11.STOCK-BASED COMPENSATION PLANS

Overview

We utilize various stock-based compensation plans as integral components of our overall compensation and associate retention strategy. Our shareholders have approved various stock incentive plans that permit us to grant performance awards, unvested share awards, stock options, and employee stock purchase plan (ESPP) shares. In addition, our Board of Directors and shareholders may, from time to time, approve fully vested stock awards. The Organization and Compensation Committee of the Board of Directors (the Compensation Committee) has responsibility for the approval and oversight of our stock-based compensation plans.

On January 23, 2015, our shareholders approved the 2015 Omnibus Incentive Plan (the 2015 Plan), which authorized an additional 1.0 million shares of common stock for issuance to employees and members of the Board of Directors as stock-based payments. We believe that the 2015 Plan will provide sufficient available shares to grant awards over the next several years, based on current expectations of grants in future periods. A more detailed description of the 2015 Plan is set forth in the Company’s Proxy Statement filed with the SEC on December 22, 2014. At August 31, 2017, the 2015 Plan had approximately 494,000 shares available for future grants.

On May 31, 2017, our Board of Directors approved the 2017 Employee Stock Purchase Plan (the 2017 ESPP Plan). The 2017 ESPP Plan authorized a new tranche of 1,000,000 shares to be issued to ESPP participants and modernized some aspects of the ESPP (e.g., allowing for electronic communication with participants), but all other key terms and conditions of the 2017 ESPP Plan remain consistent with the prior plan (e.g., discount percentage, purchase date, etc.). We intend to submit the 2017 ESPP Plan to a vote of shareholders at our next annual shareholders’ meeting, which is expected to be held in January 2018. At August 31, 2017, the 2017 ESPP Plan had approximately 987,000 shares remaining for purchase by plan participants.

The total compensation expense of our stock-based compensation plans was as follows (in thousands):



YEAR ENDED
AUGUST 31,		2017		2016		2015
Performance awards	$	2,902	$	2,492	$	1,890
Unvested stock awards		500		450		400
Fully vested stock awards		135		60		125
Compensation cost of the ESPP		121		119		121
	$	3,658	$	3,121	$	2,536

The compensation expense of our stock-based compensation plans was included in selling, general, and administrative expenses in the accompanying consolidated statements of operations, and no stock-based compensation was capitalized during fiscal years 2017, 2016, or 2015. During fiscal 2017, we issued 217,581 shares of our common stock from shares held in treasury for various stock-based compensation plans. Certain of our stock-based compensation plans allow recipients to have shares withheld from the award to pay minimum statutory tax liabilities. We withheld 51,156 shares of our common stock for minimum statutory taxes during fiscal 2017.

The following is a description of our stock-based compensation plans.

Performance Awards

Due to the significant change in our business resulting sales of the All Access Pass, on October 18, 2016, the Compensation Committee approved a modification to the fiscal 2012 through fiscal 2016 performance awards to include the change in deferred revenue, less certain costs, in adjusted earnings before interest, taxes, depreciation, and amortization (Adjusted EBITDA) in the vesting calculations. Our share price on October 18, 2016 was less than the share prices used to recognize stock-based compensation expense on the fiscal 2012 through fiscal 2015 performance awards and no incremental stock-based compensation expense was recognized from this modification for those awards. The incremental compensation expense recorded in fiscal 2017 as a result of this modification for the fiscal 2016 LTIP award was approximately $0.6 million.

In fiscal 2015, the Compensation Committee approved a modification to exclude the effects of foreign exchange on the measurement of performance criteria on the outstanding tranches of our long-term incentive plan (LTIP) awards. Accordingly, we calculated incremental compensation expense based upon the fair value of (closing price) our common stock on the modification date, which totaled $0.7 million. We recognized $0.5 million of the incremental compensation expense during fiscal 2015 for service provided in the current and previous fiscal years associated with the modification.

Each of the LTIP performance awards described below have a maximum life of six years and compensation expense is recognized as we determine it is probable that the shares will vest. Adjustments to compensation expense to reflect the timing of and the number of shares expected to be awarded are made on a cumulative basis at the date of the adjustment. Award tranches that have vested and shares distributed to participants are marked as “vested” in the tables below. Tranches that have met the performance criteria, but are awaiting Compensation Committee approval are marked as “criteria met,” and tranches that have been determined to not be probable of vesting are marked as “not probable” in the tables below. The status for the tranches presented in the tables below is as of August 31, 2017.

Fiscal 2017 LTIP Award – On October 18, 2016, the Compensation Committee granted performance-based awards for our executive officers and members of senior management. A total of 183,381 shares may be earned by the participants based on six individual vesting conditions that are divided into two performance measures, trailing four-quarter Adjusted EBITDA and trailing four-quarter gross All Access Pass sales as shown below.



	Adjusted EBITDA				All Access Pass Sales
	Award				Award
	Goal	Number of	Tranche		Goal	Number of	Tranche
	(millions)	Shares	Status		(millions)	Shares	Status
$	36.7	42,789	amortizing	$	30.1	18,338	vested
$	41.8	42,789	amortizing	$	35.4	18,338	vested
$	47.7	42,789	amortizing	$	40.8	18,338	vested
		128,367				55,014

Fiscal 2016 LTIP Award – On November 12, 2015, the Compensation Committee granted performance-based awards for our executive officers and members of senior management. A total of 231,276 shares may be awarded to the participants based on six individual vesting conditions that are divided into two performance measures, trailing four-quarter Adjusted EBITDA and increased sales of Organizational Development Suite (OD Suite) offerings as shown below. The OD Suite is defined as Leadership, Productivity, and Trust practice sales.



	Adjusted EBITDA				OD Suite Sales
	Award				Award
	Goal	Number of	Tranche		Goal	Number of	Tranche
	(millions)	Shares	Status		(millions)	Shares	Status
$	36.0	53,964	amortizing	$	107.0	23,128	vested
$	40.0	53,964	amortizing	$	116.0	23,128	criteria met
$	44.0	53,964	amortizing	$	125.0	23,128	criteria met
		161,892				69,384

Fiscal 2015 LTIP Award – During fiscal 2015, the Compensation Committee granted a performance-based award for our executive officers and certain members of senior management. A total of 112,464 shares may be awarded to the participants based on six individual vesting conditions that are divided into two performance measures, trailing four-quarter Adjusted EBITDA and increased sales of OD Suite sales as shown below.



	Adjusted EBITDA				OD Suite Sales
	Award				Award
	Goal	Number of	Tranche		Goal	Number of	Tranche
	(millions)	Shares	Status		(millions)	Shares	Status
$	39.6	26,241	amortizing	$	107.0	11,247	vested
$	45.5	26,241	amortizing	$	118.0	11,247	criteria met
$	52.3	26,241	not probable	$	130.0	11,247	amortizing
		78,723				33,741

Fiscal 2014 LTIP Award – During the first quarter of fiscal 2014, the Compensation Committee granted performance-based equity awards for our executive officers. A total of 89,418 shares may be awarded to the participants based on six individual vesting conditions that are divided into two performance measures, trailing four-quarter Adjusted EBITDA and trailing four-quarter increased sales of courses related to The 7 Habits of Highly Effective People (the 7 Habits).



	Adjusted EBITDA				7 Habits Increased Sales
	Award				Award
	Goal	Number of	Tranche		Goal	Number of	Tranche
	(millions)	Shares	Status		(millions)	Shares	Status
$	37.0	20,864	vested	$	5.0	8,942	vested
$	43.0	20,864	amortizing	$	10.0	8,942	vested
$	49.0	20,864	not probable	$	12.5	8,942	criteria met
		62,592				26,826

Fiscal 2013 LTIP Award – During the first quarter of fiscal 2013, the Compensation Committee granted a performance-based equity award for the Chief Executive Officer (CEO), Chief Financial Officer (CFO), and the Chief People Officer (CPO). A total of 68,085 shares may be issued to the participants based on six individual vesting conditions that are divided into two performance measures, trailing four-quarter Adjusted EBITDA and Productivity Practice sales.



	Adjusted EBITDA				Productivity Practice Sales
	Award				Award
	Goal	Number of	Tranche		Goal	Number of	Tranche
	(millions)	Shares	Status		(millions)	Shares	Status
$	33.0	15,887	vested	$	23.5	6,808	vested
$	40.0	15,887	amortizing	$	26.5	6,808	not probable
$	47.0	15,887	not probable	$	29.5	6,808	not probable
		47,661				20,424

Fiscal 2012 LTIP Award - During fiscal 2012, the Compensation Committee granted a performance-based equity award for the CEO, CFO, and CPO similar to the fiscal 2013 executive award described above. A total of 106,101 shares may be issued to the participants based on six individual vesting conditions that are divided into two performance measures, Adjusted EBITDA and Productivity Practice sales. The fiscal 2012 LTIP award measurement period ended on August 31, 2017.



	Adjusted EBITDA				Productivity Practice Sales
	Award				Award
	Goal	Number of	Tranche		Goal	Number of	Tranche
	(millions)	Shares	Status		(millions)	Shares	Status
$	26.0	24,757	vested	$	20.5	10,610	vested
$	33.0	24,757	vested	$	23.5	10,610	vested
$	40.0	24,757	not vested	$	26.5	10,610	not vested
		74,271				31,830

Unvested Stock Awards

The annual Board of Director unvested stock award, which is administered under the terms of the Franklin Covey Co. 2015 Omnibus Incentive Plan, is designed to provide our non-employee directors, who are not eligible to participate in our employee stock purchase plan, an opportunity to obtain an interest in the Company through the acquisition of shares of our common stock. Each eligible director is entitled to receive a whole-share grant equal to $75,000 with a one-year vesting period, which is generally granted in January (following the Annual Shareholders’ Meeting) of each year. Shares granted under the terms of this annual award are ineligible to be voted or participate in any common stock dividends until they are vested.

Under the terms of this program, we issued 29,834 shares, 25,032 shares, and 24,210 shares of our common stock to eligible members of the Board of Directors during the fiscal years ended August 31, 2017, 2016, and 2015. The fair value of shares awarded to the directors was $0.5 million in each of those years as calculated on the grant date of the awards. The corresponding compensation cost is recognized over the vesting period of the awards, which is one year. The cost of the common stock issued from treasury for these awards was $0.4 million in fiscal 2017, and $0.3 million in each of the fiscal years ended August 31, 2016 and 2015. The following information applies to our unvested stock awards for the fiscal year ended August 31, 2017:



			Weighted-
			Average Grant-
			Date Fair
	Number of		Value Per
	Shares		Share
Unvested stock awards at
August 31, 2016	25,032	$	17.98
Granted	29,834		17.60
Forfeited	-		-
Vested	(25,032)		17.98
Unvested stock awards at
August 31, 2017	29,834	$	17.60

At August 31, 2017, there was $0.2 million of unrecognized compensation cost related to unvested stock awards, which is expected to be recognized over the remaining weighted-average vesting period of approximately four months. The total recognized tax benefit from unvested stock awards totaled $0.2 million for fiscal 2017 and $0.1 million for each of the fiscal years ended August 31, 2016 and 2015. The intrinsic value of our unvested stock awards at August 31, 2017 was $0.6 million.

Stock Options

We have an incentive stock option plan whereby options to purchase shares of our common stock may be issued to key employees at an exercise price not less than the fair market value of the Company’s common stock on the date of grant. Information related to our stock option activity during the fiscal year ended August 31, 2017 is presented below:



				Weighted
			Weighted	Average
			Avg. Exercise	Remaining		Aggregate
	Number of		Price Per	Contractual		Intrinsic Value
	Stock Options		Share	Life (Years)		(thousands)
Outstanding at August 31, 2016	631,250	$	11.41
Granted	-		-
Exercised	(62,500)		9.00
Forfeited	-		-
Outstanding at August 31, 2017	568,750	$	11.67	2.8	$	4,055

Options vested and exercisable at
August 31, 2017	568,750	$	11.67	2.8	$	4,055

During fiscal 2017, we had 62,500 stock options exercised on a net share basis, which had an aggregate intrinsic value of $0.5 million. At August 31, 2017, there was no remaining unrecognized compensation expense related to our stock options and no options were exercised during either fiscal 2016 or 2015.

The following additional information applies to our stock options outstanding at August 31, 2017:



		Weighted
	Number	Average		Options
	Outstanding	Remaining	Weighted	Exercisable at	Weighted
	at August 31,	Contractual	Average	August 31,	Average
Exercise Prices	2017	Life (Years)	Exercise Price	2017	Exercise Price
$9.00	62,500	3.4	$9.00	62,500	$9.00
$10.00	168,750	2.8	$10.00	168,750	$10.00
$12.00	168,750	2.8	$12.00	168,750	$12.00
$14.00	168,750	2.8	$14.00	168,750	$14.00
	568,750			568,750

Fully Vested Stock Awards

Client Partner and Consultant Award – During fiscal 2011, we implemented a new fully vested stock-based award program that is designed to reward our client partners and training consultants for exceptional long-term performance. The program grants shares of our common stock with a total value of $15,000 to each client partner who has sold over $20.0 million in cumulative sales or training consultant who has delivered over 1,500 days of training during their career. During fiscal 2017, nine individuals qualified for this award; four individuals qualified for this award in fiscal 2016; and five individuals earned this award in fiscal 2015.

In the fourth quarter of fiscal 2015, the Compensation Committee approved a fully vested award equal to $10,000 for each general manager or area director that achieved a specified sales goal. Five individuals achieved their sales goals and qualified for the award. This award was only for fourth quarter fiscal 2015 sales performance and no additional awards may be granted under the terms of this award.

Employee Stock Purchase Plan

We have an employee stock purchase plan that offers qualified employees the opportunity to purchase shares of our common stock at a price equal to 85 percent of the average fair market value of our common stock on the last trading day of each quarter. We issued a total of 43,199 shares, 49,375 shares, and 42,687 shares to ESPP participants during the fiscal years ended August 31, 2017, 2016, and 2015, which had a corresponding cost basis of $0.6 million, $0.7 million, and $0.6 million, respectively. We received cash proceeds for these shares from ESPP participants totaling $0.7 million in each of the fiscal years ended August 31, 2017, 2016, and 2015.