SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 29, 2003
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 0-362
FRANKLIN ELECTRIC CO., INC.
---------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
INDIANA 35-0827455
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
400 EAST SPRING STREET
BLUFFTON, INDIANA 46714
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(260) 824-2900
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
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(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES X NO
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS OF COMMON STOCK MAY 9, 2003
--------------------- -----------
$.10 PAR VALUE 10,774,400 SHARES
Page 1 of 50
2
FRANKLIN ELECTRIC CO., INC.
Table of Contents
Page
PART I. FINANCIAL INFORMATION Number
- --------------------------------- ------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
as of March 29, 2003
and December 28, 2002........................... 3
Condensed Consolidated Statements of
Income for the Three Months
Ended March 29, 2003 and
March 30, 2002.................................. 4
Condensed Consolidated Statements
Of Cash Flows for the Three Months
Ended March 29, 2003 and
March 30, 2002.................................. 5
Notes to Condensed Consolidated
Financial Statements............................ 6-9
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations........................... 9-11
Item 3. Quantitative and Qualitative Disclosures
About Market Risk............................... 11
Item 4. Controls and Procedures......................... 11
PART II. OTHER INFORMATION
- -----------------------------
Item 5. Submission of Matters to a Vote of
Security Holders.............................. 12
Item 6. Exhibits and Reports on Form 8-K................ 12-13
Signatures.................................................. 14
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Certifications.............................................. 15-18
- --------------
Exhibit Index............................................... 19
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Exhibits.................................................... 20-50
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3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
-----------------------------
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands) March 29, December 28,
2003 2002
---- ----
ASSETS
Current assets:
Cash and equivalents.................... $ 5,152 $ 20,133
Receivables, less allowances of
$1,977 and $1,907, respectively....... 30,864 31,711
Inventories (Note 2).................... 62,240 48,268
Other current assets (including
deferred income taxes of $8,646
and $8,615, respectively)............. 12,506 12,897
-------- --------
Total current assets.................. 110,762 113,009
Property, plant and equipment,
net (Note 3)............................ 75,165 76,033
Deferred and other assets (including
deferred income taxes of $1,391)........ 30,489 30,795
Goodwill.................................. 39,343 38,746
-------- --------
Total assets.............................. $255,759 $258,583
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current maturities of long-term
debt and short-term borrowings........ $ 4,474 $ 1,467
Accounts payable........................ 18,097 18,584
Accrued expenses........................ 26,387 28,484
Income taxes............................ 1,212 1,712
-------- --------
Total current liabilities............. 50,170 50,247
Long-term debt............................ 31,533 25,946
Employee benefit plan obligations......... 19,687 23,988
Other long-term liabilities............... 5,310 5,264
Shareowners' equity:
Common stock (Note 5)................... 1,073 1,082
Additional capital...................... 38,337 34,079
Retained earnings....................... 115,619 125,308
Loan to ESOP Trust...................... (897) (1,130)
Accumulated other comprehensive
loss (Note 7)......................... (5,073) (6,201)
-------- --------
Total shareowners' equity............. 149,059 153,138
-------- --------
Total liabilities and shareowners' equity. $255,759 $258,583
======== ========
See Notes to Condensed Consolidated Financial Statements.
4
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
First Quarter Ended
-------------------
March 29, March 30,
2003 2002
---- ----
Net sales.............................. $69,778 $68,069
Cost of sales.......................... 49,963 50,218
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Gross Profit........................... 19,815 17,851
Selling and administrative expenses.... 13,867 11,661
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Operating Income....................... 5,948 6,190
Interest expense....................... (337) (338)
Other income, net...................... 136 226
Foreign exchange gain (loss)........... 451 (208)
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Income before income taxes............. 6,198 5,870
Income taxes........................... 2,170 2,188
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Net income............................. $ 4,028 $ 3,682
======= =======
Per share data (Note 6):
Net income per common share.......... $ 0.37 $ 0.34
======= =======
Net income per common share,
assuming dilution.................. $ 0.36 $ 0.32
======= =======
Dividends per common share........... $ 0.13 $ 0.12
======= =======
See Notes to Condensed Consolidated Financial Statements.
5
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) First Quarter Ended
-------------------
March 29, March 30,
2003 2002
---- ----
Cash flows from operating activities:
Net income................................ $ 4,028 $ 3,682
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization......... 3,329 3,184
Loss on disposals of plant
and equipment....................... 363 -
Changes in assets and liabilities:
Receivables......................... 1,023 (4,409)
Inventories......................... (13,620) (6,269)
Accounts payable and other accrued
expenses.......................... (3,962) (5,111)
Employee benefit plan obligations... (3,666) 109
Other, net.......................... 16 (264)
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Net cash flows from operating activities.. (12,489) (9,078)
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Cash flows from investing activities:
Additions to plant and equipment.......... (1,988) (1,078)
Proceeds from sale of plant and equipment. 214 -
Additions to deferred assets.............. (250) (2,640)
Cash paid for acquisitions,
net of cash acquired................. - (17,475)
Proceeds from maturities of marketable
securities ............................. - 2,999
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Net cash flows from investing activities.. (2,024) (18,194)
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Cash flows from financing activities:
Borrowing on long-term debt............... 5,466 8,350
Repayment of long-term debt (109) -
Borrowing on line of credit and
short-term borrowings................... 3,000 3,000
Repayment of line of credit
and short-term borrowings............... (6) (5)
Proceeds from issuance of common stock.... 377 1,242
Purchases of common stock................. (8,394) -
Reduction of loan to ESOP Trust........... 233 232
Dividends paid............................ (1,396) (1,284)
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Net cash flows from financing activities.. (829) 11,535
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Effect of exchange rate changes on cash..... 361 57
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Net change in cash and equivalents.......... (14,981) (15,680)
Cash and equivalents at beginning of period. 20,133 20,750
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Cash and equivalents at end of period....... $ 5,152 $ 5,070
======= =======
See Notes to Condensed Consolidated Financial Statements.
6
FRANKLIN ELECTRIC CO., INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Condensed Consolidated Financial Statements
- ----------------------------------------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
accounting entries and adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of the financial position and the
results of operation for the interim period have been included. Operating
results for the first quarter ended March 29, 2003 are not necessarily
indicative of the results that may be expected for the year ending January 3,
2004. For further information, including a description of Franklin Electric's
critical accounting policies refer to the consolidated financial statements
and footnotes thereto included in Franklin Electric Co., Inc.'s annual report
on Form 10-K for the year ended December 28, 2002.
Note 2: Inventories
- --------------------
Inventories consist of the following:
(In thousands) March 29, December 28,
2003 2002
---- ----
Raw Materials........................ $16,298 $16,115
Work in Process...................... 7,125 7,481
Finished Goods....................... 48,215 33,905
LIFO Reserve......................... (9,398) (9,233)
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Total Inventory...................... $62,240 $48,268
======= =======
Note 3: Property, Plant and Equipment
- --------------------------------------
Property, plant and equipment, at cost, consists of the following:
(In thousands) March 29, December 28,
2003 2002
---- ----
Land and Building.................... $ 38,137 $ 34,126
Machinery and Equipment.............. 139,357 141,347
-------- --------
177,494 175,473
Allowance for Depreciation........... 102,329 99,440
-------- --------
$ 75,165 $ 76,033
======== ========
7
Note 4: Tax Rates
- ------------------
The effective tax rate on income before income taxes in 2003 and 2002 varies
from the United States statutory rate of 35 percent principally due to the
effect of state and foreign income taxes and tax planning activities.
Note 5: Shareowners' Equity
- ----------------------------
The Company had 10,727,800 shares of common stock (25,000,000 shares
authorized, $.10 par value) outstanding as of March 29, 2003.
During the first quarter of 2003, pursuant to the stock repurchase program
authorized by the Company's Board of Directors, the Company repurchased a
total of 165,147 shares for $8.4 million. Of these shares, 150,000 were
repurchased from an officer of the Company, at a purchase price of $51.08 per
share. All repurchased shares were retired.
During the first quarter, under terms of a Company stock option plan, an
officer of the Company delivered 76,588 shares ($3.9 million) of Company
common stock as consideration for stock issued upon the exercise of stock
options. The Company recorded a $1.8 million reduction in its deferred tax
liability and an increase to shareowners' equity as a result of this exercise.
The shares delivered to the Company were subsequently retired.
Note 6: Earnings Per Share
- ---------------------------
Following is the computation of basic and diluted earnings per share:
(In thousands, except Three Months Ended
------------------
per share amounts) March 29, March 30,
2003 2002
---- ----
Numerator:
Net Income..................... $ 4,028 $ 3,682
======= =======
Denominator:
Basic
-----
Weighted average common
shares....................... 10,764 10,697
Diluted
-------
Effect of dilutive securities:
Employee and director
stock options.............. 466 684
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Adjusted weighted average
common shares................ 11,230 11,381
======= =======
Basic earnings per share......... $ 0.37 $ 0.34
======= =======
Diluted earnings per share....... $ 0.36 $ 0.32
======= =======
8
Note 7: Other Comprehensive Income
- -----------------------------------
Comprehensive income is as follows:
(In thousands) Three Months Ended
------------------
March 29, March 30,
2003 2002
---- ----
Net income.............................. $ 4,028 $ 3,682
Other comprehensive gain (loss):
Foreign currency translation
adjustments.......................... 1,128 (162)
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Comprehensive income, net of tax........ $ 5,156 $ 3,520
======= =======
Accumulated other comprehensive loss consists of the following:
March 29, December 28,
2003 2002
---- ----
Cumulative translation adjustment........... $(1,123) $(2,251)
Minimum pension liability adjustment,
net of tax................................ (3,950) (3,950)
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$(5,073) $(6,201)
======= =======
Note 8: Contingencies and Commitments
- --------------------------------------
The Company provides warranties on most of its products. The warranty terms
vary but are generally two years from date of manufacture or one year from
date of installation. Provisions for estimated expenses related to product
warranty are made at the time products are sold or when specific warranty
issues are identified. These estimates are established using historical
information about the nature, frequency, and average cost of warranty claims.
The Company actively studies trends of warranty claims and takes action to
improve product quality and minimize warranty claims. The Company believes
that the warranty reserve is appropriate; however, actual claims incurred
could differ from the original estimates, requiring adjustments to the
reserve.
Below is a table that shows the activity in the warranty accrual accounts:
(In Thousands) Three Months Ended
------------------
March 29 March 30
2003 2002
---- ----
Beginning Balance................................ $5,308 $4,970
Accruals related to product warranties........... 912 1,002
Reductions for payments made..................... 1,010 1,220
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Ending Balance................................... $5,210 $4,752
====== ======
9
Note 9: Stock-Based Compensation
- ---------------------------------
The Company accounts for stock-based employee compensation plans under the
recognition and measurement principles of APB Opinion No. 25, "Accounting for
Stock Issued to Employees." No stock-based employee compensation cost is
reflected in net income (loss), as all options granted under those plans had
an exercise price equal to the market value of the stock at date of grant. As
permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," and
amended by SFAS No. 148, "Accounting for Stock-based Compensation - Transition
and Disclosure, an amendment of FASB Statement No. 123," the Company follows
the disclosure requirements only of SFAS No. 123. The following table
illustrates the effect on net income (loss) and earnings (loss) per share if
the Company had applied the fair value recognition provisions of SFAS No. 123:
(In Thousands, Except Three Months Ended
Per Share Amounts) ------------------
March 29 March 30
2003 2002
---- ----
Net income .......................................... $4,028 $3,682
Deduct: Stock-based employee compensation
cost, net of income tax............................. 442 289
------ ------
Pro forma net income ................................ $3,586 $3,393
====== ======
Earnings per share:
Basic - as reported.................................. $ .37 $ .34
Basic - pro forma.................................... $ .33 $ .32
Diluted - as reported................................ $ .36 $ .32
Diluted - pro forma.................................. $ .32 $ .30
Item 2. Management's Discussion And Analysis Of Financial Condition And
- ------------------------------------------------------------------------
Results Of Operations
- ----------------------
Operations
- ----------
Net sales for the first quarter of 2003 were $69.8 million, a 2.5 percent
increase from 2002 first quarter net sales of $68.1 million. Excluding the
sales of Intelligent Controls, Inc. (INCON), acquired by the Company in July
2002, sales were flat to last year. Foreign currencies, particularly the
euro, strengthened relative to the U.S. dollar since the first quarter of
2002. The impact of this change in exchange rates was a $3.7 million increase
in the Company's reported first quarter 2003 sales from its operations outside
of North America compared to the same period in 2002. In local currency
terms, sales outside North America were down 4 percent as compared to the same
time last year.
10
Cost of sales as a percentage of net sales for the first quarter of 2003 was
71.6 percent compared to 73.8 percent for the same period in 2002. The
decrease is primarily the result of cost reductions, productivity improvements
and other operations initiatives. Cost of sales reductions were offset in
part by increased fixed costs of which $1.2 million related to the INCON
acquisition.
Selling and administrative expenses were $13.9 million, compared to $11.7
million last year. The increase in selling and administrative expenses was
primarily due to the INCON acquisition ($0.9 million), increases in Europe due
to the rising value of the euro, and selling costs associated with new product
launches.
The foreign currency based transactions for the first quarter of 2003 produced
a gain of $0.5 million compared to a $0.2 million loss for the same period in
2002. The foreign currency transaction gain in 2003 was primarily the result
of the strengthening of the euro relative to the U.S. dollar. The foreign
currency transaction loss in 2002 was primarily due to the weakening of the
euro relative to the U.S. dollar.
The effective tax rate on income before income taxes in 2003 and 2002 varies
from the United States statutory rate of 35 percent principally due to the
effect of state and foreign income taxes and tax planning activities.
Net income for the first quarter of 2003 was $4.0 million, or $.36 per diluted
share, compared to net income of $3.7 million, or $.32 per diluted share, for
the same period a year ago.
Capital Resources and Liquidity
- -------------------------------
Cash and cash equivalents decreased $15.0 million during the first quarter of
2003. The principal use of cash for operating activities was the seasonal
increase in inventories. Working capital decreased $2.2 million during the
first quarter of 2003. The current ratio was 2.2 at March 30, 2003 and
December 28, 2002.
Net cash flows used in investing activities were $2.0 million and were
principally used for additions to plant and equipment. The Company also
purchased $8.4 million of its own common stock during the first quarter of
2003.
Critical Accounting Policies and Estimates
- ------------------------------------------
Management's discussion and analysis of its financial condition and results of
operations are based upon the Company's condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
the related disclosure of contingent assets and liabilities. On an on-going
basis, management evaluates its estimates, including those related to revenue
recognition allowance for doubtful accounts, accounts receivable, inventories,
recoverability of long-lived assets, intangible assets, income taxes, warranty
obligations, pensions and other employee benefit plan obligations, and
contingencies. Management bases its estimates on historical experience and on
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
11
value of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
- -----------------------------------------------------------------------------
1995
- ----
Any forward-looking statements contained herein involve risks and
uncertainties, including, but not limited to, general economic and currency
conditions, various conditions specific to the Company's business and
industry, market demand, competitive factors, supply constraints, technology
factors, government and regulatory actions, the Company's accounting policies,
future trends, and other risks which are described in detail in Exhibit 99 to
the Company's Annual Report on Form 10-K for the fiscal year ended December
28, 2002. These risks and uncertainties may cause actual results to differ
materially from those indicated by the forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
- -------------------------------------------------------------------
The Company is subject to market risk associated with changes in foreign
currency exchange rates and interest rates. Foreign currency exchange rate
risk is mitigated through several means: maintenance of local production
facilities in the markets served, invoicing of customers in the same currency
as the source of the products, prompt settlement of intercompany balances
utilizing a global netting system and limited use of foreign currency
denominated debt. Interest rate exposure is principally limited to variable
rate interest borrowings under the Company's revolving credit agreement.
Item 4. Controls and Procedures
- --------------------------------
Within the 90 days prior to the date of this report (the "Evaluation Date"),
the Company carried out an evaluation, under the supervision and with the
participation of the Company's management, including the Company's Chief
Executive Officer and the Company's Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the Company's Chief Executive Officer and the Company's Chief
Financial Officer concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company and its subsidiaries required to
be included in the Company's periodic SEC filings. Since the Evaluation Date
there have been no significant changes in the Company's internal controls or
in other factors which could significantly affect internal controls.
12
PART II. OTHER INFORMATION
Item 5. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The 2003 Annual Meeting of Shareholders of the Company was held on April 25,
2003 to: 1) Elect three directors for terms expiring at the 2006 Annual
Meeting of Shareholders; 2) Approve the merger of the Franklin Electric Co.,
Inc. Amended and Restated 1996 Nonemployee Director Stock Option Plan with and
into the Franklin Electric Co., Inc. 1996 Employee Stock Option Plan; 3)
Approve certain amendments to the Franklin Electric Co., Inc. Key Employee
Performance Incentive Stock Plan; and 4) Ratify the appointment of Deloitte &
Touche LLP as independent auditors for the 2003 fiscal year.
All of the matters submitted to a vote of shareholders were approved, as shown
by the following voting results.
1) Nominees for Director For Withhold Authority
--------------------- --- ------------------
Jerome D. Brady 9,390,939 43,707
Robert H. Little 9,389,916 44,730
Patricia Schaefer 9,389,558 45,088
2) Approve merger of aforementioned Stock Option Plans
For Against Abstain
- --- ------- -------
7,425,830 1,545,587 463,229
3) Approve aforementioned amendments to Key Employee Performance Incentive
Stock Plan
For Against Abstain
- --- ------- -------
7,315,902 1,652,888 465,856
4) Ratification of
Deloitte & Touche LLP
For Against Abstain
--- ------- -------
9,374,239 46,273 14,134
Total shares represented at the Annual Meeting in person or by proxy were
9,434,646 of a total of 10,736,447 shares outstanding. This represented 87.8
percent of Company common stock and constituted a quorum. There were no broker
non-votes on any of the matters submitted to a vote of shareholders.
13
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits (Filed with this quarterly report)
10.1 Franklin Electric Co., Inc. Stock Option Plan (as amended and
restated effective April 25, 2003).
10.2 Franklin Electric Co., Inc. Performance Incentive Stock Plan (as
amended and restated effective April 25, 2003).
99.1 Chief Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes
Oxley Act of 2002.
99.2 Chief Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes
Oxley Act of 2002.
(b) Reports on Form 8-K
A Current Report on Form 8-K was filed with the SEC by the Company on
February 3, 2003, pursuant to Item 5, to report a stock repurchase.
14
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this quarterly report to be signed on its behalf by
the undersigned thereunto duly authorized.
FRANKLIN ELECTRIC CO., INC.
---------------------------
Registrant
Date May 12, 2003 By /s/ R. Scott Trumbull
-------------------- ---------------------------------
R. Scott Trumbull, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date May 12, 2003 By /s/ Gregg C. Sengstack
-------------------- ---------------------------------
Gregg C. Sengstack, Senior Vice
President, Chief Financial
Officer and Secretary (Principal
Financial and Accounting Officer)
15
CERTIFICATIONS
--------------
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
----------------------------------------
I, R. Scott Trumbull, Chairman and Chief Executive Officer of Franklin
Electric Co., Inc., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Franklin Electric
Co., Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
Quarterly Report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Quarterly Report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the "Evaluation Date"); and
c. presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
16
6. The registrant's other certifying officer and I have indicated in this
Quarterly Report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 12, 2003
------------------------
/s/ R. Scott Trumbull
------------------------
R. Scott Trumbull
Chairman and Chief Executive Officer
Franklin Electric Co., Inc.
17
CERTIFICATION OF CHIEF FINANCIAL OFFICER
----------------------------------------
I, Gregg C. Sengstack, Senior Vice President, Chief Financial Officer
and Secretary of Franklin Electric Co., Inc., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Franklin
Electric Co., Inc.;
2. Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this Quarterly Report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Quarterly Report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this Quarterly Report (the "Evaluation Date"); and
c. presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors:
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in
this Quarterly Report whether there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
18
Date: May 12, 2003
---------------------
/s/ Gregg C. Sengstack
----------------------
Gregg C. Sengstack
Senior Vice President, Chief Financial Officer and Secretary
Franklin Electric Co., Inc.
19
FRANKLIN ELECTRIC CO., INC.
EXHIBIT INDEX TO THE FIRST QUARTER REPORT ON FORM 10-Q
FOR THE FIRST QUARTER ENDED MARCH 29, 2003
Exhibit
Number Description
- ------ -----------
10.1 Franklin Electric Co., Inc. Stock Option Plan
(As amended and restated effective April 25, 2003).
10.2 Franklin Electric Co., Inc. Performance Incentive
Stock Plan (As amended and restated effective April
25, 2003).
99.1 Chief Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350 As Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Chief Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
20
EXHIBIT 10.1
FRANKLIN ELECTRIC CO., INC.
STOCK OPTION PLAN
(AS AMENDED AND RESTATED EFFECTIVE APRIL 25, 2003)
z
21
TABLE OF CONTENTS PAGE
ARTICLE 1. AMENDMENT AND RESTATEMENT..............................22
ARTICLE 2. DEFINITIONS............................................22
ARTICLE 3. ADMINISTRATION.........................................25
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS..........26
ARTICLE 5. ELIGIBILITY AND PARTICIPATION..........................27
ARTICLE 6. STOCK OPTIONS..........................................27
ARTICLE 7. TANDEM STOCK APPRECIATION RIGHTS.......................29
ARTICLE 8. BENEFICIARY DESIGNATION................................30
ARTICLE 9. RIGHTS OF EMPLOYEES AND NONEMPLOYEE DIRECTORS..........31
ARTICLE 10. CHANGE IN CONTROL......................................31
ARTICLE 11. AMENDMENT, MODIFICATION, AND TERMINATION...............31
ARTICLE 12. WITHHOLDING............................................32
ARTICLE 13. INDEMNIFICATION........................................32
ARTICLE 14. SUCCESSORS.............................................33
ARTICLE 15. LEGAL CONSTRUCTION.....................................33
ARTICLE 16. PLAN PROVISIONS APPLICABLE TO GRANTS MADE UNDER THE
NONEMPLOYEE DIRECTOR OPTION PLAN.......................33
22
FRANKLIN ELECTRIC CO., INC.
STOCK OPTION
(AS AMENDED AND RESTATED EFFECTIVE APRIL 25, 2003)
ARTICLE 1.
AMENDMENT AND RESTATEMENT
1.1 AMENDMENT AND RESTATEMENT. Franklin Electric Co., Inc., an
Indiana corporation (the "Company") established the Franklin Electric Co.,
Inc. 1996 Employee Stock Option Plan (the "Employee Option Plan"), effective
as of July 1, 1995, and the Franklin Electric Co., Inc. Amended and Restated
1996 Nonemployee Director Stock Option Plan (the "Nonemployee Director Option
Plan"), effective as of February 11, 2000. The Company hereby amends and
restates the Employee Option Plan to (i) merge the Nonemployee Director Option
Plan into the amended and restated Employee Option Plan, (ii) change the name
of the Employee Option Plan to the "Franklin Electric Co., Inc. Stock Option
Plan" (the "Plan"), and (iii) make other desired changes as provided herein.
The amendment and restatement of the Employee Option Plan, as reflected
herein, was adopted by the Board of Directors on December 13, 2002 and,
subject to approval of the shareholders of the Company at the 2003 annual
meeting of shareholders, shall become effective on April 25, 2003 (the
"Effective Date"). The amendment and restatement of the Employee Option Plan,
as reflected herein, shall be null and void if shareholder approval is not
obtained.
1.2 OBJECTIVES OF THE PLAN. The objectives of the Plan are to: (i)
optimize the profitability and growth of the Company through incentives which
are consistent with the Company's goals and which link and align the personal
interests of Participants to those of the Company's shareholders, (ii) provide
Participants with an incentive for excellence in individual performance, (iii)
promote teamwork among Participants, and (iv) aid the Company in attracting
and retaining Participants who make significant contributions to the Company's
success.
1.3 DURATION OF THE PLAN. The Plan shall be effective on the
Effective Date, as described in Section 1.1 herein, and shall remain in
effect, subject to the right of the Board of Directors to amend or terminate
the Plan at any time pursuant to Article 11 herein, until all Shares subject
to it shall have been purchased or acquired according to the Plan's
provisions. However, in no event may an Award be granted under the Plan on or
after June 30, 2005.
ARTICLE 2.
DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below, and when the meaning is intended, the initial letter of the
word shall be capitalized:
23
2.1 "AWARD" means a grant of Nonqualified Stock Options or Tandem SARs
under this Plan.
2.2 "AWARD AGREEMENT" means an agreement entered into by the Company
and each Participant setting forth the terms and provisions applicable to
Awards granted under this Plan.
2.3 "BENEFICIAL OWNER" or "Beneficial Ownership" shall have the
meaning ascribed to such term in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act.
2.4 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of
the Company.
2.5 "CHANGE IN CONTROL" of the Company shall be deemed to have
occurred if the conditions set forth in any one or more of the following
paragraphs shall have been satisfied:
(i) Any Person (other than the Person in control of the Company on the
Effective Date, or other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or a
corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their
ownership of Shares of the Company), is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the
Company's then outstanding securities; or
(ii) The election to the Board of Directors of the Company, without the
recommendation or approval of a majority of the incumbent Board of
Directors, of the lesser of (a) three directors, or (b) directors
constituting a majority of the numbers of directors then in
office; or
(iii) The shareholders of the Company approve (a) a plan of complete
liquidation of the Company; or (b) an agreement for the sale or
disposition of all or substantially all the Company's assets; or
(c) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities
of the surviving entity) at least 50% of the combined voting
securities of the Company (or such surviving entity) outstanding
immediately after such merger or consolidation.
However, in no event shall a Change in Control be deemed to have
occurred, with respect to a Participant, if that Participant is part of
a purchasing group which consummates the Change-in-Control transaction.
A Participant shall be deemed "part of a purchasing group" for purposes
of the preceding sentence if the Participant is an equity participant or
has agreed to become an equity participant in the purchasing company or
group (except for (i) passive ownership of less than 3% of the Shares of
the purchasing company; or (ii) ownership of equity participation in the
purchasing company or group which is otherwise not deemed to be
significant, as determined prior to the Change in Control by a majority
of the disinterested Directors).
24
2.6 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
2.7 "COMMITTEE" means the Stock Option Committee of the Board, as
specified in Article 3 herein, or such other Committee appointed by the Board
to administer the Plan with respect to grants of Awards.
2.8 "COMPANY" means Franklin Electric Co., Inc., an Indiana
corporation, and the Company's subsidiaries, as well as any successor to any
of such entities as provided in Article 14 herein.
2.9 "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company.
2.10 "DISABILITY" means a permanent and total disability, within the
meaning of Code Section 22(e)(3), as determined by the Board in good faith.
2.11 "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.12 "EMPLOYEE" means any employee of the Company. Nonemployee
Directors shall not be considered Employees under this Plan unless
specifically designated otherwise.
2.13 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
2.14 "FAIR MARKET VALUE" means the closing sale price of a Share on the
principal securities exchange on which the Shares are publicly traded, or if
there is no such sale on the relevant date, then on the last previous day on
which a sale was reported.
2.15 "INSIDER" shall mean an individual who is, on the relevant date,
an officer, director or ten percent (10%) beneficial owner of any class of the
Company's equity securities that is registered pursuant to Section 12 of the
Exchange Act, all as defined under Section 16 of the Exchange Act.
2.16 "NAMED EXECUTIVE OFFICER" means a Participant who, as of the date
of vesting and/or payout of an Award, as applicable, is one of the group of
"covered employees," as defined in Code Section 162(m) or the regulations
promulgated thereunder, or any successor statute.
2.17 "NONEMPLOYEE DIRECTOR" means an individual who is a member of the
Board of Directors of the Company but is not an Employee of the Company.
2.18 "NONEMPLOYEE DIRECTOR OPTION PLAN" means the Franklin Electric
Co., Inc. Amended and Restated 1996 Nonemployee Director Stock Option Plan
which, pursuant to Section 1.1 of the Plan, will be merged into the Plan.
2.19 NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.
25
2.20 "OPTION" means a Nonqualified Stock Option granted under this
Plan.
2.21 "OPTION PRICE" means the price at which a Share may be purchased
by a Participant pursuant to an Option.
2.22 "PARTICIPANT" means an Employee or a Nonemployee Director who has
outstanding an Award granted under the Plan.
2.23 "PERFORMANCE-BASED EXCEPTION" means the performance-based
exception from the tax deductibility limitations of Code Section 162(m).
2.24 "PERSON" shall have the meaning ascribed to such term in Section 3
(a) (9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
2.25 "SHARES" means the $10 par value common stock of the Company.
2.26 "SUBSIDIARY" means any corporation, partnership, joint venture,
affiliate, or other entity in which the Company has a majority voting
interest, and which the Committee designates as a participating entity in the
Plan.
2.27 "TANDEM SAR" or "SAR" means an Award that is granted in connection
with a related Option pursuant to Article 7 herein, the exercise of which
shall require forfeiture of the right to purchase a Share under the related
Option (and when a Share is purchased under the Option, the Tandem SAR shall
similarly be canceled).
ARTICLE 3.
ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Stock Option
Committee of the Board, or by any other Committee appointed by the Board
consisting of not less than two (2) Nonemployee Directors who fulfill the
requirements for an exempt grant transaction under Rule 16b-3 of the Exchange
Act, and who are "outside directors" within the meaning of Code Section 162(m)
and regulations thereunder. The members of the Committee shall be appointed
from time to time by, and shall serve at the discretion of, the Board of
Directors.
The Committee shall be comprised solely of Nonemployee Directors who are
eligible to administer the Plan pursuant to Rule 16b-3 of the Exchange Act and
Code Section 162(m) and regulations thereunder. However, if for any reason
the Committee does not qualify to administer the Plan as contemplated by Rule
16b-3 of the Exchange Act and Code Section 162(m) and regulations thereunder,
the Board of Directors may appoint a new Committee so as to comply with Rule
16b-3 and Code Section 162(m) and regulations thereunder.
26
3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to select Employees and
Nonemployee Directors who shall participate in the Plan; determine the terms
and conditions of Awards in a manner consistent with the Plan; construe and
interpret the Plan and any agreement or instrument entered into under the
Plan; establish, amend, or waive rules and regulations for the Plan's
administration; and (subject to the provisions of Article 11 herein) amend the
terms and conditions of any outstanding Award to the extent such terms and
conditions are within the discretion of the Committee as provided in the Plan.
Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan. As permitted by
law, the Committee may delegate its authority as identified herein.
The Committee shall keep minutes of its meetings. A majority of the
Committee shall constitute a quorum, and only the acts of a majority of the
members present at any meeting at which a quorum is present, or acts approved
in writing by a majority of the Committee, shall be valid acts of the
Committee.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all
persons, including the Company, its stockholders, Employees, Nonemployee
Directors, Participants, and their estates and beneficiaries.
ARTICLE 4.
SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Prior to the Effective
Date, there were (i) six hundred thousand (600,000) Shares reserved for
issuance upon the exercise of Options granted under the Nonemployee Director
Option Plan, of which three hundred thirty-four thousand (334,000) shares
remained available for grants as of February 28, 2003, and (ii) one million
two hundred thousand (1,200,000) Shares reserved for issuance under the
Employee Option Plan, of which twenty-seven thousand three hundred (27,300)
Shares remained available for grants as of February 28, 2003. From and after
the Effective Date and subject to adjustment as provided in Section 4.2, the
total number of Shares hereby reserved for issuance upon the exercise of
Options granted under the Plan shall be one million eight hundred thousand
(1,800,000), of which three hundred sixty-one thousand three hundred (361,300)
Shares remained available for grants as of February 28, 2003. If any Option
granted hereunder shall expire or terminate for any reason without having been
exercised in full, the unpurchased Shares subject thereto shall again be
available for issuance under this Plan.
Unless and until the Committee determines that an Award to a Named Executive
Officer shall not be designed to comply with the Performance-Based Exception,
the maximum aggregate number of Options and Tandem SARs that may be granted or
that may vest, as applicable, pursuant to any Award held by any Named
Executive Officer shall be six hundred thousand (600,000) during the term of
the Plan.
27
4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether
or not such reorganization comes within the definition of such term in Code
Section 368) or any partial or complete liquidation of the Company, such
adjustment shall be made in the number and class of Shares available for
issuance and in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, as may be determined to be
appropriate and equitable by the Committee, in its sole discretion, to prevent
dilution or enlargement of rights; provided, however, that the number of
Shares subject to any Award shall always be a whole number.
ARTICLE 5.
ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in this Plan include
(i) all officers and key employees of the Company who, in the opinion of the
Committee, are materially responsible for the management, growth, and
protection of all or a material part of the business or major product lines or
major functions of the Company or its Subsidiaries, and (ii) all Nonemployee
Directors of the Company who, in the opinion of the Committee, have performed
services on the Board warranting the grant of Awards under the Plan.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees and
Nonemployee Directors, those to whom Awards shall be granted and shall
determine the nature and amount of each Award.
ARTICLE 6.
STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the
Plan, Options may be granted to one or more Participants in such number, and
upon such terms, and at any time and from time to time as shall be determined
by the Committee.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as
the Committee shall determine.
6.3 OPTION PRICE. Unless otherwise designated by the Committee at the
time of grant, the Option Price for each grant of an Option under this Plan
shall be equal to one hundred percent (100%) of the Fair Market Value of a
Share on the date the Option is granted; provided, however, that the Option
Price designated by the Committee shall be at least equal to fifty percent
(50%) of the Fair Market Value of a Share on the date the Option is granted.
28
6.4 DURATION OF OPTIONS. Each Option granted to a Participant shall
expire at such time as the Committee shall determine at the time of grant;
provided, however, that unless otherwise designated by the Committee at the
time of grant, no Option shall be exercisable later than the tenth (10th)
anniversary date of its grant.
6.5 EXERCISE OF OPTIONS. Options granted under this Article 6 shall
be exercisable at such times and be subject to such restrictions and
conditions as are set forth in the applicable Award Agreement, which need not
be the same for each grant or for each Participant.
6.6 PAYMENT. OPTIONS GRANTED under this Article 6 shall be exercised
by the delivery of a written notice of exercise to the Company, setting forth
the number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time
of exercise equal to the total Option Price (provided that the Shares which
are tendered must have been held by the Participant for at least six (6)
months prior to their tender to satisfy the Option Price).
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to the Participant, in
the Participant's name, Share certificates in an appropriate amount based upon
the number of Shares purchased under the Option(s).
In the event that a Tandem SAR is granted with an Option, the exercise
of such related Option shall cause the surrender of the right to exercise the
equivalent portion of the related Tandem SAR.
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable Federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws
applicable to such Shares.
6.8 TERMINATION OF EMPLOYMENT OR SERVICE ON THE BOARD. Unless
otherwise determined by the Committee, in the event a Participant's employment
with the Company and/or its Subsidiaries, or service on the Board, is
terminated due to death or Disability, all of his or her Options shall
immediately become fully vested on the date of termination and shall be
exercisable for the lesser of two (2) years following the date of termination
or the expiration date of the Options.
Unless otherwise determined by the Committee, in the event a
Participant's employment with the Company and/or its Subsidiaries or service
on the Board is terminated for any reason other than death or Disability, all
of his or her Options which are unvested at the date of termination shall be
forfeited to the Company; and his or her Options which are vested at the date
of termination shall be exercisable for the lesser of six (6) months following
the date of termination or the expiration date of the Options.
29
6.9 NONTRANSFERABILITY OF OPTIONS. Except as otherwise provided in a
Participant's Award Agreement, no Option granted under this Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, except as
otherwise provided in a Participant's Award Agreement, all NQSOs granted to a
Participant under this Article 6 shall be exercisable during his or her
lifetime only by such Participant.
ARTICLE 7
TANDEM STOCK APPRECIATION RIGHTS
7.1 GRANT OF TANDEM SARs. Subject to the terms and conditions of the
Plan, Tandem SARs may be granted to Participants at any time and from time to
time as shall be determined by the Committee. Subject to the terms and
conditions of the Plan, the Committee shall have complete discretion in
determining the number of Tandem SARs granted to each Participant (provided,
however, that in no event shall the number of Tandem SARs granted exceed the
number of related Options) and, in determining the terms and conditions
pertaining to such Tandem SARs. The grant price of Tandem SARs shall equal
the Option Price of the related Option.
7.2 EXERCISE OF TANDEM SARs. Tandem SARs may be exercised for all or
part of the Shares subject to the related Option upon the surrender of the
right to exercise the equivalent portion of the related Option. A Tandem SAR
may be exercised only with respect to the Shares for which its related Option
is then exercisable.
7.3 TANDEM SAR AGREEMENT. Each Tandem SAR grant shall be evidenced by
an Award Agreement that shall specify the grant price, the term of the Tandem
SAR, and such other provisions as the Committee shall determine.
7.4 TERM OF TANDEM SARs. The term of Tandem SARs granted under the
Plan shall be determined by the Committee, in its sole discretion; provided,
however, that unless otherwise designated by the Committee, such term shall
not exceed the term of the related Option.
7.5 PAYMENT OF TANDEM SAR AMOUNT. Upon exercise of a Tandem SAR, a
Participant shall be entitled to receive payment from the Company in an amount
determined by multiplying:
(a) The difference between the Fair Market Value of a Share on the
date of exercise over the grant price; by
(b) The number of Shares with respect to which the Tandem SAR is
exercised.
At the election of Participant and upon approval by the Committee, the
payment upon Tandem SAR exercise may be in cash, in Shares of equivalent
value, or in any combination thereof.
30
7.6 RULE 16b-3 REQUIREMENTS. Notwithstanding any other provision of
the Plan, the Committee may impose such conditions on exercise of a Tandem SAR
(including, without limitation, the right of the Committee to limit the time
of exercise to specified periods) as may be required to satisfy the
requirements of Section 16 of the Exchange Act (or any successor rule).
7.7 TERMINATION OF EMPLOYMENT OR SERVICE ON THE BOARD. Unless
otherwise determined by the Committee, in the event a Participant's employment
with the Company and/or its Subsidiaries, or service on the Board, is
terminated due to death or Disability, all of his or her Tandem SARs shall
immediately become fully vested on the date of termination and shall be
exercisable for the lesser of two (2) years following the date of termination
or the expiration date of the Tandem SARs.
Unless otherwise determined by the Committee, in the event a
Participant's employment with the Company and/or its Subsidiaries, or service
on the Board, is terminated for any reason other than death or Disability, all
of his or her Tandem SARs which are unvested at the date of termination shall
be forfeited to the Company; and his or her Tandem SARs which are vested at
the date of termination shall be exercisable for the lesser of six (6) months
following the date of termination or the expiration date of the Tandem SARs.
7.8 NONTRANSFERABILITY OF TANDEM SARs. Except as otherwise provided
in a Participant's Award Agreement, no Tandem SAR granted under the Plan may
be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
Further, except as otherwise provided in a Participant's Award Agreement, all
Tandem SARs granted to a Participant under the Plan shall be exercisable
during his or her lifetime only by such Participant.
ARTICLE 8.
BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively)
to whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each such designation
shall revoke all prior designations by the same Participant, shall be in a
form prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime, In
the absence of any such designation or if all beneficiaries predecease the
Participant, benefits remaining unpaid at the Participant's death shall be
paid to the Participant's estate.
31
ARTICLE 9.
RIGHTS OF EMPLOYEES AND NONEMPLOYEE DIRECTORS
9.1 EMPLOYMENT AND SERVICE ON THE BOARD. Nothing in the Plan shall
interfere with or limit in any way the right of the Company to terminate any
Participant's employment or service on the Board at any time, nor confer upon
any Participant any right to continue in the employ of the Company or continue
to serve on the Board.
For purposes of this Plan, a transfer of a Participant's employment
between the Company and a Subsidiary, or between Subsidiaries, shall not be
deemed to be a termination of employment. Upon such a transfer, the Committee
may make such adjustments to outstanding Awards as it deems appropriate to
reflect the changed reporting relationships.
9.2 PARTICIPATION. No Participant shall have the right to be selected
to receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
ARTICLE 10.
CHANGE IN CONTROL
10.1 TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change
in Control, unless otherwise specifically prohibited under applicable laws, or
by the rules and regulations of any governing governmental agencies or
national securities exchanges, any and all Options and Tandem SARs granted
hereunder shall become immediately exercisable, and shall remain exercisable
throughout their entire term.
10.2 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL
Provisions. Notwithstanding any other provision of this Plan or any Award
Agreement provision, the provisions of this Article 10 may not be terminated,
amended, or modified to affect adversely any Award theretofore granted under
the Plan without the prior written consent of the Participant with respect to
said Participant's outstanding Awards.
ARTICLE 11.
AMENDMENT, MODIFICATION, AND TERMINATION
11.1 AMENDMENT, MODIFICATION, AND TERMINATION. The Board may at any
time and from time to time, alter, amend, suspend or terminate the Plan in
whole or in part; provided, however, that no amendment which fails to comply
with the exemptions available under Rule 16b-3 of the Exchange Act, including
any successor to such Rule, shall be effective.
The Committee shall not have the authority to cancel outstanding Awards
and issue substitute Awards in replacement thereof.
11.2 AWARDS PREVIOUSLY GRANTED. Unless required by law, no
termination, amendment, or modification of the Plan shall adversely affect in
any material way any Award previously granted under the Plan, without the
written consent of the Participant holding such Award.
32
11.3 COMPLIANCE WITH CODE SECTION 162(m). At all times when Code
Section 162(m) is applicable, all Awards granted under this Plan shall comply
with the Performance-Based Exception requirements of Code Section 162(m) and
regulations thereunder; provided, however, that in the event the Committee
determines that such compliance is not desired with respect to any Award or
Awards available for grant under the Plan, then compliance with Code Section
162(m) and regulations thereunder will not be required. In addition, in the
event that changes are made to Code Section 162(m) and regulations thereunder
to permit greater flexibility with respect to any Award or Awards available
under the Plan, the Committee may, subject to this Article 11, make any
adjustments it deems appropriate.
ARTICLE 12.
WITHHOLDING
12.1 TAX WITHHOLDING. The Company shall have the power and the right
to deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy federal, state, and local taxes, domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of this Plan.
12.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or Tandem SARs, Participants may elect, subject to the
approval of the Committee, to satisfy the withholding requirement, in whole or
in part, by having the Company withhold Shares having a Fair Market Value on
the date the tax is to be determined equal to the minimum statutory total tax
which could be imposed on the transaction. All such elections shall be
irrevocable, made in writing, signed by the Participant, and shall be subject
to any restrictions or limitations that the Committee, in its sole discretion,
deems appropriate.
ARTICLE 13.
INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of
the Board, shall be indemnified by the Company against and from any loss,
cost, liability, or expense that may be imposed upon or reasonably incurred by
him or her in connection with or resulting from any claim, action, suit, or
proceeding to which he or she may be a party or in which he or she may be
involved by reason of any action taken or failure to act under the Plan. Such
person shall be indemnified by the Company for all amounts paid by him or her
in settlement thereof, with the Company's approval, or paid by him or her in
satisfaction of any judgment in any such action, suit, or proceeding against
him or her, provided he or she shall give the Company an opportunity, at its
own expense, to handle and defend the same before he or she undertakes to
handle and defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under the Company's Articles of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.
33
ARTICLE 14.
SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
ARTICLE 15.
LEGAL CONSTRUCTION
15.1 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
15.2 SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
15.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
15.4 GOVERNING LAW. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Indiana.
ARTICLE 16.
PLAN PROVISIONS APPLICABLE TO GRANTS MADE UNDER THE NONEMPLOYEE
DIRECTOR OPTION PLAN
As provided in Section 1.1 of the Plan, the Nonemployee Director Option Plan
shall be merged into the Plan effective as of the Effective Date. Each Award
granted under the Nonemployee Director Option Plan prior to the Effective Date
shall be assumed by the Plan. Notwithstanding any provisions in the Plan to
the contrary, all Awards granted under the Nonemployee Director Option Plan
prior to the Effective Date shall be subject to the terms of this Article 16
and the terms of the Plan to the extent such terms are not inconsistent with
this Article 16.
34
16.1 DEFINITIONS.
(i) "Board" or "Board of Directors" means the Board of Directors of
the Company, and includes any committee of the Board of Directors
designated by the Board to administer part or all of the
Nonemployee Director Option Plan.
(ii) "Nonemployee Director" means any individual who was a member of
theBoard of Directors of the Company, but was not, as of the date
of the grant of an Option, an Employee of the Company.
(iii) "Option" means a grant of Nonqualified Stock Options under the
Nonemployee Director Option Plan prior to the Effective Date.
16.2 ADMINISTRATION BY THE BOARD. The Board shall have the full power,
discretion and authority to interpret and administer the Options in a manner
which is consistent with the provisions of this Article 16.
16.3 GRANTS OF OPTIONS. Prior to the Effective Date, and subject to
the limitation on the number of Shares contained in the Nonemployee Director
Option Plan, each person who was a Nonemployee Director following each Annual
Meeting of the Shareholders was automatically granted an Option to purchase
ten thousand (10,000) Shares. Other than these automatic grants of Options,
no additional Options were granted under the Nonemployee Director Option Plan.
On and after the Effective Date there will be no automatic grants of Options
to Nonemployee Directors under the Plan or the Nonemployee Director Option
Plan that was merged into the Plan. All grants of Options to Nonemployee
Directors under the Plan will be made pursuant to Section 6.1 above.
16.4 AWARD AGREEMENT. Each Option granted under the Nonemployee
Director Option Plan is evidenced by an Award Agreement that specifies the
Option Price, the duration of the Option, and the number of Shares available
for purchase under the Option as set forth in this Article 16.
16.5 OPTION PRICE. The Option Price per Share available for purchase
under an Option was equal to the Fair Market Value of such Share on the date
the Option was granted.
16.6 DURATION OF OPTIONS. Each Option shall expire on the tenth (10th)
anniversary date of its grant.
16.7 VESTING OF SHARES SUBJECT TO OPTION. Nonemployee Directors shall
be entitled to exercise Options at any time and from time to time, within the
time period beginning one (1) year after grant of the Options, and ending ten
(10) years after grant of the Options, and according to the following vesting
schedule: one-third of the Options shall vest on each of the first, second,
and third anniversaries of the date of grant of the Options.
16.8 PAYMENT. A Nonemployee Director may exercise an Option by delivery
of a written notice, specifying the number of Shares with respect to which the
Option is being exercised, accompanied by payment in full of the Option Price
of any Shares to be purchased (in the form of a cashier's or certified check).
No Shares shall be issued upon exercise of an Option until full payment has
been made therefor. Notwithstanding the preceding sentence, the Board may
permit a Nonemployee Director to pay the Option Price of the Shares to be
purchased (i) in Shares valued at their Fair Market Value at the date of
exercise, (ii) by agreeing to surrender Options then exercisable by him or her
valued at the excess of the aggregate Fair Market Value of the Shares subject
to such Options on the date of exercise over the aggregate Option Price of
such Shares, (iii) by directing the Company to withhold such number of Shares
35
otherwise issuable upon exercise of such Options having an aggregate Fair
Market Value on the date of exercise equal to the Option Price of the Option,
or (iv) by such other medium of payment as the Board, in its discretion, shall
authorize, or by any combination of the aforementioned methods of payment.
Shares issued upon exercise of an Option shall be issued only in the name of
the Nonemployee Director. All notices shall be delivered to the Secretary of
the Company and shall become effective when received.
16.9 TERMINATION OF SERVICE ON BOARD OF DIRECTORS DUE TO DEATH OR
DISABILITY. In the event the service of a Nonemployee Director on the Board
is terminated by reason of death, Disability, or retirement on or after
attaining the age of seventy (70), any outstanding Options granted to that
Nonemployee Director that are not exercisable as of the date of death (or as
of the date that the definition of Disability is satisfied, or the date of
retirement, as applicable) shall immediately become exercisable.
To the extent an Option is exercisable by reason of death, as of the
date that the definition of Disability is satisfied, or retirement on or after
attaining the age of seventy (70) as applicable, such Option shall remain
exercisable at any time prior to its expiration date, or for two (2) years
after the date of death, or the date that the definition of Disability is
satisfied, or the date of retirement, as applicable, whichever period is
shorter, by the Nonemployee Director or such person or persons as shall have
been named as the Nonemployee Director's legal representative or beneficiary,
or by such persons that have acquired the Nonemployee Directors' rights under
the Option by will or by the laws of descent and distribution.
16.10 TERMINATION OF SERVICE ON BOARD OF DIRECTORS FOR OTHER REASONS. If
the service of the Nonemployee Director on the Board shall terminate for any
reason other than for death, Disability, or retirement on or after attaining
the age of seventy (70), any outstanding Options held by the Nonemployee
Director that are not exercisable as of the date of termination immediately
shall be forfeited to the Company (and shall once again become available for
grant under the Plan). To the extent an Option is exercisable as of the date
of termination of the Nonemployee Director's service on the Board, it shall
remain exercisable at any time prior to its expiration date, or for six (6)
months after the date the Nonemployee Director's service on the Board
terminates, whichever period is shorter.
16.11 NONTRANSFERABILITY OF OPTIONS. No Option granted under the
Nonemployee Director Option Plan may be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution. Further, all Options granted to a Nonemployee
Director under the Nonemployee Director Option Plan shall be exercisable
during his or her lifetime only by such Nonemployee Director.
Notwithstanding the preceding provisions of this Section, a Nonemployee
Director, at any time prior to his or her death, may assign all or any portion
of an Option granted to him or her to (i) his or her spouse or lineal
descendant, (ii) the trustee of a trust established for the primary benefit of
his or her spouse or lineal descendant, (iii) a partnership of which his or
her spouse and lineal descendants are the only partners, or (iv) a tax-exempt
organization as described in Section 501(c)(3) of the Code. In such event, the
spouse, lineal descendants, trustee, partnership or tax-exempt organization,
will be entitled to all the rights of the Nonemployee Director with respect to
the assigned portion of such Option, and such portion of the Option will
continue to be subject to all of the terms, conditions and restrictions
applicable to the Option as set forth herein immediately priorto the effective
36
date of the assignment. Any such assignment will be permitted only if (i) the
Nonemployee Director does not receive any consideration therefor, and (ii) the
assignment is expressly approved by the Board. Any such assignment shall be
evidenced by an appropriate written document executed by the Nonemployee
Director and a copy thereof shall be delivered to the Board on or prior to the
effective date of the assignment.
37
EXHIBIT 10.2
FRANKLIN ELECTRIC CO., INC.
PERFORMANCE INCENTIVE STOCK PLAN
(AS AMENDED AND RESTATED EFFECTIVE APRIL 25, 2003)
38
TABLE OF CONTENTS PAGE
SECTION 1. AMENDMENT AND RESTATEMENT..............................39
SECTION 2. DEFINITIONS............................................40
SECTION 3. ELIGIBILITY AND PARTICIPATION..........................42
SECTION 4. ADMINISTRATION.........................................42
SECTION 5. STOCK SUBJECT TO PLAN..................................43
SECTION 6. TERMINATION OF THE PLAN................................43
SECTION 7. RESTRICTED STOCK.......................................44
SECTION 8. RIGHTS OF EMPLOYEES AND NONEMPLOYEE DIRECTORS..........46
SECTION 9. MERGER, CONSOLIDATION, OR ACQUISITION..................47
SECTION 10. AMENDMENT AND TERMINATION..............................47
SECTION 11. TAXWITHHOLDING.........................................47
SECTION 12. GOVERNING LAW..........................................48
SECTION 13. EXPENSE OF PLAN........................................48
SECTION 14. RESTRICTED STOCK AGREEMENT.............................48
39
FRANKLIN ELECTRIC CO., INC.
PERFORMANCE INCENTIVE STOCK PLAN
(AS AMENDED AND RESTATED EFFECTIVE APRIL 25, 2003)
PREAMBLE
Employees of Franklin Electric Co., Inc., an Indiana corporation (the
"Company"), who are from time to time materially responsible for the
management, growth and protection of a material part or all of the business or
major product lines or major functions of the Company, and Nonemployee
Directors of the Company who have performed services on the Board warranting
the grant of Restricted Stock under the Franklin Electric Co., Inc.
Performance Incentive Plan, as amended and restated herein (the "Plan"), are
eligible to be granted Restricted Stock as Participants under the Plan.
At the time of the grant a Committee of the Board of Directors will establish
at least two criteria for Participants to earn the shares granted. First, the
Committee will establish a Restriction Period. Second, the Committee will
also set Performance Objectives to be achieved during the Restriction Period.
These Performance Objectives will be based on financial and other metrics that
are recognized as measures of the enhancement of shareholder value.
At the end of a Restriction Period, the Committee, in its discretion, shall
determine (i) whether and to what extent the Company has achieved the
Performance Objectives and satisfied any other terms, conditions or
restrictions established for the Restriction Period, and (ii) the number of
Shares of Restricted Stock with respect to which the restrictions imposed
should lapse.
If at the end of the Restriction Period the Committee determines that the
Company failed to achieve the Performance Objectives or otherwise failed to
satisfy any other restrictions, terms or conditions set by the Committee, then
to the extent provided in the Restricted Stock Agreement or otherwise by the
Committee, the Shares of Restricted Stock shall be forfeited by the
Participant and returned to the Company, and all rights of the Participant in
such Shares shall terminate without any further obligation on the part of the
Company.
SECTION 1.
AMENDMENT AND RESTATEMENT
1.1 AMENDMENT AND RESTATEMENT. The Company established the Franklin
Electric Co., Inc. Key Employee Performance Incentive Stock Plan (the
"Employee Plan"), effective April 14, 2000. The Company hereby amends and
restates the Employee Plan to (i) authorize participation by Nonemployee
Directors, (ii) change the name of the Employee Plan to the "Franklin Electric
Co., Inc. Performance Incentive Stock Plan," and (iii) make other desired
changes as provided herein.
40
1.2 PURPOSE. The purposes of the Plan are to: (i) advance the interests of
the Company by providing the additional incentives inherent in stock ownership
to those Employees of the Company materially responsible, now and in the
future, for the management, growth and protection of some part or all of the
business of the Company and thereby to bring them into closer identity with
the future of the Company; (ii) aid the Company in attracting and retaining
Employees in key management positions; (iii) enable the Company to compete
effectively with other enterprises for the services of new Employees as may be
needed for the continued success of the Company; (iv) promote the achievement
of long-term objectives of the Company by linking the interests of Nonemployee
Directors to those of Company stockholders; and (v) attract and retain
Nonemployee Directors of outstanding competence. The Plan seeks to accomplish
such purposes by providing to such employees and Nonemployee Directors an
equity interest in the Company.
1.3 EFFECTIVE DATE. The amendment and restatement of the Employee Plan, as
reflected herein, was adopted by the Board of Directors of the Company on
December 13, 2002 and, subject to approval of the shareholders of the Company
at the 2003 annual meeting of shareholders, shall become effective on April
25, 2003 (the "Effective Date"). The amendment and restatement of the
Employee Plan, as reflected herein, shall be null and void if shareholder
approval is not obtained.
SECTION 2.
DEFINITIONS
2.1 DEFINITIONS. Whenever used herein, the following terms shall have the
meanings set forth below:
"Board" means the Board of Directors of the Company.
"Change in Control" of the Company shall be deemed to have occurred if the
conditions set forth in any one or more of the following paragraphs shall have
been satisfied:
(i) Any Person (other than the Person in control of the Company on the
Effective Date, or other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, or a corporation owned directly
or indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of Shares of the Company), is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's then
outstanding securities; or
(ii) The election to the Board of Directors of the Company, without the
recommendation or approval of a majority of the incumbent Board of Directors,
of the lesser of (a) three directors, or (b) directors constituting a majority
of the numbers of directors then in office; or
(iii) The stockholders of the Company approve (a) a plan of complete
liquidation of the Company; or (b) an agreement for the sale or disposition of
all or substantially all the Company's assets; or (c) a merger or
consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Company
41
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the combined voting securities of the
Company (or such surviving entity) outstanding immediately after such merger
or consolidation.
However, in no event shall a Change in Control be deemed to have occurred,
with respect to a Participant, if that Participant is part of a purchasing
group which consummates the Change-in-Control transaction. A Participant
shall be deemed "part of a purchasing group" for purposes of the preceding
sentence if the Participant is an equity participant or has agreed to become
an equity participant in the purchasing company or group (except for (i)
passive ownership of less than 3% of the Shares of the purchasing company; or
(ii) ownership of equity participation in the purchasing company or group
which is otherwise not deemed to be significant, as determined prior to the
Change in Control by a majority of the disinterested Directors).
"Code" means the Internal Revenue Code of 1986, as amended, in effect at the
time of reference, or any successor Code that may hereafter be adopted in lieu
thereof, and references to any specific provisions of the Code shall refer to
the corresponding provisions of the Code as it may hereinafter be amended or
replaced.
"Committee" means a committee of the Board consisting of two or more members
of the Board who are "outside directors," as defined under section 162(m) of
the Code and the regulations thereunder.
"Disability" means a permanent and total disability, within the meaning of
Code Section 22(e)(3), as determined by the Board in good faith.
"Employee" means any person (including officers who are directors of the
Company) employed by the Company on a full-time salaried basis.
"Nonemployee Director" means any individual who is a member of the Board of
Directors of the Company but not an Employee of the Company.
"Normal Retirement" means termination of employment or service on the Board on
or after a Participant's sixty-fifth birthday under the Company's Basic
Retirement Plan as amended from time to time.
"Participant" means any Employee or Nonemployee Director designated by the
Committee to participate in the Plan.
"Performance Objectives" means the performance goals set by the Committee
based on one or more of the following: (i) net income growth; (ii) average
return on equity; (iii) net income as a percentage of sales; (iv) sales
growth; (v) return on assets; (vi) earnings per share; and (vii) Common Stock
price.
"Restriction Period" means that period of time determined by the Committee
during which the transfer of Shares of Restricted Stock are restricted and are
subject to forfeiture.
"Restricted Stock" means Stock granted to a Participant pursuant to Section 7
of the Plan.
42
"Stock", "Shares", and "Restricted Stock" mean the common shares of the
Company.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
words in the masculine gender when used in this Plan also shall include the
feminine and neuter genders, the singular shall include the plural, and the
plural shall include the singular.
SECTION 3.
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBLE EMPLOYEES AND NONEMPLOYEE DIRECTORS. The following individuals
shall be eligible to be granted Shares of Restricted Stock under the Plan:
(i) the officers and other Employees of the Company who, in the opinion of the
Committee, are from time to time materially responsible for the management,
growth and protection of a material part or all of the business or major
product lines or major functions of the Company; and (ii) the Nonemployee
Directors who, in the opinion of the Committee, have performed services on the
Board warranting the grant of Shares of Restricted Stock under the Plan.
SECTION 4.
ADMINISTRATION
4.1 ADMINISTRATION. The Committee shall be responsible for the
administration and interpretation of the Plan. Without limiting other rights
or powers delegated to the Committee elsewhere under the Plan, the Committee,
in administering and interpreting the Plan, and consistent with the express
provisions of the Plan, is hereby authorized and empowered as follows:
(a) The Committee shall determine the identity of the Participants in the
Plan and the number of Shares of Restricted Stock to be granted to
Participants.
(b) The Committee shall determine the Restriction Period, the Performance
Objectives, and any other restrictions, terms or conditions with respect to
the granting of any Restricted Stock.
(c) The Committee may prescribe, award, and rescind rules or regulations
relating to the Plan.
(d) The Committee may make all other determinations necessary or advisable
for the administration or interpretations of the Plan.
(e) The Committee shall prescribe the terms and conditions of the Restricted
Stock Agreements.
(f) The Committee may require that all Stock certificates issued in
connection with Shares of Restricted Stock be held by the Company or in escrow
or otherwise pursuant to such terms and conditions that the Committee may
require until all the restrictions have lapsed and the Restricted Stock is
freely transferable.
43
SECTION 5.
STOCK SUBJECT TO PLAN
5.1 NUMBER. The total number of Shares of Restricted Stock that may be
granted under the Plan may not exceed two hundred thousand (200,000), subject
to adjustment as provided in Section 5.3. Those Shares of Restricted Stock
granted may consist, in whole or in part, of authorized but unissued Stock or
Shares of Stock reacquired by the Company, including Shares purchased in the
open market and not reserved for any other purpose. The maximum aggregate
number of Shares that may be granted to any participant under the Plan during
the term of the Plan is two hundred thousand (200,000) Shares, subject to
adjustment as provided in Section 5.3.
5.2 UNUSED STOCK. In the event any Shares of Restricted Stock granted under
the Plan are forfeited and reacquired by the Company, such reacquired Shares
again shall become available for issuance under the Plan.
5.3 ADJUSTMENT IN AVAILABLE SHARES. Any increase in the number of
outstanding Shares of the Company occurring through Stock splits or Stock
dividends after the adoption of the Plan shall be reflected proportionately in
an increase in the aggregate number of Shares then available for issuance
grant under the Plan. Any fractional share of Restricted Stock resulting from
such adjustments shall be eliminated. If changes in capitalization other than
those considered above shall occur, the Board shall make such adjustment in
the number and class of Restricted Stock which may thereafter be issued, as
the Board in its discretion may consider appropriate, and all such adjustments
shall be conclusive upon all persons.
SECTION 6.
TERMINATION OF THE PLAN
6.1 TERMINATION OF THE PLAN. Subject to the Board's right to earlier
terminate the Plan pursuant to Section 10.1 hereof, the Plan shall terminate
not later than December 13, 2010 and no Restricted Stock shall be granted
after termination of the Plan; provided, however, that termination of the Plan
will not adversely affect Shares of Restricted Stock granted prior to
termination of the Plan.
44
SECTION 7.
RESTRICTED STOCK
7.1 SELECTION OF PARTICIPANTS AND GRANT OF RESTRICTED STOCK. Subject to the
terms of the Plan, from time to time the Committee may select eligible
Employees and Nonemployee Directors to be Participants under the Plan and to
receive the opportunity to earn grants of Restricted Stock. Grants will
generally be made at the beginning of a Restriction Period, but may, in the
Committee's discretion, be made during the term of a Restriction Period. The
Committee shall determine the number of Shares of Restricted Stock which will
be granted to a Participant.
7.2 RESTRICTION PERIOD. At the time of the grant of Shares of Restricted
Stock, the Committee shall select the Restriction Period to apply to the
Shares of Restricted Stock.
7.3 PERFORMANCE OBJECTIVES. At the time of the grant of the Restricted
Stock (which generally will be prior to the beginning of the Restriction
Period), Performance Objectives designed to enhance shareholder value shall be
established by the Committee. Subject to the provisions of the Plan, the
degree of achievement of the Performance Objectives may determine the number
of Shares (if any) of Restricted Stock that ultimately shall be free of any
restrictions at the end of the Restriction Period.
7.4 NONTRANSFERABILITY OF RESTRICTED STOCK. Prior to the lapse of
restrictions as provided in Section 7.6, Shares of Restricted Stock may not be
sold, exchanged, transferred, pledged, assigned, or otherwise alienated or
hypothecated, whether voluntarily or involuntarily. Notwithstanding the
preceding provisions of this Section, a Participant, at any time prior to his
or her death, may assign all or any Shares of Restricted Stock granted to him
or her to (i) his or her spouse or lineal descendant, (ii) the trustee of a
trust established for the primary benefit of his or her spouse or lineal
descendant, (iii) a partnership of which his or her spouse and lineal
descendants are the only partners, or (iv) a tax-exempt organization as
described in Section 501(c) (3) of the Code. In such event, the spouse,
lineal descendants, trustee, partnership or tax-exempt organization, will be
entitled to all the rights of the Participant with respect to the assigned
Shares of such Restricted Stock, and such portion of the grant will continue
to be subject to all of the terms, conditions and restrictions applicable to
the Restricted Stock as set forth herein immediately prior to the effective
date of the assignment. Any such assignment will be permitted only if (i) the
Participant does not receive any consideration therefor, and (ii) the
assignment is expressly approved by the Board. Any such assignment shall be
evidenced by an appropriate written document executed by the Participant and a
copy thereof shall be delivered to the Board on or prior to the effective date
of the assignment.
7.5 FORFEITURE AND RETURN OF RESTRICTED STOCK TO THE COMPANY.
(a) FAILURE TO ACHIEVE PERFORMANCE OBJECTIVE OR OTHER CONDITIONS. If at
the end of the Restriction Period the Committee determines that the Company
failed to achieve the Performance Objectives or otherwise failed to satisfy
any other restrictions, terms or conditions set by the Committee, then to the
extent provided in the Restricted Stock Agreement or otherwise by the
Committee, the Shares of Restricted Stock shall be forfeited by the
Participant and returned to the Company, and all rights of the Participant in
such Shares shall terminate without any further obligation on the part of the
45
Company. Pursuant to the Plan, the Restricted Stock Agreement or otherwise,
the Committee may determine that some but not all of a Participant's Shares of
Restricted Stock shall be forfeited. The Committee shall have the exclusive
authority to determine whether the Company has achieved its Performance
Objectives and the level or extent of achievement, whether any other terms,
conditions or restrictions have been satisfied, and the number of Shares of
Restricted Stock which shall be forfeited.
(b) TERMINATION OF EMPLOYMENT OR SERVICE ON THE BOARD FOR REASONS OTHER THAN
DEATH, DISABILITY, OR NORMAL RETIREMENT PRIOR TO END OF RESTRICTED PERIOD. If
during the Restricted Period a Participant's employment with the Company, or
service on the Board, is terminated for any reason other than death,
Disability, or Normal Retirement, including without limitation termination by
the Company, then all Shares of Restricted Stock of the Participant (excluding
any Shares for which any restrictions have previously lapsed under Section
7.6) shall be forfeited by the Participant and returned to the Company and all
rights of the Participant in such Shares shall terminate without any further
obligation on the part of the Company.
7.6 LAPSE OF RESTRICTIONS.
(a) ACHIEVEMENT OF PERFORMANCE OBJECTIVES AND OTHER CONDITIONS. At the end
of a Restriction Period, the Committee, in its discretion, shall determine (i)
whether and to what extent the Company has achieved the Performance Objectives
and satisfied any other terms, conditions or restrictions established for the
Restriction Period, and (ii) the number of Shares of Restricted Stock with
respect to which the restrictions imposed should lapse. If the Committee
determines that the restrictions imposed pursuant to the Plan should lapse,
then the restrictions with respect to those Shares shall lapse, and the
Committee shall so notify the Participant. A lapse of restrictions shall
occur on the date the Committee notifies the Participant in writing of the
lapse.
(b) TERMINATION OF EMPLOYMENT OR SERVICE ON THE BOARD AS A RESULT OF DEATH,
DISABILITY, OR NORMAL RETIREMENT PRIOR TO THE END OF THE RESTRICTION PERIOD.
If a Participant terminates his or her employment or service on the Board
because of death, Disability, or Normal Retirement during the Restriction
Period, the restrictions applicable to the Shares of Restricted Stock shall
lapse and terminate (regardless of whether Performance Objectives or any other
terms, conditions or restrictions have been satisfied) with respect to that
number of Shares (rounded to the nearest whole number) equal to the total
number of Shares of Restricted Stock granted to such Participant multiplied by
a fraction, the numerator of which is equal to the number of full months which
have elapsed since the date of grant to the date of termination of employment
or service on the Board, and the denominator is the maximum number of full
months of the Restriction Period. The Committee shall so notify the
Participant or his or her representative of the number of Shares with respect
to which the restrictions have lapsed. All remaining Shares shall be
forfeited and returned to the Company, and all rights of the Participant in
such Shares shall terminate without any further obligations on the part of the
Company; provided, however, that the Committee may, in its sole discretion,
waive the restrictions remaining on any or all such remaining Shares.
46
7.7 CERTIFICATE LEGEND. In addition to any legends placed on certificates
pursuant to Subsection 7.8 hereof, each certificate representing Shares of
Restricted Stock granted pursuant to the Plan shall bear the following legend:
"The sale or other transfer of the Shares of stock represented by this
certificate, whether voluntary, involuntary, or by operation of law, is
subject to certain restrictions on transfer set forth in The Franklin Electric
Co., Inc. Performance Incentive Stock Plan, rules of administration adopted
pursuant to such Plan, and a Restricted Stock Agreement dated _________. A
copy of the Plan, such rules, and the Restricted Stock Agreement may be
obtained from the Secretary of Franklin Electric Co., Inc."
7.8 OTHER RESTRICTIONS. The Committee may impose such other restrictions on
any Shares granted pursuant to the Plan as it may deem advisable including,
without limitation, restrictions under applicable Federal or state securities
laws, and may legend the certificates representing Restricted Stock to give
appropriate notice of such restrictions.
7.9 VOTING RIGHTS AND DIVIDENDS WITH RESPECT TO RESTRICTED STOCK. With
respect to Shares of Restricted Stock, prior to the lapse of restrictions
under Section 7.6, each Participant shall generally have the rights and
privileges of a shareholder, including the right to vote the Shares and to
receive dividends or other distributions made with respect to the Shares;
provided, however, that the Shares of Restricted Stock shall be subject to all
the terms, conditions and restrictions of the Plan and the Restricted Stock
Agreement, including without limitation the provisions of Section 7.4
(restrictions on transfer), Section 7.5 (forfeiture), and Section 4.1(f)
(escrow of certificates). If any dividends are paid on Restricted Stock in
the form of Shares of Stock, the Stock dividends shall be treated as
Restricted Stock and subject to the same restrictions, terms and conditions as
the Shares of Restricted Stock with respect to which they were paid.
SECTION 8.
RIGHTS OF EMPLOYEES AND NONEMPLOYEE DIRECTORS
8.1 EMPLOYMENT AND SERVICE ON THE BOARD. Nothing in the Plan or in any
Restricted Stock Agreement shall in any manner be construed to limit or
restrict in any way the right of the Company to terminate any Participant's
employment or service on the Board at any time and without regard to the
effect of such termination to the Participant under the Plan, nor confer upon
any Participant any right to continue in the employ of the Company or to
continue to serve on the Board.
8.2 PARTICIPATION. No Employee or Nonemployee Director shall have a right
to be selected as a Participant, or, having been so selected, to be selected
again as a Participant.
47
SECTION 9.
MERGER, CONSOLIDATION, OR ACQUISITION
9.1 TREATMENT OF RESTRICTED STOCK SHARES. Without limiting the authority of
the Committee as provided in Section 9.2, in the event of a dissolution or a
liquidation of the Company or a merger or consolidation in which the Company
is not the surviving corporation, at the time of the grant of the Restricted
Stock, the Committee may provide in the Restricted Stock Agreement or
otherwise that all the restrictions with respect to some or all of the
outstanding Shares of Restricted Stock shall lapse in a manner similar to the
provisions of Section 7.6.
9.2 CHANGE IN CONTROL. The Committee, at the time of the grant of
Restricted Stock, may provide in the Restricted Stock Agreement or otherwise
that upon a Change in Control of the Company, all the restrictions with
respect to some or all of the outstanding Shares of Restricted Stock shall
lapse in a manner similar to the provisions of Section 7.6.
9.3 LIMITATION ON PAYMENTS. The Committee may provide that if the receipt
of any payment (or lapse of restrictions) under this Section by any
Participant shall, in the opinion of independent tax counsel of recognized
standing selected by the Company, result in the loss of a tax deduction to the
Company or the payment by such Participant of any excise tax, provided for in
Section 280G and Section 4999 of the Code, then the amount of such payment (or
lapse of restrictions) shall be reduced or modified to the extent required, in
the opinion of independent tax counsel selected as aforesaid, to prevent such
loss of deduction and the imposition of such excise tax.
SECTION 10.
AMENDMENT AND TERMINATION
10.1 AMENDMENT AND TERMINATION. The Board, without further action on the
part of the Company's shareholders, may at any time terminate, suspend or
modify the Plan to the extent permitted by law, regulation or stock exchange
requirements. No termination or amendment of the Plan, or amendment of any
grant, shall adversely affect any right acquired by any Participant under a
grant before the date of such termination or amendment, unless such
Participant shall consent; but it shall be conclusively presumed that any
adjustment for changes in capitalization as provided in Section 5.3 above does
not adversely affect any such right.
SECTION 11.
TAX WITHHOLDING
11.1 TAX WITHHOLDING. The Company, as appropriate, shall have the right to
deduct from all payments any Federal, state, or local taxes required by law to
be withheld with respect to such payments and, in the case of awards paid in
Stock, the Participant or other person receiving such Stock may be required to
pay to the Company, as appropriate, the amount of any such taxes which the
Company is required to withhold with respect to such Stock.
48
SECTION 12.
GOVERNING LAW
12.1 GOVERNING LAW. The Plan, and all grants and other documents delivered
hereunder, shall be construed in accordance with and governed by the laws of
Indiana.
SECTION 13.
EXPENSE OF PLAN
13.1 EXPENSE OF PLAN. The expenses of administering the Plan shall be borne
by the Company.
SECTION 14.
RESTRICTED STOCK AGREEMENT
14.1 RESTRICTED STOCK AGREEMENT. Each grant of Shares of Restricted Stock
shall be evidenced by a written agreement ("Restricted Stock Agreement"),
executed by the Participant and the Company, which shall contain such
restrictions, terms or conditions as the Committee may require.
49
EXHIBIT 99.1 CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 18 U.S.C.
------------------------------------------------------------------------
SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
----------------------------------------------------------------------------
2002
----
In connection with the Quarterly Report of Franklin Electric Co., Inc.
(the "Company") on Form 10-Q for the period ending March 29, 2003 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, R. Scott Trumbull, Chairman and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Date: May 12, 2003
--------------------------
/s/ R. Scott Trumbull
--------------------------
R. Scott Trumbull
Chairman and Chief Executive Officer
Franklin Electric Co., Inc.
50
EXHIBIT 99.2 CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO 18 U.S.C.
------------------------------------------------------------------------
SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
----------------------------------------------------------------------------
2002
----
In connection with the Quarterly Report of Franklin Electric Co., Inc.
(the "Company") on Form 10-Q for the period ending March 29, 2003 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Gregg C. Sengstack, Senior Vice President, Chief Financial Officer and
Secretary of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Company.
Date: May 12, 2003
-------------------------
/s/ Gregg C. Sengstack
-------------------------
Gregg C. Sengstack
Senior Vice President, Chief Financial Officer and Secretary
Franklin Electric Co., Inc.
38
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