NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
January 9, 1998
Franklin Covey
You are cordially invited to attend the Annual Meeting of Shareholders
of Franklin Covey Co. (the "Company"), which will be held on Friday, January 9,
1997 at 10:00 a.m., at the Hyrum W. Smith Auditorium, 2200 West Parkway
Boulevard, Salt Lake City, Utah 84119-2331 (the "Annual Meeting"), for the
following purposes:
(I) To elect a director of the Company, 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 2000 and until his respective
successor shall be duly elected and shall qualify;
(II) To consider and vote upon a proposal to ratify the appointment of
Arthur Anderson LLP as independent auditor of the Company for the
fiscal year ending August 31, 1998; and
(III)To transact such other business as may properly come before the
Annual Meeting or at any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on December 1,
1997, as the record date for the determination of shareholders entitled to
receive notice of and to vote at the Annual Meeting and at any adjournment or
postponement thereof.
All shareholders are urged to attend the meeting.
By Order of the Board of Directors
Hyrum W. Smith
Chairman of the Board
December 8, 1997
IMPORTANT
Whether or not you expect to attend the Annual Meeting in person, to
assure that your shares will be represented, please complete, date, sign and
return the enclosed proxy without delay in the enclosed envelope, which requires
no additional postage if mailed in the United States. Your proxy will not be
used it you are present at the Annual Meeting and desire to vote your shares
personally.
<PAGE>
FRANKLIN COVEY CO.
2200 West Parkway Boulevard
Salt Lake City, Utah 84119-2331
---------------------
PROXY STATEMENT
---------------------
Annual Meeting of Shareholders
January 9, 1998
SOLICITATION OF PROXIES
This Proxy Statement is being furnished to the shareholders of Franklin
Covey Co., a Utah corporation (the "Company"), in connection with the
solicitation by the Board of Directors of the Company of proxies from holders of
outstanding shares of the Company's Common Stock, $0.05 par value per share (the
"Common Stock"), for use at the Annual Meeting of Shareholders of the Company to
be held on Friday, January 9, 1998, 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 8, 1997.
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 therefor,
may solicit proxies personally or by telephone or telegram. 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 December 1,
1997, 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 24,780,928 shares of Common Stock. The holders
of record of the shares of Common Stock on the Record Date entitled to be voted
at the Annual Meeting are entitled to cast one vote per share on each matter
submitted to a vote at the Annual Meeting.
Proxies
Shares of Common Stock which are entitled to be voted at the Annual
Meeting and which are represented by properly executed proxies will be voted in
accordance with the instructions indicated on such proxies. If no instructions
are indicated, such shares will be voted FOR the election of the director
nominee, FOR the ratification of the appointment of Arthur Andersen LLP as the
independent auditor of the Company for the fiscal year ending August 31, 1998,
and, in the discretion of the proxy holder, as to any other matters which may
properly come before the Annual Meeting. A shareholder who has executed and
returned a proxy may revoke it at any time prior to its exercise at the Annual
Meeting by executing and returning a proxy bearing a later date, by filing with
the Secretary of the Company, at the address set forth above, a written notice
of revocation bearing a later date than the proxy being revoked, or by voting
the Common Stock covered thereby in person at the Annual Meeting.
Vote Required
A majority of the votes entitled to be cast at the Annual Meeting is
required for a quorum at the Annual Meeting. Abstentions and broker non-votes
are counted for purposes of determining the presence or absence of a quorum for
the transaction of business. In the election of the director, the nominee
receiving the highest number of votes will be elected. Accordingly, abstentions
and broker non-votes will not affect the outcome of the election. Approval of
other matters, including the ratification of the appointment of Arthur Andersen
as independent auditor for the Company, which may properly come before the
meeting generally requires that the number of votes cast in favor of the
proposal exceed the number of votes cast in opposition. Abstentions and broker
non-votes will not affect the outcome of any such matter. Holders of shares of
Common Stock are entitled to one vote at the Annual Meeting for each share of
Common Stock held of record at the Record Date.
ELECTION OF DIRECTORS
At the Annual Meeting, one director of the Company is to be elected to
serve a three-year term expiring at the annual meeting of shareholders to be
held following the end of fiscal year 2000 and until his successor shall be duly
elected and qualified. If the nominee should be unavailable to serve, which is
not now anticipated, the proxies solicited hereby will be voted for another
person as shall be designated by the present Board of Directors. The nominee
receiving the highest number of votes at the Annual Meeting will be elected.
In addition to the director to be elected at the Annual Meeting, the
directors named below will continue to serve their respective terms of office as
indicated. Jon H. Rowberry, Stephen M. R. Covey, Robert H. Daines, Thomas H.
Lenagh and E. J. "Jake" Garn are currently serving terms which expire at the
annual meeting of the Company's shareholders to be held following the end of
fiscal year 1998. Hyrum W. Smith, Stephen R. Covey, Robert F. Bennett, Beverly
B. Campbell and Dennis G. Heiner are currently serving terms which expire at the
annual meeting of the Company's shareholders to be held following the end of
fiscal year 1999. 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 2000. Brief statements
setting forth certain biographical information concerning the nominee and each
continuing director appear below.
Nominee for Election as Director
Certain information with respect to the nominee is set forth below.
Steven C. Wheelwright, 54, is the first Class of 1949 Professor of Business
Administration at Harvard Business School. He also currently serves as Senior
Associate Dean and MBA Program Chair. Dr. Wheelwright has also taught at
Stanford University's Graduate School of Business. Dr. Wheelwright has authored
several texts presenting concepts and tools proven effective in product and
process development for future success of manufacturing-based businesses. Dr.
Wheelwright is currently a director of Quantum Corporation, Heartport, TJ
International and O.C. Tanner Company.
Directors Whose Terms of Office Continue
Certain information with respect to continuing directors is set forth
below.
Jon H. Rowberry, 50, was employed by the Company as Senior Vice
President, Treasurer and Chief Financial Officer in September 1995, was
appointed as Executive Vice President in March 1996, Chief Operating Officer in
September 1996 and as President in February 1997. From 1985 to 1995, he was
employed in several executive positions with Adia S.A. (now Adecco), a
Switzerland domiciled international provider of personnel services and with Adia
Services, Inc., its U.S. subsidiary. He served as Chief Financial Officer of
Adia Services, Inc., from 1985 to 1992 and as Chief Financial Officer of Adia
S.A. from 1992 to 1994. From 1994 to 1995, he was Senior Vice President of
Specialty Brands and International Technology for Adia S.A. Mr. Rowberry also
currently serves as director for Hall Kinion. Mr. Rowberry is a Certified
Public Accountant. Mr. Rowberry's term as a director expires in 1998.
Stephen M. R. Covey, 35, has been Executive Vice President of the
Company since May 1997 responsible for Marketing and Innovation. From 1994 to
1997, Mr. Covey served as President and Chief Executive Officer of Covey
Leadership Center ("Covey"). Mr. Covey joined Covey in 1989, serving in various
capacities prior to his appointment as President and Chief Executive Officer,
including Vice President of Client Services Group, Vice President of Corporate
Development, and Managing Consultant. Mr. Covey earned an MBA from Harvard
Business School and has professional work experience in different industries,
including real estate development with Trammell Crow Company in Dallas, Texas.
Mr. Covey's term as a director expires in 1998.
Robert H. Daines, 62, has been a director of the Company since April 1990.
Dr. Daines has been employed as a Professor of Business Management at Brigham
Young University, Provo, Utah, since 1959. Dr. Daines is also currently engaged
as a consultant with the Center for Executive Development in Cambridge,
Massachusetts. He is also a director of AT&T Universal Financial Corporation.
Dr. Daines' term as a director expires in 1998.
E. J. "Jake" Garn, 65, was elected to serve as a director of the
Company in January 1993. Mr. Garn has been Vice Chairman of Huntsman Corporation
since January 1993. 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 Dean Witter Intercapital and John Alden
Financial Corporation, is a member of the Board of Trustees of Intermountain
Health Care and serves as a director of NuSkin Asia Pacific Corporation. Mr.
Garn's term as a director expires in 1998.
Thomas H. Lenagh, 73, has been a director of the Company since December
1986. Since 1978, Mr. Lenagh has served as a Financial Advisor to SCI Systems,
an electronic contract manufacturer located in Huntsville, Alabama. From 1983 to
1985, Mr. Lenagh was Chairman of the Board and Chief Executive Officer of
Systems Planning/Greiner Engineering, a design engineering firm. From 1965 to
1983, Mr. Lenagh was Treasurer of the Ford Foundation. Mr. Lenagh is also
currently a director of SCI Systems; CML Inc., Gintel Funds, Adams Express,
Clemente Global Fund, U.S. Life Co., Irvine Sensors, ICN Pharmaceuticals and
V-Band Corporation. Mr. Lenagh's term as a director expires in 1998.
Hyrum W. Smith, 54, a co-founder of the Company, has served as a director
of the Company since December 1983 and has served as Chairman of the Board of
Directors since December 1986. Mr. Smith has been the Chief Executive Officer of
the Company since February 1997, a position he also held from April 1991 to
September 1996. He was Senior Vice President of the Company from December 1984
to April 1991. Mr. Smith is author of The Ten Natural Laws of Time and Life
Management. He is also a director of SkyWest, Inc., Children's Miracle Network,
and on the Advisory Board for the University of Utah School of Business. Mr.
Smith's term as a director expires in 1999.
Stephen R. Covey, 64, has been Co-Chairman of the Board of the Company
since May 1997. Dr. Covey founded 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 and Principle-Centered Leadership, and the
co-author of First Things First. His newest book, 7 Habits of Highly Effective
Families was released in October of 1997. Dr. Covey's term as a director expires
in 1999.
Robert F. Bennett, 63, has been a director of the Company since October
1984, and served as Chairman of the Board from December 1984 to December 1986.
In November 1992, Mr. Bennett was elected a United States Senator from the State
of Utah. Mr. Bennett was the Chief Executive Officer of R.F. Bennett Associates,
a consulting firm which provided general business consulting services to
established businesses and entrepreneurial ventures from July 1991 to November
1992. From November 1990 to April 1991, Mr. Bennett was Vice Chairman of the
Company. Mr. Bennett was President of the Company from October 1984 to January
1991 and served as Chief Executive Officer of the Company from December 1986 to
April 1991. Mr. Bennett's term as a director expires in 1999.
Beverly B. Campbell, 66, has been a director of the Company since July
1993. Ms. Campbell is currently the Chief Executive Officer of Campbell
Affiliates International and served as Director of International Affairs for The
Church of Jesus Christ of Latter-day Saints, from November 1984 to July 1997.
She is also a member of the Board of Directors of the National Conference
(formerly the National Conference of Christians and Jews). Ms. Campbell's term
as a director expires in 1999.
Dennis G. Heiner, 54, was appointed as a director of the Company in
January 1997. He has been employed by Black & Decker Corporation since 1985
where he is currently an Executive Vice President and President of the Security
Hardware Group, a world leader in residential door hardware. Mr. Heiner also
currently serves as a director of Raytech Corporation and of AERA Energy, LLC.
Mr. Heiner's term as a director expires in 1999.
Joel C. Peterson, 50, 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 the Board of Directors from 1994 to 1997. Mr. Peterson is also
Chairman of Peterson Ventures, Inc., an investment company with offices in
Dallas, Texas, and Salt Lake City, Utah, which manages investments in
information, manufacturing, real estate, media and service businesses. Mr.
Peterson also serves on the boards of directors of Performance Printing,
Peninsula Advisors, Mr. Rescue, Dermody Properties and Essex Capital, Southern
Micrographics, and EAGL Golf. Mr. Peterson earned his MBA from Harvard Business
School. Mr. Peterson's term as a director expires in 2000.
Robert A. Whitman, 44, has been a director of the Company since May 1997.
Mr. Whitman served as a director of Covey from 1994 to 1997. Since 1992, Mr.
Whitman has been the President and Co-Chief Executive Officer of the Hampstead
Group L.L.C., a private Dallas-based investment company which focuses on the
acquisition of controlling interests in companies with annual revenues of $100
to $500 million. In addition, Mr. Whitman serves as a director of Wyndham Hotel
Corporation, and as Chairman and Chief Executive Officer of Mountasia
Entertainment International. Mr. Whitman received his Bachelor of Arts degree in
Finance from the University of Utah and his MBA from Harvard Business School.
Mr. Whitman's term as a director expires in 2000.
E. Kay Stepp, 52, 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 a
principal and owner of Executive Solutions, a Portland-based consulting firm
specializing in assisting senior executives and boards of directors. In
addition, Ms. Stepp is Chairman of Gardenburger, Inc., a publicly-traded company
that markets and manufactures low-fat meatless frozen food products. Ms. Stepp
is also currently a director of Standard Insurance Company, Working Assets, Inc.
and is a founding director of the Bank of the Northwest. She received her
Bachelor of Arts degree from Stanford University and a Master in Arts in
Management from the University of Portland. Ms. Stepp's term as a director
expires in 2000.
Current Directors Whose Terms of Office Expire on January 9, 1998
Certain information with respect to directors who will conclude service
as of the date of the Annual Meeting is set forth below.
James M. Beggs, 71, has been a director of the Company since October
1987. Mr. Beggs is currently a senior partner of J.M. Beggs International, which
provides general consulting services to international businesses and start-up
companies, a position he has held since 1988. He is also a director of Rotary
Power, Inc., a publicly-held company which manufactures rotary power engines.
Mr. Beggs is Chairman Emeritus of SPACEHAB, Inc., which provides services for
experimental projects for space exploration.
Daniel P. Howells, 56, has been a director of the Company since April
1992. Since October 1997, Mr. Howells has been the President and Chief Executive
Officer of Nature's Sunshine Products, Inc., an international direct selling
company that manufactures and markets tableted and encapsulated herbal products,
high quality natural vitamins, food supplements, skin care and other
complementary products based in Provo, Utah. From 1991 to October 1997, he was
the President and Chief Executive Officer of Resorts USA, Inc. (formerly Rank
Ahnert, Inc.), a recreational development and hospitality company based in
Pennsylvania.
Committees, Meetings and Reports
The Board of Directors has standing Executive, Audit, Nominating and
Compensation Committees. The Executive Committee presently consists of Messrs.
Joel Peterson, Chairperson, Stephen M. R. Covey, Jon Rowberry and Hyrum Smith.
The members of the Audit Committee are Messrs. Jake Garn, Chairperson, Robert
Daines and Robert Whitman. The Nominating Committee consists of Messrs. Stephen
R. Covey and Hyrum Smith. The Compensation Committee consists of Ms. Kay Stepp,
Chairperson, and Messrs. Dennis Heiner and Daniel Howells.
The Executive Committee met once during the 1997 fiscal year. Its
functions are to oversee: the day-to-day operations of the Company, employment
rights and compensation of designated key employees and to make recommendations
with respect thereto to the Compensation Committee and the Board of Directors;
and to establish the agenda for the Board of Directors meetings.
The Audit Committee met five times during the 1997 fiscal year. Its
functions are: (i) to review and approve the selection of, and all services
performed by, the Company's independent auditors; (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.
The Nominating Committee met once during the 1997 fiscal year. The
Nominating Committee has exclusive authority to nominate individuals for
election to the following offices: President, Chief Executive Officer, Chief
Financial Officer and individuals to be nominated by the Board of Directors to
serve on the Board of Directors or committees of the Board.
The Compensation Committee met nine times during the 1997 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, 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 and employees of the Company.
During the 1997 fiscal year, there were six meetings held by the Board
of Directors of the Company. All directors attended more than 75% of the board
meetings. No director attended fewer than 75% of the total number of meetings of
the committees on which he or she served.
Compensation Committee Interlocks and Insider Participation
Robert F. Bennett, who served as a member of the Compensation Committee
during the 1997 fiscal year, served as President of the Company from October
1984 to January 1991 and served as Chief Executive Officer from December 1986 to
April 1991.
Director Compensation
Except for Messrs. Robert Bennett and Stephen R. Covey, directors who
are not employees of the Company are paid a retainer of $2,000 for each quarter
year of service as director and $3,000 for each board meeting attended and are
reimbursed by the Company for their out-of-pocket travel and related expenses
incurred in attending all board and committee meetings. Messrs. Bennett and
Covey receive no remuneration or reimbursement of expenses for their service as
directors.
EXECUTIVE OFFICERS
In addition to Messrs. Smith, Rowberry and Stephen M. R. Covey, certain
information is furnished with respect to the following executive officers of the
Company:
Val John Christensen, 44, has been Secretary and General Counsel of the
Company since January 1990 and an Executive Vice President since March 1996. Mr.
Christensen served as a director of the Company from July 1991 to June 1997.
From January 1990 to March 1996, Mr. Christensen served as a Senior Vice
President of the Company. From March 1987 to November 1989, Mr. Christensen was
engaged in the private practice of law with the law firm of LeBoeuf, Lamb, Lieby
& MacRae, specializing in general business and business litigation matters. From
1983 until he joined the Company, Mr. Christensen acted as outside counsel to
the Company.
Kevin R. Cope, 35, has been Executive Vice President - Strategic
Businesses of the Company since October 1997. Mr. Cope joined Covey in 1989
serving various roles in the Company, including Senior Vice President of
Professional Services, Vice President of Client Services, and Managing
Consultant. Prior to joining Covey, Mr. Cope was employed by California Federal
Bank.
Robert J. Guindon, 54, has been Executive Vice President International
of the Company since May 1997. Mr. Guindon served as Chief Operating Officer of
Covey from March 1997 to May 1997 and served as Executive Vice President from
1994 until March 1997. Since joining Covey in May 1992, Mr. Guindon has served
in several capacities, including Senior Vice President of Distribution and
Managing Director of Covey's Client Services Division. Prior to joining Covey,
Mr. Guindon was employed for 14 years in various executive marketing positions
by Wang Laboratories, Inc., a word processing equipment manufacturer and
distributor.
Don J. Johnson, 49, has been Executive Vice President - Manufacturing /
Distribution of the Company since May 1996 responsible for the manufacturing,
printing, packaging and distribution of the Company's paper and binder products.
From 1986 to 1996, Mr. Johnson was employed by Valleylab, a division of Pfizer,
Inc., a medical manufacturing and distributing company in Boulder, Colorado, as
Director of both Domestic and International Manufacturing and Distribution. Mr.
Johnson has 26 years of manufacturing and distribution management experience in
both the U.S. and international markets.
Von D. Orgill, 48, has been Executive Vice President - Professional
Services Group of the Company since October 1997 responsible for all corporate
and government sales, consulting and training in the United States. In 1992, Mr.
Orgill joined Covey as a Senior Consultant. He also served as Managing
Consultant of the Eastern Region, Senior Vice President of the Client Services
Group and Vice President of the Organizational Consulting and Assessment Group.
Prior to joining the Company, Mr. Orgill was employed by IBM, Arthur Anderson &
Co. in Los Angeles, and his own consulting firm.
John L. Theler, 50, has been Executive Vice President and Chief
Financial Officer of the Company since January 1997 responsible for Finance,
Information Systems and People Services. From 1992 to 1996, Mr. Theler was
employed by Rubbermaid, a multinational company that markets and manufactures
plastic and rubber consumer products, initially as Vice President of Finance and
Controller of the Home Products Division and later as Vice President and
Corporate Controller. From 1971 to 1992, Mr. Theler was employed by General
Electric in progressive financial assignments, including Chief Financial Officer
for CAMCO, a publicly-traded major appliance manufacturing and distribution
operation of General Electric located in Canada.
D. Gordon Wilson, 44, has been an Executive Vice President - Consumer
Sales Group of the Company since March 1996 responsible for retail store
operation, catalog sales operations and direct product sales. Mr. Wilson served
as a Senior Vice President of the Company responsible for the Retail Stores
Division and the Marketing Division since January 1995 and September 1995,
respectively. Mr. Wilson held various buying and merchandising positions at Fred
Meyer, Inc. from 1983 to 1989. From 1989 to 1994, he was Group Vice President
and General Merchandise Manager of the Home Division and Apparel Division of
Fred Meyer, Inc.
<PAGE>
EXECUTIVE COMPENSATION
The compensation of Hyrum W. Smith, the Company's Chief Executive
Officer, and the four other most highly paid executive officers during the
fiscal year ended August 31, 1997 is shown on the following pages in three
tables and discussed in a report from the Compensation Committee of the Board of
Directors.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
-----------------------
Annual Compensation Awards
----------------------------------- -----------------------
Restricted
Fiscal Other Annual Stock Options/ All Other
Name and Position Year Salary Bonus Compensation(1) Awards($)(2) SARs(#)(3) Compensation(1)
- ------------------- -------- --------- --------- -------------- -------- -------- --------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Hyrum W. Smith 1997 $263,738 -- $ 180,000 -- $4,750
Chairman of the 1996 263,738 $350,000 -- 207,000 60,000 3,800
Board and 1995 264,557 300,000 -- 204,685 -- 6,807
Chief Executive 325,000
Officer
Jon H. Rowberry 1997 211,456 350,000 -- 90,000 80,000 5,100
President and 1996 150,000 150,000 49,371 92,000 90,000 --
Chief 1995 12,500 13,000 -- -- -- --
Operating Officer
Val John 1997 155,400 135,000 -- 72,000 35,000 4,750
Christensen 1996 155,400 125,000 -- 57,500 40,000 3,800
Executive Vice 1995 156,220 135,000 -- 51,255 -- 6,176
President
D. Gordon Wilson 1997 150,000 90,000 -- 36,000 24,000 5,100
Executive Vice 1996 147,083 85,000 -- 23,000 20,000 3,524
President 1995 108,441 45,000 -- -- 10,000 --
Don J. Johnson 1997 150,000 90,000 -- 18,000 16,000 --
Executive Vice 1996 42,404 20,000 -- -- 10,000 --
President 1995 -- -- -- -- -- --
- ----------------------
</TABLE>
(1) Includes perquisites in those instances where such amounts exceed the
lesser of $50,000 or 10% of salary and bonus. The amount shown for Mr. Rowberry
includes $40,000 for reimbursement of moving expenses.
(2) Restricted stockawards vest in full four years from the date of grant.
No vesting occurs prior to four years from grant. Holders of restricted shares
are entitled to receipt of any dividends paid. The number of shares granted to
each of the persons named in the foregoing table and the value of restricted
shareholdings at the end of the fiscal year is as follows:
<TABLE>
<CAPTION>
Number Value at
Name of Shares August 31,
1997
-------------------------------------- -------------- --------------
<S> <C> <C> <C>
Hyrum W. Smith.................................. 25,110 $624,611
Jon H. Rowberry................................. 9,000 223,875
Val John Christensen............................ 8,030 199,746
D. Gordon Wilson................................ 3,000 74,625
Don J. Johnson.................................. 1,000 24,875
</TABLE>
(3) 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, 1997, the Company had not granted any stock appreciation
rights.
(4) 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.
Option/SAR Grants in Last Fiscal Year
The following table sets forth individual grants of stock options made by
the Company during the fiscal year ended August 31, 1997 to the five individuals
named in the preceding Summary Compensation Table. As of August 31, 1997, the
Company had not granted any stock appreciation rights to the executive officers
named below.
<TABLE>
<CAPTION>
Percent of Potential Realizable Value
Total at Assumed Annual Rates of
Options Stock Price Appreciation
Granted to for Option Term (in dollars)
Employees Exercise -----------------------------
Options in Fiscal or Base Expiration
Name Granted Year Price Date 5% 10%
- ------------------------- ---------- ---------- -------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Hyrum W. Smith............ -- -- -- -- -- --
Jon H. Rowberry........... 80,000 7.1% $18.00 9/9/2006 $905,608 $2,294,989
Val John Christensen...... 35,000 3.1 18.00 9/9/2006 396,204 1,004,058
D. Gordon Wilson.......... 24,000 2.1 18.00 9/9/2006 271,682 688,497
Don J. Johnson............ 16,000 1.4 18.00 9/9/2006 181,122 458,998
</TABLE>
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year
Option/SAR Values
The following table sets forth the number of shares of Common Stock
acquired during the fiscal year ended August 31, 1997, upon the exercise of
stock options, the value realized upon such exercise, the number of unexercised
stock options held on August 31, 1997, and the aggregate value of such options
held by the five individuals named in the Summary Compensation Table. This table
reflects options to acquire shares of Common Stock granted to the named
individuals by the Company and by certain affiliates of the Company. As of
August 31, 1997, the Company had not granted any stock appreciation rights to
any of the executive officers named below.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options In-the-Money Options
at August 31, 1997 at August 31, 1997(2)
Number
of
Shares Value
Acquired Realized ------------------------- -----------------------------
on on
Name Exercise Exercise(1) Exercisable Unexercisable Exercisable Unexercisable
- ------------------------- ---------- ----------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Hyrum W. Smith............. 70,000 $ 346,500 75,000 45,000 $ 95,625 $286,875
Jon H. Rowberry............ -- -- 55,000 115,000 235,625 638,125
Val John Christensen....... -- -- 178,750 66,250 1,707,156 371,719
D. Gordon Wilson........... 5,000 17,500 11,000 38,000 41,250 219,375
Don J. Johnson............. -- -- 6,500 19,500 34,688 104,063
- ----------------------
</TABLE>
(1) Reflects the difference between the exercise price of the options exercised
and the market value of the Common Stock on the date of such exercise, as
reported by the New York Stock Exchange.
(2) Reflects the difference between the exercise price of the unexercised
options and the market value of the Common Stock on August 31, 1997. The
last sale price of the Common Stock on August 31, 1997, as reported by the
New York Stock Exchange, was $24.875 per share.
Compensation Committee Report
This report was prepared by the Compensation Committee of the Board of
Directors (the "Committee"), which is composed of independent directors who are
not employees of the Company or its subsidiaries. The Committee has
responsibility for all compensation matters for the Company's Chairman and Chief
Executive Officer and the Company's President and Chief Operating Officer (the
"Key Executives"). It also has the responsibility of administering the Incentive
Plan. The amount of cash compensation for executive officers other than the Key
Executives is recommended by the Key Executives. The Committee determines the
amount and compensation of non-cash compensation under the Incentive Plan for
all executive officers, including the Key Executives. The current members of the
Committee are Kay Stepp, who serves as Chairperson, Dennis Heiner and Daniel
Howells. The Committee met nine times during fiscal 1997.
Executive Compensation Philosophy. The executive compensation program
has enabled the Company to attract, motivate and retain senior management by
providing a competitive total compensation opportunity based on performance.
Competitive base salaries that reflect each individual's level of responsibility
and annual variable performance-based cash incentive awards are important
elements of the Company's cash compensation philosophy. The Committee believes
the executive compensation program strikes an appropriate balance between
short-and long-term performance objectives.
In 1997, a new executive compensation strategy and structure was
created with assistance from the Board's consultants, Schuster-Zingheim and
Associates.
The overall executive compensation objective is pay for performance.
The strategy is based on the following principles: (1) Compensation is aligned
with achieving the Company's strategic business plan and is directly related to
performance and value added; (2) Compensation promotes shared destiny and
teamwork; (3) Compensation attracts and retains qualified executives; (4) The
greater the amount of direct influence on organizational performance, the
greater the portion of pay at risk; (5) Stock option issuance aligns executive
and shareholder interests in building company value and will be used as a reward
to executives for increasing company value.
Key Executive Compensation. Since 1992 Key Executive Compensation has
consisted of annual salaries and additional compensation in the form of cash
bonuses, stock options and restricted stock awards as the Committee in its
discretion awards to the Key Executives. The annual salaries of the Key
Executives are set at amounts that are deemed competitive for executives with
comparable ability and experience, taking into account existing salaries with
respect to executives in companies comparable in size and complexity to the
Company. Fiscal year-end cash performance bonuses were awarded to the Key
Executives in 1997 reflecting the Committee's conclusion that the Key Executives
played an integral role in the Company's achievement of improved sales and
earnings in 1997.
Chairman and Chief Executive Officer's Compensation. Mr. Smith's
compensation for 1997 was determined pursuant to the principles described above.
The Committee concluded that Mr. Smith's annual performance bonus for 1997
fairly and adequately compensates Mr. Smith for his vision and leadership in
developing and pursuing new markets for Franklin Covey products and services.
Incentive Stock Option Program. The Company believes it is essential
for all executive officers to receive Incentive Stock Options ("ISOs") under the
Incentive Plan, thereby aligning the long-term interests of executives with
those of stockholders. The Company adopted the Incentive Plan in 1992, charging
the Committee with responsibility for its administration. During the 1998 year
relatively few incentive stock options will be granted to the Key Executives and
other executive officers as new criteria for awards have been created for
periods subsequent to fiscal year 1997. These ISOs generally vest over a
four-year period and expire ten (10) years from the date of grant. If an
executive officer's employment terminates prior to applicable vesting dates, the
officer generally forfeits all ISOs that have not yet vested. The Committee
believes that the grant of these ISOs to executive officers is highly desirable
because it motivates these officers to continue their employment with the
Company and creates strong incentives to maximize the growth and profitability
of the Company.
As of August 31, 1997, executive officers held incentive stock options
to purchase an aggregate of 607,831 shares of Common Stock granted under the
direction of the Committee pursuant to the Incentive Plan since its inception in
1992.
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 401(k) 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
Dennis G. Heiner
Daniel P. Howells
<PAGE>
Performance Graph
The following graph shows a comparison of cumulative total shareholder
return, calculated on a dividend reinvested basis, from the effective date of
the Company's initial public offering (June 2, 1992) through August 31, 1997,
for the Common Stock, the S&P 600 SmallCap Index in which the Company is
included and the S&P Miscellaneous Industry Index, the index to which the
Company believes it would be assigned if it were included in the S&P 500. The
Company has been advised that the S&P Miscellaneous Industry Index includes ten
corporations, many of which, like the Company, are of a diversified nature.
<TABLE>
<CAPTION>
Date Franklin Covey S&P 600 S&P Miscellaneous
---- -------------- ------- -----------------
<S> <C> <C> <C>
6/2/92 100.00 100.00 100.00
8/31/92 103.23 96.11 103.34
8/31/93 177.42 130.35 128.42
8/31/94 243.55 135.00 133.41
8/31/95 149.19 165.23 146.88
8/31/96 117.74 187.31 167.65
8/31/97 160.48 153.67 224.49
</TABLE>
<PAGE>
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth information as of December 1, 1997, with
respect to the beneficial ownership of shares of the Common Stock by each person
known by the Company to be the beneficial owner of more than 5% of the Common
Stock, by each director, by each executive officer named in the Summary
Compensation Table 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
24,780,928 shares of Common Stock outstanding as of December 1, 1997:
<TABLE>
<CAPTION>
Beneficial Ownership
as of December 1, 1997
--------------------------
Number of Percentage
Shares of Class
------------ -----------
<S> <C> <C>
Yacktman Capital Management............................................................ 3,052,675 12.3%
303 West Madison
Chicago, Illinois 60606
Stephen R. Covey....................................................................... 2,036,566 8.2
c/o Franklin Covey Co.
2200 West Parkway Boulevard
Salt Lake City, Utah 84119-2331
Dennis R. Webb(1)(2)(4)................................................................ 1,491,712 6.0
c/o Franklin Covey Co.
2200 West Parkway Boulevard
Salt Lake City, Utah 84119-2331
Capital Research and Management........................................................ 1,350,000 5.5
333 South Hope Street
Los Angeles, California 90071
KPM Investment Management.............................................................. 1,240,375 5.0
10250 Regency Circle
Omaha, Nebraska 68114
Hyrum W. Smith(1)(2)(3)................................................................ 1,034,048 4.2
c/o Franklin Covey Co.
2200 West Parkway Boulevard
Salt Lake City, Utah 84119-2331
Robert F. Bennett(5)................................................................... 480,659 1.9
Stephen M. R. Covey.................................................................... 318,411 1.3
Val John Christensen(3)................................................................ 287,750 1.2
Kevin R. Cope.......................................................................... 127,364 *
Robert J. Guindon...................................................................... 127,364 *
Jon H. Rowberry(6)..................................................................... 65,000 *
Robert H. Daines(3).................................................................... 59,305 *
D. Gordon Wilson(3).................................................................... 19,607 *
James M. Beggs(7) ..................................................................... 13,000 *
Thomas H. Lenagh(3).................................................................... 10,000 *
Daniel P. Howells(3) .................................................................. 9,000 *
John L. Theler(3)...................................................................... 7,500 *
Don J. Johnson(3)...................................................................... 6,500 *
Beverly B. Campbell.................................................................... 300 *
Von D. Orgill.......................................................................... -- *
E. J. "Jake" Garn...................................................................... -- *
Dennis G. Heiner....................................................................... -- *
Joel C. Peterson....................................................................... -- *
Kay E. Stepp........................................................................... -- *
Robert A. Whitman...................................................................... -- *
All directors and executive officers
as a group (23 persons)(1)(3)....................................................... 4,602,374 18.3%
- ----------------------
</TABLE>
* Less than 1%.
(1) The share amounts indicated as beneficially owned are subject to options
granted to other directors, officers and key employees of the Company by
the following persons in the following amounts: Hyrum W. Smith, 111,480
shares, and Dennis R. Webb, 69,000 shares.
(2) The share amounts indicated for Hyrum W. Smith are owned of record by Hyrum
W. Smith as trustee of The Hyrum W. Smith Trust with respect to 624,048
shares; those indicated for Dennis R. Webb, by Dennis R. Webb as trustee of
The Lighthouse Foundation with respect to 82,500 shares. Messrs. Smith and
Webb are the respective trustees of those trusts and foundations, having
sole power to vote and dispose of all shares held by the respective trusts
and foundations, and may be deemed to have beneficial ownership of such
shares.
(3) The share amounts indicated include shares subject to options currently
exercisable held by the following persons in the following amounts: Hyrum
W. Smith, 90,000 shares; Val John Christensen, 197,750 shares; Thomas H.
Lenagh, 9,000 shares; Daniel P. Howells, 9,000 shares; D. Gordon Wilson,
18,500 shares; Jon H. Rowberry, 22,500 shares; John L. Theler, 7,500
shares; Don J. Johnson, 6,500; and all executive officers and directors as
a group, 403,250 shares.
(4) Dennis R. Webb was a director and Senior Vice President of the Company
until his resignation in 1993.
(5) The share amounts indicated for Robert F. Bennett include 3,810 shares
owned by Mr. Bennett's two daughters sharing the same household. All other
shares are owned of record by The Robert F. Bennett Asset Management Trust.
(6) The share amounts indicated for Robert H. Daines include 15,000 shares
owned by Tahoe Investments, L.L.C., a Utah limited liability company, of
which Mr. Daines is a member.
(7) The share amounts indicated for James M. Beggs include 2,000 shares held b
Mr. Beggs' wife.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors and executive officers, and
persons who own more than 10% of the Common Stock, to file with the Securities
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% 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 two reports of option exercises on Form 4
affecting ownership of Hyrum W. Smith, the Company's Chief Executive Officer,
which were inadvertantly filed late, and a timely Form 3 for John Graves, a Vice
President of the Company, which was subsequently amended to report the grant of
stock options inadvertantly omitted from the intial filing.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the Company's previously announced plans to repurchase its
outstanding Common Stock from time to time, on May 13, 1997, the Company
purchased 110,000 shares from Arlen B. Crouch, who was then a director of the
Company, at a price of $2.4 million, or $21.488 per share. The closing sale
price for the Company Common Stock reported by the New York Stock Exchange
(NYSE) on May 13, 1997, was $21.50 per share. On August 11, 1997, the Company
purchased 750,000 shares of its Common Stock from Hyrum W. Smith, an officer and
director, for $18 million, or $24 per share. The closing price reported by NYSE
on August 11, 1997, was $25.375 per share.
On May 30, 1997, Mr. Crouch surrendered 84,779 shares of the Company's
Common Stock to pay the exercise price of options to purchase 684,029 shares at
$2.78 per share. The shares surrendered were valued at $22.43 per share. The
closing price for the Company's Common Stock reported by NYSE on May 30, 1997,
was $24.00 per share.
In connection with the Merger with Covey, the Company paid $27 million
to Steven R. Covey for certain license rights. See the Company's Definitive
Proxy Statement relating to the Merger for further details relating to the
license rights. In addition, Dr. Covey, who was appointed as co-chairman of the
board of directors, entered into a Speaker Services Agreement with the Company
pursuant to which Dr. Covey receives 20% of the proceeds from personal speaking
engagements, which resulted in a payment of $0.2 million to Dr. Covey for the
fiscal year ending August 31, 1997. Also in connection with the Merger, the
Company entered 12-year leases expiring in 2009 on two office buildings located
in Provo, Utah where the operations of Covey formerly conducted by Covey
continued to be located. The buildings are leased from entities in which Stephen
R. Covey, Stephen M. R. Covey and Kevin Cope, executive officers and/or
directors of the Company have a 35%, 11% and 4% interest, respectively, at an
aggregate monthly rental of $180,025. Lease rentals paid in fiscal 1997 were
$400,762. The Company believes the terms of the leases, including the lease
rentals, are at least as favorable as could be obtained from unrelated third
parties.
Each transaction described above was entered into pursuant to arm's
length negotiations with the party involved and were approved by disinterested
majorities of the board of directors or the Compensation Committee of the board.
SELECTION OF AUDITOR
The Audit Committee of the Board of Directors has recommended, and the
Board of Directors has selected, the firm of Arthur Andersen LLP, independent
certified public accountants, to audit the financial statements of the Company
for the fiscal year ending August 31, 1998, subject to ratification by the
shareholders of the Company. The Board of Directors anticipates that one or more
representatives of Arthur Andersen 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.
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 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 1999 must be received by Val John
Christensen, Executive Vice President, Secretary and General Counsel of the
Company, at the Company's executive offices (2200 West Parkway Boulevard, Salt
Lake City, Utah 84119-2331) no later than August 15, 1998.
ADDITIONAL INFORMATION
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 1997 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.
