NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
January 8, 1999
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 8,
1999, 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 four directors 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 2001 and until
their respective successors shall be duly elected and shall
qualify;
(II) To consider and vote upon a proposal to ratify the appointment of
Arthur Andersen LLP as independent auditor of the Company for the
fiscal year ending August 31, 1999; 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 November 20,
1998, as the record date for the determination of shareholders entitled to
receive notice of and to vote at the Annual Meeting and at any adjournment or
postponement thereof.
All shareholders are urged to attend the meeting.
By Order of the Board of Directors
/s/ HYRUM W. SMITH
Hyrum W. Smith
Chairman of the Board
December 7, 1998
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> 2
FRANKLIN COVEY CO.
2200 West Parkway Boulevard
Salt Lake City, Utah 84119-2331
---------------------
PROXY STATEMENT
---------------------
Annual Meeting of Shareholders
January 8, 1999
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 8, 1999, 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 7, 1998.
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 November 20,
1998, 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 21,219,850 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 that are entitled to be voted at the Annual Meeting
and 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 each of the four
director nominees, FOR the ratification of the appointment of Arthur Andersen
LLP as the independent auditor of the Company for the year ending August 31,
1999, 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 directors, the four nominees
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.
<PAGE> 3
ELECTION OF DIRECTORS
At the Annual Meeting, four directors of the Company are to be elected to
serve three-year terms expiring at the annual meeting of shareholders to be held
following the end of fiscal year 2001 and until their successors shall be duly
elected and qualified. 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
four nominees receiving the highest number of votes at the Annual Meeting will
be elected.
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. Hyrum W. Smith, Stephen R. Covey 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, Steven C. Wheelwright 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 each nominee and continuing director appear
below.
Nominees for Election as Director
Certain information with respect to each nominee is set forth below.
Jon H. Rowberry, 51, 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, President in February 1997, and Chief Executive Officer in March 1998.
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 Kinnion.
Stephen M. R. Covey, 36, has been Executive Vice President of the Company
since June 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.
Robert H. Daines, 64, 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 and is presently serving as the Driggs
Professor of Strategic Management. Dr. Daines has authored several texts in
Financial Strategy and Strategic Management. He is also a director of AT&T
Universal Financial Corporation, Nature Sunshine Products and Alta Technology.
E. J. "Jake" Garn, 66, 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 Morgan Stanley Dean Witter Advisors and United
Space Alliance, is a member of the Board of Trustees of Intermountain Health
Care and serves as a director of NuSkin Enterprises.
Directors Whose Terms of Office Continue
Certain information with respect to continuing directors is set forth
below.
Hyrum W. Smith, 55, 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 served as the Chief Executive Officer
of the Company from February 1997 to March 1998, 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 10 Natural Laws of Time
and Life Management. He is also a director of SkyWest, Inc. Mr. Smith's term as
a director expires in 1999.
Stephen R. Covey, 65, has been Co-Chairman of the Board of the Company
since June 1997. Dr. Covey founded Covey and served as its Chief Executive
Officer from 1980 to 1991 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
<PAGE> 4
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, The 7
Habits of Highly Effective Families, was released in October of 1997. Dr.
Covey's term as a director expires in 1999.
Dennis G. Heiner, 55, 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 AERA Energy, LLC. Mr. Heiner's term as a director
expires in 1999.
Joel C. Peterson, 51, has been a director of the Company since June 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 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 Bay Logics, U.S. Shred, Road Rescue, AccuDocs, Demody Properties,
Essex Capital and Rentwise. Mr. Peterson currently serves on the advisory boards
of Lazard Freres and Waterford School, and formerly served on the advisory board
of Stanford Business School. He currently teaches at Stanford Business School.
Mr. Peterson earned his MBA from Harvard Business School. Mr. Peterson's term as
a director expires in 2000.
E. Kay Stepp, 53, has been a director of the Company since June 1997. Ms.
Stepp served as a director of Covey from 1992 to 1997. Ms. Stepp is 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., Planar Systems,
Inc. and the Bank of the Northwest. She received her Bachelor of Arts degree
from Stanford University and a Master of Arts in Management from the University
of Portland. Ms. Stepp's term as a director expires in 2000.
Steven C. Wheelwright, 55, is the Edsel Bryant Ford 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. Dr. Wheelwright's term as a director
expires in 2000.
Robert A. Whitman, 45, has been a director of the Company since June 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 LLC, 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.
Current Directors Whose Terms of Office Conclude on January 8, 1999
Certain information with respect to directors who will conclude service as
of the date of the Annual Meeting is set forth below.
Robert F. Bennett, 64, has been a director of the Company since October
1984, served as Chairman of the Board from December 1984 to December 1986,
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. In November
1992, Mr. Bennett was elected a United States Senator from the State of Utah and
re-elected in November 1998.
Beverly B. Campbell, 67, 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).
Thomas H. Lenagh, 74, 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 1965 to
1983, Mr. Lenagh was Treasurer of the Ford Foundation.
<PAGE> 5
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 Steven Wheelwright.
The Executive Committee met twice during the 1998 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 four times during the 1998 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 twice during the 1998 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 seven times during the 1998 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 1998 fiscal year, four meetings were held by the Board of
Directors of the Company. All directors attended at least 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.
Director Compensation
Messrs. Hyrum Smith, Stephen R. Covey, Robert Bennett, Jon Rowberry, and
Stephen M. R. Covey do not receive compensation for board or committee meetings.
Remaining directors are paid as follows: an annual retainer of $16,000, with the
exception of committee chairpersons who are paid an annual retainer of $18,000;
$1,000 for attending each committee meeting, with the exception of the committee
chairperson who is paid $1,100; $667 for committee meetings held by telephone,
with the exception of the committee chairperson who receives $773. 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 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, 45, 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, 36, has been Executive Vice President - International of the
Company since September 1998. Mr. Cope served as Executive Vice President -
Strategic Businesses from October 1997 until September 1998. 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.
<PAGE> 6
Don J. Johnson, 50, 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, binder and
accessory 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 27 years of manufacturing and distribution
management experience in both the U.S. and international markets.
Neil Nickolaisen, 39, has been Executive Vice President and Chief
Information Office of the Company since July 1998. Mr. Nickolaisen served as
Vice President of the Company from 1993 to 1998, managing various projects
including the Business Transformation of Information Systems project,
Manufacturing and Distribution re-engineering and Consulting Group Manager. From
1992 to 1993 Mr. Nickolaisen served as an Engineering Manager for General
Electric. From 1983 to 1992 Mr. Nickolaisen served as a commissioned officer in
the U.S. Navy.
Von D. Orgill, 49, 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 and Arthur Andersen
& Co.
John L. Theler, 51, has been Executive Vice President and Chief Financial
Officer of the Company since January 1997 responsible for Finance and Human
Resources. 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, 46, has been Executive Vice President - Consumer Sales of
the Company since March 1996 responsible for retail store operations, catalog
sales operations and contract and wholesale 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 of the Apparel Division
of Fred Meyer, Inc.
<PAGE> 7
EXECUTIVE COMPENSATION
The compensation of the Company's Chief Executive Officer and the four
other most highly paid executive officers during the year ended August 31, 1998,
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(4)
- --------------------------- -------------------------------------------------------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hyrum W. Smith 1998 $281,238 $175,560 --- --- --- $5,445
Chairman of the Board 1997 263,738 350,000 --- 180,000 --- 4,750
1996 263,738 300,000 --- 207,000 60,000 3,800
Jon H. Rowberry 1998 270,832 163,098 --- --- 70,000 5,156
President and Chief 1997 211,456 350,000 --- 90,000 80,000 5,100
Executive Officer 1996 150,000 150,000 49,371 92,000 90,000 ---
Stephen M. R. Covey 1998 195,769 216,375 --- --- --- 4,754
Executive Vice President 1997 235,000 233,609 --- --- --- 4,800
1996 220,962 198,250 --- --- --- 4,800
Robert J. Guindon 1998 173,846 166,185 --- --- --- 2,986
Executive Vice President 1997 200,000 164,099 --- --- --- 4,800
1996 147,077 231,205 --- --- --- 4,800
Kevin R. Cope 1998 138,077 149,118 --- --- --- 3,162
Executive Vice President 1997 150,000 149,204 --- --- --- 4,800
1996 155,769 208,401 --- --- --- 4,800
- ----------------------
</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 stock awards 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 on
Name of Shares August 31, 1997
------------------ -------------------
<S> <C> <C>
Hyrum Smith....................25,110 $470,812
Jon H. Rowberry................ 9,000 168,750
</TABLE>
(3) Amounts shown reflect options granted to the named executive officers
pursuant to the Franklin Covey 1992 Stock Incentive Plan (the "Incentive Plan").
During the year ended August 31, 1998, the Company did not grant 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.
<PAGE> 8
Option/SAR Grants in Last Fiscal Year
The following table sets forth individual grants of stock options made by
the Company during the year ended August 31, 1998 to the five individuals named
in the preceding Summary Compensation Table. During the year ended August 31,
1998, the Company did not grant any stock appreciation rights to the executive
officers named below.
<TABLE>
<CAPTION>
Percent of Exercise Expiration Potential Realizable Value at
Name Options Total or Base Date Assumed Annual Rates of Stock
Granted Options Price Price Appreciation for Option
Granted to Term (in dollars)
Employees in --------------------------------
Fiscal Year 5% 10%
- ---------------------- ---------- -------------- ---------- ------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Hyrum W. Smith......... --- --- --- --- --- ---
Jon H. Rowberry........ 70,000 16.1% $20.44 8/19/2008 $899,677 $2,280,013
Stephen M. R. Covey.... --- --- --- --- --- ---
Robert Guindon......... --- --- --- --- --- ---
Kevin Cope............. --- --- --- --- --- ---
</TABLE>
AGGREGATE 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 year ended August 31, 1998, upon the exercise of stock
options, the value realized upon such exercise, the number of unexercised stock
options held on August 31, 1998, 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. During the
year ended August 31, 1998, the Company did not grant any stock appreciation
rights to any of the executive officers named below.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options on August 31, In-the-Money Options on
1998 August 31, 1998(2)
-------------------------- -----------------------------
Name Number of
Shares Value
Acquired Realized on Exercisable Unexercisable Exercisable Unexercisable
on Exercise Exercise(1)
- ------------------------------ ----------- ------------- ----------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Hyrum W. Smith............... --- --- 90,000 30,000 $ 7,500 $ 7,500
Jon H. Rowberry.............. --- --- 65,000 175,000 20,000 50,000
Stephen M. R. Covey.......... --- --- --- --- --- ---
Robert Guindon............... --- --- --- --- --- ---
Kevin Cope................... --- --- --- --- --- ---
- ----------------------
</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, 1998. The last sale price of the Common Stock on August 31,
1998, as reported by the New York Stock Exchange, was $18.75 per share.
<PAGE> 9
Compensation Committee Report
The 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 the
Company's President and Chief Executive Officer (the "Key Executives"). It also
had the responsibility of administering the Incentive Stock Option Program
("Incentive Plan"). The Key Executives determine the amount of cash compensation
for executive officers other than the Key Executives. The Committee determines
the amount 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 Steven Wheelwright. The
Committee met seven times during fiscal 1998.
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. Key Executive Compensation consists of annual
salaries and additional compensation in the form of year-end cash
performance-based 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-based bonuses were awarded to the Key
Executives in fiscal 1998 reflecting the Company's overall performance.
CHAIRMAN AND PRESIDENT AND CHIEF EXECUTIVE OFFICER'S COMPENSATION. Mr.
Smith's and Mr. Rowberry's compensation for fiscal 1998 was determined pursuant
to the principles described above. The Committee concluded that the annual
performance bonus for fiscal 1998 paid to Mr. Smith and Mr. Rowberry fairly and
adequately compensates them based on the overall performance of the Company.
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 fiscal 1992,
charging the Committee with responsibility for its administration. During fiscal
1998, relatively few incentive stock options were granted to the Key Executives
and other executive officers as new criteria for awards have been created. 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, 1998, executive officers held incentive stock options to
purchase an aggregate of 907,873 shares of Common Stock granted under direction
of the Committee pursuant to the Incentive Plan since its inception in 1992. Of
those options, 343,750 are exercisable as of August 31, 1998.
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, Chairperson
Dennis G. Heiner
Steven C. Wheelwright
<PAGE> 10
Performance Graph
The following graph shows a comparison of cumulative total shareholder
return, calculated on a dividend reinvested basis, for the prior five years
ended August 31, 1998, for the Common Stock, the S&P 600 SmallCap Index in which
the Company is included and the S&P Small Cap Consumer Industry Index, the index
to which the Company is assigned in the S&P 600 SmallCap Index. The Company has
been advised that the S&P SmallCap Consumer Industry Index includes seven
corporations, many of which, like the Company, are of a diversified nature. The
Company changed its industry index from the S&P 500 Miscellaneous Industry Index
that it has used in prior years to the S&P SmallCap Consumer Industry Index this
year because Standard and Poors eliminated the Miscellaneous Index in 1997. The
Company believes that the S&P SmallCap Consumer Industry Index is the
appropriate replacement index.
INDEXED RETURNS
<TABLE>
<CAPTION>
Base
Period Years Ending
Company / Index Aug93 Aug94 Aug95 Aug96 Aug97 Aug98
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FRANKLIN COVEY CO 100 137.27 84.09 66.36 90.45 68.18
S&P SMALLCAP 600 INDEX 100 103.56 126.77 143.61 192.59 157.35
"CONSMER(JWRLY,NVL,GFT)-SMALL" 100 107.42 72.90 67.96 91.61 73.57
</TABLE>
<PAGE> 11
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth information as of November 20, 1998,
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
21,219,850 shares of Common Stock outstanding as of November 20, 1998:
<TABLE>
<CAPTION>
Beneficial Ownership as
of November 20, 1998
--------------------------
Number of Percentage
Shares of Class
-------------- ----------
<S> <C> <C>
Yacktman Capital Management................................ 3,401,690 16.0%
303 West Madison
Chicago, Illinois 60606
Stephen R. Covey(2)........................................ 2,034,776 9.6
c/o Franklin Covey Co.
2200 West Parkway Boulevard
Salt Lake City, Utah 84119-2331
Dennis R. Webb(1)(2)....................................... 1,477,712 7.0
c/o Franklin Covey Co.
2200 West Parkway Boulevard
Salt Lake City, Utah 84119-2331
Hyrum W. Smith(1)(2)(3).................................... 538,698 2.5
c/o Franklin Covey Co.
2200 West Parkway Boulevard
Salt Lake City, Utah 84119-2331
Stephen M. R. Covey........................................ 309,278 1.5
Robert J. Guindon.......................................... 127,364 *
Kevin R. Cope.............................................. 125,995 *
Robert F. Bennett(4)....................................... 121,547 *
Jon H. Rowberry(3)......................................... 107,500 *
Robert H. Daines(5)........................................ 13,555 *
Thomas H. Lenagh........................................... 1,000 *
Beverly B. Campbell........................................ 300 *
E. J. "Jake" Garn.......................................... --- *
Dennis G. Heiner........................................... --- *
Joel C. Peterson........................................... --- *
Kay E. Stepp............................................... --- *
Steven C. Wheelwright...................................... --- *
Robert A. Whitman.......................................... --- *
All directors and executive officers
as a group (21 persons)(1)(2)(3)........................ 3,679,056 16.9%
- ----------------------
</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, 67,350
shares, and Dennis R. Webb, 19,500 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 124,048
shares; those indicated for Dennis R. Webb, by Dennis R. Webb as trustee of
The Lighthouse Foundation with respect to 82,500 shares; and those
indicated for Stephen R. Covey by Stephen R. Covey as Trustee of the
Gathering For Zion Foundation with respect to 485,000 shares and for SRSMC,
LLC with respect to 40,000 shares. Messrs. Smith, Webb and Covey 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, 105,000 shares; Jon H. Rowberry, 107,500 shares; and all
executive officers and directors as a group, 493,708 shares.
(4) 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.
(5) The share amounts indicated for Robert H. Daines include 5,000 shares
owned by Tahoe Investments, LLC, a Utah limited liability company, of
which Mr. Daines is a member.
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
<PAGE> 12
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 below, the Company believes that all reports were
filed on a timely basis.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the Company's previously announced plans to repurchase its
outstanding Common Stock from time to time, on April 1, 1998, the Company
purchased 500,000 shares of its Common Stock from Hyrum W. Smith, an officer and
director, for $12 million, or $24 per share. The closing price reported by NYSE
on April 1, 1998, was $24.875 per share.
On May 27, 1998, June 11, 1998, and July 6, 1998, the Company purchased
50,000, 44,000 and 100,000 shares, respectively, from Robert F. Bennett, a
director. The shares were purchased for an aggregate of $3.7 million or $19.08
per share. The closing prices reported by NYSE on May 27, 1998, June 11, 1998
and July 6, 1998 were $19.9325, $18.875 and $19.25 per share, respectively.
On October 13, 1998, the Company purchased 130,000 shares from Val John
Christensen, an Executive Vice President, Secretary and General Counsel of the
Company for an aggregate of $2.3 million or $17.625 per share. The closing price
reported by NYSE on October 13, 1998, was $17.75 per share.
In connection with the Merger with Covey, Dr. Covey, who is co-chairman of
the Board of Directors, entered into a Speaker Services Agreement with the
Company pursuant to which Dr. Covey receives 80% of the proceeds from personal
speaking engagements, which resulted in a payment of $2.4 million to Dr. Covey
for the year ended August 31, 1998. 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 $148,303. Lease rentals paid to such entities in
fiscal 1998 were $1,779,636. 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 year ending August 31, 1999, 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 2000 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, 1999.
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 1998 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.
