million
|
|
n/a
|
In the
process of establishing target Operating Income and EBITDA performance ranges
for fiscal 2009, the executive team, in conjunction with business unit leaders
and finance leaders, review historical performance data, general economic and
market trends, industry-specific trends and results, new and updated product
offerings that will be available during the year, and other variables related to
business unit performance.
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 specifics could cause potential competitive
harm. In general, targets may be set for goals related to revenue
growth, sales proficiency, product development, customer relations, balance
sheet management, and winning culture. Named executive officers
generally average three to four major goals per year – the majority of which are
related to achieving our long-term strategy. Achievement of the goals
is not automatic. The goals established for each NEO are stretch
goals tied to achieving our
long-term
strategy. Each goal is linked to one of our Wildly Important Goals that are
cascaded annually throughout the Company; progress toward each of these goals is
reported weekly. Because of the focus on and individual/team
accountability for reaching these goals, there is generally a 90% or greater
probability that the goals will be achieved.
To
maintain operating flexibility, enable rapid responses to changing market
conditions, and provide greater feedback and direction to his new management
team, the fiscal 2009 plan was structured so that Mr. Whitman could establish
new goals every quarter for his direct reports if needed to ensure attention to
specific results.
Achievement
of individual performance objectives accounted for up to 30% of the target STIP
amount for Mr. Whitman and Mr. Young, and between 66% and 70% of the target STIP
amount for M. Sean Covey for fiscal 2009. Individual objectives
are weighted based on difficulty and stretch required to achieve the goal, with
most goals weighted between 10% and 35% of the individual portion of the
STIP. The following table provides an example of an NEO with 4
individual objectives, and shows the STIP amount tied to achieving the payout
for the individual portion of the STIP.
Payout
Calculations Tied to Individual Performance Objectives –
Example
Based on 4 Individual Performance Objectives
Number
of Individual Performance Objectives Achieved
|
Weighting
of Each
Performance
Objective
|
Percentage
of STIP Payout for Individual Performance
(30%
portion)
|
1
|
35%
|
35%
|
2
|
35%
|
70%
|
3
|
20%
|
90%
|
4
|
10%
|
100%
|
Fiscal
2009 Actual Performance and Short-Term Incentive Plan (STIP)
Payouts
For
fiscal 2009, actual payouts relative to targets were as follows:
Name
|
Year
|
Target
Annual STIP
($)
|
Financial
Performance Component as a Percentage of Total STIP
(%)
|
Individual
Performance Component as a Percentage of Total STIP
(%)
|
Total
STIP Payout
($)
|
Robert
A. Whitman
Chief
Executive Officer
|
2009
|
500,000
|
70%
|
30%
|
150,000
|
Stephen
D. Young
Chief
Financial Officer
|
2009
|
175,000
|
70%
|
30%
|
52,500
|
David
M.R. Covey
Co-Chief
Operating Officer,
Global
Operations
|
2009
|
175,000
|
100%
|
n/a
|
77,086
|
Stephan
Mardyks
Co-Chief
Operating Officer,
Global
Operations
|
2009
|
175,000
|
100%
|
n/a
|
84,734
|
M.
Sean Covey
Chief
Product Officer
|
2009
|
150,000
|
42.5%
|
57.5%
|
72,614
|
The above
STIP payouts resulted in actual total short-term incentive plan compensation
that was approximately 36.4% of target, averaged for all NEOs. The NEO STIP
incentives were less than the target amount primarily due to our not achieving
specified financial performance goals during fiscal 2009.
STIP
Plan Changes for Fiscal 2009 and 2010
The
following changes were made to the STIP for fiscal 2009 and fiscal
2010:
·
|
Fiscal
2009 goals for Operating Income were set at levels considerably above
actual results achieved by the portion of the company that remained
following the sale of the CSBU in fiscal 2008, which increased the
difficulty of NEOs attaining the goals and receiving STIP payouts tied to
goal achievement.
|
·
|
Timing
of the fiscal 2009 STIP payout was amended to provide for a 2-quarter
extension of the performance period if financial goals are not met at the
end of fiscal 2009. This action recognized the uncertainty of
the marketplace while maintaining the integrity of annual goals, and may
result in additional STIP payouts for fiscal 2009 being made in fiscal
2010.
|
·
|
The
three new NEOs (David M.R. Covey, Stephan Mardyks, and M. Sean Covey)
retained the same STIP structure during fiscal 2009 that was in place
prior to their being named to the executive team at the beginning of
fiscal 2009, including monthly and quarterly
payouts.
|
·
|
The
mix between financial objectives and individual performance will be
adjusted in fiscal 2010 to bring the new NEOs closer to the 70% financial
and 30% individual performance
targets.
|
·
|
Financial
targets may be established for each NEO to best reflect the areas of the
company over which he may have the greatest influence, and may incorporate
company-wide, operating unit, practice, and/or individual product and
program results.
|
·
|
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.
|
3.
Long-Term Incentive Plan (LTIP)
In fiscal
2005, the Compensation Committee adopted a new long-term incentive strategy
solely using performance-based shares. The LTIP was established as a
performance incentive for certain members of management, including the NEOs, and
other employees to reward progress toward achieving our long-term financial plan
as determined by revenue growth and cumulative operating income over a 3-year
period. Under this plan, shares were to be awarded only after
specific goals were attained. Long-term Incentive Plan grants made in
fiscal 2006 and fiscal 2007 were made in accordance with the terms of our
Amended and Restated 1992 Stock Incentive Plan which was last approved by the
shareholders in January 2006.
The
committee did not make LTIP grants in fiscal 2008 due to our
reorganization. The Compensation Committee terminated the fiscal 2009
LTIP grant primarily due to internal changes that made the approved award
criteria inconsistent with our performance goals, and thus no longer
measurable.
Because
the LTIP is included as part of our overall compensation plan, and due to no
LTIP awards being made during fiscal 2008 and fiscal 2009, and the expiration of
all other LTIP awards made prior to fiscal 2009, total target compensation for
the NEOs was below the 50th
percentile for the general industry group for fiscal 2008 and fiscal
2009.
The
Compensation Committee has approved a LTIP award that is expected to be granted
in fiscal 2010. The fiscal 2010 LTIP award is expected to be offered
to a small group of participants including the NEOs, other members of the
executive team, and those who lead significant divisions or segments of the
business.
LTIP
Plan Changes for Fiscal 2010
The
following changes in the LTIP have been approved by the Compensation Committee
for grants expected to be made in fiscal 2010:
·
|
This
plan has a 4-year performance period with a 60% payout; the payout
accelerates to 80% if the performance targets are achieved within 3.5
years; the payout accelerates to 100% if the performance targets are
achieved within 3 years.
|
·
|
Participants
must reach 50% of the target to achieve the minimum payout. The
minimum payout percentage is 30%; the maximum payout percentage is
200%.
|
·
|
Operating
EBITDA is used as the performance target because it demonstrates the
magnitude of the financial achievement. (Historically, LTIP
awards were based on achieving Operating Income
targets.)
|
·
|
The
LTIP payout is in shares with a net exercise
option.
|
·
|
The
Committee may modify the Plan.
|
·
|
The
fiscal 2010 LTIP grants will be made under the 1992 Stock Incentive
Plan.
|
·
|
The
new LTIP agreements with each named executive officer will include similar
non-compete and non-hire provisions as those in the previous
LTIP.
|
Stock Ownership
Guidelines. Philosophically, we believe that ownership of our
Common Stock is important for executives and outside directors and further
aligns their interests with those of our shareholders. Through the
LTIP and issuance of Restricted Share Awards (RSAs), executives have the
opportunity to increase stock ownership as we achieve specific sales and
operating income or operating EBITDA targets. As a general guideline,
and consistent with industry best practices, beginning in fiscal 2009 outside
directors are encouraged to maintain stock ownership equal to at least 3 times
the annual retainer or $90,000. Executives are encouraged to maintain
stock ownership where the market value of shares held is equivalent to at least
two times base salary.
The
Compensation Committee annually reviews executives’ and directors’ progress
toward meeting these guidelines. Based on our closing share price on
August 31, 2009, multiplied by the
number of
shares (including common shares and vested and unvested RSAs) held by each
director and executive:
·
|
All
directors meet the fiscal 2009
guidelines.
|
·
|
Three
of the five NEOs meet the fiscal 2009 guidelines; the remaining two NEOs
and other executives, all of whom are new to the requirement, are
progressing and expected to meet the guideline within a three- to
five-year time frame.
|
4.
Other Benefits and Perquisites
We
maintain a number of other broad-based employee benefit plans in which,
consistent with our 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 benefits include:
·
|
Our
cafeteria plan
administered pursuant to Section 125 of the Internal Revenue Code of 1986,
as amended (the Code).
|
·
|
Our
401(k) plan, in
which we match 100% of the first 1% contributed and 50% of the next 4%
contributed for a net 3% match on a 5%
contribution. Contributions to the 401(k) plan from highly
compensated employees are currently limited to a maximum of 7% of
compensation, subject to statutory
limits.
|
·
|
Our
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, we provide the
following benefits to the Named Executive Officers as specified
below:
·
|
Term Life
Insurance. We provide a portable 20-year term life
policy for the CEO and CFO. The coverage amount is 2.5 times
each executive’s target cash compensation (base salary + target annual
incentive).
|
·
|
Supplemental Disability
Insurance. We provide Mr. Whitman with long-term disability
insurance which, combined with our current group policy, provides, in
aggregate, monthly long-term disability benefits equal to 75% of his
fiscal 2009 target cash compensation. Executives and other
highly compensated associates may purchase voluntary supplemental
disability insurance at their own
expense.
|
We
believe 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
We do not
have an employment agreement with any of our NEOs, including Robert A. Whitman,
the Chief Executive Officer and Chairman of the Board.
Severance
Policy
Based on
market data, we have 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, we pay COBRA medical
and dental insurance premiums for the term of the
severance. Consistent with our severance payment policy, all
severance payments are made as a lump sum and we do not gross-up severance
payments to compensate for taxes withheld. At Mr. Whitman’s request, his target
severance was set at the same level as those who report to him.
In return
for receiving severance pay, employees agree to specific confidentiality,
non-solicitation, and non-disparagement terms.
Change-in-Control
Severance Agreements
Subsequent
to fiscal 2009, we established change-in-control severance agreements for all
NEOs. The change-in-control policy is designed to retain our executives 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 Compensation Committee determined the following
change-in-control severance benefits to be appropriate for a company of our size
and revenues. In addition, the annual on-going compensation is
designed to reward executives for our 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, as
defined in the policy, the executive officer would be entitled to receive a lump
sum cash payment equal to one times his
or her current annual target
compensation (base salary + STIP). At Mr. Whitman’s request, his
change-in-control severance agreement was set at the same level as those
executives who report to him. 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 our 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 we have granted which at that time are not yet vested according
to their terms. Long-term incentive plan awards vest in accordance
with the terms and provisions of the plan and award documents.
We do not
gross-up change-in-control payments to compensate for taxes
withheld.
These
change-in-control severance agreements are separate from the standard severance
policy. NEOs may not receive payments under both the severance policy
and the change-in-control severance agreements. Payments made under
the change-in-control severance policy are reduced
by an
amount equal to the aggregate amount of any other cash payments paid under any
other severance policy, agreement, program, arrangement, or requirement of
statutory or common law.
Section
162(m) Implications for Executive Compensation
Section
162(m) of the Internal Revenue Code of 1986, as amended, imposes a $1.0 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, other than the company’s chief
financial officer, 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
shareholders). None of our NEOs received compensation in excess of
$1.0 million in fiscal 2009.
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).
Our STIP payments in fiscal 2009 were not considered qualified performance-based
compensation under Section 162(m).
Fiscal
2010 Equity Awards for the CEO and CFO
The Board
of Directors has approved 500,000 stock options to be awarded to the CEO during
fiscal 2010. This grant will replace, in part, Mr. Whitman’s original
stock option grant that expires on August 31, 2010. The grant to Mr.
Whitman represents approximately 2.5% of our common shares
outstanding. The Board also approved 175,000 stock options for the
CFO. These grants are expected to be made in January
2010. The purpose of these grants is to encourage and reward the CEO
and CFO for achieving significant shareholder value creation. The
stock options will be premium priced and divided into four equal tranches with
exercise prices of $9, $10, $12, and $14 per share. The grants are
expected to have a term of 10 years, and vesting will be a 5-year
cliff.
COMPENSATION
TABLES
Summary
Compensation Table
The
salary, bonus, other compensation, long-term compensation and share-based awards
for Robert A. Whitman, our Chairman and Chief Executive Officer, and the other
named executive officers listed below (collectively, the Named Executive
Officers) as of August 31, 2009, the most recent fiscal year end, are shown on
the following Summary Compensation Table. For a complete
understanding of the data on the table, please refer to the narrative
disclosures that follow.
2009
Summary Compensation Table
A
|
B
|
C
|
D
|
E
|
F
|
G
|
H
|
I
|
J
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan Compensation
($)
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
All
Other Compen-sation
($)
|
Total
($)
|
Robert
A. Whitman
Chairman
and Chief Executive Officer
|
2009
2008
2007
|
500,000
500,000
500,000
|
241,500
645,134
-
|
-
-
264,776
|
-
-
-
|
150,000
295,000
668,012
|
-
-
-
|
49,380
56,750
56,870
|
940,880
1,496,884
1,489,658
|
Stephen
D. Young
Chief
Financial Officer
|
2009
2008
2007
|
250,000
250,000
250,000
|
70,000
177,913
50,000
|
-
-
74,093
|
-
-
-
|
52,500
103,250
167,003
|
-
-
-
|
7,462
15,072
12,318
|
379,962
546,235
553,414
|
David
M.R. Covey
Co-Chief
Operating Officer,
Global
Operations
|
2009
|
250,000
|
25,300
|
-
|
-
|
98,474
|
-
|
7,277
|
381,051
|
Stephan
Mardyks
Co-Chief
Operating Officer,
Global
Operations
|
2009
|
250,000
|
25,300
|
-
|
-
|
124,734
|
-
|
14,210
|
414,244
|
M.
Sean Covey
Chief
Product Officer
|
2009
|
250,000
|
70,000
|
-
|
-
|
72,614
|
-
|
164,048
|
556,662
|
Salary
(Column C)
The
amounts reported in Column C represent base salaries paid to each NEO in fiscal
2009.
Bonus
(Column D)
The bonus
amount in Column D for each NEO is in lieu of LTIP awards made in fiscal 2006
and fiscal 2007 which expired as of August 31, 2009 with no shares vesting to
participants, in lieu of LTIP awards that were not made in fiscal 2008, and in
lieu of LTIP awards that were made in fiscal 2009 and then terminated, resulting
in target total compensation at less than the 50th
percentile.
Stock
Awards (Column E)
No awards
were made to NEOs during fiscal 2009 for the long-term incentive
plan. Amounts in this Column represent the compensation expense we
recognized under SFAS No. 123R for previously issued
awards. Assumptions used in the calculation of these amounts are
included in Note 13 to our Financial Statements in the Form 10-K for the year
ended August 31, 2008, as filed with the SEC.
Option
Awards (Column F)
We did
not award any stock options during fiscal 2009 or fiscal 2008.
Non-Equity
Incentive Plan Compensation (Column G)
The
amounts reported in Column G represent the amounts paid to each NEO under the
STIP, which is discussed previously in the section entitled “Compensation
Discussion and Analysis – Elements of Executive
Compensation.” Payouts are based on completing objectives established
quarterly or annually and meeting quarterly and annual financial targets.
Incentive amounts were
approved
by the Compensation Committee and were paid following each of the fiscal
quarters and at the conclusion of the fiscal year. Payments made to
David M.R. Covey and Stephan Mardyks were made monthly. The amount for
David M.R. Covey includes $21,388 in quarterly bonuses for meeting quarterly
EBITDA targets. The amount for Stephan Mardyks includes $40,000 in
quarterly bonuses for meeting quarterly EBITDA targets; the actual amount
awarded to Mr. Mardyks was adjusted to make an allowance for the effects of
foreign currency exchange rates on his EBITDA targets.
Change
in Pension Value and Nonqualified Deferred Compensation Earnings (Column
H)
We do not
maintain any pension plans.
The
Nonqualified Deferred Compensation (NQDC) plan was frozen to new contributions
as of January 1, 2005. Effective August 15, 2005, NQDC balances invested
in our stock will be distributable to participants only in the form of shares of
our stock. None of the NEOs participate in the NQDC
plan.
All
Other Compensation (Column I)
The
amounts reported in Column I represent the aggregate dollar amount for each NEO
for other personal benefits, tax reimbursements, company contributions to 401(k)
accounts, and insurance premiums. The 2009 All Other Compensation
Table presents the detail of the amounts included in Column I for fiscal
2009.
Total
Compensation (Column J)
The
amounts reported in Column J reflect the sum of Columns C through I for each
NEO, including all amounts paid and deferred. The Compensation
committee made the following compensation changes for the NEOs:
Effective
September 1, 2008, base compensation for David M.R. Covey, Stephan Mardyks, and
M. Sean Covey increased from $200,000 to $250,000 per year as a result of their
new roles as members of our executive team and an increase in their
responsibilities. Their short-term incentive compensation targets
remained unchanged.
All
Other Compensation Table
The All
Other Compensation Table provides numerical information that is incorporated
into Column I, All Other Compensation, on the 2009 Summary Compensation
Table. For a complete understanding of the data on the table, please
refer to the narrative disclosures that follow.
2009
All Other Compensation Table
A
|
B
|
C
|
D
|
E
|
F
|
G
|
H
|
Name
|
Year
|
Contributions
to DC Plans
($)
|
Executive
Life Insurance Premiums
($)
|
Executive
Disability Premiums
($)
|
President’s
Club
($)
|
Other
($)
|
Total
($)
|
Robert
A. Whitman
Chief
Executive Officer
|
2009
|
7,192
|
7,310
|
34,878
|
-
|
-
|
49,380
|
Stephen
D. Young
Chief
Financial Officer
|
2009
|
5,192
|
2,270
|
-
|
-
|
-
|
7,462
|
David
M.R. Covey
Co-Chief
Operating Officer,
Global
Operations
|
2009
|
7,005
|
-
|
-
|
-
|
272
|
7,277
|
Stephan
Mardyks
Co-Chief
Operating Officer,
Global
Operations
|
2009
|
6,624
|
-
|
-
|
7,586
|
-
|
14,210
|
M.
Sean Covey
Chief
Product Officer
|
2009
|
-
|
-
|
-
|
-
|
164,048
|
164,048
|
Company
Contribution to Defined Contribution Plans (Column C)
We match,
dollar for dollar, the first 1% contributed to the 401(k) plan, and 50 cents on
the dollar of the next 4% contributed. Our match for executives is
the same match received by all associates who participate in the 401(k)
plan.
Executive
Life Insurance Premiums (Column D)
The
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 Compensation Committee determined to include executive life insurance for
specific NEOs. For the CEO and CFO, we maintain an executive life
insurance policy with a face value of approximately 2.5 times their 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)
We
provide Mr. Whitman with long-term disability insurance which, combined with our
current group policy, provides, in aggregate, monthly long-term disability
benefits equal to 75% of his fiscal 2009 target cash compensation. The amount in
Column E shows the premiums paid for Mr. Whitman’s supplemental long-term
disability coverage.
President’s
Club (Column F)
For Mr.
Mardyks, the amount in Column F refers to travel and travel-related awards
received during fiscal 2009 for performance during fiscal 2007 and fiscal
2008.
Other
(Column G)
For M.
Sean Covey, the amount in Column G refers to royalties of $163,776 paid during
fiscal 2009 and a length of service award received in fiscal 2009.
For David
M.R. Covey, the amount in Column G refers to a length of service award he
received in fiscal 2009.
Total
(Column H)
The
amounts reported in Column H reflect the sum of Columns C through G for each
NEO. These numbers are reflected in Column I (All Other Compensation) of the
Fiscal 2008 Summary Compensation Table, as presented above.
Grants
of Plan-Based Awards Table
The
following table summarizes annual Short-Term Incentive Plan awards made to each
of the NEOs in fiscal 2009. No Long-Term Incentive Plan shares were
awarded in fiscal 2009. For a complete understanding of the data on
the table, please refer to the narrative disclosures that follow.
Fiscal
2009 Grants of Plan-Based Awards
A
|
C
|
D
|
E
|
F
|
G
|
H
|
I
|
J
|
K
|
|
Estimated
future payouts under non-equity incentive plan awards
|
Estimated
future payouts under equity incentive plan awards
|
|
|
|
Name
|
Threshold
($)
|
Target
($)
|
Max
($)
|
Threshold
(#)
|
Target
(#)
|
Max
(#)
|
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
($/share)
|
Robert
A. Whitman
Chief
Executive Officer
|
-
|
500,000
|
1,000,000
|
-
|
-
|
-
|
-
|
-
|
-
|
Stephen
D. Young
Chief
Financial Officer
|
-
|
175,000
|
350,000
|
-
|
-
|
-
|
-
|
-
|
-
|
David
M.R. Covey
Co-Chief
Operating Officer,
Global
Operations
|
-
|
175,000
|
350,000
|
-
|
-
|
-
|
-
|
-
|
-
|
Stephan
Mardyks
Co-Chief
Operating Officer,
Global
Operations
|
-
|
175,000
|
350,000
|
-
|
-
|
-
|
-
|
-
|
-
|
M.
Sean Covey
Chief
Product Officer
|
-
|
150,000
|
300,000
|
-
|
-
|
-
|
-
|
-
|
-
|
Estimated
future payouts under non-equity incentive plan awards (Columns C-E) refer to
target awards under the Short-Term Incentive Plan as described
below. Actual amounts paid to each NEO in fiscal 2009 are shown in
Column G of the Summary Compensation Table.
Threshold
(Column C)
Column C
shows the threshold STIP payment for each NEO based on achievement of financial
and individual objectives established for fiscal 2009. Named
Executive Officer performance must be greater than threshold level before any
payout is received. For Mr. Whitman, Mr. Young, and M. Sean Covey,
threshold performance is defined as financial performance greater than 60% of
the budget or completion of at least one individual objective. The
threshold payout for all NEOs is $0 with a straight line payout to target based
on achieving financial and individual objectives. Additional details
about the STIP are included in the Elements of Executive Compensation section of
this Compensation Discussion and Analysis.
Target
(Column D)
Column D
shows the target STIP payment for each NEO based on achievement of financial and
individual objectives established for fiscal 2009. Named Executive Officers
receive the target payout when financial results are at 100% of the budgeted
performance level and 100% of
individual
objectives are achieved. Additional details about the STIP are
included in the Elements of Executive Compensation section of this Compensation
Discussion and Analysis.
Maximum
(Column E)
Column E
shows the maximum STIP payment for each NEO based on financial performance
ranging from 100.01% to 110% of target and 100% of individual objectives
established for fiscal 2009.
Estimated
future payouts under equity incentive plan awards (Columns F-H)
These
Columns refer to share grants under our LTIP. As discussed earlier,
no LTIP grants were outstanding as of August 31, 2009 and no shares were awarded
to participants under those grants.
Outstanding
Equity Awards at Fiscal Year-End
The
following table provides information concerning the unexercised stock options
outstanding and unvested restricted share awards for each of the NEOs at August
31, 2009.
A
|
B
|
C
|
D
|
E
|
F
|
G
|
H
|
I
|
J
|
|
|
|
|
Option
Awards
|
Stock
Awards
|
Name
|
Number
of securities underlying unexercised options
(#)
Exercisable
|
Number
of securities underlying unexercised options
(#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of securities underlying unexercised
unearned options
(#)
|
Option
exercise price
($)
|
Option
expiration date
|
Number
of shares or unit 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
Chief
Executive Officer
|
1,602,000
|
-
|
-
|
14.00
|
8/31/2010
|
-
|
-
|
-
|
-
|
Stephen
D. Young
Chief
Financial Officer
|
35,000
|
-
|
-
|
8.00
|
1/16/2011
|
-
|
-
|
-
|
-
|
David
M.R. Covey
Co-Chief
Operating Officer,
Global
Operations
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Stephan
Mardyks
Co-Chief
Operating Officer,
Global
Operations
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
M.
Sean Covey
Chief
Product Officer
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Number
of shares or units of stock that have not vested (Column G)
Due to
changes in the number of shares expected to be awarded under the LTIP, there
were no unvested shares or units of stock outstanding as of August 31,
2009.
Change-in-Control
Severance Benefits
Subsequent
to the end of fiscal 2009, change-in-control severance agreements were
established for each NEO. Under the terms of the agreement, each
executive officer would receive one
times his
or her current target compensation plus reimbursement of premiums to secure
benefit continuation coverage during the severance period.
Estimated
Change-in-Control Severance Amounts as of August 31, 2009
A
|
B
|
C
|
D
|
E
|
F
|
G
|
Name
|
Year
|
Target
Total Severance Payment
($)
|
Base
Salary
($)
|
Target
Annual STIP
($)
|
Target
Annual Cash Compensation
($)
|
Target
COBRA Premiums for 12 months
($)
|
Robert
A. Whitman
Chief
Executive Officer
|
2009
|
1,007,300
|
500,000
|
500,000
|
1,000,000
|
7,300
|
Stephen
D. Young
Chief
Financial Officer
|
2009
|
435,755
|
250,000
|
175,000
|
425,000
|
10,755
|
David
M.R. Covey
Co-Chief
Operating Officer,
Global
Operations
|
2009
|
437,767
|
250,000
|
175,000
|
425,000
|
12,767
|
Stephan
Mardyks
Co-Chief
Operating Officer,
Global
Operations
|
2009
|
437,152
|
250,000
|
175,000
|
425,000
|
12,152
|
M.
Sean Covey
Chief
Product Officer
|
2009
|
410,755
|
250,000
|
150,000
|
400,000
|
10,755
|
Target
Total Change-in-Control Severance Payment (Column C)
The
target total severance payment in Column C equals the target annual cash
compensation (Column F) plus target COBRA premiums for the severance period
(Column G).
Severance
Benefits
Under our
severance policy, NEOs who terminate involuntarily without cause receive a lump
sum payment equivalent to one year of base salary and target annual incentive.
Additionally, we pay COBRA medical and dental premiums for the term of the
severance. In return for the receipt of severance payment, the NEO agrees to
abide by specific non-compete, non-solicitation, and confidentiality
requirements.
Estimated
Severance Amounts as of August 31, 2009
A
|
B
|
C
|
D
|
E
|
F
|
G
|
Name
|
Year
|
Target
Total Severance Payment($)
|
Base
Salary
($)
|
Target
Annual STIP
($)
|
Target
Annual Cash Compensation
($)
|
Target
COBRA Premiums for 12 months
($)
|
Robert
A. Whitman
Chief
Executive Officer
|
2009
|
1,007,300
|
500,000
|
500,000
|
1,000,000
|
7,300
|
Stephen
D. Young
Chief
Financial Officer
|
2009
|
435,755
|
250,000
|
175,000
|
425,000
|
10,755
|
David
M.R. Covey
Co-Chief
Operating Officer,
Global
Operations
|
2009
|
437,767
|
250,000
|
175,000
|
425,000
|
12,767
|
Stephan
Mardyks
Co-Chief
Operating Officer,
Global
Operations
|
2009
|
437,152
|
250,000
|
175,000
|
425,000
|
12,152
|
M.
Sean Covey
Chief
Product Officer
|
2009
|
410,755
|
250,000
|
150,000
|
400,000
|
10,755
|
Target
Total Severance Payment (Column C)
The
target total severance payment in Column C equals the target annual cash
compensation (Column F) plus target COBRA premiums for the severance period
(Column G).
PRINCIPAL
HOLDERS OF VOTING SECURITIES
The
following table sets forth information as of December 1, 2009, with respect to
the beneficial ownership of shares of Common Stock by each person known by us to
be the beneficial owner of more than five percent of Common Stock, by each
director, by the Named Executive Officers at August 31, 2009, 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 December 1, 2009. 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 us
and are based on 16,958,483 shares of Common Stock outstanding as of December 1,
2009. At the date of this report, there are no shares of Series A or
B Preferred Stock outstanding.
BENEFICIAL
OWNERSHIP
|
|
|
|
|
|
As
of December 1, 2009
|
|
Number
of Common Shares
|
|
Percentage
of Class
|
|
Donald
J. McNamara(1)(2)(3)(6)
c/o Franklin Covey
Co.
2200 West Parkway
Blvd.
Salt Lake City, UT
84119-2331
|
|
7,261,902
|
|
31.8
|
%
|
Knowledge
Capital Investment Group(1)(2)
3232 McKinney Ave.,
Dallas, TX 75204
|
|
6,928,404
|
|
30.3
|
%
|
Robert
A. Whitman(5)
c/o Franklin Covey
Co.
2200 West Parkway
Blvd.
Salt Lake City, UT
84119-2331
|
|
2,244,750
|
|
12.1
|
%
|
Dimensional
Fund Advisors, Inc.(4)
1299 Ocean Avenue
Santa Monica,
CA 90401
|
|
1,327,143
|
|
7.8
|
%
|
Stephen
R. Covey(3)(6)
c/o Franklin Covey
Co.
2200 West Parkway
Blvd.
Salt Lake City, UT
84119-2331
|
|
1,063,648
|
|
6.3
|
%
|
John
H. Lewis(7)
Osmium Partners, LLC
388 Market Street, Suite
920
San Francisco,
CA 94111
|
|
918,799
|
|
5.4
|
%
|
M.
Sean Covey
|
|
283,642
|
|
1.7
|
%
|
Joel
C. Peterson(6)
|
|
215,813
|
|
1.3
|
%
|
Dennis
G. Heiner(6)
|
|
121,521
|
|
*
|
%
|
Stephen
D. Young(5)
|
|
104,312
|
|
*
|
%
|
Robert
H. Daines(6)
|
|
57,896
|
|
*
|
%
|
E.
Kay Stepp(6)
|
|
46,673
|
|
*
|
%
|
David
M.R. Covey
|
|
40,418
|
|
*
|
%
|
E.J.
“Jake” Garn(6)
|
|
33,221
|
|
*
|
%
|
Clayton
M. Christensen(6)
|
|
29,646
|
|
*
|
%
|
Stephan
Mardyks
|
|
15,024
|
|
*
|
%
|
C.
Todd Davis
|
|
13,142
|
|
*
|
%
|
Jennifer
Colosimo
|
|
617
|
|
*
|
%
|
|
|
|
|
|
|
All
directors and executive officers as a group(5)(6)(15
persons)
|
|
11,532,225
|
|
47.1
|
%
|
|
(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 per
share.
|
|
(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 warrants of Common Stock held by Knowledge
Capital.
|
|
(3)
|
The
share amounts include those held for Stephen R. Covey by SANSTEP
Properties, L.C. with respect to 1,046,384 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 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, 2009, the
filing of its last 13F Report.
|
|
(5)
|
The
share amounts indicated include shares subject to currently exercisable
stock options held by the following persons in the following amounts:
Robert A. Whitman, 1,602,000 shares and Stephen D. Young, 35,000 shares;
all directors and executive officers as a group, 1,637,000
shares.
|
|
(6)
|
The
share amounts indicated include unvested stock awards currently not vested
held by the following persons in the following amounts: Clayton M.
Christensen, 17,264 shares; Stephen R. Covey, 17,264 shares; Robert H.
Daines, 17,264 shares; E.J. “Jake” Garn, 17,264 shares; Dennis G. Heiner,
17,264 shares; Donald J. McNamara, 12,764 shares; Joel C. Peterson, 17,264
shares; E. Kay Stepp, 17,264 shares; and all directors as a group, 133,612
shares.
|
|
(7)
|
John
H. Lewis serves as the controlling member of Osmium Partners, LLC, which
serves as the general partner of Osmium Capital, LP; Osmium Capital II,
LP; and Osmium Spartan, LP (the Funds); and which manages other accounts
on a discretionary basis. Mr. Lewis and Osmium Partners, LLC
may be deemed to share with the Funds and discretionary accounts voting
and dispositive power with respect to such shares, except for the 167,000
shares that are directly owned by Mr. Lewis. Each of Mr. Lewis,
Osmium Partners, LLC, and the Funds disclaim beneficial ownership with
respect to any shares other than the shares owned directly by such person
or entity. The information regarding the number of shares
beneficially owned or deemed to be beneficially owned by Mr. Lewis, Osmium
Partners, LLC, and the Funds was taken from a Schedule 13G filed by those
entities and Mr. Lewis with the Securities and Exchange Commission, dated
December 2, 2009.
|
SECTION
16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Exchange Act requires our directors and executive officers, and
persons who own more than 10% of our common stock, to file with the Securities
and Exchange Commission (the SEC or 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% of the Common Stock are required by SEC regulations to
furnish us with copies of all such reports they file. Based upon a
review of the copies of such forms received by us and information furnished by
the persons named above, we believe that all reports were filed on a timely
basis except as listed below:
·
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We
filed a Form 3 for each of Jennifer Colosimo, David M.R. Covey, M. Sean
Covey, C. Todd Davis, and Stephan Mardyks on October 1,
2008. These forms should have been filed in September 2008
following the appointments of these individuals as our new executive
officers.
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·
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We
filed a Form 5 for each of Clayton M. Christensen and Robert A. Whitman in
November 2008 that should have been filed in October
2008.
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·
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We
filed a Form 4 for Robert H. Daines on November 25, 2008 that should have
been filed one day earlier.
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·
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A
Form 4 was filed for each of Clayton M. Christensen, Stephen R. Covey,
Robert H. Daines, E.J. “Jake” Garn, Dennis G. Heiner, Donald J. McNamara,
Joel C. Peterson, and E. Kay Stepp in April 2009 for the annual grant of
unvested stock awards. These forms should have been filed in
January 2009.
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·
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A
Form 4 was filed for David M.R. Covey on August 13, 2009 that should have
been filed one day earlier.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Review
and Approval of Related Party Transactions
We review
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 us or
the related party are disclosed in our proxy statement. In addition,
a disinterested majority of the full Board of Directors or Compensation
Committee reviews and approves any related party transaction that is required to
be disclosed.
Related
Party Transactions
On
December 31, 2008 we acquired the assets of CoveyLink Worldwide, LLC
(CoveyLink). CoveyLink conducts seminars and training courses and
provides consulting based upon the book The Speed of Trust by Stephen
M.R. Covey, who is the son of the Vice Chairman of the Board of
Directors. The purchase price was $1.0 million in cash plus or minus
an adjustment for specified working capital and the costs necessary to complete
the transaction, which resulted in a total initial purchase price of $1.2
million. The previous owners of CoveyLink, which includes Stephen
M.R. Covey, are also entitled to earn annual contingent payments based upon
earnings growth over the next five years. Prior to the acquisition
date, CoveyLink had granted a non-exclusive license to us related to The Speed of Trust book and
related training courses for which we paid CoveyLink specified
royalties. As part of the CoveyLink acquisition, an amended and
restated license of intellectual property was signed that granted us an
exclusive, perpetual, worldwide, transferable, royalty-bearing license to use,
reproduce, display, distribute, sell, prepare derivative works of, and perform
the licensed material in any format or medium and through any market or
distribution channel. The amount expensed for these royalties due to
Stephen M.R. Covey totaled $0.5 million during the fiscal year ended August 31,
2009. In connection with CoveyLink acquisition, we also signed a
speaking services agreement that pays Stephen M.R. Covey a portion of the
speaking revenues received for his presentations. During fiscal 2009,
we expensed $0.8 million for payment from these presentations.
Stephen
R. Covey, who is currently the Vice-Chairman of the Board of Directors, receives
book royalties on books he has authored and has a speaker services agreement
with us pursuant to which Dr. Covey receives 80% of the net proceeds from
personal speaking engagements. During fiscal 2009, we expensed $1.5
million based upon these agreements.
We pay M.
Sean Covey, who is a son of Stephen R. Covey, and who 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 2009, we expensed $0.1 million
for these royalty payments.
We employ
John Covey, a brother of Stephen R. Covey, and paid him compensation totaling
$109,700 during fiscal 2009. During fiscal 2009, we also employed
Boyd Craig, who is the son-in-law of Robert H. Daines, a member of our Board of
Directors, and paid him compensation totaling $156,300.
Robert A.
Whitman, our Chairman of the Board of Directors, President, and CEO beneficially
owns a partnership interest in Knowledge Capital. Donald J. McNamara,
a member of our Board of Directors, also beneficially owns a partnership
interest in Knowledge Capital. Knowledge Capital beneficially owns
1,015,002 shares of our common stock and holds 5,913,402 warrants to purchase
shares of our common stock.
M. Sean
Covey, David M.R. Covey, and C. Todd Davis were among the approximately 147
participants in our management stock loan program since March 2000 and under
that program owed the Company $759,417 (51,970 shares), $270,597 (18,518
shares), and $192,037 (13,142 shares), respectively, at December 10, 2009.
To settle the loans, they will each surrender their loan shares (valued at
market) to the Company in partial payment of their loans and we will collect or
forgive the remaining loan balances. To the extent necessary, we also
intend to pay them each a bonus to cover the related taxes they will incur
as a result of this action.
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 has selected the independent registered accounting firm KPMG to audit
our financial statements for the fiscal year ending August 31, 2010, and is
seeking ratification of that choice by our shareholders. 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 2010
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 us for audit and other
services provided by KPMG for the fiscal years ended August 31, 2009 and
2008:
|
|
Fiscal
2009
|
|
|
Fiscal
2008
|
|
Audit
Fees(1)
|
|
$ |
1,071,000 |
|
|
$ |
1,153,000 |
|
Audit-Related
Fees(2)
|
|
|
- |
|
|
|
25,000 |
|
Tax
Fees(3)
|
|
|
71,000 |
|
|
|
108,000 |
|
All
Other Fees
|
|
|
- |
|
|
|
- |
|
|
|
$ |
1,142,000 |
|
|
$ |
1,286,000 |
|
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(1)
|
Audit
fees represent fees and expenses for professional services provided in
connection with the audit of our consolidated financial statements and the
effectiveness of internal controls over financial reporting found in the
Annual Report on Form 10-K and reviews of our financial statements
contained in Quarterly Reports on Form 10-Q, procedures related
to registration statements, the sale of the Consumer Solutions Business
Unit in fiscal 2008, and accounting consultations on actual
transactions.
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|
(2)
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Audit-Related
Fees primarily consisted of accounting consultation on proposed
transactions.
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(3)
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Tax
Fees consisted primarily of fees and expenses for services related to tax
compliance, tax planning, and tax
consulting.
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The Audit
Committee pre-approves all services to be performed by our 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 the fiscal years ended August 31, 2009 and 2008 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 our 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 our accounting, auditing, and financial reporting
practices.
The Audit
Committee discussed with the Company’s independent registered public accounting
firm the matters required to be discussed by Statement on Auditing Standards No.
61, Communication with Audit
Committees, as amended by Statement on Auditing Standards, Audit Committee
Communications, including the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments, and the
clarity of the disclosures in the financial statements.
The Audit
Committee has received and reviewed the written disclosures and the letter from
the independent registered public accountants required by applicable
requirements of the Public Company Accounting Oversight Board regarding the
independent accountant’s communications with the Audit Committee concerning
independence, and has discussed with the independent registered public
accountants its 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, 2009, 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 our audited
financial statements be included in the Annual Report on Form 10-K for the
fiscal year ended August 31, 2009, for filing with the Securities and Exchange
Commission. The Audit Committee also recommended the reappointment,
subject to shareholder approval, of KPMG.
Date: November
5, 2009
E.J.
“Jake” Garn, Chairperson
Robert H.
Daines
Dennis G.
Heiner
E. Kay
Stepp
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, 2010.
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 2011 must be received by us, at our executive offices
(2200 West Parkway Boulevard, Salt Lake City, Utah 84119-2331) no later than
August 20, 2010, 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 2011 is
changed by more than 30 days from the date of the annual meeting of shareholders
to be held in calendar year 2010. Such proposals must also comply
with the requirements as to form and substance established by the SEC if such
proposals are to be included in our proxy statement and form of
proxy.
Pursuant
to rules adopted by the SEC, if a shareholder intends to propose any matter for
a vote at our Annual Meeting to be held in calendar year 2011 but fails to
notify us of that intention
prior to
November 3, 2010, 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 2011 is changed by more than 30 days from the date
of the annual meeting of shareholders to be held in calendar year
2010.
WHERE
YOU CAN FIND MORE INFORMATION
We file
annual, quarterly, and current reports, proxy statements and other information
with the SEC. You may read and copy any document we file 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.
We
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 our 2009
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. We have not authorized anyone to provide you with
information different from that contained in this Proxy
Statement. The information contained in this Proxy Statement is
accurate only as of the date of this Proxy Statement, regardless of the time of
delivery of this Proxy Statement.
PROXY
FRANKLIN
COVEY CO.
This
Proxy is Solicited on Behalf of the Board of Directors
The
undersigned hereby appoints Stephen D. Young as proxy, with full power of
substitution, to vote, as designated below, all shares of Common Stock of
Franklin Covey Co. (the Company), which the undersigned is entitled to vote at
the annual meeting of shareholders of the Company (the Annual Meeting) to be
held at the Hyrum W. Smith Auditorium, 2200 West Parkway Boulevard, Salt Lake
City, Utah 84119-2331, on January 29, 2010 at 8:30 a.m., local time, or any
adjournment(s) thereof. This proxy is solicited on behalf of the
Board of Directors of the Company. This proxy, when properly executed
and returned in a timely manner, will be voted as specified. If no instructions
are specified, this proxy will be voted “FOR” all proposals in accordance with
the recommendation of the board of directors.
1. |
Election
of three directors of the Company, each to serve a term of three years
expiring at the Annual Meeting of the Company to be held following the end
of fiscal 2012 and until their respective successors shall be duly elected
and shall qualify.
|
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Nominees:
Joel C. Peterson, E. Kay Stepp, and Robert A.
Whitman.
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¨
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FOR
all nominees
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¨
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WITHHOLD
AUTHORITY
all
nominees
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¨
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FOR all nominees, except
WITHHOLD
AUTHORITY
for the nominee(s )
whose
name(s) are circled
above
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2. |
Proposal
to ratify the appointment of KPMG LLP as the Company’s independent
registered public accountants for the fiscal year ending August 31,
2010.
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¨
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FOR
|
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¨
|
AGAINST
|
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¨
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ABSTAIN
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3. |
To
transact such other business as may properly come before the Annual
Meeting or any adjournment(s)
thereof.
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¨
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FOR
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¨
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AGAINST
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¨
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ABSTAIN
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FOLD AND DETACH
HERE
Important Notice Regarding
the Availability of Proxy Materials for the Annual Meeting of Shareholders to be
held January 29, 2010. The Proxy Statement and our 2009 Annual Report are
available at: www.shareholdermaterial.com/FC
The Board
of Directors unanimously recommends that the share holders vote “FOR” all
proposals. To vote in accordance with the Board of Directors
recommendations, sign below. The “FOR” boxes may, but need not, be
checked. To vote against any proposal, or to abstain from voting on
any proposal, check the appropriate box above. PLEASE PRINT YOUR NAME AND SIGN
EXACTLY AS YOUR NAME APPEARS IN THE RECORDS OF THE COMPANY. WHEN SHARES ARE HELD
BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS AN ATTORNEY, EXECUTOR,
ADMINISTRATOR, TRUSTEE, OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON.
Dated:
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Signature
of Shareholder(s)
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Signature
(if held jointly)
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