SALT LAKE CITY, Nov. 29 /PRNewswire-FirstCall/ -- FranklinCovey (NYSE: FC)
today announced a proposed recapitalization transaction which would result in
substantial changes to the capital structure of its Series A Preferred Stock.
This transaction is designed to establish the foundation and flexibility for
future actions which could create value for holders of its Common Stock.
Pending shareholder approval, the proposed recapitalization plan will
effectively bifurcate the outstanding Series A Preferred into two separate
securities: (1) new Series A Preferred Stock that is not convertible into
Common Stock and has other revised terms and, (2) eight-year warrants to
purchase shares of Common Stock at $8.00 per share.
A Special Committee of the Board of Directors was formed one year ago to
consider alternatives for creating shareholder value through changes in the
Company's capital structure. The Special Committee retained its own counsel
and investment bankers. The Committee's investment bankers have issued an
opinion that the proposed transaction is fair to existing common shareholders
from a financial standpoint. The Company's Chairman and CEO, who is a partner
of Series A Preferred shareholder, voluntarily signed an agreement with the
Company waiving any incremental benefit he might otherwise receive as a result
of the proposed recapitalization transaction.
Although a full description of the recapitalization plan and the necessary
amendment and restatement of its articles of incorporation will be available
in the Proxy Statement that will be mailed to shareholders in the near future
for the annual shareholders' meeting planned to be held in January 2005, the
following briefly describes the major components and benefits of the proposed
recapitalization:
Significantly Increased Capital Structure Flexibility
* The existing Series A Preferred Stock (prior to the recapitalization)
is non-redeemable by the Company except in certain limited
circumstances. The new Series A Preferred will include more flexible
Company redemption rights for all or a portion of the Preferred at
varying prices depending on different time periods.
* Rights to repurchase the Company's outstanding Common Stock will be
expanded significantly provided that certain conditions are met.
* The Company will no longer be required to pay Common Stock dividends
to the holders of Series A Preferred on an "as-converted" basis,
thereby eliminating their right to receive Preferred Stock dividends
and participate in Common Stock dividends at the same time.
* To the extent that the warrants are exercised, the Company could
receive substantial proceeds in cash, whereas the existing Preferred
converts into Common shares, issuing additional Common Stock without
any payment to the Company.
Reduced Potential Dilution and Voting Rights
* If it elects not to receive cash, the Company will have the right to
require shareholders exercising their warrants to use the net exercise
method, reducing the number of Common shares ultimately issuable upon
exercise of the warrants. In addition, the Company will have the
right to pay exercising warrant holders cash in lieu of common shares
to reduce potential dilution to Common shareholders.
* The conversion rights for the existing Series A Preferred (prior to
recapitalization) are perpetual unless such shares are redeemed by the
Company under certain limited circumstances. The warrants issued
under the proposed recapitalization will terminate after eight years.
* To the extent that initial warrant holders desire to sell their
warrants, the Company will have the right of first offer to purchase
them.
* The "Common equivalent" voting rights that existing holders of the
Series A Preferred have will be eliminated if their Preferred shares
are transferred to third parties, at which time their shares will
convert into non-voting shares of Series B Preferred Stock. And, if
the accompanying warrants proposed to be issued are exercised or
transferred, voting rights of the holders of the Series A Preferred
shares will be reduced by the amount of warrants exercised or
transferred, preventing any increase in voting rights beyond those
already held by Series A Preferred shareholders.
The Proxy Statement will be preliminarily filed with the SEC, as is
required on such transactions, and may be reviewed by the SEC prior to its
finalization and mailing to shareholders. The Company currently intends to
file a definitive Proxy Statement and mail such Proxy Statement to
shareholders of record as of November 30, 2004 by mid-December for the annual
meeting of shareholders currently scheduled to be held on January 21, 2005.
However, an SEC review may delay the Company's ability to file a definitive
Proxy Statement, which may, in turn, require the Company to delay the annual
meeting of shareholders so that sufficient time is available for shareholders
to receive the Proxy Statement and vote their proxies.
FranklinCovey also announced that the terms of its employment agreement
with its Chairman and CEO, Robert A. Whitman will be modified. Mr. Whitman
felt that inasmuch as other members of management do not have employment
agreements, he would rather not have an employment agreement. Furthermore,
Mr. Whitman felt that in addition to creating parity between himself and the
other senior managers, it would also create a more authentic relationship
between the Board and the CEO. The Board of Directors expressed its desire to
have Mr. Whitman continue in his same roles for the foreseeable future, and he
confirmed his enthusiasm for doing so. The following benefits are expected to
inure to the Company as a result of this action:
* The existing employment agreement, which extends until 2007, will be
eliminated.
* The existing employment agreement, which predated the Sarbanes-Oxley
Act, provided for loans by the Company to allow the exercise of
options. This provision will be eliminated.
* Mr. Whitman voluntarily did not take salary or bonus compensation from
May 2001 to August 2003, and he will sign an agreement formally
waiving all rights to that earned but unpaid compensation.
* Elimination of other provisions. Termination of the existing
employment agreement will eliminate the change in control provision
that would guarantee additional compensation to the CEO in the event
of a change of ownership control of the Company. It will also
eliminate the current death and disability benefits only available to
Mr. Whitman and be replaced with overall company-paid life insurance
and disability policies for key members of management.
In consideration of the contract cancellation and the accompanying
benefits to the Company and shareholders, and in light of the significant
financial improvement in operating results over the past eight quarters, the
Company will immediately vest the $14 options held by Mr. Whitman and grant a
special stock award of 187,000 shares to him. In addition, Mr. Whitman will
receive a 225,000 restricted stock award as a part of a restricted stock award
plan adopted by the Company in January 2004 for its senior executives, which
Mr. Whitman postponed until the fiscal year and recapitalization efforts were
completed.
The Company also announced that Hyrum W. Smith, Co-Vice Chairman of the
Board of Directors, will be taking on a broader role in sales and public
speaking on behalf of the Company which, given his desire to reduce activities
and commitments that take him away from home, will limit his availability to
work as actively in his Board of Directors responsibilities. With that
change, he will not continue his term as a director beyond the Annual
Shareholders Meeting in January 2005. Mr. Smith founded Franklin
International Institute in 1982, which became the publicly traded Franklin
Quest in 1992. Franklin Quest and The Covey Leadership Center merged in 1997
to form FranklinCovey. In his new role, Mr. Smith will spend more time
meeting with clients and doing speaking engagements which role he played
prominently in the formative years of the Company. Mr. Smith will remain a
major shareholder, but will not be an employee or actively participate in the
management of the Company. He will continue to consult with the Board of
Directors on an as-needed basis.
About FranklinCovey
FranklinCovey is a leading learning and performance services firm
assisting professionals and organizations in measurably increasing their
effectiveness in leadership, productivity, communication and sales. Clients
include 91 of the Fortune 100, more than three-quarters of the Fortune 500,
thousands of small and mid-sized businesses, as well as numerous government
entities. Organizations and professionals access FranklinCovey services and
products through consulting services, licensed client facilitators, one-on-one
coaching, public workshops, catalogs, more than 130 retail stores, and
http://www.franklincovey.com.
Safe-Harbor Statement
This announcement contains forward-looking statements that necessarily are
based on certain assumptions and are subject to certain risks and
uncertainties. The proposed recapitalization of the Company is subject to the
approval of a majority of both the outstanding Common Stock and the
outstanding Preferred Stock, which may or may not be obtained. In addition,
the Company has not finalized the documentation of the agreement with
Mr. Whitman and, consequently, the terms of the transaction may change. In
the event that the recapitalization of the Company is not approved by the
necessary shareholder votes, or the agreement with Mr. Whitman is not
finalized on the terms proposed, the anticipated benefits to the Company may
not be recognized. In addition, the business and prospects of the Company are
subject to a number of other factors identified and discussed in the Company's
2004 10-K report filed with the Securities and Exchange Commission, many of
which are beyond the control or influence of the Company. There can be no
assurance that the anticipated benefits to the Company will be realized or
that even if realized, they will have the benefit currently anticipated by
management. These forward-looking statements are based on management's
expectations as of the date hereof, and are subject to the outcome of various
factors, including those listed above, any one of which may cause future
results to differ materially from the Company's current expectations.
SOURCE FranklinCovey
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Related links:
http://www.franklincovey.com
CONTACT:
Richard R. Putnam, Investor Relations of
FranklinCovey, +1-801-817-1776
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