NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
To
Be Held
January
20, 2006
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 20, 2006 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 2008 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 upon a proposal to ratify the amendment of the
Franklin
Covey Co. 1992 Stock Incentive Plan and to increase the maximum number
of
restricted shares, stock units, performance shares and options that
may be
awarded thereunder from 6,000,000 to 7,000,000;
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(iii)
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To
consider and vote upon a proposal to ratify the amendment to the
Franklin
Covey Co. 2004 Non-Employee Directors’ Stock Incentive Plan to change the
amount of the annual award to participants from a fixed dollar amount
to a
fixed share amount;
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(iv)
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To
consider and vote on a proposal to amend the Articles of Incorporation
of
the Company to modify the terms of the Series A Preferred Stock and
the Series B Preferred Stock to extend the redemption period from
March 8, 2006 to December 31, 2007 under specified
conditions;
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(v)
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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, 2006;
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(vi)
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To
transact such other business as may properly come before the Annual
Meeting or at any adjournment or postponement thereof.
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The
Board
of Directors has fixed the close of business on November 25, 2005, as the
record date for the determination of shareholders entitled to receive notice
of
and to vote at the Annual Meeting and at any adjournment or postponement
thereof.
All
shareholders are urged to attend the meeting.
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December
19, 2005
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By
Order of the Board of Directors
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/s/
ROBERT A WHITMAN
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||
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Robert
A. Whitman
Chairman
of the Board of Directors
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IMPORTANT
Whether
or not you expect to attend the Annual Meeting in person, to assure that your
shares will be represented, please promptly complete, date, sign and return
the
enclosed proxy card without delay in the enclosed envelope, which requires
no
additional postage if mailed in the United States. Your proxy will not be used
if you are present at the Annual Meeting and desire to vote your shares
personally.
Franklin
Covey Co.
2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2331
PROXY
STATEMENT
Annual
Meeting of Shareholders
January 20,
2006
SOLICITATION
OF PROXIES
This
Proxy Statement is being furnished to the shareholders of Franklin Covey Co.,
a
Utah corporation (“Franklin Covey” or the “Company”), in connection with the
solicitation by the board of directors (the “Board” or “Board of Directors”) of
the Company of proxies from holders of outstanding shares of the Company’s
Common Stock, $0.05 par value per share (the “Common Stock”) and outstanding
shares of the Company’s Series A Preferred
Stock, no par value (the “Series A Preferred Stock”) for use at the Annual
Meeting of Shareholders of the Company to be held on Friday, January 20, 2006,
and at any adjournment or postponement thereof (the “Annual Meeting”). This
Proxy Statement, the Notice of Annual Meeting of Shareholders and the
accompanying form of proxy are first being mailed to shareholders of the Company
on or about December 19, 2005.
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 amendment of the Franklin Covey Co. 1992 Stock
Incentive Plan and to increase the maximum number of restricted shares, stock
units, performance shares and options that may be awarded thereunder from
6,000,000 to 7,000,000; (iii) to consider and vote upon a proposal to ratify
the
amendment to the Franklin Covey Co. 2004 Non-Employee Directors’ Stock Incentive
Plan to change the amount of the annual award to participants from a fixed
dollar amount to a fixed share amount; (iv) to consider and vote on a
proposal to amend the Articles of Incorporation of the Company to modify the
terms of the Series A Preferred Stock and the Series B Preferred Stock
(the “Series B Preferred Stock”) to extend the redemption period from March
8, 2006 to December 31, 2007; (v) to consider and vote on a proposal to ratify
the appointment of KPMG LLP (“KPMG”) as the Company’s independent registered
public accountants for the fiscal year ending August 31, 2006; and
(vi) to transact such other business as may properly come before the Annual
Meeting or at any adjournment or postponement thereof.
COSTS
OF SOLICITATION
The
Company will bear all costs and expenses relating to the solicitation of
proxies, including the costs of preparing, printing and mailing to shareholders
this Proxy Statement and accompanying materials. In addition to the solicitation
of proxies by use of the mails, the directors, officers and employees of the
Company, without receiving additional compensation therefore, may solicit
proxies personally or by telephone, facsimile or electronic mail. Arrangements
will be made with brokerage firms and other custodians, nominees and fiduciaries
for the forwarding of solicitation materials to the beneficial owners of the
shares of Common Stock held by such persons, and the Company will reimburse
such
brokerage firms, custodians, nominees and fiduciaries for reasonable
out-of-pocket expenses incurred by them in connection therewith.
VOTING
The
Board
of Directors has fixed the close of business on November 25, 2005 as the
record date for determination of shareholders entitled to notice of and to
vote
at the Annual Meeting (the “Record Date”). As of the Record Date, there were
issued and outstanding 20,744,725 shares of Common Stock and 1,893,781 shares
of
Series A Preferred Stock. The holders of record of the shares of Common
Stock on the Record Date are entitled to cast one vote per share on each matter
submitted to a vote at the Annual Meeting. The holders of record of
Series A Preferred Stock on the Record Date are entitled to cast two votes
for each whole share of Series A Preferred Stock they hold. In the
aggregate, the holders of outstanding shares of Series A Preferred Stock are
entitled to 3,787,562 votes for all of the outstanding Series A Preferred
Stock. Unless otherwise indicated, the shares of Common Stock and Series A
Preferred Stock vote together as a single class on all matters to be presented
at the Annual Meeting. There are no shares of Series B Preferred Stock
outstanding.
Proxies
Shares
of
Common Stock and Series A Preferred Stock which are entitled to be voted at
the Annual Meeting and which are represented by properly executed proxies will
be voted in accordance with the instructions indicated on such proxies. If
no
instructions are indicated, such shares will be voted (i) FOR
the
election of each of the three director nominees, (ii) FOR
the
proposal to ratify the amendment of the Franklin Covey Co. 1992 Stock Incentive
Plan, (iii)
FOR
the
proposal to ratify the amendment to the Franklin Covey Co. 2004 Non-Employee
Directors’ Stock Incentive Plan, (iv) FOR
the
proposal to amend the Articles of Incorporation, and (v) FOR
the
ratification of the appointment of KPMG as the Company’s independent registered
public accountants for the fiscal year ending August 31, 2006. It is not
anticipated that any other matters will be presented at the Annual Meeting.
If
other matters are presented, proxies will be voted in accordance with the
discretion of the proxy holders.
A
shareholder who has executed and returned a proxy may revoke it at any time
prior to its exercise at the Annual Meeting by executing and returning a proxy
bearing a later date, by filing with the Secretary of Franklin Covey Co.,
2200 West Parkway Boulevard, Salt Lake City, Utah 84119-2331, a written notice
of revocation bearing a later date than the proxy being revoked, or by voting
the Common Stock or Series A Preferred Stock covered thereby in person at the
Annual Meeting.
Vote
Required
A
majority of the votes entitled to be cast at the Annual Meeting is required
for
a quorum at the Annual Meeting. Abstentions and broker non-votes are counted
for
purposes of determining the presence or absence of a quorum for the transaction
of business. Holders of Common Stock and Series A Preferred Stock will vote
together as a single class, unless otherwise indicated.
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 amendment of the Franklin Covey Co. 1992 Stock Incentive
Plan, the amendment to the Franklin Covey Co. 2004 Non-Employee Directors’ Stock
Incentive Plan, and the ratification of the appointment of KPMG as the Company’s
independent registered public accountants requires that the number of votes
cast
in favor of the proposals exceed the number of votes cast in opposition.
Abstentions and broker non-votes will not affect the outcome of these
proposals.
The
approval of the amendment to the Articles of Incorporation of the Company
requires the affirmative vote of the holders of a majority of the outstanding
Series A Preferred Stock voting as a separate class, a majority of the votes
cast by the holders of the Common Stock and the Series A Preferred Stock voting
together as a single class, and a majority of the votes cast by the holders
of
the Common Stock voting as a separate class. Abstentions and broker non-votes
will not affect the outcome, except in the vote of the Series A Preferred as
a
separate class, where they will have the same effect as a no vote.
TO
APPROVE THE ELECTION OF THE THREE NOMINEES AS DIRECTORS
The
Company’s Bylaws provide that the directors of the Company shall be divided into
three classes in respect of term of office, each class to consist as near as
may
be of one-third of the total number of directors serving on the Board and one
class of directors to be elected at each annual meeting of the shareholders
for
a term of three years. Because Hyrum W. Smith and Brian A. Krisak, who were
members of the same class of directors, both resigned from the Board of
Directors last year, the classes of directors have become unbalanced as
follows:
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(i)
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Four
directors
(Clayton M. Christensen, Robert H. Daines, E. J. “Jake” Garn and
Donald J. McNamara) are currently serving terms which expire at the
annual meeting of the Company’s shareholders to be held following the end
of fiscal year 2007.
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(ii)
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Three
directors (Joel C. Peterson, E. Kay Stepp and Robert A.
Whitman) are serving terms which expire at the annual meeting of
the
Company’s shareholders to be held following the end of fiscal year 2006.
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(iii)
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Two
directors (Stephen
R. Covey and Dennis G. Heiner) are currently serving terms which
expire at
the upcoming annual meeting of the Company’s shareholders to be held
following the end of fiscal year 2005.
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In
order
to rebalance the classes of directors serving on the Board, three directors
are
to be elected at the Annual Meeting to serve a three-year term expiring at
the
annual meeting of shareholders to be held following the end of fiscal year
2008
and until their successors shall be duly elected and qualified. Unless the
shareholder indicates otherwise, the accompanying proxy will be voted in favor
of the following persons: Stephen R. Covey, Robert H. Daines and Dennis G.
Heiner. As stated above, Robert H. Daines was elected last year and is currently
serving a term that expires at the shareholders meeting after the fiscal 2007
year. In an effort to maintain balance and comply with the Bylaws of the
Company, Robert H. Daines was asked to seek election again this year which
will
effectively add one more year to his term if approved by the shareholders.
Thereafter, Mr. Daines would continue to serve in the class of directors being
elected at the current Annual Meeting. If Mr. Daines were not elected at the
Annual Meeting, he would continue to serve the remainder of his current term,
until the annual meeting of the Company’s shareholders to be held following the
end of fiscal year 2007. 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.
Stephen R.
Covey,
73, has
been Vice Chairman of the Board of Directors since June 1999. Dr. Covey served
as Co-Chairman of the Board of Directors from May 1997 to June 1999. Dr. Covey
founded Covey Leadership Center (“Covey”) and served as its Chief Executive
Officer and Chairman of the Board from 1980 to 1997. Dr. Covey received his
MBA
degree from Harvard Business School and his doctorate from Brigham Young
University, where he was a professor of organizational behavior and business
management from 1957 to 1983, except for periods in which he was on leave from
teaching, and served as Assistant to the President and Director of University
Relations. Dr. Covey is the author of several acclaimed books, including
The
7
Habits of Highly Effective People,
Principle-Centered
Leadership,
The 7
Habits of Highly Effective Families,
and
Living
the 7 Habits: Stories of Courage and Inspiration,
and is
the co-author of First
Things First.
His
latest book, The
8th
Habit:
From Effectiveness to Greatness,
was
released in November 2004. He is also a director of Points of Light foundation
and a fellow of the Center for Organizational and Technological Advancement
at
Virginia Tech.
Robert H.
Daines,
71, has
been a director of the Company since April 1990. Dr. Daines is an Emeritus
Driggs Professor of Strategic Management at Brigham Young University, where
he
was employed for 44 years. While employed by Brigham Young University, Dr.
Daines taught courses in finance, strategic financial management and advanced
financial management. During that time, Dr. Daines also taught financial
strategy and management controls courses for corporations such as Chase
Manhattan Bank, Bank of America and British Petroleum. He also co-authored
the
finance textbook Strategic
Financial Management,
published by Irwin as well as several articles and cases. Additionally, Dr.
Daines served as a consultant to Aetna Life and Casualty where he managed their
treasury services including cash management, accounting controls and financial
policies and procedures. Dr. Daines also currently serves on the board of
directors for Volvo Commercial Credit Corporation. Dr. Daines received his
MBA
from Stanford and his DBA from Indiana University.
Dennis G.
Heiner,
62, was
appointed as a director of the Company in January 1997. Mr. Heiner has served
as
President and Chief Executive Officer of Werner Co., a leading manufacturer
of
climbing products and aluminum extrusions, since 1999. 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 Security Hardware
Group, a world leader in residential door hardware.
Directors
Who's 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. Joel C. Peterson, E. Kay Stepp and Robert A. Whitman
are currently serving terms which expire at the annual meeting of the Company’s
shareholders to be held following the end of fiscal year 2006.
Clayton
M. Christensen, E. J. “Jake” Garn and Donald J. McNamara are currently
serving terms which expire at the annual meeting of the Company’s shareholders
to be held following the end of fiscal year 2007.
Clayton
M. Christensen, 53,
was
appointed as a director of the Company in March 2004 and began his service
in
July 2004. Dr. Christensen is the Robert and Jane Cizik Professor of Business
Administration at the Harvard Business School where he has been a faculty member
since 1992. His research and teaching interests center on the management issues
related to the development and commercialization of business model innovation
and technology. His specific area of focus is in developing organizational
capabilities. Dr. Christensen was a Rhodes Scholar and received his Masters
of
Philosophy degree from Oxford and his MBA and DBA from the Harvard Business
School. He also served as President and Chairman of Ceramics Process Systems
from 1984 to 1989. From 1979 to 1984 he worked as a consultant and project
manager for the Boston Consulting Group.
E.
J. “Jake” Garn,
73, 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 of Morgan Stanley Funds
(NYSE), Nu Skin Enterprises, Inc. (NYSE) and BMW Bank, NA (NASDAQ), and is
a
member of the Board of Trustees of Intermountain Health Care.
Donald J.
McNamara,
52, was
appointed to serve as a director of the Company in June 1999. Mr. McNamara
is
the founder of
The
Hampstead Group, L.L.C. (“The Hampstead Group”), a privately held equity
investment firm based in Dallas, Texas,
and has
served as its Chairman since its inception in 1989. He
currently serves as Chairman of the Board of Directors of FelCor Lodging Trust,
a NYSE listed hotel REIT. He received his undergraduate degree from Virginia
Tech and his MBA in 1978 from Harvard University. The Hampstead Group is the
sponsor of Knowledge Capital, and Mr. McNamara serves as a designee of Knowledge
Capital.
Joel C.
Peterson,
58, has
been a director of the Company since May 1997. Mr. Peterson served as a director
of Covey from 1993 to 1997 and as Vice Chairman of Covey from 1994 to 1997.
Mr.
Peterson founded Peterson Partners LP, and its predecessor Private Equity
Investment
Enterprises,
a privately-held equity investment firm in 1996 and has served as its Founding
Partner from its inception. Mr. Peterson also has taught MBA courses at Stanford
Business School since 1992. Mr. Peterson also serves on the boards of directors
of Asurion and JetBlue Airways Corporation (NASDAQ). Mr. Peterson earned his
MBA
from Harvard Business School.
E.
Kay Stepp,
60, has
been a director of the Company since May 1997. Ms. Stepp served as a director
of
Covey from 1992 to 1997. Ms. Stepp is the chairperson of the board of Providence
Health System, and is the former President and Chief Operating Officer of
Portland General Electric, an electric utility. Ms. Stepp is also currently
a
director of StanCorp Financial Group (NYSE) and Planar Systems, Inc. (NASDAQ).
She formerly was principal of Executive Solutions, an executive coaching firm,
and was a director of the Federal Reserve Bank of San Francisco. She received
her Bachelor of Arts degree from Stanford University and a Master of Arts in
Management from the University of Portland and attended the Stanford Executive
Program and the University of Michigan Executive Program.
Robert A.
Whitman,
52, has
been a director of the Company since May 1997 and has served as Chairman of
the
Board of Directors since June 1999 and President and Chief Executive Officer
of
the Company since January 2000. Mr. Whitman served as a director of Covey from
1994 to 1997. Prior to joining the Company, Mr. Whitman served as President
and
Co-Chief Executive Officer of The Hampstead Group from 1992 to 2000. Mr. Whitman
received his Bachelor of Arts degree in Finance from the University of Utah
and
his MBA from Harvard Business School.
AFFIRMATIVE
DETERMINATION REGARDING BOARD INDEPENDENCE
The
Board
of Directors has determined each of the following directors to be an
“independent director” under the listing standards of the New York Stock
Exchange (the “NYSE”): Clayton M. Christensen, Robert H. Daines, Jake Garn,
Dennis G. Heiner, Joel C. Peterson and E. Kay Stepp.
In
assessing the independence of the directors, the Board of Directors determines
whether or not any director has a material relationship with the Company (either
directly or as a partner, shareholder or officer of an organization that has
a
relationship with the Company). The Board of Directors considers all relevant
facts and circumstances in making independence determinations, including the
director independence standards adopted by the Board of Directors.
BOARD
OF DIRECTOR MEETINGS AND COMMITTEES
During
the 2005 fiscal year, there were five meetings held by the Board of Directors
of
the Company. All directors attended more than 75 percent of the Board meetings.
No director attended fewer than 75 percent of the total number of meetings
of
the committees on which he or she served. Although the Company encourages Board
members to attend its annual meetings of shareholders, it does not have a formal
policy regarding director attendance at annual shareholder meetings. There
were
two members of the Board of Directors in attendance at the annual meeting of
shareholders held in calendar 2005.
The
non-management directors meet regularly in executive sessions, as needed,
without the management directors or other members of management. Joel C.
Peterson,
chairperson of the Nominating and Corporate Governance Committee and the Lead
Independent Director, generally presides over these meetings.
The
Board
of Directors has a standing Audit Committee, Nominating and Corporate Governance
Committee (the “Nominating Committee”), and an Organization and Compensation
Committee (the “Compensation Committee”). The members of the Audit Committee are
Messrs. Jake Garn, Chairperson, Robert H. Daines and Joel C. Peterson. The
Nominating Committee consists of Messrs. Joel C. Peterson, Chairperson, Robert
H. Daines and Ms. E. Kay Stepp. The Compensation Committee consists of Ms.
E.
Kay Stepp, Chairperson, and Messrs. Dennis G. Heiner and Robert H. Daines.
The
Board of Directors has adopted a written charter for each of the committees.
These
charters are available at the Company’s website at www.franklincovey.com.
In
addition, shareholders may obtain a printed copy of any of these charters by
making a written request to Investor Relations, Franklin Covey Co., 2200 West
Parkway Boulevard, Salt Lake City, Utah 84119-2331.
The
Audit
Committee met six times during the 2005 fiscal year. Its functions are:
(i) to
review
and approve the selection of, and all services performed by, the Company’s
independent registered public accountants; (ii) to
review
the Company’s internal controls and audit functions; and (iii) to
review
and report to the Board of Directors with respect to the scope of internal
and
external audit procedures, accounting practices and internal accounting, and
financial and risk controls of the Company. Each of the members of the Audit
Committee is independent as described under NYSE rules. The Board of Directors
has determined that one of the Audit Committee members, Robert Daines, is a
“financial expert” as defined in Item 401(h) of Regulation S-K.
The
Nominating Committee met three times during the 2005 fiscal year. The
Nominating Committee assists the Board of Directors by: (i) identifying
individuals who are qualified and willing to become Board members;
(ii) recommending
that the Board nominate as many identified individuals as needed for appointment
as a director for each annual Company shareholder meeting; (iii) ensuring
that the Audit Committee, the Compensation Committee, and the Nominating
Committees of the Board are comprised of qualified and experienced “independent”
directors; (iv) developing
and recommending succession plans for the Chief Executive Officer;
and
(v) developing
corporate governance policies and procedures applicable to the Company and
recommending that the Board adopt said policies and procedures. All of the
members of the Nominating Committee are “independent” as described under NYSE
rules.
The
Compensation Committee met five times during the 2005 fiscal year. Its functions
are: (i) to review, and make recommendations to the Board of Directors
regarding the salaries, bonuses and other compensation of the Company’s Chairman
of the Board and executive officers; and (ii) to review and administer any
stock option plan, stock purchase plan, stock award plan and employee benefit
plan or arrangement established by the Board of Directors for the benefit of
the
executive officers, employees and the independent directors of the Company.
All
of
the Compensation Committee members are “independent” as described under NYSE
rules.
OUR
DIRECTOR NOMINATION PROCESS
As
indicated above, the Nominating Committee of the Board of Directors oversees
the
director nomination process. This committee is responsible for identifying
and
evaluating candidates for membership on the Board of Directors and recommending
to the Board of Directors nominees to stand for election. Each
candidate to serve on the Board of Directors must meet the expectations for
directors set out in the Corporate Governance Guidelines approved by the Board
of Directors. In addition to the qualifications set forth in the Corporate
Governance Guidelines, nominees for Director will be selected on the basis
of
such attributes as their integrity, experience, achievements, judgment,
intelligence, personal character, ability to make independent analytical
inquiries, willingness to devote adequate time to Board duties, and the
likelihood that he or she will be able to serve on the Board for a sustained
period. In connection with the selection of nominees for director, consideration
will be given to the Board’s overall balance of diversity of perspectives,
backgrounds and experiences. Accordingly, the Board will consider factors such
as global experience, experience as a director of a large public company and
knowledge of particular industries.
Although
not an automatically disqualifying factor, the inability of a candidate to
meet
independence standards of the NYSE will weigh negatively in any assessment
of a
candidate’s suitability, as will a candidate’s service on a number of boards
exceeding the standards contained in the Company’s Corporate Governance
Guidelines.
The
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 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 Committee, normally at least one member
of the Committee will interview a prospective candidate who is identified as
having high potential to satisfy the expectations, requirements, qualities
and
capabilities for Board membership.
Shareholder
Nominations
The
Nominating
Committee,
which
is responsible for the nomination of candidates for appointment or
election to the Board of Directors, will consider, but shall not be
required to nominate, candidates recommended by the Company’s shareholders who
beneficially own at the time of the recommendation not less than one percent
of
the Company’s outstanding stock (“Qualifying Shareholders”).
Generally
speaking, the manner in which the Nominating
Committee
evaluates nominees for director recommended by a Qualifying Shareholder will
be
the same as that for nominees from other sources. However, the Nominating
Committee
will
seek and consider information concerning the relationship between a Qualifying
Shareholder’s nominee and that Qualifying Shareholder to determine whether the
nominee can effectively represent the interests of all
shareholders.
Qualifying
Shareholders wishing to make such recommendations to the Nominating
Committee
for its
consideration may do so by submitting a written recommendation, including
detailed information on the proposed candidate, including education,
professional experience and expertise, via mail addressed as
follows:
c/o
Stephen
D. Young,
Corporate Secretary, Franklin Covey Co., 2200 West Parkway Boulevard, Salt
Lake
City, Utah 84119-2331
Contractual
Rights of Knowledge Capital to Designate Nominees
Currently,
under the Stockholders Agreement dated June 2, 1999 between the Company and
Knowledge Capital, the Company is obligated to nominate three designees of
Knowledge Capital for election to the Board of Directors, including the Chairman
of the Board of Directors, and all such designees must be nominated to be
elected in different classes. Currently, only one designee of Knowledge Capital
is a member of the Board of Directors, Donald J. McNamara. Upon the mutual
agreement of the Company and Knowledge Capital, Robert A. Whitman, the Chairman
of the Board of Directors, does not currently serve as a designee of Knowledge
Capital. The Company is obligated at each meeting of the shareholders of the
Company at which directors are elected to cause the Knowledge Capital designees
to be nominated for election and will solicit proxies in favor of such nominees
and vote all management proxies in favor of such nominees except for proxies
that specifically indicate to the contrary.
The
Stockholders Agreement also provides that the Company is obligated to ensure
that at least one designee of Knowledge Capital is a member of all committees
of
the Board other than the Nominating Committee. No designee of Knowledge Capital
currently serves on any committee of the Board. Knowledge Capital is not
currently exercising its right to nominate additional designees, other than
Mr. McNamara, or to seek committee membership for its designees under
the Stockholders Agreement and we do not anticipate that it will do so in the
foreseeable future.
COMMUNICATIONS
WITH DIRECTORS
Shareholders
or other interested parties wishing to communicate with the Board of Directors,
the non-management directors as a group, or any individual director may do
so in
writing by addressing the correspondence to that individual or group, c/o
Stephen D. Young, Corporate Secretary, Franklin Covey Co., 2200 West Parkway
Boulevard, Salt Lake City, Utah 84119-2331 or by using the Company’s website at
www.franklincovey.com. All such communications will initially be received
and processed by the office of the Corporate Secretary. The Secretary or
Assistant Secretary will initially review such correspondence and either (i)
immediately forward the correspondence to the indicated director or appropriate
committee, or (ii) hold for review for before or after the next regular meeting
of the Board of Directors or appropriate committee.
DIRECTOR
COMPENSATION
Messrs.
Robert A. Whitman, Donald J. McNamara and Stephen R. Covey do not
currently receive compensation for Board or committee meetings. The remaining
directors are paid as follows:
|
●
|
Each
Board member is paid an annual retainer of $30,000 paid quarterly
for
service on the Board and attending Board meetings;
|
|
●
|
Each
Board member is paid an additional annual retainer of $7,000 for
service
on each committee that they serve in lieu of committee meeting
fees;
|
|
●
|
Committee
chairpersons are paid an additional annual retainer of $5,000 for
the
Audit and Compensation committees and $3,000 for all other
committees;
|
|
●
|
On
shareholder ratification of the amendment to the Franklin Covey Co.
2004
Non-Employee Directors’ Stock Incentive Plan, each non-employee Board
member will receive an annual grant of a restricted stock award of
4,500
shares which vests over a 3-year term. If such amendment is not approved
by the shareholders, each non-employee director will receive an annual
grant of a restricted stock award with a fair market value of
$27,500;
|
|
●
|
Directors
are reimbursed by the Company for their out-of-pocket travel and
related
expenses incurred in attending all Board and committee
meetings.
|
EXECUTIVE
OFFICERS
In
addition to Mr. Whitman, certain information is furnished with respect to the
following executive officers of the Company:
Robert
W. Bennett, Jr.,
49,
has been President of the Organizational Solutions Business Unit of the Company
since July 2002. Mr. Bennett joined the Company in February 2000 as Vice
President of Sales and later served as Senior Vice President of Global Sales
and
Delivery. Prior to joining the Company, Mr. Bennett served as President of
PowerQuest from 1998 to 2000 and as General Manager and President of Folio
from
1993 to 1998. Mr. Bennett has 24 years of sales and sales management experience
with Fortune 500 companies including IBM. Mr. Bennett earned his Bachelor of
Arts in Government and Law from Lafayette College in Pennsylvania.
Sarah
Merz,
41, has
been President
and General Manager of the Consumer and Small Business Unit since
October 2003. Ms.
Merz
joined the Company in May 2000 as Vice President of Marketing. Prior to joining
the Company, Ms. Merz was a Partner and co-owner of Kannon Consulting, Inc.
and
an associate for Booz, Allen & Hamilton, where she created marketing
strategies for Fortune 100 businesses throughout the U.S. as well as major
corporations overseas. Ms. Merz also served as Vice President of International
Sales and Business Development for Revell-Monogram, Inc. Ms. Merz received
an
MBA with honors from Northwestern’s Kellogg Graduate School of Management and
earned her Bachelor of Arts with honors in Economics from the University of
Chicago.
Stephen
D. Young,
52,
joined the Company as Senior Vice President of Finance, was appointed Chief
Accounting Officer and Controller in January 2001, Chief Financial Officer
in
November 2002 and Corporate Secretary in March 2005. Prior to joining the
Company he served as Senior Vice-President of Finance, Chief Financial Officer
and director of international operations for Weider Nutrition for seven years.
Mr. Young has 25 years of accounting and management experience. Mr. Young is
a
CPA and holds a Bachelor of Science in Accounting degree from Brigham Young
University.
EXECUTIVE
COMPENSATION
The
compensation of Robert A. Whitman, the Company’s Chairman, President and
Chief Executive Officer, and the other named executive officers listed below
(collectively, the “Named Executive Officers”) at August 31, 2005, the most
recent fiscal year end, is shown below.
Summary
Compensation Table
|
Annual
Compensation
|
Long
Term Compensation Awards
|
||||||||||||||||||||||||
|
Name
and Position
|
Fiscal
Year
|
Salary($)
|
Bonus($)
|
Other
Annual Compensation ($)(1)
|
Unvested
Stock Awards ($)(2)
|
Fully
Vested Stock Award ($)(3)
|
Securities
Underlying Options/SARs (#)(4)
|
All
Other Compensation ($)(5)
|
|||||||||||||||||
|
Robert
A. Whitman (6)
|
2005
|
500,000
|
728,000
|
194,400
|
486,000
|
403,920
|
-
|
-
|
|||||||||||||||||
|
Chairman,
President and
|
2004
|
500,004
|
281,250
|
5,041
|
-
|
-
|
-
|
||||||||||||||||||
|
Chief
Executive Officer
|
2003
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||
|
Robert
William Bennett, Jr.
|
2005
|
250,000
|
232,896
|
30,442
|
-
|
9,419
|
|||||||||||||||||||
|
President
Organizational
|
2004
|
250,000
|
126,875
|
1,957
|
143,325
|
-
|
7,987
|
||||||||||||||||||
|
Solutions
Business Unit
|
2003
|
250,000
|
110,962
|
1,644
|
-
|
-
|
6,798
|
||||||||||||||||||
|
Sarah
Merz
|
2005
|
250,000
|
262,500
|
1,005
|
-
|
-
|
7,791
|
||||||||||||||||||
|
President
Consumer and
|
2004
|
226,154
|
98,438
|
58,691
|
143,325
|
50,000
|
8,569
|
||||||||||||||||||
|
Small
Business Unit
|
2003
|
130,000
|
11,070
|
-
|
-
|
-
|
3,705
|
||||||||||||||||||
|
Stephen
D. Young
|
2005
|
222,115
|
146,667
|
19,090
|
-
|
-
|
6,342
|
||||||||||||||||||
|
Senior
Vice President
|
2004
|
221,154
|
86,875
|
53,280
|
128,993
|
-
|
8,352
|
||||||||||||||||||
|
Chief
Financial Officer
|
2003
|
200,000
|
36,250
|
-
|
-
|
-
|
5,921
|
||||||||||||||||||
|
Former
Executive
|
|||||||||||||||||||||||||
|
Val
John Christensen (7)
|
2005
|
186,923
|
75,000
|
76,451
|
-
|
903,617
|
|||||||||||||||||||
|
2004
|
300,000
|
150,000
|
1,590
|
143,325
|
-
|
6,150
|
|||||||||||||||||||
|
2003
|
300,000
|
150,000
|
1,456
|
-
|
-
|
7,500
|
|||||||||||||||||||
| (1) |
Other
amounts relate to miscellaneous benefits paid during the year and
reimbursement of taxes associated with equity stock awards that were
paid
during the year.
|
| (2) |
Restricted
stock awards vest in full five years from the date of grant. Vesting
may
occur earlier, either partially or in full, if certain financial
targets
are met. Holders of restricted shares are entitled to vote the shares.
Value was determined by the market price on the grant date. Of these
awards, 50% vested in fiscal year
2005.
|
| (3) |
Mr.
Whitman was granted 187,000 shares of fully vested common stock.
Value was
determined by the market price on the grant
date.
|
| (4) |
Amounts
shown reflect options granted to the Named Executive Officers pursuant
to
the Franklin Covey 1992 Stock Incentive Plan (the “Incentive Plan”). As of
August 31, 2005, the Company had not granted any stock appreciation
rights.
|
| (5) |
Amounts
shown reflect contributions made by the Company for the benefit of
the
Named Executive Officers under the Franklin Covey 401(k) Profit Sharing
Plan.
|
| (6) |
Mr.
Whitman did not accept a base salary or bonus compensation from May
2001
through August 2003.
|
| (7) |
All
other compensation includes $3,617 of contributions made by the Company
to
the Franklin Covey 401(k) Profit Sharing Plan for Mr. Christensen
and
$900,000 of severance payments paid to Mr.
Christensen.
|
Equity
Compensation Plan Information
The
Company has not issued options with an exercise price less than the market
price
since 1992. The following table sets forth information as of August 31,
2005.
|
[a]
|
[b]
|
[c]
|
||||||||
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants,
and rights
|
Weighted-average
exercise price of outstanding options, warrants, and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in
column [a])
|
|||||||
|
(in
thousands)
|
(in
thousands)
|
|||||||||
|
Equity
compensation plans approved by security holders (1)
|
2,677
|
$
|
11.57
|
994
|
||||||
|
Equity
compensation plans not approved by security holders (2)
|
18
|
$
|
2.78
|
None
|
||||||
| (1) |
Includes
409,295 unvested restricted stock awards which were valued at the
August
31, 2005 closing Common Stock price of $7.00 per share.
|
| (2) |
Shares
in the equity compensation plans not approved by security holders
consist
of options issued to employees from principal shareholders of the
Company.
|
Employment
Agreements
The
Company does not have an employment agreement with any of its Named Executive
Officers, including Robert A. Whitman, the President, Chief Executive
Officer and Chairman of the Board. As described in detail in the Organization
and Compensation Committee Report, Mr. Whitman’s employment agreement was
cancelled, at his request, effective December 8, 2004.
Compensation
Committee Report
The
following report was prepared by the Compensation Committee, which administers
all elements of the Company’s executive compensation program, including the
Incentive Plan. The Compensation Committee has responsibility for all
compensation-related matters, including equity awards, for Robert A. Whitman,
the Company’s Chairman, President and Chief Executive Officer. It also
determines any equity awards under the Incentive Plan for all other executive
officers; Mr. Whitman determines the amount of cash compensation for the other
executive officers. The Compensation Committee reports at least annually to
the
full Board on the Company’s executive compensation program. The Compensation’s
Committee’s charter can be found at www.franklincovey.com.
Compensation
Committee Membership and Process.
Members
of the Compensation Committee are composed of independent directors who are
not
employees of the Company or its subsidiaries. For fiscal year 2005 the members
of the Compensation Committee were E. Kay Stepp, who serves as Chairperson,
Robert H. Daines and Dennis G. Heiner. None of the Compensation Committee
members has any material business relationships with the Company.
The
Compensation Committee held five meetings during fiscal year 2005. The
Compensation Committee regularly meets without any employees present to discuss
executive compensation matters, including Mr. Whitman’s compensation package.
The Compensation Committee has retained the services of an independent
compensation consulting firm to assist with executive compensation program
design, calibrating the program to Company performance and the competitive
market, and monitoring program effectiveness. 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.
The
Compensation Committee’s report on executive compensation matters includes a
description of the program for fiscal year 2005, as well as material actions
taken in early fiscal 2006.
Annual
Chief Executive Officer Performance Review.
Mr.
Whitman has served as Chairman of the Board of Directors since June 1999 and
President and Chief Executive Officer of the Company since January 2000. The
Compensation Committee has identified specific criteria for evaluating Mr.
Whitman’s performance to be considered in addition to the Company’s financial
results. The criteria include specific leadership competencies, specific
competencies related to the role of the Chief Executive Officer, and specific
non-financial business objectives. The Chair of the Compensation Committee
annually surveys board members and executive management and reports her findings
on each objective to Mr. Whitman, the Compensation Committee and the Board
of
Directors.
Executive
Compensation Philosophy.
The
Compensation Committee established an executive compensation strategy and
structure based on the following principles:
| l |
Compensation
should reward successful execution of the business
strategy.
Therefore, the executive compensation program should be both aligned
with
achieving the Company’s strategic business plan and directly related to
Company performance;
|
| l |
Company
success depends on teamwork from the executive level down through
the
organization.
Therefore, the compensation program should be designed to promote
shared
destiny and reward entity/team success, not just individual effort;
|
| l |
A
critical objective must be to attract and retain qualified executive
talent.
Successful execution of the business strategy necessitates keeping
the
Company’s management team in place and focused on business goals.
Therefore, the Company’s program must be competitive and equity awards
granted with vesting schedules designed to promote retention;
|
| l |
Franklin
Covey pays for performance.
Executives - who have the greatest direct influence on organizational
performance - should have the greatest portion of their compensation
at
risk. Therefore, executives are held accountable through the compensation
program for organizational performance;
|
| l |
Executive
pay should be aligned with the interests of
shareholders.
Equity is used to reward executives for creating shareholder value
over a
several year horizon.
|
Section
162(m) Implications for Executive Compensation.
It is
the responsibility of the Committee to address the issues raised by Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), which
makes certain "non-performance-based" compensation to certain executives of
the
Company in excess of $1,000,000 non-deductible to the Company. To qualify as
"performance-based" under Section 162(m), compensation payments must be
determined pursuant to a plan, adopted by a committee of at least two "outside"
directors (as defined in the regulations promulgated under the Code) and must
be
based on achieving objective performance goals. In addition, the material terms
of the plan must be disclosed to and approved by stockholders, and the outside
directors or the Committee, as applicable, must certify that the performance
goals were achieved before payments can be awarded.
The
Committee, in planning for the future of the Company, has considered the impact
of Section 162(m) and has taken several steps to minimize its effect to the
extent practicable while maintaining competitive compensation practices. The
Committee will continue to examine the effects of Section 162(m), to monitor
the
level of compensation paid to the Company's executive officers and take
appropriate action in response to the provisions of Section 162(m) to the extent
practicable while maintaining competitive compensation practices.
Fiscal
2005 Compensation Program.
In
fiscal 2005, the Compensation Committee worked with its independent consultant
and outside legal counsel to further align the compensation program with the
executive compensation philosophy and the changing competitive marketplace.
Taking into account emerging financial accounting changes, the evolving
expectations of shareholders, market trends and improved Company performance,
the Compensation Committee adopted in fiscal 2005 a new long-term incentive
strategy using performance-contingent restricted shares combined with a cash
incentive.
The
restricted shares issued to executive officers, pursuant to the Incentive Plan,
vest over a five-year period if the executive remains employed by the Company.
Vesting was accelerated 50 percent during fiscal 2005 due to the Company
achieving specific financial performance objectives. If specific financial
goals
are met for fiscal 2006 and 2007, all remaining unvested shares, if any, shall
vest. If an executive officer’s employment terminates prior to vesting, the
officer generally forfeits all restricted shares that have not yet vested.
As
shown
in the Summary Compensation Table, a supplemental cash incentive was paid to
those executives who chose, pursuant to Section 83(b) of the Internal Revenue
Code, to be taxed immediately on the restricted share grant to pay the taxes
associated with the grant.
In
addition to assessing the long-term component, the Compensation Committee also
reviewed the salary and annual incentive program for the executive officers.
The
Compensation Committee found the program to be generally well-aligned with
market practice.
The
Company’s financial performance was substantially improved for fiscal 2005.
Annual cash incentives were paid to the management team at approximately 150
percent of their incentive targets, reflecting performance against
pre-determined goals.
Mr.
Whitman’s Compensation.
On
September 1, 2000, the Company entered into an employment agreement with
Robert A. Whitman as President and Chief Executive Officer of the Company
(the “Employment Agreement”). Although the Employment Agreement’s term extended
through August 31, 2007, Mr. Whitman requested that the Employment Agreement
be
cancelled in order to create parity between himself and other executive officers
and to enhance his working partnership with the Board. The Board agreed to
Mr.
Whitman’s request and the Employment Agreement was cancelled effective December
8, 2004. Mr. Whitman continues to serve as Chairman of the Board, President
and
Chief Executive Officer of the Company at the will and pleasure of the Board,
on
such terms and conditions as the Board and Mr. Whitman from time-to-time agree,
consistent with the Company’s Bylaws.
As
previously reported by the Compensation Committee, Mr. Whitman had elected
to
forego receipt of any cash compensation from the Company from May 1, 2001
through August 31, 2003 (the “Forgone Compensation”) despite having performed
all of his duties and responsibilities contemplated for such period under the
terms of the Employment Agreement. In connection with his cancellation of the
Employment Agreement, Mr. Whitman has confirmed in writing that he
unconditionally forever waives, and releases the Company from, any and all
claims, rights or demands he has or may have to the Forgone
Compensation.
The
Compensation Committee noted that Mr. Whitman gave up valuable rights under
the
Employment Agreement, including severance, compensation in the event of a change
in control, and life insurance and disability benefits. Having evaluated the
significant cost of these benefits to the Company, the Compensation Committee
believed that it was in the shareholders’ interest to accept Mr. Whitman’s
voluntary cancellation of the Employment Agreement. In consideration of the
Company’s substantially improved financial performance under Mr. Whitman’s
leadership, Mr. Whitman’s Foregone Compensation and the cancellation of the
Employment Agreement, the Compensation Committee approved the following
compensation program for Mr. Whitman:
Cash
Compensation.
For
fiscal year 2006, the Compensation Committee agreed to continue Mr. Whitman’s
base salary at $500,000. His target annual incentive for achieving predetermined
Company financial and operation goals will also remain at $500,000.
Stock
Awards.
In
fiscal year 2005, pursuant to the Incentive Plan, the Compensation Committee
awarded Mr. Whitman 187,000 shares of Company stock that were immediately
vested. In addition, the Compensation Committee granted Mr. Whitman 225,000
shares of restricted stock that vest over five years, subject to earlier vesting
on the same terms and conditions as described above for the restricted shares
granted to the other executive officers in fiscal 2004, including the
supplemental cash incentive. During the 2005 fiscal year, 50 percent of these
shares vested as a result of the Company meeting financial goals and achieving
specific financial performance objectives.
In
fiscal
year 2006, the Compensation Committee has decided to use Performance Share
awards as part of its long term incentive plan. The Performance Shares, which
are discussed in further detail in the amendment of the Incentive Plan proposal
that is being presented to shareholders for approval in this proxy statement,
would be awarded to Mr. Whitman and other executive officers with a three-year
vesting period. The number of shares shall be determined based upon the
performance of the Company during the three following fiscal years. The Board
has establish the matrix of business performance and financial objectives,
including a combination of revenue growth and operating margin, that will
determine the number of shares that will be awarded at the end of the three-year
term.
Option
Acceleration.
On
September 1, 2000, the Company granted Mr. Whitman the option to purchase
1,602,000 shares of Company stock at an exercise price of $14.00 per share.
The
option was structured to vest over seven years unless specified stock price
hurdles were achieved that accelerated the vesting. In connection with the
cancellation of Mr. Whitman’s Employment Agreement, the Compensation Committee
determined to fully accelerate the vesting of the option. At the time of the
option grant, there was no compensation expense recorded in the income
statement. Accelerating the vesting of the option accelerated the recognition
of
the remaining pro forma expense in fiscal 2005 which totaled $1.9 million.
In
addition to accelerating the option, it will remain exercisable for its full
ten-year term regardless of Mr. Whitman’s earlier termination of employment,
death or disability.
Life
Insurance and Long Term Disability Benefits.
Mr.
Whitman’s Employment Agreement provided for the Company to pay $2,500,000 in the
event of his death or disability. The Compensation Committee determined that
it
would be more cost effective for the Company and tax-effective for Mr. Whitman
to restructure the Company’s obligation. Therefore, the Compensation Committee
agreed that the Company would procure, at its expense, a portable 20-year level
term life insurance policy on Mr. Whitman’s life with a death benefit of
$2,500,000. The Company will also provide Mr. Whitman with sufficient funds
to
enable him to procure long term disability insurance which, combined with the
Company’s current group policy, provides, in aggregate, monthly long term
disability benefits equal to 75 percent of his fiscal 2006 target cash
compensation.
Severance
and Change in Control Benefits.
During
fiscal 2005, the Compensation Committee decided to establish a new executive
severance compensation policy as well as a new change in control severance
compensation policy for all executive officers, including Mr. Whitman. The
Board, acting on the Committee's recommendation, adopted the Franklin Covey
Co.
Severance Compensation Policy and the Franklin Covey Co. Change in Control
Severance Compensation Policy. The Severance Compensation Policy entitles an
executive officer or key employee to receive in the event of involuntary
employment termination without just cause, an amount equal to his or her current
annual total target compensation. Pursuant to the Change in Control Severance
Policy, in the event an executive officer’s or key employee’s employment were
terminated, without good reason, and as the result of a change in control of
the
Company, as defined in the policy, the executive officer would be entitled
to
receive a lump sum cash payment in an amount equal to two times his
or
her current target
compensation, while a key employee would be entitled to receive an amount equal
to his or her current annual target compensation. Executive Officers and key
employees would also be entitled to reimbursement for the payment of premiums
to
secure continuation
coverage pursuant to Section 4980B of the Code (or any successor provision
thereto) under the Company’s medical, dental and other group health plans, and
would be entitled have immediately vested, as of his or her employment
termination date, all Awards granted by the Company which at that time are
not
yet vested according to their terms.
Mr.
Whitman’s Fiscal 2005 Compensation.
The
Compensation Committee determined to continue Mr. Whitman’s base salary at the
previous annual rate of $500,000 in fiscal 2005. Mr. Whitman was also entitled
to receive a performance bonus of $728,000 based on the Company exceeding
performance objectives determined by the Compensation Committee. As a result
of
the Company’s financial performance and achieving performance substantially
greater than the targeted goals, Mr. Whitman received 146 percent of his
targeted annual incentive of $500,000. As previously described above, Mr.
Whitman also received equity awards of 187,000 shares of the Company’s stock,
fully vested, and 225,000 restricted shares of the Company’s stock.
Stock
Program.
As of
August 31, 2005, executive officers held incentive stock options to purchase
an
aggregate of 1,737,000 shares of Common Stock granted under the direction of
the
Compensation Committee pursuant to the Incentive Plan since its inception in
1992 and the Non-Qualified Executive Stock Option Plan of 2000. Of those
options, 1,669,500 are currently exercisable as of the end of fiscal 2005.
The
Incentive plan provides multiple vehicles for making equity awards to executive
officers, including incentive stock options, non-qualified stock options, stock
appreciation rights and restricted share awards.
Other
Compensation Plans. The
Company has a number of other broad-based employee benefit plans in which
executive officers participate on the same terms as other employees meeting
the
eligibility requirements, subject to any legal limitations on amounts that
may
be contributed to or benefits payable under the plans. These include (i) the
Company’s cafeteria plan administered pursuant to Section 125 of the Internal
Revenue Code of 1986, as amended (“the Code”); (ii) the Company’s 401K plan,
pursuant to which the Company makes matching contributions; and (iii) the
Company’s Employee Stock Purchase Plan implemented and administered pursuant to
Section 423 of the Code.
|
Respectfully
submitted,
|
||
|
E.
Kay Stepp
Robert
H. Haines
Dennis
G. Heiner
|
Compensation
Committee Interlocks and Insider Participation
No
member
of the Compensation
Committee was
or is
an officer or employee of the Company or any of its subsidiaries. The Company
is
not aware of any Compensation
Committee
interlocks.
PERFORMANCE
GRAPH
The
following graph shows a comparison of cumulative total shareholder return
indexed to August 31, 2000, calculated on a dividend reinvested basis, for
the
five fiscal years ended August 31, 2005, for the Common Stock, the S&P
600 SmallCap Index and the S&P Diversified Commercial Services Index. The
Company was previously included in the S&P 600 SmallCap Index and was
assigned to the S&P Diversified Commercial Services Index within the S&P
600 SmallCap Index. The Diversified Commercial Services Index consists of
18 companies similar in size and nature to Franklin Covey. The Company is no
longer a part of the S&P 600 SmallCap Index but believes that the S&P
600 SmallCap Index and the Diversified Commercial Services Index continues
to
provide appropriate benchmarks with which to compare the Company’s stock
performance.
PRINCIPAL
HOLDERS OF VOTING SECURITIES
The
following table sets forth information as of November 25, 2005, with
respect to the beneficial ownership of shares of Common Stock and Series A
Preferred Stock by each person known by the Company to be the beneficial
owner
of more than five percent of Common Stock or Series A Preferred Stock, by
each director, by the Named Executive Officers and by all directors and officers
as a group. Unless noted otherwise, each person named has sole voting and
investment power with respect to the shares indicated. The percentages set
forth
below have been computed without taking into account treasury shares held
by the
Company and are based on 20,744,725
shares
of Common Stock and 1,893,781 shares of Series A Preferred
Stock outstanding as of November 25, 2005. There are no shares of Series B
Preferred Stock outstanding. The shares of Series A Preferred Stock are
entitled to two votes for each whole share on all matters on which the Common
Stock and Series A Preferred Stock vote as a single class.
|
Beneficial
Ownership as of November 25, 2005
|
||||||||||
|
Number
of
Preferred
Shares
|
Percentage
of
Class
|
Number
of
Common
Shares
|
Percentage
of
Class
|
|||||||
|
Preferred
Stock and Common Stock:
|
||||||||||
|
Donald J.
McNamara (3)(4)
c/o
Franklin Covey Co.
2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2331
|
1,743,204
|
92.0
|
%
|
7,249,138
|
27.2
|
%
|
||||
|
Knowledge
Capital Investment
Group
(1)(2)
3232
McKinney Ave,
Dallas,
Texas 75204
|
1,743,204
|
92.0
|
%
|
6,928,404
|
26.0
|
%
|
||||
|
Robert A.
Whitman (7)(9)
c/o
Franklin Covey Co.
2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2331
|
2,329,210
|
10.4
|
%
|
|||||||
|
Dennis R.
Webb (4)(5)
2626
Hillsden Drive
Holladay,
Utah 84117
|
1,164,212
|
5.6
|
%
|
|||||||
|
Dimensional
Fund Advisors, Inc. (6)
1299
Ocean Avenue
Santa
Monica, California 90401
|
1,165,050
|
5.6
|
%
|
|||||||
|
Stephen R.
Covey (4)
c/o
Franklin Covey Co.
2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2331
|
1,052,384
|
5.1
|
%
|
|||||||
|
Val
J. Christensen (7)
|
395,806
|
1.9
|
%
|
|||||||
|
Joel C.
Peterson
|
198,549
|
*
|
%
|
|||||||
|
Robert
W. Bennett, Jr. (7)(9)
|
128,811
|
*
|
%
|
|||||||
|
Sarah
Merz (7)(9)
|
104,373
|
*
|
%
|
|||||||
|
Stephen D.
Young (7)(9)
|
104,312
|
*
|
%
|
|||||||
|
Dennis G.
Heiner
|
104,257
|
*
|
%
|
|||||||
|
Robert H.
Daines (8)
|
40,632
|
*
|
%
|
|||||||
|
E.
Kay Stepp
|
29,409
|
*
|
%
|
|||||||
|
Clayton
M. Christensen
|
25,957
|
*
|
%
|
|||||||
|
E.
J. “Jake” Garn
|
15,957
|
*
|
%
|
|||||||
|
All
directors and executive officers as a group (12
persons)(7)(9)
|
1,743,204
|
92.0
|
%
|
11,778,795
|
40.1
|
%
|
||||
*
Less
than 1%.
|
(1)
|
Each
share of Series A Preferred Stock is entitled to two votes for each
whole share on all matters in which the Series A Preferred Stock
and
Common stock vote as a single class. As a result, in addition to
the
shares of Common Stock listed in the beneficial ownership table,
Knowledge
Capital’s ownership of its Series A Preferred Stock entitles it to
3,486,408 votes on matters in which the Series A Preferred Stock
and
Common Stock vote as a single class.
|
|
(2)
|
The
Common Stock shares indicated for Knowledge Capital include 5,913,402
warrants. The warrants, after March 8, 2006, are exercisable into
a share
of Common Stock at $8.00 each.
|
|
(3)
|
Mr.
McNamara, who is a director of the Company, is a principal of The
Hampstead Group, the private investment firm that sponsors Knowledge
Capital, and therefore may be deemed the beneficial owner of the
Common
Stock, the Series A Preferred Stock and the warrants for Common Stock
held by Knowledge Capital. Mr. McNamara disclaims beneficial ownership
of
the Common Stock, the Series A Preferred Stock, and the
warrants held by Knowledge Capital.
|
|
(4)
|
The
share amounts indicated for Dennis R. Webb are held of record by
Dennis R. Webb as trustee of The Lighthouse Foundation with respect
to 58,000 shares; those indicated for Stephen R. Covey are held of
record by SRSMC Properties LLC with respect to 40,000 shares; those
indicated for Stephen R. Covey are held of record by SANSTEP
Properties, L.C. with respect to 1,012,384 shares; and those indicated
by
Donald J. McNamara are held of record by the Donald J. and Joan P.
McNamara Foundation with respect to 23,000 shares. Mr. Webb and
Mr.
McNamara are the respective trustees of their foundations, having
sole
voting and dispositive control of all shares held by the respective
foundations, and may be deemed to have beneficial ownership of
such
shares. Mr. Covey, as co-manager of SRSMC Properties LLC and SANSTEP
Properties, L.C., has shared voting and dispositive control over
the
shares held by those entities and may be deemed to have beneficial
ownership of such shares.
|
|
(5)
|
Of
the share amount indicated as beneficially owned by Dennis R. Webb,
18,000 shares are subject to options granted to other key employees
of the
Company.
|
|
(6)
|
Dimensional
Fund Advisors’ information is provided as of February 9, 2005, the filing
of its last 13G report.
|
|
(7)
|
The
share amounts indicated include shares subject to options currently
exercisable held by the following persons in the following amounts:
Robert
W. Bennett, Jr., 50,000 shares; Val J. Christensen, 90,300 shares;
Sarah
Merz, 25,000 shares; Stephen D. Young, 35,000 shares; Robert A.
Whitman,
1,602,000 shares and all executive officers and directors as a
group,
1,712,000 shares.
|
|
(8)
|
The
share amounts indicated for Robert H. Daines include 5,000 shares
owned by Tahoe Investments, L.L.C., of which Mr. Daines is a
member.
|
|
(9)
|
The
share amounts indicated include Restricted Stock Awards currently
not
vested held by the following persons in the following amounts:
Robert W.
Bennett, Jr., 26,250 shares; Sarah Merz, 26,250 shares; Robert
A. Whitman,
112,500 shares; Stephen D. Young, 23,625 shares; and all officers and
directors as a group, 188,625
shares.
|
SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a)
of Exchange Act requires the Company’s directors and executive officers, and
persons who own more than 10 percent of the Common Stock, to file with the
Securities and Exchange Commission (the “Commission”) initial reports of
ownership and reports of changes in ownership of the Common Stock and other
securities which are derivative of the Common Stock. Executive officers,
directors and holders of more than 10 percent of the Common Stock are required
by Commission regulations to furnish the Company with copies of all such
reports
they file. Based upon a review of the copies of such forms received by the
Company and information furnished by the persons named above, the Company
believes that all reports were filed on a timely basis except for Form 4
reports in conjunction with a restricted share award to Joel C. Peterson, a
director, of 11,957 shares, Clayton Christensen, a director, of 11,957 shares,
Robert H. Daines, a director, of 16,305 shares, Dennis G. Heiner, a director,
of
11,957 shares, E. Kay Stepp, a director, of 11,957 shares that were due on
April 5, 2005, but not filed until April 8, 2005; a Form 4 report in
conjunction with a restricted share award to E. J. “Jake” Garn, a director, of
11,957 shares that was due on April 5, 2005, but not filed until April 13,
2005;
and a Form 4 report for a sale of 6,007 shares to the Company for tax payment
when a restricted share award vested, on behalf of Robert W. Bennett, Jr.,
an
officer, due July 19, 2005, but not filed until December 7, 2005.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
In
connection with the merger between the Company and Covey completed in June
1997,
Stephen R. Covey, who is Vice Chairman of the Board of Directors, entered
into a Speaker Services Agreement with the Company pursuant to which Dr.
Covey
receives 80 percent of the proceeds from personal speaking engagements, which
resulted in a payment of $3.3 million to Dr. Covey for the fiscal year ended
August 31, 2005.
Also
in
connection with the above referenced transaction, the Company succeeded to
a
12-year lease agreement originally entered into by Covey expiring in 2009
on two
office buildings (the “Property”) located in Provo, Utah. The buildings were
leased from entities (collectively, the “Landlord”) in which Dr. Covey has a 35
percent interest. Lease rentals paid in fiscal 2005 were $0.5 million.
During
fiscal 2005 we exercised an option, available under our master lease agreement,
to purchase, and simultaneously sell, the office facility to the current
tenant,
an unrelated party. Based on the continuing negative cash flow associated
with
these buildings, and other factors, we determined that it was in our best
interest to exercise the option and sell the property. The negotiated purchase
price with the landlord was $14.0 million and the tenant agreed to purchase
the
property for $12.5 million. These prices were within the range of estimated
fair
values of the buildings as determined by an independent appraisal obtained
by
the Company. Following completion of this sale, we had no further obligations
to
the related partnerships.
Donald J.
McNamara, a director of the Company as a designee of Knowledge Capital pursuant
to its contract rights, is a principal of The Hampstead Group, the private
investment firm that sponsors Knowledge Capital, the holder of 92 percent
of the
Company’s outstanding Series A Preferred Stock, and of Hampstead Interests,
LP, a Texas limited partnership. On June 2, 1999, the Company and Hampstead
Interests, LP entered into a Monitoring Agreement that provides for payment
of a
monitoring fee of $0.1 million per quarter to Hampstead Interests, LP for
assisting the Company in strategic planning, including acquisitions,
divestitures, new development and financing matters. The agreement continues
so
long as Knowledge Capital owns more than 50 percent of the original shares
of
Series A Preferred Stock (or Common Stock equivalents) issued. The
monitoring fee is reduced by redemptions made of the outstanding preferred
stock. The Company paid $0.4 million to Hampstead Interests, LP during the
fiscal year ended August 31, 2005, pursuant to the Monitoring
Agreement.
Robert
A.
Whitman, Chairman of the Board, President and Chief Executive Officer of
the
Company, beneficially owns a partnership interest in Knowledge
Capital.
Each
transaction described above was entered into pursuant to arm’s length
negotiations with the party involved and was approved by disinterested
majorities of the Board of Directors or the Compensation Committee of the
Board.
TO RATIFY
THE Fifth AMENDMENT TO THE FRANKLIN COVEY CO. AMENDED AND RESTATED 1992
STOCK INCENTIVE PLAN, INCREASING THE MAXIMUM NUMBER OF SHARES THAT MAY BE
AWARDED THEREUNDER FROM 6,000,000 TO
7,000,000, PERMITTING THE GRANT OF PERFORMANCE SHARES AND ESTABLISHING
PERFORMANCE GOALS FOR THOSE PERFORMANCE SHARES, AND MAKING CERTAIN OTHER
CHANGES.
Background
The
Company's Franklin Covey Co. Amended and Restated 1992 Stock Incentive Plan
(the
"Plan") was originally adopted by the Board of Directors on March 30, 1992
and
approved by the Company's shareholders on March 31, 1992. The Plan was
subsequently amended in 1993 to increase the number of shares of Common Stock
that could be awarded under the Plan from 1,000,000 to 5,000,000, in 1997
to
reflect a change in the Company's name, in 1999 to further increase the number
of shares that could be awarded to 6,000,000, and in 2000 to extend the term
during which incentive stock options can be issued until January 8,
2010.
On
November 11, 2005, the Board of Directors of the Company adopted the Fifth
Amendment to the Plan (the "Amendment") in the form attached as Appendix
A to
this Proxy Statement, subject to shareholder approval. If approved by the
shareholders, the Amendment will increase from 6,000,000 to 7,000,000 the
number
of shares of Common Stock that may be issued under the Plan and make certain
other changes as discussed in "DESCRIPTION OF AMENDMENT" below.
Shareholders
are being asked to approve the Amendment to ensure that future incentive
stock
options issued under the Plan continue to qualify for favorable tax treatment
to
optionees under Section 422 of the Internal Revenue Code of 1986, as amended
(the "Code"). Shareholder approval is also requested to ensure that certain
awards made under the Plan qualify as performance-based compensation for
purposes of Section 162(m) of the Code and to satisfy the shareholder approval
requirements of the New York Stock Exchange relating to equity compensation
of
Company officers. If the shareholders do not approve the Amendment at the
Annual
Meeting, the Amendment will be of no effect and the Plan will revert to its
pre-Amendment terms.
General
Description of the Plan
Purpose
and Administration.
The
Plan is intended to promote the long-term success of the Company and increase
shareholder value by encouraging key employees to focus on long-range
objectives, attracting and retaining key employees, and aligning the interest
of
key employees directly to shareholder interests through increased stock
ownership. The Compensation Committee of the Board of Directors (the
"Committee") administers the Plan. The Committee selects the employees who
are
to receive awards under the Plan, determines the type, amount, vesting
requirements and other conditions of such awards, interprets the Plan, approves
agreements setting forth the terms of such awards (each, an "Award Agreement")
and makes all other decisions relating to the operation of the
Plan.
Types
of Awards.
The
Plan permits the Company to issue incentive stock options as defined in Section
422 of the Code ("ISOs") and nonqualified stock options which are not governed
by Section 422 of the Code ("Nonqualified Options") to acquire shares of
Common
Stock (collectively "Options"). The Plan also permits the issuance of stock
appreciation rights in connection with Options ("SARs"), restricted shares
of
Common Stock and stock units payable in or by reference to a designated number
of shares of Common Stock. The Amendment will add Performance Shares to the
list
of awards permitted under the Plan, if approved by the shareholders. The
various
types of share-based awards that may be issued under the Plan are referred
to
collectively as "Awards."
Eligible
Employees.
Awards
may be granted only to employees of the Company and its subsidiaries that
the
Committee determines to be key employees. Members of the Committee are not
eligible to participate in the Plan.
Plan
Share Limitations.
The
maximum number of shares of Common Stock that currently may be issued under
the
Plan is 6,000,000. The Plan requires appropriate adjustments to the aggregate
limit on the number of shares of Common Stock available under the Plan, as
well
as to outstanding Awards, to equitably offset the effect of any stock split
or
dividend of Common Stock, other materially dilutive dividend, consolidation
of
outstanding shares, recapitalization or similar occurrence. The proposed
Amendment would increase the 6,000,000 share limit to 7,000,000 shares. The
Amendment would also limit the number of shares underlying Awards granted
to any
one individual participant in any single calendar year. See "PROPOSED AMENDMENT
- Individual Award Limits" below.
Options.
Subject
to the terms of the Plan, the Committee may cause the Company to grant ISOs
and
Nonqualified Options to such key employees as the Committee in its discretion
determines. The Committee sets the exercise price of Options, restrictions
upon
the exercise and other Option terms in its sole discretion, except that the
exercise price of any ISO cannot be less than the fair market value of the
underlying shares of Common Stock as of the date of Option grant, and the
exercise price of any Nonqualified Option cannot be less than the par value
of
the underlying Common Stock. The Committee also determines the time or times
when each Option vests and becomes exercisable. The term of an ISO, however,
may
not be more than ten years from the date of grant. During the lifetime of
the
employee receiving the Option (the "Optionee"), the Option is exercisable
only
by the Optionee and is not assignable or transferable. The Committee may
provide
for the accelerated exercisability of an Option in the event of the death,
disability or retirement of the Optionee or a "change in control" as defined
in
the Plan, and may provide for expiration of the Option prior to the end of
its
term in the event of the termination of the Optionee's employment. The exercise
price of Options is payable upon exercise in cash or, in the discretion of
the
Committee, in shares of Common Stock or other forms.
SARs.
In
connection with the grant of any Option, the Committee may also grant a SAR
related to that Option. Related SARs entitle the Optionee to surrender to
the
Company, unexercised, all or any part of that portion of the Option which
then
is exercisable and to receive from the Company an amount equal to the difference
between the aggregate exercise price of the corresponding portion of the
Option
shares and the fair market value of those shares on the date of exercise.
The
Company will pay the amount owing upon exercise of a SAR in shares of Common
Stock, cash, or any combination thereof, as the Committee determines. A SAR
may
be exercised only to the extent the related Option is exercisable.
Restricted
Shares.
The
Committee may at any time cause the Company to award to key employees shares
of
Common Stock subject to vesting conditions ("Restricted Shares"). Restricted
Shares vest, in full or in installments, upon satisfaction of the vesting
conditions specified in the applicable Award Agreement. The Committee sets
those
vesting conditions, which may be based upon the recipient's service or
performance, the Company's performance, or any other criteria the Committee
may
adopt. The Award Agreement may also provide for accelerated vesting of
Restricted Stock in the event of the recipient's death, disability or
retirement, or a "change in control" as defined in the Plan. A recipient
of
Restricted Shares is required to pay the Company, in cash, an amount equal
to
the par value of the Restricted Shares on grant. The holders of Restricted
Shares have the same voting, dividend and other rights as the Company's other
shareholders so long as the Restricted Shares remain outstanding.
Stock
Units.
The
Committee may cause the Company to grant to participants contractual rights
to
receive in the future a designated number of shares of Common Stock upon
satisfaction of specified vesting conditions (a "Stock Unit"). The Committee
selects the vesting conditions for each Stock Unit, which may be based upon
the
recipient's service or performance, the Company's performance, or other
criteria. Holders of Stock Units have no voting rights or other rights of
a
shareholder, but generally are entitled to receive "Dividend Equivalents"
equal
to the amount of cash dividends paid on the number of shares of Common Stock
represented by the Stock Units while the Stock Units are outstanding. Stock
Units are settled upon vesting in cash, shares of Common Stock, or a combination
thereof, as provided in the applicable Award Agreement. Under the Amendment,
Stock Units may be granted in the form of performance shares as described
below.
Right
to Amend.
The
Board of Directors may, at any time and for any reason, amend or terminate
the
Plan. Any amendment, however, is subject to the approval of the Company's
shareholders to the extent required by applicable laws and the rules of any
exchange on which the Common Shares are traded.
Federal
Income Tax Consequences
Stock
Options and SARs.
Generally, an Optionee incurs no income tax liability, and the Company obtains
no deduction, from the grant of Options or SARs. Upon the exercise of a
Nonqualified Option or SAR, the Optionee has ordinary taxable wage income
equal
to the value of shares or amount of cash received, less any exercise price
paid
and the Company receives a corresponding deduction. In contrast, the holder
of
an ISO is not subject to regular federal income tax upon the exercise of
the ISO
(although alternative minimum taxes may apply), and the Company is not entitled
to a tax deduction by reason of the ISO exercise. If, however, the Optionee
disposes of the ISO shares within one year after ISO exercise or two years
of
ISO grant, the Optionee recognizes ordinary income, and the Company receives
a
corresponding deduction, equal to the lesser of (i) the excess of the value
of
the shares on the date of transfer to the Optionee over the ISO exercise
price,
or (ii) the excess of the amount realized on the disposition over the ISO
exercise price.
Restricted
Shares, Stock Units, and Performance Shares.
Except
as provided below, the recipient of Restricted Shares recognizes ordinary
compensation income in the year that his or her Restricted Shares vest in
an
amount equal the value of the shares at that time, less any purchase price
paid.
A recipient may elect, however, to recognize income in the year he or she
receives unvested Restricted Shares in an amount equal to the then fair market
value of the shares, less any purchase price paid. In either case, the Company
generally receives a matching deduction at the time the recipient is taxed.
Upon
payment by the Company of amounts owed by participants under vested Stock
Units
(including the issuance of shares upon vesting of Performance Shares), the
holder recognizes ordinary compensation income in the amount of the fair
market
value of the shares of Common Stock or cash received and the Company is entitled
to a corresponding deduction.
Section
162(m) Limitation.
Notwithstanding the above rules, under Code Section 162(m), the Company cannot
deduct any compensation in excess of $1,000,000 paid during any taxable year
to
its Chief Executive Officer or to any of its other four top executive officers
whose annual compensation is required to be reported to shareholders under
the
Securities Exchange Act of 1934 ("Reporting Persons"). This limit is referred
to
as the "Section 162 Limitation." The Section 162(m) Limitation does not apply,
however, to certain "performance-based compensation" under plans that satisfy
certain shareholder approval requirements.
Proposed
Amendment
Subject
to and contingent upon shareholder approval, the Amendment modifies the Plan
as
follows:
Increase
in Maximum Share Limitation.
The
maximum number of shares of Common Stock reserved for issuance under the
Plan
will increase from 6,000,000 to 7,000,000. As of November 25, 2005, there
were
under the Plan in aggregate 913,489 Awards issued and outstanding
and 835,765 authorized but unissued shares of Common Stock. The
proposed additional shares, if approved by shareholders, will increase the
aggregate number of shares authorized but unissued under the Plan to
1,835,765 shares of Common Stock. Additionally, under the Amendment, any
shares
of Common Stock surrendered by a participant or withheld by the Company to
pay
the exercise price or withholding taxes associated with the exercise or
settlement of an Award may be used for additional Awards.
Individual
Award Limits.
The
Amendment imposes the following additional limitations on Awards: (i) Options
and SARs for no more than 250,000 shares of Common Stock may be granted to
any
one participant in a calendar year, (ii) no more than 250,000 Restricted
Shares
may be issued to any one participant in a calendar year; and (iii) no more
than
250,000 shares of Common Stock may be issued to any one participant upon
vesting
of Stock Units, including Performance Shares, in any one calendar year. The
above individual limitations are subject to adjustment to reflect changes
in the
Common Stock or corporate structure of the Company in the same manner as
the
Plan's overall maximum number of shares limitation is subject to adjustment.
See
"GENERAL DESCRIPTION OF THE INCENTIVE PLAN - Plan Share Limitations"
above.
Performance
Shares - General.
The
Amendment permits Stock Units to be granted in the form of Performance Shares
to
key employees of the Company and its consolidated subsidiaries. Performance
Shares will provide the holder with the right to receive upon completion
of
specified performance periods of not less than 12 months a designated number
of
shares of Common Stock, with the precise number of shares to be issued based
upon the extent to which the Company and its consolidated subsidiaries achieve
pre-determined, Committee-designated target levels of performance during
the
applicable performance periods. Performance Shares are non-transferable (except
upon death) and vest only upon achievement of performance goals established
in
advance by the Committee or, to the extent provided in the applicable Award
Agreement, upon a "change in control" of the Company as defined in the Plan.
The
Committee may retain in the applicable Award Agreement the discretion to
reduce,
but not increase, the number of shares otherwise issuable under a Performance
Share Award. A holder of Performance Shares must be employed by the Company
at
the end of the applicable performance period to receive any shares under
the
Award unless, to the extent provided in the applicable Award Agreement, he
or
she is no longer employed as a result of his or her death, permanent disability
or retirement.
Performance
Shares Issued To Reporting Persons.
In the
case of Performance Shares issued to Reporting Persons, the specific business
criteria ("Performance Goals") upon which the number of shares to be issued
will
be based are: (i) the amount of Company's cumulative, consolidated income
(or
loss) from operations during a specified performance period of at least three
years; and (ii) the Company's cumulative consolidated revenue growth during
that
performance period. For Performance Shares issued, the Committee must establish
in writing the targeted levels of achievement under the above Performance
Goals
for the performance period in question not later than 90 days after the start
of
that performance period and the number of shares to be issued if that targeted
level of performance is met. It will similarly establish the formula for
determining the number of shares issuable under the Award based on levels
of
Performance Goal achievement above or below the targeted level, but within
an
acceptable minimum and maximum range. Before any Performance Shares are issued
to a Reporting Person, the Committee must certify in writing that the applicable
level of performance has been achieved.
Plan
Benefits
The
Company cannot now determine the exact number of Awards to be granted in
the
future to the persons named under "Executive Compensation - Summary Compensation
Table," to all current executive officers as a group, or to all employees
(including executive officers). During the fiscal year ended August 31, 2005,
Awards in aggregate of 412,000 shares were granted to executive officers,
and
Awards in aggregate of 75,000 shares were granted to all other employees,
including all officers who are not executive officers, as a group.
Additionally,
effective November 11, 2005, the Committee awarded Performance Shares to
Robert
A. Whitman, Robert William Bennett, Jr., Sarah Merz and Stephen D. Young,
contingent upon shareholder approval of the Amendment. The November 11, 2005
Performance Share Awards provide for the issuance of up to an aggregate of
294,530 shares of Common Stock if the Company achieves 200% of the targeted
Performance Goals for the performance cycle ending August 31, 2008, with
proportionately lesser numbers of shares issuable for performance below 200%
of
targeted levels. Those Performance Share awards will lapse and terminate
without
further liability to the Company if the shareholders do not approve the
Amendment.
Recommendation
Following
a review of the Awards made under the Plan to date and additional Awards
which
may be made under the Plan, the Board recommends that shareholders of the
Company vote for approval of the Amendment. Approval of the Amendment requires
that a quorum be present at the Annual Meeting and that the number of votes
cast
in favor of the Amendment exceed the number of votes cast in opposition to
the
Amendment. If the Amendment is not approved by the shareholders of the Company,
the Plan will continue in effect as amended prior to November 11,
2005.
Certain
Interests of Directors
In
considering the recommendation of the Board of Directors with respect to
the
Amendment, shareholders should be aware that some members of the Board of
Directors have certain interests which may present them with conflicts of
interest in connection with such proposal. Specifically, current directors
who
are employees of the Company are key employees eligible to participate in
the
Plan. The Board of Directors recognizes that adoption of the Amendment may
benefit individual directors of the Company and their successors, but it
believes that approval of the Amendment will strengthen the Company's ability
to
continue to attract, motivate and retain qualified employees, officers and
directors and advance the interests of the Company and its shareholders by
encouraging key employees to make significant contributions to the long-term
success of the Company. The Board of Directors believes that the Amendment
is in
the best interests of the Company and its shareholders, and therefore
unanimously recommends a vote FOR the proposal to approve the Amendment.
THE
BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS
VOTE FOR THE AMENDMENT OF THE INCENTIVE PLAN.
TO
RATIFY THE AMENDMENT TO THE FRANKLIN COVEY CO. 2004 NON-EMPLOYEE DIRECTORS’
STOCK INCENTIVE PLAN, CHANGING THE ANNUAL AWARD TO PARTICIPANTS TO A RESTRICTED
STOCK AWARD OF 4,500 SHARES.
Background
On
November 11, 2005, the Company’s Board of Directors adopted an amendment to the
Franklin Covey Co. 2004 Non-Employee Directors’ Stock Incentive Plan (the
“Amendment to the Directors’ Plan”), subject to the approval of the Company’s
shareholders. A copy of the Amendment to the Directors’ Plan is attached as
Appendix B to this Proxy Statement, and is incorporated by this reference.
The
Amendment is intended to more closely align the interests of the participants
in
the Plan with those of the shareholders by changing the annual award to the
grant of a restricted stock award for a fixed number of shares rather than
a
fixed dollar amount. Under the previous provisions of the Directors’ Plan, each
non-employee director received an annual restricted share award with a value
(based on the trading price of the Company’s common stock on the date of award)
equal to $27,500. Additional supplemental awards could be made at the discretion
of the Board of Directors. The amendment changes the annual restricted share
grant to 4,500 shares, so that if the trading price of the Company’s common
stock increases, the participants would benefit and if it decreases, the
participants would receive an award with a smaller dollar value. The Board
of
Directors would retain the right to make supplemental awards to individual
directors in the discretion of the Board. The Amendment also eliminates the
limitation on the maximum dollar value of all awards made to an individual
director under the Plan in any given year of $37,500. Consequently, the dollar
value of the annual award or any supplemental awards mde during that year
is no
longer limited. If the Amendment to the Directors’ Plan is not ratified by the
shareholders, the annual award and supplemental awards will be calculated
in
accordance with the old provisions.
General
Description of the Plan
The
following description of the Directors’ Plan does not purport to be complete and
is qualified in its entirety by the full text of the Plan.
Purpose.
The
purpose of the Directors’ Plan is to provide a method whereby non-employee
directors of the Company who are ineligible to participate in the Company’s
Incentive Plan will have an opportunity to acquire a proprietary interest
in the
Company through the acquisition of shares of Common Stock. The Board of
Directors believes that the Directors’ Plan is important because it provides
incentives to present and future non-employee directors of the Company by
allowing them to share in the growth of the Company.
Administration.
The
Compensation Committee of the Board of Directors will administer the Directors’
Plan. Except for actions specifically reserved to the full Board of Directors,
the Compensation Committee has the authority to interpret and construe all
provisions of the Directors’ Plan and to make decisions and determinations
relating to the operation of the Directors’ Plan.
Duration.
The
Directors’ Plan will remain in effect until March 31, 2015 unless terminated
earlier by the Board of Directors.
Dilution/Shares
Subject to Directors’ Plan.
The
maximum number of shares of Common Stock that may be issued under the Directors’
Plan is 300,000 shares. Awards under the Directors’ Plan that are forfeited or
expire, or are settled in cash, do not count against the plan limits. Shares
issued under the Directors’ Plan may either be newly issued shares or treasury
shares. In the event the outstanding shares of Common Stock are increased,
decreased, changed into, or exchanged for a different number or kind of shares
or securities of the Company through reorganization, merger, recapitalization,
reclassification, stock split, reverse stock split or a similar transaction,
the
maximum number of shares available for issuance under the Directors’ Plan shall
be proportionately adjusted.
Eligibility.
Participation in the Directors’ Plan is limited to directors of the Company who
are not employees of the Company or any of its subsidiaries. Such non-employee
directors are ineligible to participate in the Company’s Incentive Plan. As of
November 25, 2005, the Company had six non-employee directors who would be
eligible to participate in the Directors’ Plan.
Types
of Awards Under the Directors’ Plan.
The
Directors’ Plan permits the grant of different kinds of stock-based awards. The
Directors’ Plan provides for certain fixed annual awards to non-employee
directors (“Basic Annual Awards”) and discretionary additional awards as
determined by the full Board of Directors (“Supplemental Grants”). The Company
believes this flexibility is important because it allows the Company to adapt
its equity compensation practices to changing business conditions. Subject
to
the specific limitations contained in the Directors’ Plan and the powers
reserved to the full Board of Directors, the Compensation Committee generally
has broad discretion to set the particular terms and conditions of individual
awards.
The
specific types of awards permitted by the Directors’ Plan, and some of the key
limitations on those awards, are described below.
Restricted
Stock.
Restricted Stock is an award of shares of Common Stock subject to vesting
over a
restricted period specified in the award agreement evidencing the Restricted
Stock. During the restricted period, the shares may not be transferred and
are
subject to forfeiture. Potential events of forfeiture include termination
of
service as a director prior to a stated vesting date or detrimental activity
on
the part of the holder. Regardless of the vesting schedule otherwise specified
in the applicable award agreement evidencing a grant of Restricted Stock,
the
holder of Restricted Stock will automatically vest in such shares if he ceases
to be a director as a result of death or voluntary retirement from the Board
of
Directors at or after age 59 (“Retirement”), or upon a “Change in Control” as
described below. The holder of Restricted Stock is treated as a registered
shareholder with the right to receive dividends and vote the shares during
the
restricted period.
Restricted
Stock awards vest at specified amounts over a minimum period of three
years, except in case of death, Retirement or a Change in Control.
Stock
Options.
Stock
options give the holder the right to purchase shares of Common Stock at a
specified exercise price during specified periods. Stock options are subject
to
the following limitations:
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●
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The
exercise price per share may not be less than the fair market value
per
share of Common Stock on the date of grant. For this purpose, fair
market
value is the average of the reported high and low selling prices
per share
of Common Stock on the NYSE on the date of grant (or on the last
trading
day preceding the date of grant if the date of grant is not a trading
day).
|
|
●
|
Options
may not be exercised for a period of at least one year after the
date of
grant, except in the case of death, Retirement or a Change in
Control.
|
|
●
|
The
maximum term of an option is 10 years.
|
|
●
|
The
exercise price may not be reduced after grant.
|
|
●
|
Except
in the case of cessation of director status as a result of death
or
Retirement, to the extent vested, a stock option may only be exercised
prior to the date that is six months after the holder ceases to
be a
director of the Company. Stock options held by holders whose status
as a
director ceases as a result of death or Retirement may be exercised
up to
five years after the date of death or Retirement, but in no event
later
than expiration of the initial 10-year term of such options.
|
Deferred
Stock.
Deferred stock is an award of shares of Common Stock to be delivered in one
or
more installments after expiration of specified vesting and deferral periods.
During the deferral period prior to vesting, a holder of Deferred Stock may
be
paid cash amounts corresponding to dividends (“Dividend Equivalents”) that would
have been paid had the shares been outstanding, but does not have voting
or
other shareholder rights.
Formula
Grants.
Subject
to shareholder ratification, as of March 31 of each year, commencing
March 31, 2006, the Company will automatically grant to each eligible
non-employee director under the Directors’ Plan a formula grant consisting of
4,500 Restricted Shares. The prior provisions provided for an annual grant
having a fair market value on the date of grant equal to $27,500, rounded
up to
the nearest whole share.
Supplemental
Grants.
The
Company may award Supplemental Grants of Restricted Stock, Options and/or
Deferred Stock to eligible non-employee directors at such times, and on such
terms and conditions as the Board of Directors determines.
Limitation
on Value of Individual Grants.
Subject
to shareholder ratification, the value of all awards made to an individual
director during any calendar year under the terms of the Directors’ Plan will no
longer be limited. Under the prior provisions, the value of the annual award
and
any supplemental award could not exceed $37,500 based on the trading price
for
the Company’s common stock as of the date of the award.
Accelerated
Vesting on Changes in Control.
All
outstanding awards of Restricted
Stock, Options and Deferred Stock under the Directors’ Plan will vest and become
non-forfeitable upon a Change in Control with respect to the Company. A Change
in Control includes a transaction or integrated series of transactions in
which
any person acquires beneficial ownership of 20 percent or more of the voting
power of the Company’s outstanding securities. It also includes certain changes
over a two-year period in the composition of the majority of Company’s Board of
Directors made without the approval of three quarters of the incumbent
Board.
Amendment
and Termination.
The
Board of Directors may amend, suspend or terminate the Directors’ Plan or any
portion thereof at any time; provided, however, that no amendment may be
made
without shareholder approval to the extent such amendment would increase
the
number of shares that may be issued under the plan or otherwise materially
modify or extend the plan.
General
Provisions.
No
stock options under the Directors’ Plan may be assigned, transferred, pledged or
otherwise disposed of in any way by a participant other than by will or the
laws
of descent and distribution. Stock Options under the Directors’ Plan will be
exercisable during a participant’s lifetime only by the participant, his
guardian or legal representative. Until vested and non-forfeitable, no
Restricted Stock or rights with respect to Deferred Stock may be assigned,
transferred, pledged or otherwise disposed of in any way by a participant
other
than by will or the laws of descent and distribution.
Determinable
Benefits.
Only
non-executive directors are eligible to participate and will benefit from
the
Directors’ Plan. On each March 31, commencing March 31, 2006, each participant
will receive a restricted stock award of 4,500 shares. In addition, supplemental
awards can be made to individual directors at the discretion of the Board.
The
value of the annual award and any supplemental award is not
determinable.
Federal
Income Tax Consequences
The
following tax discussion is a brief summary of the United States federal
income
tax law applicable to the Directors’ Plan. The discussion is intended solely for
general information and omits certain information that does not apply generally
to all participants in the Directors’ Plan.
Restricted
Stock.
Directors generally recognize as taxable income the fair market value of
Restricted Stock on the date the restricted period ends; provided, however,
that
directors may instead elect under Section 83(b) of the Code to be taxed on
the value of such Restricted Stock at the time granted. The Company is entitled
to a corresponding tax deduction at the same time the value of the Restricted
Stock is taxable compensation to the Director. Absent an election by a director
to accelerate taxation of his Restricted Stock to the date of grant, dividends
or dividend equivalents paid during the restricted period are taxable
compensation to the director when paid and are deductible by the
Corporation.
Stock
Options.
Stock
options will be granted in the form of non-qualified stock options (“NQSOs”)
only. Directors will not realize compensation income upon the grant of an
NQSO.
At the time of exercise of an NQSO, the holder will realize compensation
income
in the amount of the spread between the exercise price of the option and
the
fair market value of the underlying shares of Common Stock on the date of
exercise. The Company will generally be entitled to a corresponding deduction
at
the time, equal to the amount of compensation income realized upon option
exercise.
Deferred
Stock.
Directors generally recognize as taxable income the fair market value of
Deferred Stock on the date the restricted period ends. The Company is entitled
to a corresponding tax deduction at the same time the value of the Deferred
Stock is taxable to the director. Dividend Equivalents paid during the
restricted period are taxable compensation to the director when paid and
are
deductible by the Corporation.
Plan
Benefits
Participation
in the Directors’ Plan is limited to non-employee directors so that awards under
the Plan will only benefit those directors.
Certain
Interests of Directors
In
considering the recommendation of the Board of Directors with respect to
the
Amendment, shareholders should be aware that all of the non-employee members
of
the Board of Directors have an interest in the Plan, which presents them
with a
conflict of interest in connection with such proposal. Specifically, current
directors who are not employees of the Company will receive annual and,
potentially, supplemental awards under the Plan. The Board of Directors
recognizes that adoption of the Amendment may benefit individual directors
of
the Company and their successors, but it believes that approval of the Amendment
will more closely align the interests of the participants in the Plan and
the
shareholders. The Board of Directors believes that the Amendment is in the
best
interests of the Company and its shareholders, and therefore unanimously
recommends a vote FOR the proposal to ratify the Amendment.
THE
BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS
VOTE FOR THE AMENDMENT OF THE DIRECTORS’ PLAN.
TO
APPROVE THE ADOPTION OF THE AMENDMENT TO THE ARTICLES OF
INCORPORATION
General
On
March
4, 2005, the Shareholders of the Company adopted the Amended and Restated
Articles of Incorporation (the “Articles”), Section
C.7(a), which provides that the Company may, (i) during the time period
commencing March 8, 2005 and ending March 8, 2006 (the “Initial Redemption
Period”), redeem some or all of its Series A Preferred Shares (“Senior
Preferred”) at 100% of the Liquidation Price of $25 per share, plus accrued and
unpaid dividends to the date of payment (the aggregate payment being the
“Redemption Price,” and the right to redeem during the Initial Period being the
“Initial Redemption Right”), and (ii) commencing March 8, 2011, redeem some or
all of the Senior Preferred at 101% of the Liquidation Price, plus accrued
and
unpaid dividends. The outstanding Senior Preferred bears a cumulative annual
dividend equal to 10% of the Liquidation Price.
On
July
5, 2005, the Company made an initial redemption of the Senior Preferred by
redeeming 1,200,000 shares of the then-outstanding Senior Preferred for $30
million, thereby reducing its divided obligation by $3 million per year.
On
November 11, 2005, the Company made its second partial redemption by redeeming
400,000 shares of the then outstanding Senior Preferred for $10 million,
which
resulted in a reduction to the dividend obligation of $1 million per year.
The
Company currently has 1,893,781 shares of Senior Preferred outstanding with
an
aggregate Liquidation Price of $47.3 million.
On
November 11, 2005, the Board of Directors of the Company adopted an amendment
to
Section C.7(a) of the Articles (the “Articles Amendment”), to become effective
upon approval of the Company’s shareholders. A copy of the Articles Amendment,
which extends the period during which the Company has the right to redeem
the
Senior Preferred at the Redemption Price, is attached as Appendix C to this
Proxy Statement and incorporated by reference into this Proxy Statement.
The
following description of the Articles Amendment does not purport to be complete
and is qualified in its entirety by reference to the full text thereof. The
Board believes that it is in the best interests of the Company’s shareholders to
adopt the Articles Amendment.
Purpose
The
purpose of the Articles Amendment is to extend the time periods during which
the
Company may redeem Senior Preferred provided the Company meets the specified
minimum redemption thresholds prior to the redemption deadlines. The Company
currently has the right under its Articles to redeem shares of Senior Preferred
until March 8, 2006 at 100% of the Redemption Price, after which it may not
redeem Senior Preferred until March 8, 2011, at which time the Redemption
Price
increases to 101% of the Senior Preferred Liquidation Price, plus accrued
and
unpaid dividends. The redemption of the Senior Preferred reduces the annual
cumulative Senior Preferred dividend (of 10% ), reduces the number of Senior
Preferred shares outstanding, and will reduce the quarterly monitoring fee
on a
pro-rata basis as Senior Preferred shares are redeemed. The Board believes
it is
in the best interests of the Company and its shareholders to extend the period
of time during which the Company may redeem Senior Preferred.
Special
Committee Consideration and Recommendation
A
Special
Committee of independent members of the Board of Directors (the “Special
Committee”), unanimously determined that the Articles Amendment is in the best
interests of the Company’s common shareholders and recommended that the Board of
Directors approve the Articles Amendment. The Board of Directors, taking
into
account the findings and recommendation of the Special Committee and with
members Robert A. Whitman and Donald J. McNamara abstaining because each
has or
has had a financial interest in Knowledge Capital as described in more detail
under “Certain Relationships and Related Transactions,” unanimously determined
that the Articles Amendment is in the best interests of the Company’s common
shareholders, approved the Articles Amendment and recommended that shareholders
vote FOR approval of the Articles Amendment proposal.
Description
of the Articles Amendment
Pursuant
to the Articles Amendment, the Company will, in addition to retaining its
Initial Redemption Right, have the right during the period beginning on March
8,
2006 and ending on December 31, 2006 (the “Second Redemption Period”) to redeem
all or any portion of the then-outstanding Senior Preferred at 100% of the
Redemption Price, provided it has redeemed during the Initial Redemption
Period
at least $10 million worth of Senior Preferred in addition to the initial
redemption of $30 million (this condition was satisfied by the November 11,
2005
redemption). Provided it has redeemed during the Initial Redemption Period
and/or the Second Redemption Period at least $20 million worth of Senior
Preferred, excluding the initial $30 million redemption, the Company shall
have
the right during the period beginning on December 31, 2006 and ending on
December 31, 2007, to redeem all or any portion of the then-outstanding Senior
Preferred at 100% of the Redemption Price. For a period of five years commencing
on the last day of the latest of these three periods in which the Company
has
redeemed Senior Preferred, the Company will have no right to redeem Senior
Preferred (the “Lock-Out Period”). Following the Lock-Out Period, the Company
will have the ongoing right to redeem all or any portion of the remaining
Senior
Preferred at 101% of the Liquidation Price, plus accrued and unpaid dividends
to
the date of payment.
Required
Shareholder Vote
Pursuant
to the Utah Revised Business Corporation Act (the “URBCA”), Shareholder approval
of the Articles Amendment requires the affirmative vote of:
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●
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a
majority of the votes cast by holders of Common Stock and Series A
Preferred Stock, voting together as a single class, provided that
a quorum
is present;
|
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●
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a
majority of the votes entitled to be cast by holders of the Senior
Preferred, voting separately as a class; and
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a
majority of the votes cast by holders of Common Stock, excluding
holders
of Series A Preferred Stock, voting as a single class, provided that
a quorum is present.
|
As
a
result of its Common Stock and Series A Preferred Stock share ownership as
of
the Record Date:
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Knowledge
Capital is entitled to cast 4,501,410 votes for its shares of
Series A Preferred Stock and its Common Stock holdings, which
collectively are approximately 18% of the votes entitled to be
cast by the
holders of Common Stock and Series A Preferred Stock voting together
and without regard to class;
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Knowledge
Capital is entitled to cast 1,015,002 votes for the shares of Common
Stock
it owns, excluding its shares of Series A Preferred Stock, which are
approximately 5% of
the votes entitled to be cast by the holders of Common Stock excluding
all
holders of Series A Preferred Stock; and
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Knowledge
Capital is entitled to cast 3,486,408 votes for the shares of
Series A Preferred Stock it owns, which are approximately
92% of
the votes entitled to be cast by holders of Series A Preferred Stock
voting as a separate class.
|
Pursuant
to a Voting Agreement dated as of October 20, 2005 (the "Voting Agreement")
between the Company and Knowledge Capital, Knowledge Capital has agreed to
vote
all shares of the Company's capital stock it owns, including shares of Common
Stock and Series A Preferred Stock, in favor of the Articles Amendment.
Knowledge Capital controls approximately (i) 92% of the Series A Preferred
Stock, (ii) 18% of the total voting power of the Common Stock including the
Common Stock voting power of all shares of Series A Preferred Stock and (iii)
5%
of the Common Stock voting power excluding the Common Stock voting power
of any
shares of Series A Preferred Stock. As a result of Knowledge Capital's
ownership, the approval of the Articles Amendment required by the holders
of the
Series A Preferred Stock, voting as a separate class, is assured.
If
the
shareholders approve the Articles Amendment proposal, the Board of Directors
presently intends to effect the Articles Amendment by filing articles of
restatement amending and restating its Articles of Incorporation with the
Utah
Department of Commerce, Division of Corporations and Commercial Code (the
“Division of Corporations”). The articles of restatement are in the form
attached hereto as Appendix C and are incorporated by reference into this
Proxy Statement (the “Restated Articles”). The Restated Articles will be
effective upon the acceptance of their filing by the Division of Corporations.
If the shareholders do not approve the Articles Amendment, the Restated Articles
will not be filed and the current Articles of Incorporation of the Company
will
remain in full force and effect.
THE
BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS
VOTE FOR THE AMENDMENT OF THE ARTICLES OF INCORPORATION.
TO
APPROVE THE RATIFICATION OF THE INDEPENDENT REGISTERED PUBLIC
ACCOUNTANTS
The
Audit
Committee of the Board of Directors has selected the firm of KPMG to audit
the
financial statements of the Company for the fiscal year ending August 31,
2006, and is seeking the ratification of that choice by the
shareholders of the Company. However, the Audit Committee is responsible
for the
selection and ongoing oversight of the auditors and has the authority
to replace KPMG as the auditors for the 2006 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.
Audit
Fees
The
following table shows the fees paid or accrued by the Company for audit and
other services provided by KPMG for fiscal years 2005 and 2004:
|
Fiscal
2005
|
Fiscal
2004
|
||||||
|
Audit
Fees (1)
|
$
|
684,436
|
$
|
373,606
|
|||
|
Audit-Related
Fees (2)
|
3,655
|
16,600
|
|||||
|
Tax
Fees (3)
|
42,820
|
45,832
|
|||||
|
All
Other Fees
|
-
|
-
|
|||||
|
$
|
730,911
|
$
|
436,038
|
||||
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(1)
|
Audit
Fees represent fees and expenses for professional services provided
in
connection with the audit of the Company’s financial statements found in
the Annual Report on Form 10-K and reviews of the Company’s Quarterly
Reports on Form 10-Q, procedures related to registration statements,
and accounting consultations on actual
transactions.
|
|
(2)
|
Audit-Related
Fees primarily consisted of fees and expenses for the Company’s employee
benefit plan audits, accounting consultation on proposed
transactions.
|
|
(3)
|
Tax
Fees consisted primarily of fees and expenses for services related
to tax
compliance, tax planning, and tax
consulting.
|
The
Audit
Committee pre-approves all audit-related and non-audit services to be performed
by the Company’s independent registered public accountants and subsequently
reviews the actual fees and expenses paid to KPMG. All the audit-related
and
non-audit services provided by KPMG during fiscal 2005 and fiscal 2004 were
pre-approved by the Audit Committee. The Audit Committee has determined that
the
fees paid to KPMG for non-audit services are compatible with maintaining
KPMG’s
independence as the Company’s independent registered public
accountants.
Audit
Committee Report
In
accordance with its written charter adopted by the Board of Directors, the
Audit
Committee assists the Board in fulfilling its responsibility for oversight
of
the quality and integrity of the accounting, auditing and financial reporting
practices of the Company.
In
discharging its oversight responsibility as to the audit process, the Audit
Committee obtained from the independent registered public accountants a formal
written statement describing all relationships between the auditors and the
Company that might bear on the auditors’ independence consistent with
Independence Standards Board Standard No. 1, “Independence Discussions with
Audit Committees,” discussed with the auditors any relationships that may impact
their objectivity and independence and satisfied itself as to the auditors’
independence.
The
Audit
Committee discussed and reviewed with the independent registered public
accountants all communications required by auditing standards generally accepted
in the United States of America, including those described in Statement on
Auditing Standards No. 61, as amended, “Communication with Audit
Committees” and, with and without management present, discussed and reviewed the
results of the independent registered public accountants’ work.
The
Audit
Committee reviewed the audited financial statements of the Company as of
and for
the fiscal year ended August 31, 2005, and met with and discussed such
financial statements with management and the independent registered public
accountants.
Based
on
the above-mentioned review and discussions with management and the independent
auditors, the Audit Committee recommended to the Board that the Company’s
audited financial statements be included in its Annual Report on Form 10-K
for the fiscal year ended August 31, 2005, for filing with the Securities
and Exchange Commission. The Audit Committee also authorized the
reappointment of KPMG.
|
Date:
November 12, 2005
|
E.J.
“Jake” Garn, Chairperson
Robert
H. Daines
Joel
C. Peterson
|
THE
BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE PROPOSAL TO RATIFY THE
SELECTION OF KPMG AS INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS FOR THE COMPANY
FOR THE FISCAL YEAR ENDING AUGUST 31, 2006.
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 2007 must be received by the Company, at the Company’s
executive offices (2200 West Parkway Boulevard, Salt Lake City, Utah 84119-2331)
no later than August 11, 2006, 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 2007 is changed by more than 30 days from the date of the annual meeting
of
shareholders to be held in calendar year 2006. Such proposals must also comply
with the requirements as to form and substance established by the Commission
if
such proposals are to be included in the Company’s proxy statement and form of
proxy.
Pursuant
to rules adopted by the Commission, if a shareholder intends to propose any
matter for a vote at the Company's annual meeting of shareholders to be held
in
calendar year 2007 but fails to notify the Company of that intention prior
to
October 25, 2006, 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 2007 is changed by more than 30 days from the
date
of the annual meeting of shareholders to be held in calendar year
2006.
INFORMATION
REGARDING FORWARD-LOOKING STATEMENTS
The
Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for
forward-looking statements. Certain information included in this Proxy Statement
and the documents we incorporate by reference is forward-looking. Such
forward-looking information involves important risks and uncertainties that
could significantly affect expected results in the future and cause them
to be
different from those expressed in any forward-looking statements made by,
or on
behalf of, the Company. These risks and uncertainties include, but are not
limited to, uncertainties related to the Company’s ability to further penetrate
its markets and the related costs of that effort, economic conditions,
acquisitions and divestitures, government and regulatory policies, the pricing
and availability of materials and inventories, technological developments,
and
changes in the competitive environment in which the Company
operates.
WHERE
YOU CAN FIND MORE INFORMATION
The
Company files annual, quarterly and current reports, proxy statements and
other
information with the SEC. You may read and copy any document the Company
files
at the SEC’s public reference room, 450 Fifth Street, Washington, D.C. 20549.
You can also request copies of the documents, upon payment of a duplicating
fee,
by writing the Public Reference Section of the SEC. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. These
SEC
filings are also available to the public from the SEC’s web site at
http://www.sec.gov.
The
SEC
allows the Company to incorporate by reference the information it files with
the
SEC, which means that it can disclose important information to you by referring
you to those documents. The information incorporated by reference is considered
to be part of this Proxy Statement, except for any information superseded
by
information in this Proxy Statement. The Proxy Statement incorporates by
reference the following information from the Annual Report on Form 10-K,
filed
with the SEC on November 29, 2005, for the fiscal year ended August 31, 2005:
Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and
Results of Operations; Part II, Item 7A, Quantitative and Qualitative
Disclosures About Market Risk; and Part III, Item 8, Financial Statements
and
Supplemental Data.
The
Company will provide without charge to any person from whom a Proxy is solicited
by the Board of Directors, upon the written request of such person, a copy
of
the Company’s 2005 Annual Report on Form 10-K, including the financial
statements and schedules thereto (as well as exhibits thereto, if specifically
requested), required to be filed with the Securities and Exchange Commission.
Written requests for such information should be directed to Franklin Covey
Co.,
Investor Relations Department, 2200 West Parkway Boulevard, Salt Lake City,
Utah
84119—2331, Attn: Mr. Richard Putnam.
You
should rely only on the information contained in or incorporated by reference
in
this Proxy Statement. The Company has not authorized anyone to provide you
with
information different from that contained in or incorporated by reference
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. Any statement contained in the documents
incorporated by reference will be modified or superseded for purposes of
this
Proxy Statement to the extent that a statement contained in a subsequently
dated
document incorporated by reference or in this Proxy Statement modifies or
supersedes the statement.
Appendix
A
FIFTH
AMENDMENT TO THE
FRANKLIN
COVEY CO. AMENDED AND RESTATED
1992
STOCK INCENTIVE PLAN
1. Section
2.2 of the Plan is hereby amended to add the following sentence at the end
thereof:
Additionally,
a member of the Board shall be “disinterested” only if he or she is an “outside
director” within the meaning of section 162(m) of the Code.
2. Article
3
of the Plan is hereby amended to read in its entirety as follows:
ARTICLE
3. LIMITATION ON AWARDS
3.1 Available
Common Shares.
The
aggregate maximum number of
Common
Shares issued pursuant to Restricted Shares, Stock Units (including
Performance
Shares) and Options awarded under the Plan shall not exceed 7,000,000. Within
this overall limitation, the following additional limitations shall
apply:
(a) No
more
than 7,000,000 Common Shares may be issued under ISOs;
(b) No
more
than 250,000 Common Shares may be granted under Options or SARs to any one
Participant in any one Award Year;
(c) No
more
than 250,000 Restricted Shares may be awarded under the Plan to any one
Participant in any one Award Year; and
(d) No
more
than 250,000 Common Shares may be issued pursuant to Stock, Units, including
Performance Shares, to any one Participant in any one Award Year.
(e) No
more
than 1,400,000 Common Shares may be issued under this Plan pursuant to Stock,
Units, including Performance Shares.
3.2 Adjustments.
To the
extent an Award under this Plan is settled in cash, expires, or is forfeited
or
cancelled, then except as provided below, Common Shares subject to the Award
will not be considered to have been issued and will not be applied against
the
maximum number of Common Shares available for future issuance under the Plan.
If, however, Options are surrendered upon the exercise of related SARs, then
the
Common Shares underlying such Options shall not be restored to the pool
available for future Awards. Any dividend equivalents distributed under the
Plan
shall not be applied against the number of Common Shares available for future
Awards, whether or not such dividend equivalents are converted into Stock
Units.
Shares surrendered to or withheld by the Company in payment of the exercise
price or applicable withholding taxes upon exercise or settlement of an Award
shall not be restored to the pool available for future Awards. The limitations
of this Article 3 shall be subject to adjustment pursuant to Article
10.
3.3 Source
of Common
Shares.
Any
Common Shares issued pursuant to the Plan may be authorized but unissued
Common
Shares or treasury Common Shares.
3. Section
8.1 of the Plan is amended to read in its entirety as follows:
8.1 Time,
Amount, and Form of Awards.
The
Board may grant
Restricted
Shares or Stock Units with respect to an Award Year during such Award Year
or at
any time thereafter. The Board may also grant Stock Units in the form of
Performance Shares as described in Section 8.7 below. The amount of each
Award
of Restricted Shares, Stock Units, or Performance Shares shall be determined
by
the Board.
4. Article
8
of the Plan is hereby amended to add a new Section 8.7 to read in its entirety
as follows:
8.7 Performance
Shares.
(a) Subject
to the other terms of this Plan, the Company may grant Performance Shares
to
selected Participants upon such terms and conditions as the Board determines,
including: the applicable performance periods and performance criteria; maximum,
minimum and target settlement values, if applicable; and whether or not the
Participant has the right to vote the Performance Shares or receive dividends
or
dividend equivalency amounts on the Performance Shares. However, the performance
period for Performance Shares granted under this Section 8.7 may not be less
than 12 months. The Committee will determine the extent to which performance
criteria related to Performance Shares have been achieved within the applicable
performance periods and certify such determination in writing to the extent
required to comply with section 162(m) of the Code.
(b) Performance
Shares granted to the Company’s Chief Executive Officer, the other four most
highly compensated officers, and any other person with respect to whom the
deduction limits of section 162(m) of the Code apply as of the end of each
taxable year of the Company will be subject to the following additional
terms:
(i) The
applicable performance period shall not be less than three years;
and
(ii) The
number of Common Shares issuable in connection with the Award shall be based
upon the degree to which the Company attains Board-designated levels of
performance during the applicable performance period with respect to the
following performance criteria (“Performance Criteria”): (x) the performance
period aggregate income (loss) from operations of the Company and its
consolidated subsidiaries, and (y) the performance period aggregate revenue
growth of the Company and its consolidated subsidiaries. In no event shall
the
maximum number of Common Shares issued to any individual Participant under
any
Performance Share Award exceed 250,000 Common Shares (subject to adjustment
under Article 10 below) in any one Award Year.
(c) In
connection with each Award of Performance Shares, the Board shall determine
the
targeted levels of revenue growth and cumulative operating income which the
Company must achieve in order for the Participant to obtain a designated
minimum
number Common Shares under the Award, the targeted number Common Shares under
the Award, and the maximum number Common Shares under the Award, which maximum
shall not exceed 200% of the targeted Award level and which minimum shall
not be
less than 30% of the targeted Award level. A Participant shall receive no
Common
Shares under an Award if the Company does not achieve the targeted levels
of
revenue growth and cumulative operating income necessary to achieve 30% of
the
targeted Award level. All such Performance Criteria shall be established
in
writing by the Board not later than 90 days after commencement of the applicable
performance period.
(d) Notwithstanding
satisfaction at the time of vesting of an Award, if specified in the applicable
Award agreement, the number of Common Shares or other benefits granted and/or
vested under an Award on account of satisfaction of such Performance Criteria
may be reduced by the Board on the basis of such further considerations,
including but not limited to any extraordinary non-recurring events and items
as
described in Accounting Principles Board Opinion No. 30 and/or in management’s
discussion and analysis of financial condition and results of operations
appearing in the Company’s annual report to shareholders for the applicable
year, as the Board in its sole discretion shall determine.
(e) Except
as
otherwise provided in this Section 8.7, Performance Shares shall be treated
as
Stock Units for all other purposes under the Plan unless the context clearly
requires otherwise.
(f) The
Board
may make the vesting of any Award of Performance Shares, and the delivery
of
Common Shares thereunder, contingent upon shareholder approval of the applicable
Performance Criteria and goals to the extent the Board determines such
shareholder approval necessary to comply with section 162(m) of the
Code.
5. Section
15.1 of the Plan is hereby amended as follows:
15.1
Term
of the Plan.
The
Plan, as set forth herein, became effective on March
30,
1992. The Plan shall remain in effect until it is terminated under Section
15.2,
except that no ISOs shall be granted after November 11, 2015.
6. Article
16 of the Plan is hereby amended as follows:
(a) In
Section 16.1, the definition of “Award” is hereby amended to include
as a type of Award “Performance Shares.”
(b) In
Section 16.23, the definition of “Stock Unit” is amended to add the following
sentence at the end thereof: “’Stock Unit’ includes a Performance Share.”
(c) The
definition of “Performance Shares” is hereby added to read as follows:
“Performance Share” means a Stock Unit under which the recipient is entitled to
receive a Common Share at a subsequent date, subject to the attainment of
specified Performance Criteria.
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7.
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Except
as provided above, the Plan is ratified and confirmed in all
respects.
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IN
WITNESS WHEREOF, the Company has caused this Fifth Amendment to the Franklin
Covey Co. Amended and Restated 1992 Stock Incentive Plan to be executed by
its
duly authorized officer as of the date first written above.
FRANKLIN
COVEY CO.
Appendix
B
FIRST
AMENDMENT TO FRANKLIN COVEY
2004
NON-EMPLOYEE DIRECTORS’
STOCK
INCENTIVE PLAN
The
following amendment was voted on and approved by the Board of Directors on
November 11, 2005 at its regularly scheduled Board meeting:
Section
5.03 of the Franklin Covey 2004 Non-employee Directors’ Stock Incentive Plan is
hereby eliminated in its entirety.
Section
13 of the Franklin Covey 2004 Non-employee Directors’ Stock Incentive Plan is
hereby amended by deleting Section 13 in its entirety and substituting the
following in place thereof:
| 13. |
Annual
Grant of Restricted Stock
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The
Company will award to each Eligible Director on March 31 of each year 4,500
Restricted Shares.
Appendix
C
AMENDMENT
TO AMENDED AND RESTATED ARTICLES OF INCORPORATION OF FRANKLIN COVEY
The
Amended and Restated Articles of Incorporation of Franklin Covey Co., dated
March 4, 2005, are hereby amended by deleting Section C.7 (a) in its entirety
and substituting the following in place thereof:
Section
C.7
(a)
Redemption
Right.
The
shares of Senior Preferred will not be redeemable, except as otherwise agreed
between the Company and any holder or holders of Senior Preferred and except
that:
(i)
during the period beginning on March 8, 2005 and ending on March 8, 2006
(the
“Initial
Redemption Period”),
the
Company may, upon 15 business days prior notice to the holders of Senior
Preferred, redeem all or any portion of the then-outstanding Senior Preferred
at
100% of the then-applicable Liquidation Price plus accrued and unpaid dividends
to the date of payment; and
(ii) provided
it has redeemed during the period from July 15, 2005 through the end of the
Initial Redemption Period 400,000 shares of Senior Preferred Stock , the
Company
shall have the right during the period beginning on March 9, 2006 and ending
on
December 31, 2006 (the “Second
Redemption Period”),
upon
15 business days prior notice to the holders of Senior Preferred, to redeem
all
or any portion of the then-outstanding Senior Preferred at 100% of the
then-applicable Liquidation Price plus accrued and unpaid dividends to the
date
of payment; and
(iii)
provided the Company has redeemed during the period beginning on July 15,
2005
through the end of the Second Redemption Period 800,000 shares of Senior
Preferred Stock, the Company shall have the right during the period beginning
on
January 1, 2007 and ending on December 31, 2007 (the “Third Redemption Period,”
each of the Initial Redemption Period, the Second Redemption Period and the
Third Redemption Period being called a “Redemption Period”), upon 15 business
days prior notice to the holders of Senior Preferred, to redeem all or any
portion of the then-outstanding Senior Preferred at 100% of the then-applicable
Liquidation Price plus accrued and unpaid dividends to the date of payment;
and
(iv)
beginning on the fifth anniversary of the expiration of the last Redemption
Period, during which the Company shall have the right to redeem Senior Preferred
Stock based on the Company’s redemption of Senior Preferred pursuant to subparts
(i) through (iii) of this Section 7(a), the Company may, upon 15 business
days
prior notice to the holders of Senior Preferred, redeem all or any portion
of
the then-outstanding Senior Preferred at 101% of the then-applicable Liquidation
Price plus accrued and unpaid dividends to the date of payment.
Any
partial redemption effected pursuant to this Section 7 shall be made on a
pro-rata basis among the holders of Senior Preferred in proportion to the
shares
of Senior Preferred then held by them. Notwithstanding anything to the contrary,
the mandatory conversion of shares of Series A Preferred into shares of Series
B
Preferred pursuant to Section 8 hereof may occur at any time during the
notice periods set forth in clauses (i) through (iv) of this
Section 7(a).
PROXY
This
Proxy is Solicited on Behalf of the Board of Directors
FRANKLIN
COVEY CO.
The
undersigned hereby appoints Richard R. Putnam _________ proxies, with full
power
of substitution, to vote, as designated below, all shares of Common Stock
and
Series A Preferred Stock of Franklin Covey Co. (the "Company"), which the
undersigned is entitled to vote at the Annual Meeting of shareholders of
the
Company ("Annual Meeting") to be held at the Hyrum W. Smith Auditorium, 2200
West Parkway Boulevard, Salt Lake City, Utah 84119-2331, on January 20, 2006,
at
8:30 a.m., local time, or any adjournment(s) thereof. This
proxy is solicited on behalf of the Board of Directors of the Company. If
no
instructions are specified, this proxy will be voted "FOR" all proposals
in
accordance with the recommendation of the board of
directors.
1. Election
of three directors of the Company, each to serve a term of three years expiring
at the annual meeting of shareholders of the Company to be held following
the
end of fiscal year 2008 and until their respective successors shall be duly
elected and shall qualify;
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FOR
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□
all nominees
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WITHHOLD
AUTHORITY
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□
all nominees
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FOR
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□
all nominees, except
WITHHOLD AUTHORITY for the nominee(s) whose names are lines out
below:
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Nominees:
Stephen R. Covey, Robert H. Daines and Dennis G. Heiner
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2. Proposal
to ratify the amendment of the Franklin Covey Co. 1992 Stock Incentive Plan
and
increase the maximum number of shares that can be awarded from 6,000,000
to
7,000,000;
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FOR
o
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AGAINST
o
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WITHHOLD
AUTHORITY o
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3. Proposal
to ratify the amendment to the Franklin Covey Co. 2004 Non-Employee Directors’
Stock Incentive Plan to change the amount of the annual award to participants
from a fixed dollar amount to a fixed share amount;
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FOR
o
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AGAINST
o
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WITHHOLD
AUTHORITY o
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4. Proposal
to amend the Articles of Incorporation to extend the term in which the Company
may redeem outstanding Series A and Series B Preferred Stock from March 8,
2006
to December 31, 2007;
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FOR
o
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AGAINST
o
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WITHHOLD
AUTHORITY o
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5.
Proposal
to ratify the appointment of KPMG LLP as the Company’s independent registered
public accountants for the fiscal year ending August 31, 2006;
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FOR
o
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AGAINST
o
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WITHHOLD
AUTHORITY o
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6. To
transact such other business as may properly come before the Annual Meeting
or
any adjournment(s) thereof.
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FOR
o
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AGAINST
o
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WITHHOLD
AUTHORITY o
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The
Board
of Directors unanimously recommends that the shareholders vote "FOR" all
proposals. To vote in accordance with the Board of Directors' recommendations,
sign below. The "FOR" boxes may, but need not, be checked. To vote against
any
proposal or to abstain from voting on any proposal, check the appropriate
box
above.
PLEASE
PRINT YOUR NAME AND SIGN EXACTLY AS YOUR NAME APPEARS IN THE RECORDS OF THE
COMPANY. WHEN SHARES ARE HELD BY JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING
AS AN ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE, OR GUARDIAN, PLEASE GIVE
FULL
TITLE AS SUCH. IF A CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT
OR OTHER AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP
NAME
BY AUTHORIZED PERSON.
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PLEASE
MARK, SIGN, DATE, AND RETURN THIS PROXY TO:
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Dated:
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Richard
Putnam
Franklin
Covey Co.
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Signature
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2200
West Parkway Boulevard
Salt
Lake City, Utah 84119-2331
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Signature
(if held
jointly)
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