Officials of the West Valley City, Utah publisher of appointment books and productivity materials invited 10% of its 3,200 workers to participate in the March 2000 program. The AP said about 150 managers borrowed more than $33 million to buy 3.8 million shares.
The AP said many of the Covey managers may face a large personal liability when the loans are due in three years if the company’s share price doesn’t rebound from its current value of less than half of what it was when the program was implemented.
The SEC told the company it started the investigation after it received complaints from participants who said they had lost money, Franklin Covey spokesman Richard Putnam said.
“At this point, though, all the SEC has done is ask us to give them details about the program. We’ve provided them with everything they have requested,” Portman told the AP, denying that the company has done anything wrong.
Company Guaranteed Bank Loans
Under the program, the executives could borrow money to buy Covey stock from Bank One Corp. Their loans were secured by the purchased shares and a guarantee from the company it would repay the loans if any employee defaulted.
However, when Franklin Covey recently sought to renegotiate the terms of its line of credit with Bank One, the bank wanted the company to purchase the loans.
However, federal law forbids a company from holding its own stock as collateral for employee loans.
Franklin Covey ended up writing off $18.5 million in losses from the program for its first six-month period ended February 23, 2002. For the first six months of its 2002 fiscal year, Franklin Covey lost $51.9 million on sales of $187.7 million.