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 JULY 3, 2004
------------
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
----------------- -----
(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
----- -----
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 JULY 28, 2004
--------------------- -------------
$.10 PAR VALUE 21,971,382 SHARES
2
FRANKLIN ELECTRIC CO., INC.
Index
Page
PART I. FINANCIAL INFORMATION Number
- --------------------------------- ------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets
as of July 3, 2004
and January 3, 2004 .......................... 3
Condensed Consolidated Statements of
Income for the Second Quarter and First
Half ended July 3, 2004 and
June 28, 2003 ................................ 4
Condensed Consolidated Statements
Of Cash Flows for the First Half
Ended July 3, 2004 and
June 28, 2003 ................................ 5
Notes to Condensed Consolidated
Financial Statements ......................... 6-11
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations......................... 12-15
Item 3. Quantitative and Qualitative Disclosures
About Market Risk............................. 15
Item 4. Controls and Procedures ...................... 15
PART II. OTHER INFORMATION
- -----------------------------
Item 2. Changes in Securities, Use of Proceeds and
Issuer Repurchase of Equity Securities........ 16
Item 5. Submission of Matters to a Vote of
Security Holders............................ 16-17
Item 6. Exhibits and Reports on Form 8-K.............. 17
Signatures................................................ 18
- ----------
Exhibit Index............................................. 19
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Exhibits.................................................. 20-25
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3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands) July 3, January 3,
2004 2004
---- ----
ASSETS
Current assets:
Cash and equivalents.................... $ 28,848 $ 29,962
Receivables, less allowances of
$2,001 and $1,949, respectively....... 37,286 29,194
Inventories............................. 67,314 54,653
Other current assets (including
deferred income taxes of $9,792
and $9,672, respectively)............. 13,003 14,232
-------- --------
Total current assets.................. 146,451 128,041
Property, plant and equipment,
net..................................... 86,672 83,916
Deferred and other assets................. 16,290 13,828
Goodwill.................................. 55,822 56,186
-------- --------
Total assets.............................. $305,235 $281,971
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Current maturities of long-term
debt and short-term borrowings........ $ 1,383 $ 1,392
Accounts payable........................ 18,133 15,958
Accrued expenses........................ 31,467 28,051
Income taxes............................ 4,820 -
-------- --------
Total current liabilities............. 55,803 45,401
Long-term debt............................ 14,532 14,960
Deferred income taxes..................... 4,354 4,354
Employee benefit plan obligations......... 18,474 18,697
Other long-term liabilities............... 5,762 5,621
Shareowners' equity:
Common stock............................ 2,196 1,091
Additional capital...................... 51,015 46,917
Retained earnings....................... 147,987 139,057
Loan to ESOP Trust...................... (665) (897)
Accumulated other comprehensive
loss.................................. 5,777 6,770
-------- --------
Total shareowners' equity............. 206,310 192,938
-------- --------
Total liabilities and shareowners' equity. $305,235 $281,971
======== ========
See Notes to Condensed Consolidated Financial Statements.
4
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Second Quarter Ended Six Months Ended
-------------------- ----------------
July 3, June 28, July 3, June 28,
2004 2003 2004 2003
---- ---- ---- ----
Net sales.............................. $106,144 $93,840 $186,351 $163,618
Cost of sales.......................... 71,632 64,757 128,219 114,860
-------- ------- -------- --------
Gross profit........................... 34,512 29,083 58,132 48,758
Selling and administrative expenses.... 16,003 14,913 30,981 28,790
Restructuring expense.................. 1,387 - 1,952 -
-------- ------- -------- --------
Operating income....................... 17,122 14,170 25,199 19,968
Interest expense....................... (93) (325) (199) (662)
Other income, net...................... 10 101 28 387
Foreign exchange income................ (174) 231 (224) 682
-------- ------- -------- --------
Income before income taxes............. 16,865 14,177 24,804 20,375
Income taxes........................... 5,987 4,809 8,805 6,979
-------- ------- -------- --------
Net income............................. $ 10,878 $ 9,368 $ 15,999 $ 13,396
======== ======= ======== ========
Per share data:
Basic earnings per share............. $ 0.50 $ 0.44 $ 0.73 $ 0.62
======== ======= ======== ========
Diluted earnings per share........... $ 0.48 $ 0.42 $ 0.70 $ 0.60
======== ======= ======== ========
Dividends per common share........... $ 0.08 $ 0.07 $ 0.15 $ 0.13
======== ======= ======== ========
See Notes to Condensed Consolidated Financial Statements.
5
FRANKLIN ELECTRIC CO., INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) Six Months Ended
July 3, June 28,
2004 2003
Cash flows from operating activities:
Net income................................... $ 15,999 $ 13,396
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization.............. 7,758 6,750
Loss on disposals of plant and
equipment................................ 7 368
Changes in assets and liabilities:
Receivables.............................. (8,163) (6,203)
Inventories.............................. (12,904) (12,401)
Accounts payable and other accrued
expenses............................... 12,258 (253)
Employee benefit plan obligations........ (3,713) (3,709)
Other, net............................... 1,173 (357)
Net cash flows from operating activities....... 12,415 (2,409)
Cash flows from investing activities:
Additions to plant and equipment............. (10,110) (3,932)
Proceeds from sale of plant and
equipment.................................. - 216
Additions to deferred assets................. (5) (421)
Net cash flows from investing activities....... (10,115) (4,137)
Cash flows from financing activities:
Borrowing on long-term debt - 6,648
Repayment of long-term debt.................. (414) (224)
Borrowing on line of credit
and short-term borrowings.................. - 8,000
Repayment of line of credit
and short-term borrowings.................. - (8,006)
Proceeds from issuance of common stock....... 3,034 2,390
Purchases of common stock.................... (3,091) (9,782)
Reduction of loan to ESOP Trust.............. 232 233
Dividends paid............................... (3,296) (2,905)
Net cash flows from financing activities....... (3,535) (3,646)
Effect of exchange rate changes on cash........ 121 771
Net change in cash and equivalents............. (1,114) (9,421)
Cash and equivalents at beginning of period.... 29,962 20,133
Cash and equivalents at end of period.......... $ 28,848 $ 10,712
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. Prior year
amounts are reclassified when necessary to conform to current year
presentation. Operating results for the second quarter ended July 3, 2004 are
not necessarily indicative of the results that may be expected for the fiscal
year ending January 1, 2005. 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 January 3, 2004.
Note 2: Inventories
- --------------------
Inventories consist of the following:
(In millions) July 3, January 3,
2004 2004
---- ----
Raw Materials........................ $ 20.2 $ 17.7
Work in Process...................... 7.2 6.6
Finished Goods....................... 51.0 40.7
LIFO Reserve......................... (11.1) (10.4)
------ ------
Total Inventory...................... $ 67.3 $ 54.6
====== ======
Note 3: Property, Plant and Equipment
- --------------------------------------
Property, plant and equipment, at cost, consists of the following:
(In millions) July 3, January 3,
2004 2004
---- ----
Land and Building.................... $ 46.4 $ 44.6
Machinery and Equipment.............. 154.1 147.3
------- -------
200.5 191.9
Allowance for Depreciation........... (113.8) (108.0)
------- -------
$ 86.7 $ 83.9
======= =======
7
Note 4: Goodwill and Other Intangible Assets
- ---------------------------------------------
Statement of Financial Accounting Standards Nos. 141 and 142,
"Business Combinations" and "Goodwill and Other Intangible Assets",
respectively, were published in June 2001. SFAS No. 141 requires the purchase
method of accounting for business combinations, and SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. The Company adopted the provisions of SFAS Nos. 141 and 142
effective December 30, 2001. During the fourth quarter of 2003, the Company
performed its annual impairment testing required by SFAS No. 142. No
impairment loss was required to be recognized.
Information regarding the Company's other intangible assets which are included
in deferred and other assets, and goodwill follows:
July 3, January 3,
(In millions) 2004 2004
---- ----
Amortized intangibles
Patents............................. $ 3.5 $ 3.5
Supply agreements................... 10.1 10.2
Other............................... 1.5 1.6
Accumulated amortization............ (7.7) (6.8)
----- -----
Total............................. $ 7.4 $ 8.5
Goodwill.............................. $55.8 $56.2
Amortization expense related to intangible assets for the first half ended
July 3, 2004 and June 28, 2003, was $1.1 and $0.8 million respectively.
Note 5: Employee Benefits
- --------------------------
The following table sets forth aggregated net domestic periodic benefit cost:
- -----------------------------------------------------------------------------
(In millions)
Pension Benefits Pension Benefits
Second Quarter Ended First Half Ended
July 3, June 28, July 3, June 28,
2004 2003 2004 2003
---- ---- ---- ----
Service cost.... $ 0.9 $ 0.9 $ 1.8 $ 1.7
Interest cost... 1.8 1.9 3.7 3.8
Expected return
on assets...... (2.6) (2.7) (5.3) (5.3)
Amortization of
unrecognized:
obligation/
(asset)...... - - - -
Prior service
cost......... 0.3 0.3 0.7 0.7
Loss/(Gain)... - - - (0.1)
----- ----- ----- ------
Net periodic
benefit cost... 0.4 0.4 0.9 0.8
Settlement cost. - - 0.1 0.1
----- ----- ----- -----
Total benefit cost $ 0.4 $ 0.4 $ 1.0 $ 0.9
===== ===== ===== =====
8
Other Benefits Other Benefits
Second Quarter Ended First Half Ended
July 3, June 28, July 3, June 28,
2004 2003 2004 2003
---- ---- ---- ----
Service cost.... $ 0.1 $ 0.1 $ 0.1 $ 0.2
Interest cost... 0.2 0.2 0.4 0.4
Expected return
on assets...... - - - -
Amortization of
unrecognized:
obligation/
(asset)...... 0.1 0.1 0.2 0.2
Prior service
cost......... 0.1 - 0.1 -
Loss/(Gain)... - 0.1 0.1 0.1
----- ----- ----- -----
Net periodic
benefit cost... 0.5 0.5 $0.9 $0.9
Settlement cost. - - - -_
----- ----- ----- -----
Total benefit cost $ 0.5 $ 0.5 $ 0.9 $ 0.9
===== ===== ===== =====
- ------------------------------------------------------------------------------
The Company previously disclosed in its financial statements for the year
ended January 3, 2004, that it expected to contribute $2.5 million in 2004.
As of July 3, 2004 the company has contributed $5.7 million which includes a
$4.0 million voluntary contribution to one of its defined benefit plans. The
company estimates total contributions of $0.7 million for the remainder of
2004.
On December 8, 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 was signed into law. The Act expands Medicare,
primarily by adding a prescription drug benefit for Medicare-eligible retirees
starting in 2006. The Act provides employers currently sponsoring
prescription drug programs for Medicare-eligible retirees with a range of
options for complying with the new government-sponsored program to potentially
reduce program cost.
Pursuant to guidance from the FASB under FSP FAS 106-2, the Company chose to
defer recognition of the potential effects of the Act until the impact could
be properly measured. After reviewing the Act it was determined that there
was no direct impact to the Company's post retirement medical plan. However,
to assist retirees in maintaining their current standard of living, the
Company increased its post-65 benefit payment to retirees. The Act did impact
the final benefit amount that would be granted in 2006 and thereafter.
Accumulated Postretirement Benefit Obligation for this benefit change
increased $2.4 million and annual net periodic postretirement benefit cost
increased $0.3 million.
9
Note 6: Tax Rates
- ------------------
The effective tax rate on income before income taxes in 2004 and 2003 varies
from the United States statutory rate of 35 percent primarily due to the
foreign income exclusion and R & D credits and to the effects of state and
foreign income taxes net of federal tax benefits.
Note 7: Shareowners' Equity
- ----------------------------
The Company had 21,961,832 shares of common stock (45,000,000 shares
authorized, $.10 par value) outstanding as of July 3, 2004. All share and per
share data included in these financial statements reflect the Company's two-
for-one stock split effected in the form of a 100 percent stock distribution
made on June 15, 2004.
During the second quarter of 2004, pursuant to the stock repurchase program
authorized by the Company's Board of Directors, the Company repurchased a
total of 29,600 shares for $.9 million. All repurchased shares were retired.
Note 8: Earnings Per Share
- ---------------------------
Following is the computation of basic and diluted earnings per share:
(In millions, except Second Quarter Ended First Half Ended
-------------------- ----------------
per share amounts) July 3, June 28, July 3, June 28,
2004 2003 2004 2003
---- ---- ---- ----
Numerator:
Net Income..................... $10.9 $ 9.4 $16.0 $13.4
===== ===== ===== =====
Denominator:
Basic
-----
Weighted average common
shares....................... 22.0 21.5 21.9 21.5
Diluted
-------
Effect of dilutive securities:
Employee and director
stock options.............. 0.9 1.0 1.0 1.0
----- ----- ----- -----
Adjusted weighted average
common shares................ 22.9 22.5 22.9 22.5
===== ===== ===== =====
Basic earnings per share......... $0.50 $0.44 $0.73 $0.62
===== ===== ===== =====
Diluted earnings per share....... $0.48 $0.42 $0.70 $0.60
===== ===== ===== =====
10
Note 9: Other Comprehensive Income
- -----------------------------------
Comprehensive income is as follows:
(In millions) Second Quarter Ended First Half Ended
-------------------- ----------------
July 3, June 28, July 3, June 28,
2004 2003 2004 2003
---- ---- ---- ----
Net income......................... $10.9 $ 9.4 $16.0 $13.4
Other comprehensive loss:
Foreign currency translation
adjustments..................... 1.5 2.8 (1.0) 4.0
----- ----- ----- -----
Comprehensive income, net of tax... $12.4 $12.2 $15.0 $17.4
===== ===== ===== =====
Accumulated other comprehensive loss consists of the following:
(In millions) July 3, January 3,
2004 2004
---- ----
Cumulative translation adjustment........... $ 7.7 $ 8.7
Minimum pension liability adjustment,
net of tax................................ (1.9) (1.9)
----- -----
$ 5.8 $ 6.8
===== =====
Note 10: Warranty
- ------------------
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 millions) Second Quarter Ended First Half Ended
-------------------- ----------------
July 3, June 28, July 3, June 28,
2004 2003 2004 2003
---- ---- ---- ----
Beginning Balance.................. $ 5.5 $ 5.2 $ 5.4 $ 5.3
Accruals related to
product warranties............... 1.2 1.4 2.4 2.3
Payments made...................... (0.9) (1.1) (2.0) (2.1)
----- ----- ----- -----
Ending Balance..................... $ 5.8 $ 5.5 $ 5.8 $ 5.5
===== ===== ===== =====
11
Note 11: 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 millions, except Second Quarter Ended First Half Ended
-------------------- ----------------
per share amounts) July 3, June 28, July 3, June 28,
2004 2003 2004 2003
---- ---- ---- ----
Net income ...................... $10.9 $9.4 $16.0 $13.4
Deduct: Stock-based
employee compensation
cost, net of income tax........ 0.4 0.4 0.7 0.8
----- ---- ----- -----
Pro forma net income ............ $10.5 $9.0 $15.3 $12.6
===== ==== ===== =====
Earnings per share:
Basic - as reported.............. $ .50 $.44 $ .73 $ .62
Basic - pro forma................ $ .48 $.42 $ .70 $ .59
Diluted - as reported............ $ .48 $.42 $ .70 $ .60
Diluted - pro forma.............. $ .46 $.40 $ .67 $ .56
Note 12: Restructuring
The Company incurred $1.4 million of expenses during the second quarter of
2004 (included in "Restructuring Expense" on the income statement) related to
its global manufacturing realignment program. The costs in the second quarter
were primarily severance, training, equipment transfers, travel, and employee
relocations related to the Fueling Systems consolidation. The Company will
incur additional severance expenses throughout 2004 as well as costs to
transfer equipment, train employees and other related expenses during 2004 and
2005. The operations performed in the closed facilities will be relocated to
other Company facilities and consolidated. The global manufacturing
realignment program is estimated to cost in total $10.0 million and is
expected to be substantially complete by the end of 2005.
The components and use of the restructuring reserve is summarized below:
(In millions)
Severance
Benefits: Other:
Balance January 3, 2004 $0.0 $0.0
Restructuring Expense 1.0 0.9
Costs Incurred (0.2) (0.8)
---- ----
Balance July 3, 2004 $0.8 $0.1
==== ====
12
Item 2. Management's Discussion And Analysis Of Financial Condition And
- ------------------------------------------------------------------------
Results Of Operations
- ---------------------
Overview
- --------
Sales and earnings for the second quarter of 2004 were up from the same
quarter of 2003. The increase in sales is across all markets. Earnings
improved in the second quarter of 2004 primarily due to the increased sales.
Increased earnings were partially offset by costs associated with the
Company's global manufacturing realignment program and increased commodity
prices. This program, when substantially complete by the end of 2005, will
result in the transfer of a significant amount of production to lower cost
regions of the world as well as a consolidation of certain manufacturing
operations. The Company projects it will incur approximately $10 million of
pre-tax restructuring expenses as this program is implemented between the
first quarter of 2004 and the fourth quarter of 2005. These restructuring
expenses primarily include: severance, travel, relocation, training and the
transfer of equipment. These expenses will be identified quarterly during the
implementation period and reflected as "Restructuring Expenses" in our income
statement. Included in the results for the second quarter of 2004 are
restructuring expenses of $1.4 million pre-tax ($0.9 million after tax).
Results of Operations
- ---------------------
Sales for the second quarter of 2004 were $106.1 million, an increase of $12.3
million or 13 percent compared to sales of $93.8 million for the same period a
year ago. Foreign currencies, particularly the euro, strengthened relative to
the U.S. dollar since the second quarter of 2003. The impact of this change in
exchange rates was a $1.7 million increase in the Company's reported second
quarter 2004 sales. Excluding the impact of changes in foreign currencies,
net sales increased $10.6 million or 11 percent. The sales increase of $10.6
million relates primarily to increased sales of small and large submersible
motor products to North American customers of about $6.0 million and higher
demand by European customers of about $2.5 million (when comparing both
quarters at the current year exchange rate). Sales of fueling systems motors
and related products increased about $2.1 million during the second quarter of
2004 from the second quarter of 2003. Fueling systems motors and related
products have increased primarily due to increased demand from service station
equipment suppliers for submersible motors and monitoring equipment. For the
first half of 2004, sales were $186.4 million, an increase of 14 percent
compared to 2003 sales of $163.6 million. Sales for the first six months of
2004 increased by $22.7 million of which foreign currencies accounted for $5.5
million due primarily to the stronger euro and Rand. Excluding the impact of
the change in exchange rates, the Company's sales were up about 11 percent due
to strong demand in North America and Europa for water systems products and
continued growth of fueling systems products.
Cost of sales as a percent of net sales for the second quarter of 2004 was
67.5 percent, a decrease from 69.0 percent for the same period in 2003. Cost
of sales as a percent of net sales decreased primarily as a result of the
increased sales. Cost of sales as a percent of net sales for the year to date
2004 was 68.8 percent, a decrease from 70.2 percent for the same period in
2003. Cost of sales as a percent of net sales decreased primarily in the
first half of 2004 as a result of the increased sales. The decrease in costs
of sales as a percent of net sales during the first half of 2004 was partially
13
offset by increased costs for certain commodities, about a half percent of
2004 net sales, used in the manufacture of the electric motors primarily steel
and copper.
Selling and administrative ("SG&A") expense as a percent of net sales for the
second quarter of 2004 was 15.1 percent compared to 15.9 percent for the same
period in 2003. SG&A expense as a percent of net sales for the first half of
2004 was 16.6 percent compared to 17.6 percent for the first half of 2003.
The increase of SG&A expense of $2.2 million in the first half of 2004 from
the same period for 2003 was primarily due to the effect of changes in the
foreign exchange rate, $0.6 million. The Company also incurred additional SG&A
costs related to the continued growth of new electronic products related to
submersible motors, approximately $0.3 million, higher commissions related to
the increased sales, approximately $0.3 million and costs of compliance
procedures associated with the Sarbanes-Oxley Act, about $0.3 million.
Restructuring expenses of $1.4 million were incurred in the second quarter.
The expenses during the second quarter of 2004 (included in "Restructuring
Expense" on the income statement) related to the global manufacturing
realignment program. The costs in the second quarter were primarily
severance, training, equipment transfers, travel, and employee relocations
related to the Fueling Systems consolidation. With the ramp-up of our
Linares, Mexico facility and the recently announced consolidation of our Motta
di Livenza, Italy factory into our other European factories, the Company will
incur additional severance expenses throughout 2004 as well as costs to
transfer equipment, train employees and other related expenses during 2004 and
2005. The operations performed in the closed facilities will be relocated to
other Company facilities and consolidated. The global manufacturing
realignment program is estimated to cost in total $10.0 million and is
expected to be substantially complete by the end of 2005.
Interest expense for the second quarter of 2004 of $0.1 million is $0.2
million less than the prior year quarter and $0.5 million less than in the
first half 2004, due primarily to lower outstanding debt.
Foreign currency-based transactions produced a loss for the second quarter of
2004 of $0.2 million compared to a gain of $0.2 million for the prior year.
The foreign currency-based transaction loss was due primarily to changes in
the euro relative to the U.S. dollar during the second quarter of 2004. The
gain for the second quarter of 2003 was due primarily to the strengthening
euro relative to the U.S. dollar.
The provision for income taxes for the second quarter of 2004 is $6.0 million.
The effective tax rate for the second quarter of 2004 was 35.5 percent an
increase from the full year 2003 rate of 32.8 percent. The lower rate for 2003
was primarily the result of prior years' tax credits realized in 2003. The tax
credits resulted from tax planning activities performed in 2002 and 2003 in
the areas of foreign income exclusion and R&D credits. The effective tax rate
differs from the United States statutory rate of 35 percent, due to the
foreign income exclusion and R&D credits and to the effects of state and
foreign income taxes, net of federal tax benefits.
Net income for the second quarter of 2004 was $10.9 million, or $.48 per
diluted share, a 16 percent increase compared to net income of $9.4 million,
or $.42 per diluted share, for the same period a year ago. Year to date 2004
net income was $16.0 million, or $.70 per diluted share, a 19 percent increase
compared to year to date 2003 net income of $13.4 million, or $.60 per diluted
share.
14
Capital Resources and Liquidity
- -------------------------------
Operating activities contributed approximately $12.4 million of cash during
the first half of 2004 compared to cash consumed for the same period a year
ago of $2.4 million. Working capital changes included increases in
receivables due to higher sales and increases in accounts payables and other
accrued expenses due to accruals for income taxes and restructuring.
The primary uses of cash for investing activities for the first quarters of
2004 and 2003 were additions to property, plant and equipment of $10.1 million
and $3.9 million, respectively. Additions during the first half of 2004 were
primarily related to the building additions included in the global
manufacturing realignment program.
Net cash flows used in financing activities during 2004 and 2003 were $3.5
million and $3.6 million, respectively. The principal uses of cash during 2004
and 2003 were for purchases of Company common stock under the Company's
repurchase program and the payment of dividends.
Cash and equivalents at the end of the second quarters of 2004 and 2003 were
$28.8 million and $10.7 million, respectively.
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
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 January 3,
2004. These risks and uncertainties may cause actual results to differ
materially from those indicated by the forward-looking statements.
15
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 limited to variable rate interest
borrowings under the Company's revolving credit agreement and an interest rate
swap.
Item 4. Controls and Procedures
- --------------------------------
As of the end of the period covered by 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-15e. 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.
During the last fiscal quarter there have been no significant changes in the
Company's internal controls or in other factors which could significantly
affect internal controls.
16
PART II. OTHER INFORMATION
Item 2(e). Issuer Repurchases of Equity Securities
- ---------------------------------------------------
Total Number Maximum Number
Total of Shares of Shares
Number Average Purchased as that May Yet be
Of Shares Price Paid Part of Publicly Purchased Under
Purchased per Share Announced Plan the Plan
Period
Apr 4, 2004/
May 8, 2004 - $ - - 857,012
May 9, 2004/
Jun 5, 2004 29,600 29.8292 29,600 827,412
Jun 6, 2004/
Jul 3, 2004 - - - 827,412
Total 29,600 29,600
------ ------
NOTE: All numbers have been adjusted to reflect the Company's 2-for-1 stock
split announced May 5, 2004 for shareholders of record May 28, 2004 and
complete on June 15, 2004.
On February 16, 2001, the Company's Board of Directors unanimously approved a
resolution to repurchase 2,000,000 shares. The plan was announced in the
Company's 10-Q for the third quarter ending September 29, 2001. There is no
expiration date for the plan.
Item 5. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
The 2004 Annual Meeting of Shareholders of the Company was held on May 5, 2004
to: 1) Elect two directors for terms expiring at the 2007 Annual Meeting of
Shareholders; 2) Approve an amendment to the Company's Restated Articles of
Incorporation to increase the number of shares of authorized common stock; and
3) Ratify the appointment of Deloitte & Touche LLP as independent auditors for
the 2004 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
--------------------- --- ------------------
Donald J. Schneider 10,050,885 66,277
R. Scott Trumbull 10,081,207 35,955
2) Approve aforementioned amendment to the Company's Restated Articles of
Incorporation.
For Against Abstain
--- ------- -------
9,561,138 536,497 19,526
17
3) Ratification of Deloitte & Touche LLP
For Against Abstain
--- ------- -------
10,012,518 93,457 11,186
Total shares represented at the Annual Meeting in person or by proxy were
10,117,162 of a total of 10,988,572 shares outstanding. This represented 92.1
percent of Company common stock and constituted a quorum.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
Form 10-Q
Quarterly Report
(page)
----------------
(a) 1. Financial Statements - Franklin Electric
----------------------------------------
Condensed Consolidated Balance Sheets as of
July 3, 2004 and January 3, 2004................. 3
Condensed Consolidated Statements of Income
for the Second Quarter and First Half ended
July 3, 2004 and June 28, 2003................... 4
Condensed Consolidated Statements of Cash
Flows for the First Half Ended
July 3, 2004 and June 28, 2003................... 5
Notes to Condensed Consolidated Financial
Statements....................................... 6-11
2. Exhibits
--------
See the Exhibit Index located on page 19.
(b) Reports on Form 8-K filed during the second quarter
ended July 3, 2004:
A Currant Report on Form 8-K was filed with the SEC by the
Company dated May 11, 2004, pursuant to Item 5, to report
the approval of a two-for-one stock split.
A Current Report on Form 8-K was filed with the SEC by the
Company dated July 16, 2004, pursuant to Item 7 and Item 12, to
report its second quarter 2004 earnings.
18
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 August 2, 2004 By /s/ R. Scott Trumbull
------------------------ -------------------------
R. Scott Trumbull, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date August 2, 2004 By /s/ Gregg C. Sengstack
------------------------- -----------------------------
Gregg C. Sengstack, Senior Vice
President, Chief Financial
Officer and Secretary (Principal
Financial and Accounting Officer)
19
FRANKLIN ELECTRIC CO., INC.
EXHIBIT INDEX TO THE QUARTERLY REPORT ON FORM 10-Q
FOR THE SECOND QUARTER ENDED JULY 3, 2004
Exhibit
Number Description
- ------ -----------
3.1 Amended and Restated Articles of Incorporation of
Franklin Electric Co., Inc. (incorporated herein by
reference to the Company's Form 10-Q for the quarter
ended July 3, 2004)
3.2 By-Laws of Franklin Electric Co., Inc. as amended to date
31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1 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
32.2 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 3.1
-----------
FRANKLIN ELECTRIC CO., INC.
AMENDED AND RESTATED ARTICLES OF INCORPORATION
ARTICLE I
NAME
The name of the Corporation is Franklin Electric Co., Inc.
ARTICLE II
PURPOSES AND POWERS
2.01. PURPOSES. The purposes for which the Corporation is formed are (a)
to engage in the general business of manufacturing production and selling
products, and (b) without limitation, to engage in any and all lawful business
or activity for which corporations may be incorporated under the Indiana
Business Corporation Law, as may be amended from time to time (the "IBCL").
2.02. POWERS. The Corporation shall have (a) the same powers as an
individual to do all things necessary or convenient to carry out its business
and affairs, and (b) without limitation, all powers, rights and privileges
granted to corporations by the IBCL.
ARTICLE III
TERM OF EXISTENCE
The period during which the Corporation shall continue is perpetual.
ARTICLE IV
REGISTERED OFFICE AND REGISTERED AGENT
The current street address of the Corporation's registered office is 400
East Spring Street, Bluffton, Indiana 46714, and the name of the Corporation's
registered agent at that office is Gregg C. Sengstack.
ARTICLE V
AMOUNT OF CAPITAL STOCK
The total number of shares into which the authorized capital stock of the
Corporation is divided is 50,100,000 shares, consisting of 5,100,000 shares
without par value and 45,000,000 shares with par value of $.l0 per share.
ARTICLE VI
TERMS OF CAPITAL STOCK
The shares of authorized capital stock are divided into classes as follows:
1. 100,000 shares of Preference Stock, without par value (hereinafter
sometimes referred to as "Preference Stock");
2. 5,000,000 shares of Preferred Stock, without par value (hereinafter
sometimes referred to as "Preferred Stock"); and
3. 45,000,000 shares of Common Stock, par value $.10 per share
(hereinafter sometimes referred to as "Common Stock").
The preferences, limitations and relative rights of each class are as
follows:
21
A. PREFERENCE STOCK.
Shares of Preference Stock may be issued from time to time in one or more
series, in such amounts and for such consideration as the Board of Directors
may determine and with such preferences, limitations and relative rights as
shall be determined and stated by the Board of Directors. Such preferences,
limitations and relative rights shall be determined and stated for each such
series of Preference Stock by resolution of the Board of Directors prior to
the issuance of each of such series, which resolution shall authorize the
issuance of such series and the authority for which is hereby granted to the
Board of Directors of the Corporation. Without limiting the generality of the
authority granted to the Board of Directors herein, the Board of Directors
shall have the power, right and authority to determine the following
preferences, limitations and relative rights:
(1) DESIGNATION. The designation of each series, which designation shall
be by distinguishing letter, number, title or combination thereof.
(2) NUMBER. The number of shares of any series to be issued.
(3) DIVIDEND SOURCE, RATE AND DATES. The source, rate and dates of any
dividends payable with respect to shares of any series; provided, however,
that no dividends shall be payable upon the shares of Preference Stock to the
extent that (i) the Corporation would not be able to pay its debts as they
become due in the usual course of business; or (ii) the Corporation's total
assets would be less than the sum of its total liabilities plus (unless
otherwise provided in these Articles of Incorporation) the amount that would
be needed, if the Corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of the
shareholders whose preferential rights are superior to those receiving the
distribution.
(4) DIVIDEND ACCUMULATIONS. Whether any dividends which may be payable
with respect to shares of any series shall be cumulative; and, if they shall
be cumulative, then the dates from which such dividends shall start to
cumulate.
(5) DIVIDEND PREFERENCES. The preference or preferences, if any, to be
accorded dividends payable with respect to shares of any series.
(6) REDEMPTION. The redemption rights and prices, if any, with respect to
shares of any series.
(7) SINKING FUND The terms and amount of any sinking fund provided for
the redemption of shares of any series.
(8) RIGHTS OF PURCHASE. The rights, if any, of the Corporation to purchase
for retirement, other than by way of redemption, shares of any series, and the
terms and conditions of any such purchase rights.
(9) CONVERSION. Whether or not the shares of any series shall be
convertible into Common Stock or into shares of stock of any other series or
number of series or into any other security; and, if so, the conversion price
or prices, any adjustments thereof and/or any other terms and conditions upon
which such conversion may be effected.
(10) LIQUIDATION. The preference or preferences, if any, with respect to
shares of any series entitled to receive the net assets of the Corporation
upon liquidation, dissolution or winding up of the Corporation.
(11) VOTING. The voting rights, if any, to which the holders of the shares
of Preference Stock may be entitled.
B. SERIES I JUNIOR PARTICIPATING PREFERENCE STOCK.
This Section B of this Article VI hereby creates a series of Preference
Stock and hereby states the designation and number of shares, and fixes the
relative powers, preferences and rights of such series.
(1) DESIGNATION AND AMOUNT. The shares of such series shall be designated
as "Series I Junior Participating Preference Stock" (the "Series I Preference
Stock") and the number of shares constituting the Series I Preference Stock
shall be 100,000. Such number of shares may be increased or decreased by
22
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of Series I Preference Stock to a number less than the number of
shares then outstanding plus the number of shares reserved for issuance upon
the exercise of outstanding options, rights or warrants or upon the conversion
of any outstanding securities issued by the Corporation convertible into
Series I Preference Stock.
(2) DIVIDEND RIGHTS. Subject to the rights of the holders of any shares of
any series of Preference Stock (or any similar shares) ranking prior and
superior to the Series I Preference Stock with respect to dividends, the
holders of Series I Preference Stock, in preference to the holders of Common
Stock and of any other junior stock, shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the fifteenth day of
February, May, August and November in each year (each such date being referred
to herein as a "Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series I Preference Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (i) $16.00 or (ii)
subject to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in Common Stock or a subdivision
of the outstanding Common Stock (by reclassification or otherwise), declared
on the Common Stock since the immediately preceding Quarterly Dividend Payment
Date or, with respect to the first Quarterly Dividend Payment Date, since the
first issuance of any Series I Preference Stock or fraction of a Series I
Preference Stock. In the event the Corporation shall at any time declare or
pay any dividend on the Common Stock payable in Common Stock, or effect a
subdivision or combination or consolidation of the outstanding Common Stock
(by reclassification or otherwise than by payment of a dividend in Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount to which holders of Series I Preference Stock were
entitled immediately prior to such event under clause (ii) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
The Corporation shall declare a dividend or distribution on the Series I
Preference Stock as provided in this paragraph 2 immediately after it declares
a dividend or distribution on the Common Stock (other than a dividend payable
in Common Stock); provided that, in the event no dividend or distribution
shall have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $16.00 per share on the Series I Preference Stock
shall nevertheless be payable on such subsequent Quarterly Dividend Payment
Date.
Dividends shall begin to accrue and be cumulative on outstanding Series I
Preference Stock from the Quarterly Dividend Payment Date next preceding the
date of issue of such shares, unless the date of issue of such shares is prior
to the record date for the first Quarterly Dividend Payment Date, in which
case dividends on such shares shall begin to accrue from the date of issue of
such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of Series
I Preference Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on
the Series I Preference Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated
23
pro rata on a share-by-share basis among all such shares at the time
outstanding. The Board of Directors may fix a record date for the
determination of holders of Series I Preference Stock entitled to receive
payment of a dividend or distribution declared thereon, which record date
shall be not more than 60 days prior to the date fixed for the payment
thereof.
(3) REDEMPTION. The Series I Preference Stock shall not be redeemable.
(4) CONVERSION. The Series I Preference Stock shall not be convertible into
Common Stock or shares of any other series of any other class of preferred
stock of the Corporation ("Preferred Stock") or Preference Stock unless the
terms of any such series provide otherwise.
(5) LIQUIDATION. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, no distribution shall be made,
(i) to the holders of stock ranking junior (either as to dividends or upon
liquidation) to the holders of Series I Preference Stock unless, prior
thereto, the holders of Series I Preference Stock shall have received from the
assets of the Corporation a preferential amount equal to $5,000 per share plus
all accrued and unpaid dividends thereon, whether or not declared, to the date
of payment, provided that the holders of Series I Preference Stock shall be
entitled to receive an aggregate amount per share, subject to the provision
for adjustment hereinafter set forth, equal to 100 times the aggregate amount
to be distributed per share to holders of Common Stock, or (ii) to the holders
of stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series I Preference Stock, except
distributions made ratably on the Series I Preference Stock and all such
parity stock in proportion to the total amounts to which the holders of all
such stock are entitled upon such liquidation, dissolution or winding up. In
the event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in Common Stock, or effect a subdivision or combination
or consolidation of the outstanding Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the aggregate
amount to which holders of Series I Preference Stock were entitled immediately
prior to such event under the proviso in clause (i) of the preceding sentence
shall be adjusted by multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(6) VOTING. Except as provided herein or as may be required by law, holders
of Series I Preference Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for taking any corporate
action.
In addition to any other voting rights as a separate class or otherwise to
which the holders of Series I Preference Stock may be entitled by law and
subject to the provision for adjustment hereinafter set forth, each share of
Series I Preference Stock shall entitle the holder thereof to 100 votes on all
matters submitted to a vote of the shareholders of the Corporation. In the
event the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in Common Stock, or effect a subdivision or combination
or consolidation of the outstanding Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the number of
votes per share to which holders of Series I Preference Stock were entitled
immediately prior to such event shall be adjusted by multiplying such number
by a fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
24
Except as otherwise provided herein, in any other provisions of the
Restated Articles of Incorporation of the Corporation creating a series of
Preferred Stock or Preference Stock or any similar stock, or by law, the
holders of Series I Preference Stock and the holders of Common stock and any
other capital stock of the Corporation having general voting rights shall vote
together as one class on all matters submitted to a vote of shareholders of
the Corporation.
If at the time of any annual meeting of shareholders for the election of
directors a "default in preference dividends," (as that term is hereinafter
defined), on the Series I Preference Stock shall exist, the number of
directors constituting the Board of Directors of the Company shall be
increased by two (2), and the holders of the Series I Preference Stock and any
other series of Preference Stock (whether or not the holders of such stock
would be entitled to vote for the election of directors if such default in
preference dividends did not exist) shall have the right at such meeting,
voting together as a single class without regard to series, to the exclusion
of the holders of Common Stock, to elect two (2) directors of the Company to
fill such newly created directorships. Such right shall continue until there
are no dividends in arrears upon the Series I Preference Stock. Each director
elected by the holders of Series I Preference Stock and any other series of
Preference Stock (a "Preferred Director") shall continue to serve as such
director for the full term for which he shall have been elected,
notwithstanding that prior to the end of such term a default in preference
dividends shall cease to exist. Any Preferred Director may be removed by, and
shall not be removed except by, the vote of the holders of record of the
outstanding Series I Preference Stock and any other series of Preference Stock
voting together as a single class without regard to series, at a meeting of
the shareholders or of the holders of Series I Preference Stock and any other
series of Preference Stock called for the purpose. So long as a default in any
preference dividends on the Series I Preference Stock shall exist, (i) any
vacancy in the office of a Preferred Director may be filled (except as
provided in the following clause (ii)) by an instrument in writing signed by
the remaining Preferred Director and filed with the Company and (ii) in the
case of the removal of any Preferred Director, the vacancy may be filled by
the vote of the holders of the outstanding Series I Preference Stock and any
other series of Preference Stock voting together as a single class without
regard to series, at the same meeting at which such removal shall be voted.
Each director appointed as aforesaid by the remaining Preferred Director shall
be deemed, for all purposes hereof, to be a Preferred Director. Whenever the
term of office of the Preferred Directors shall end and a default in
preference dividends shall no longer exist, the number of directors
constituting the Board of Directors of the Company shall be reduced by two
(2). For the purposes hereof, a "default in preference dividends" on the
Series I Preference Stock shall be deemed to have occurred whenever the amount
of accrued dividends upon any series of the Series I Preference Stock shall be
equivalent to six (6) full quarterly dividends or more, and, having so
occurred, such default shall be deemed to exist thereafter until, but only
until, all accrued dividends on all Series I Preference Stock of each and
every series then outstanding shall have been paid to the end of the last
preceding quarterly dividend period.
(7) CERTAIN RESTRICTIONS.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series I Preference Stock as provided in paragraph 2 of this
Section B are in arrears, thereafter and until all accrued and unpaid
dividends and distributions, whether or not declared, on Series I
Preference Stock outstanding shall have been paid in full, the Corporation
shall not:
(i) declare or pay dividends, or make any other distributions, on any
stock ranking junior (either as to dividends or upon liquidation,
25
dissolution or winding up) to the Series I Preference Stock;
(ii) declare or pay dividends, or make any other distributions, on any
stock ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series I Preference Stock, except
dividends paid ratably on the Series I Preference Stock and all such
parity stock on which dividends are payable or in arrears in proportion
to the total amounts to which the holders of all such stock are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration any
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series I Preference Stock, provided
that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such junior stock in exchange for any shares of
the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series I Preference
Stock; or
(iv) redeem or purchase or otherwise acquire for consideration any
Series I Preference Stock, or any stock ranking on a parity with the
Series I Preference Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of
Directors) to all holders of such stock upon such terms as the of
Directors, after consideration of the respective annual dividend rates
and other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and
equitable treatment among the respective series or classes.
(b) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any stock of the
Corporation unless the Corporation could, under paragraph 7(a) of this
Section B, purchase or otherwise acquire such stock at such time and in
such manner.
(8) CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which the
Common Stock is exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case each share of Series I
Preference Stock shall at the same time be similarly exchanged or changed into
an amount per share, subject to the provision for adjustment hereinafter set
forth, equal to 100 times the aggregate amount of stock, securities, cash
and/or any other property (payable in kind), as the case may be, into which or
for which each share of Common Stock is changed or exchanged. In the event the
Corporation shall at any time declare or pay any dividend on the Common Stock
payable in Common Stock, or effect a subdivision or combination or
consolidation of the outstanding Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock) into a greater or
lesser number of shares of Common Stock, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of
Series I Preference Stock shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to
such event.
(9) PRIORITIES. So long as any Series I Preference Stock remains
outstanding, the Corporation shall not, without the affirmative vote or
written consent of the holders of at least two-thirds of the outstanding
Series I Preference Stock, voting together as a single class, amend, alter or
repeal any of the provisions of these Restated Articles of Incorporation so as
adversely to affect the preferences, limitations and relative rights of Series
I Preference Stock. So long as any Series I Preference Stock remains
outstanding, Series I Preference Stock shall rank, with respect to the payment
of dividends and the distribution of assets, junior to any other series of any
26
other class of Preference Stock, unless the terms of any such series shall
provide otherwise.
(10)STATUS OF REACQUIRED SHARES. The Corporation shall retire and cancel
any shares of Series I Preference Stock that it redeems, purchases or
otherwise acquires. All such shares shall upon their cancellation become
authorized but unissued shares of Preference Stock and may be reissued as part
of a new series of Preference Stock subject to the conditions and restrictions
on issuance set forth in the restated Articles of Incorporation creating a
series of Preference Stock or as otherwise required by law.
C. PREFERRED STOCK.
Preferred Stock may be issued from time to time in one or more series as
may from time to time be determined by the Board of Directors. Each series
shall be distinctly designated. All shares of any one series of the Preferred
Stock shall be alike in every particular, except that there may be different
dates from which dividends thereon, if any, shall be cumulative, if made
cumulative. The powers, preferences and relative, participating, optional and
other rights of each such series, and the qualifications, limitations or
restrictions thereof, if any, may differ from those of any other series at any
time outstanding. Subject to the provisions of Section D of this ARTICLE VI,
the Board of Directors is hereby expressly granted authority to fix by
resolution or resolutions adopted prior to the issuance of any shares of each
particular series of Preferred Stock, the designation, powers, preferences and
relative, participating, optional and other rights, and the qualifications,
limitations and restrictions thereof, if any, of such series, including, but
without limiting the generality of the foregoing, the following:
a) the distinctive designation of, and the number of Preferred Stock which
shall constitute the series, which number may be increased (except as
otherwise fixed by the Board of Directors) or decreased (but not below the
number of shares thereof then outstanding) from time to time by action of
the Board of Directors;
(b) the rate and times at which, and the terms and conditions upon which,
dividends, if any, on shares of the series shall be paid, the extent of
preferences or relation, if any, of such dividends to the dividends payable
on any other class or classes of shares of the Corporation, or on any
series of Preferred Stock or of any other class or classes of shares of the
Corporation and whether such dividends shall be cumulative or non-
cumulative;
(c) the right, if any, of the holders of shares of the series to convert
the same into, or exchange the same for, shares of any other class or
classes of shares of the Corporation, or of any series of Preferred Stock,
and the terms and conditions of such conversion or exchange;
(d) whether shares of the series shall be subject to a redemption price or
prices including, without limitation, a redemption price or prices payable
in Common Stock and the time or times at which, and the terms and
conditions upon which shares of the series may be redeemed;
(e) the rights, if any, of the holders of shares of the series upon
voluntary or involuntary liquidation, merger, consolidation, distribution
or sale of assets, dissolution or winding up of the Corporation;
(f) the terms of the sinking fund or redemption or purchase account, if
any, to be provided for shares of the series; and
(g) the voting powers, if any, of the holders of shares of the which may,
without limiting the generality of the foregoing, include (i) the right to
more or less than one vote per share on any or matters voted upon by the
shareholders and (ii) the right to vote, as a series by itself or together
with other series of Preferred Stock or together with all series of
Preferred Stock as a class, upon such matters, under such circumstances and
upon such conditions as the Board of Directors may fix, including, without
limitation, the right, voting as a series by itself or together with other
series of Preferred Stock or together with all series of Preferred Stock as
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a class, to elect one or more directors of this Corporation in the event
there shall have been a default in the payment of dividends on any one or
more series of Preferred Stock or under such other circumstances and upon
such conditions as the Board of Directors may determine.
No holder of any share of any series of Preferred Stock shall be entitled
to vote for the election of directors or in respect of any other matter except
as may be required by the Indiana Business Corporation Law, as amended, or as
is permitted by the resolution or resolutions adopted by the Board of
Directors authorizing the issue of such series of Preferred Stock.
D. COMMON STOCK.
(1) DIVIDEND RIGHTS. Subject to the rights of all stock of the Corporation
ranking, as to dividends, senior to Common Stock, the holders of Common Stock
shall be entitled to receive such dividends, if any, as may be declared by the
Board of Directors of the Corporation from time to time and paid on Common
Stock out of any assets of the Corporation at the time legally available for
the payment of dividends.
(2) LIQUIDATION. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of the shares of the
Common Stock shall be entitled to share ratably in the assets of the
Corporation remaining after all distributions or payments shall have been made
to the holders of any class of stock (or series thereof) of the Corporation
ranking senior, as to liquidation rights, to Common Stock.
The merger or share exchange of the Corporation with any other corporation,
or a sale, lease or conveyance of all or substantially all of its assets,
shall not be regarded as a liquidation, dissolution or winding up of the
Corporation within the meaning of this section.
(3) VOTING. Except as provided herein or as may be required by law, all
voting power shall vest exclusively in the holders of shares of Common Stock.
Each share of Common Stock shall be entitled to one vote on each matter
submitted to a vote of the shareholders of the Corporation.
E DISTRIBUTIONS TO SHAREHOLDERS.
The Board of Directors may authorize and the Corporation may make
distributions to its shareholders if, after giving the distribution effect,
(a) the Corporation would be able to pay its debts as they become due in the
usual course of business and, (b) the Corporation's total assets would be
greater than its total liabilities, without regard to any amount that would be
needed, if the Corporation were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution.
ARTICLE VII
VOTING RIGHTS OF COMMON STOCK
7.01. COMMON STOCK. Every holder of shares of common stock shall have the
right, at every shareholders' meeting, to one vote for each share of common
stock standing in his name on the books of the Corporation, except as
otherwise provided in the IBCL.
ARTICLE VIII
DIRECTORS
8.01. NUMBER. The number of Directors shall be not less than three (3) nor
more than eleven (11) and the exact number may from time to time be fixed by
the By-Laws. If the By-Laws do not fix the number of Directors, then the
number of Directors shall be five (5).
8.02. CLASSES OF DIRECTOR. The By-Laws may provide that the Directors
shall be divided into two (2) or three (3) classes, with each class containing
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one-half (1/2) or one third (1/3) of the total, with an equal number of
Directors or as near equal as may be, and whose terms of office shall expire
at different times. If Directors are divided into classes, the terms of the
Directors in the first class shall expire at the first annual shareholders'
meeting after their election, the terms of the second class shall expire at
the second annual shareholders' meeting after their election, and the terms of
the third class, if any, shall expire at the third annual shareholders'
meeting after their election. At each annual shareholders' meeting thereafter,
Directors shall be chosen for a term of two (2) years or three (3) years, as
the case may be, to succeed those whose term expire. If the By-Laws provide
for a classified Board, then prior to the completion of their term of office,
a Director may be removed, with or without cause, only at a meeting of the
shareholders called and held for that purpose, by the affirmative vote of the
holders of outstanding shares of not less than two-thirds (2/3) of the shares
entitled to vote, by class, if applicable. Directors need not be shareholders.
A majority of the Directors at any time shall be citizens of the United
States.
8.03. VACANCIES. Vacancies occurring in the Board of Directors shall be
filled in the manner provided in the By-Laws, or if the By-Laws do not provide
for the filling of vacancies then in the manner provided by Indiana law. The
By-Laws may also provide that in certain circumstances specified therein,
vacancies occurring in the Board of Directors may be filled by vote of the
shareholders at a special meeting called for that purpose or at the next
annual meeting of shareholders.
8.04. REMOVAL OF DIRECTORS. Prior to the completion of their term of
office, and subject to the provisions of Section 8.02, a Director may only be
removed by the shareholders, and in the manner as provided under the IBCL.
ARTICLE IX
PROVISIONS FOR REGULATION OF BUSINESS AND
CONDUCT OF AFFAIRS OF CORPORATION
9.01. SHAREHOLDER MEETINGS AND BOARD MEETINGS. Meetings of the shareholders
may be held either at the principal office of the Corporation in the State of
Indiana or at any other place, within or without the State of Indiana, as
provided by the By-Laws of the Corporation and the notices of such meetings.
Meetings of the Board of Directors may be held at such place, either within or
without the State of Indiana, as may be authorized by the By-Laws.
9.02. POWERS OF BOARD. In addition to the powers and authorities
hereinabove or by statute expressly conferred, the Board of Directors is
hereby authorized to exercise all such powers and do all such acts and things
as may be exercised or done by a corporation organized and existing under the
provisions of the IBCL. The Board of Directors shall have the exclusive power
to make, amend, repeal or waive By-Laws and the provisions thereof.
9.03. NONLIABILITV OF SHAREHOLDERS. Shareholders of the Corporation are not
personally liable for the acts or debts of the Corporation, nor is private
property of shareholders subject to the payment of corporate debt.
9.04. INTERESTS OF DIRECTORS.
(a) A conflict of interest transaction is a transaction with the in which a
Director of the Corporation has a direct or indirect interest. A conflict
of interest transaction is not voidable by the Corporation solely because
of the Director's interest in the transaction if any one (1) of the
following is true:
(1) The material facts of the transaction and the director's interest
were disclosed or known to the Board of Directors or a Committee of the
Board of Directors and the Board of Directors or committee authorized,
approved, or ratified the transaction.
(2) The material facts of the transaction and the Director's interest
were disclosed or known to the shareholders entitled to vote and they
29
authorized, approved, or ratified the transaction.
(3) The transaction was fair to the Corporation.
(b) For purposes of this Section 9.04, a Director of the Corporation has an
indirect interest in a transaction if:
(1) another entity in which the Director has a material financial
interest or in which the Director is a general partner is a party to
the transaction, or
(2) another entity of which the Director is a director, officer, or
trustee is a party to the transaction and the transaction is, or is
required to be, considered by the Board of Directors of the
Corporation.
(c) For purposes of Section 9.04(a)(1), a conflict of interest transaction
is authorized, approved, or ratified if it receives the affirmative vote of
a majority of the Directors on the Board of Directors (or on the committee)
who have no direct or indirect interest in the transaction, but a
transaction may not be authorized, approved, or ratified under this section
by a single Director. If a majority of the Directors who have no direct or
indirect interest in the transaction vote to authorize, approve, or ratify
the transaction, a quorum shall be deemed present for the purpose of taking
action under this Section 9.04.
The presence of, or a vote cast by, a Director with a direct or indirect
interest in the transaction does not affect the validity of any action
taken under Section 9.04(a)(l), if the transaction is otherwise authorized,
approved, or ratified as provided in such subsection.
(d) For purposes of Section 9.04(a)(2), shares owned by or voted under the
control of a Director who has a direct or indirect interest in the
transaction, and shares owned by or voted under the control of an entity
described in Section 9.04(b), may be counted in a vote of shareholders to
determine whether to authorize, approve or ratify a conflict of interest
transaction.
(e) This Section 9.04 shall not be construed to require authorization,
ratification, or approval by the shareholders of any transaction or to
invalidate any transaction that would otherwise be valid under common or
statutory law.
ARTICLE X
AMENDMENT OR REPEAL
10.01 AMENDMENT OR REPEAL: CERTAIN PROVISIONS. Any amendment or repeal of
all or any part of this Article X and of Sections 8.01 and 8.02 of Article
VIII, shall require the affirmative vote of the holders of outstanding shares
of not less than two-thirds (2/3) of the shares entitled to vote, by class, if
applicable.
10.02 AMENDMENT OR REPEAL: OTHER PROVISIONS. Except as is otherwise
expressly provided in Section 10.01, all other provisions of the Articles of
Incorporation, as amended, may be amended or repealed in the manner now or
hereafter permitted by law, and all rights conferred upon shareholders by
these Articles of Incorporation, as amended, are conferred subject to this
reservation.
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EXHIBIT 3.2
-----------
AMENDED AND RESTATED
BY-LAWS OF
FRANKLIN ELECTRIC CO., INC.
ARTICLE I.
OFFICES.
Section 1.1. Principal Office. The principal office of the Corporation
shall be in the City of Bluffton, County of Wells, State of Indiana.
Section 1.2. Other Offices. The Corporation may also have other offices at
such places within or without the State of Indiana as the Board of Directors
may from time to time determine.
Section 1.3. Registered Office and Agent. The Corporation shall maintain a
registered office and registered agent as required by the Indiana Business
Corporation Law, as now or hereafter in effect ("IBCL"). The registered office
need not be the same as the Corporation's principal office.
ARTICLE II.
SHAREHOLDERS.
Section 2.1. Annual Meeting. The annual meeting of the shareholders of the
Corporation shall be held annually on the third Friday in April of each year
10:00 a.m., local time, at the principal office of the Corporation in
Bluffton, Indiana, or at such other place (either within or without the State
of Indiana) at a date and time as may be fixed by the Board of Directors and
designated in the notice or waiver of notice of such meeting. At the annual
meeting, the directors shall be elected, and all such other business as may
properly be brought before the meeting shall be transacted.
Section 2.2. Special Meetings. Special meetings of the shareholders may
be held at the principal office of the Corporation in Bluffton, Indiana, or at
such other place within or without the State of Indiana, as may be determined
by the Board of Directors and as may be designated in the notice or waiver of
notice of such meeting. Special meetings may be called, in writing, only by
the Chairman, the President, or a majority of the Board of Directors. Business
transacted at any special meeting shall be confined to the purpose or purposes
stated in the notice of such special meeting.
Section 2.3. Notice of Shareholders' Meetings. Notice of each meeting of
shareholders, stating the date, time and place, and, in the case of special
meetings, the purpose or purposes for which such meeting is called, shall be
given to each shareholder entitled to vote thereat not less than ten nor more
than sixty days before the date of the meeting unless otherwise prescribed by
the IBCL.
Section 2.4. Record Dates. (a) In order that the Corporation may determine
the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of shares
or for the purpose of any other lawful action, the Board of Directors may fix,
in advance, a future date as the record date, which shall not be more than 70
days nor less than 10 days before the date of such meeting or any other action
requiring a determination by shareholders.
(b) If a record date has not been fixed as provided in preceding subsection
(a), then:
(i) The record date for determining shareholders entitled to notice of
or to vote at a meeting of shareholders shall be at the close of
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business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day
on which the meeting is held; and
(ii)The record date for determining shareholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
(c) Only those who shall be shareholders of record on the record date so
fixed as aforesaid shall be entitled to such notice of, and to vote at, such
meeting and any adjournment thereof, or to receive payment of such dividend or
other distribution, or to receive such allotment of rights, or to exercise
such rights, as the case may be, notwithstanding the transfer of any shares on
the books of the Corporation after the applicable record date; provided,
however, the Corporation shall fix a new record date if a meeting is adjourned
to a date more than one hundred twenty days after the date originally fixed
for the meeting.
Section 2.5. Quorum and Adjournment. At any meeting of the shareholders
the holders of a majority of the outstanding shares of the Corporation
entitled to vote who are present in person or represented by proxy shall
constitute a quorum for the transaction of business unless otherwise
prescribed by the IBCL or the Corporation's Articles of Incorporation, as
amended (the "Articles of Incorporation"). Once a share is represented for
any purpose at a meeting, it is deemed present for quorum purposes for the
remainder of the meeting and for any adjournment of that meeting unless a new
record date is set or is required to be set by the IBCL, the Articles of
Incorporation or these By-Laws.
Whether or not a quorum is present the Chairman of the meeting or
shareholders present in person or represented by proxy representing a majority
of the shares present or represented may adjourn the meeting from time to
time, without notice other than an announcement at the meeting. At any such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the original
meeting.
Section 2.6. Voting by Shareholders; Proxies. Every shareholder shall have
the right at every shareholders' meeting to one vote for each share standing
in his name on the books of the Corporation, except as otherwise provided by
the IBCL or the Articles of Incorporation, and except that no share shall be
voted at any meeting upon which any installment is due and unpaid, or which
belongs to the Corporation. Election of directors at all meetings of the
shareholders at which directors are to be elected shall be by ballot, and a
plurality of the votes cast thereat shall be necessary to elect any Director.
Action on a matter (other than the election of directors) submitted to
shareholders entitled to vote thereon at any meeting shall be approved if the
votes cast favoring the action exceed the votes cast opposing the action,
unless a greater number of affirmative votes is required by the IBCL or by the
Articles of Incorporation. A shareholder may vote either in person or by proxy
executed in writing by the shareholder or a duly authorized attorney in fact.
No proxy shall be valid after eleven months from the date of its execution
unless a longer time is expressly provided therein.
Section 2.7. Shareholder List. At lease five business days before each
shareholders' meeting, the Secretary of the Corporation shall make, or cause
to be made, an alphabetical list of the names of the shareholders entitled to
notice of and to vote at the meeting, arranged by voting group (and within
each voting group by class or series of shares) and showing the address of and
the number of shares held by each shareholder.
Beginning five business days before the date of the meeting and continuing
through the meeting, the list shall be on file at the principal office of the
Corporation (or at the place identified in the meeting notice in the city
where the meeting will be held) and shall be available for inspection by any
shareholder entitled to vote at the meeting for the purpose and to the
32
extent permitted by law. During this period a shareholder, or the
shareholder's agent or attorney authorized in writing, is entitled on written
demand to inspect and copy the list during regular business hours and at the
shareholder's expense.
Section 2.8. Conduct of Business. (a) Presiding Officer. The Chairman of
the Board of Directors, when present, and in the absence of the Chairman the
President, shall be the presiding officer at all meetings of shareholders, and
in the absence of the Chairman and the President, the Board of Directors shall
choose a presiding officer. The presiding officer of the meeting shall have
plenary power to determine procedure and rules of order (including with
respect to the opening and the closing of the polls for each matter upon which
shareholders will vote at the meeting) and make definitive rulings at meetings
of the shareholders.
(b) Annual Meetings of Shareholders. (i) Nominations of persons for
election to the Board of Directors of the Corporation and the proposal of
business to be considered by the shareholders may be made at an annual meeting
of shareholders (A) pursuant to the Corporation's notice of meeting, (B) by or
at the direction of the Board of Directors or (C) by any shareholder of the
Corporation who was a shareholder of record at the time of giving of notice
provided for in this Section 2.8, who is entitled to vote at the meeting and
who complies with the notice procedures set forth in this Section 2.8.
(ii)For director nominations or other business to be properly brought
before any annual meeting by a shareholder pursuant to clause (C) of paragraph
(b)(i) of this Section 2.8, the shareholder must have given timely notice
thereof in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice shall be delivered to the Secretary at the principal
business office of the Corporation not later than ninety days prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced by more than
thirty days or delayed by more than sixty days from such anniversary date,
notice by the shareholder to be timely must be so delivered not later than the
ninetieth day prior to such annual meeting or the tenth day following the day
on which public announcement of the date of such meeting is first made. Such
shareholder's notice shall set forth (A) as to each person whom the
shareholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act") (including such person's written consent
to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the shareholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any material interest in such business of such
shareholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (C) as to the shareholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (x) the name
and address of such shareholder, as they appear on the Corporation's books,
and of such beneficial owner and (y) the class and number of shares of the
Corporation which are owned beneficially and of record by such shareholder and
such beneficial owner.
(iii) The notice procedures of this Section 2.8 shall not apply to any
annual meeting if the Corporation shall not have set forth in its proxy
statement for the preceding annual meeting of shareholders the date by which
notice of nominations by shareholders of persons for election as directors or
of other business proposed to be brought by shareholders at the next annual
meeting of shareholders must be received by the Corporation to be considered
timely pursuant to this Section 2.8
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(c) Special Meetings of Shareholders. Only such business shall be conducted
at a special meeting of shareholders as shall have been brought before the
meeting pursuant to the Corporation's notice of meeting. Nominations of
persons for election to the Board of Directors may be made at a special
meeting of shareholders at which directors are to be elected pursuant to the
Corporation's notice of meeting (A) by or at the direction of the Board of
Directors or (B) by any shareholder of the Corporation who was a shareholder
of record at the time of giving of notice provided for in this Section 2.8,
who is entitled to vote at the meeting and who complies with the notice
procedures set forth in this Section 2.8. Nominations by shareholders of
persons for election to the Board of Directors may be made at such a special
meeting of shareholders if a shareholder's notice containing the information
set forth in paragraph (b)(ii) of this Section 2.8 shall be delivered to the
Secretary at the principal executive offices of the Corporation not later than
the 90th day prior to such special meeting or the tenth day following the date
on which public announcement is first made of the date of the special meeting
and of the nominees proposed by the Board of Directors to be elected at such
meeting.
(d) General. (i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 2.8 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of
shareholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 2.8. The presiding officer at the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made in accordance with
the procedures set forth in this Section 2.8 and, if any proposed nomination
or business is not in compliance with this Section 2.8, to declare that such
defective proposal shall be disregarded.
(ii)For purposes of this Section 2.8, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant
to Sections 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 2.8, a
shareholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 2.8. Nothing in this Section 2.8 shall be deemed to
affect any rights of shareholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Section 2.9. Organization of Meetings. The Secretary, who may call on any
officer or officers of the Corporation for assistance, shall make all
necessary and appropriate arrangements for all meetings of shareholders,
receive all proxies and ascertain and report to each meeting of shareholders
the number of shares present, in person and by proxy. The certificate and
report of the Secretary, as to the regularity of such proxies and as to the
number of shares present, in person and by proxy, shall be received as prima
facie evidence of the number of shares present in person and by proxy for the
purpose of establishing the presence of a quorum at such meeting and for
organizing the same, and for all other purposes.
Section 2.10. Inspectors. At every meeting of shareholders there shall be
appointed by the Board of Directors three inspectors of election to receive
and count the votes of shareholders. Each inspector shall take an oath to
fairly and impartially perform the duties of an inspector of the election and
to honestly and truly report the results thereof. Such inspectors shall be
responsible for tallying and certifying the vote taken on any matter at each
meeting which is required to be tallied and certified by them in the
resolution of the Board of Directors appointing them or the appointment of the
presiding officer at such meeting as the case may be. Except as otherwise
provided by these By-Laws or by law, such inspectors shall also decide all
34
questions touching upon the qualification of voters, the validity of proxies
and ballots, and the acceptance and rejection of votes. The Board of Directors
shall have the authority to make rules establishing presumptions as to the
validity and sufficiency of proxies.
ARTICLE III.
DIRECTORS.
Section 3.1. Number and Classes. The Board of Directors shall consist of no
more than eleven and no fewer than three members, the actual number to be set
by the Board by resolution. Subject to the rights of the holders of any series
of Preferred Stock outstanding, the directors shall be divided into three
classes, designated as Class I, Class II and Class III, respectively, which at
all times shall be as nearly equal in number as possible. One class of
directors shall be elected annually to serve for a term of three years or
until their successors shall have been elected and qualified.
Section 3.2. Resignation, Vacancies and Removal of Directors. Any director
may resign his office at any time by delivering his resignation in writing to
the Board of Directors, its Chairman, or the Secretary of the Corporation, and
the acceptance of such resignation, unless required by the terms thereof,
shall not be necessary to make such resignation effective. The resignation
shall be effective when the notice is delivered unless the notice specifies a
later effective date. If any vacancy occurs on the Board of Directors caused
by resignation, death, or other incapacity, or increase in the number of
directors, then (a) the Board of Directors may fill the vacancy; or (b) if the
directors remaining in office constitute fewer than a quorum of the Board,
they may fill the vacancy by the affirmative vote of a majority of all
directors remaining in office; or (c) if a majority of the directors remaining
in office are unable to agree on a person to fill the vacancy, then the
remaining directors may call a special shareholders' meeting to fill the
vacancy. The term of a director elected to fill a vacancy expires at the end
of the term for which the director's predecessor was elected. Prior to the
completion of their term of office, a director may only be removed in the
manner as provided in the Articles of Incorporation.
Section 3.3. Regular Meetings. A regular meeting of the Board of Directors
will be held at the place of (or reasonably near thereto) and promptly
following the annual meeting of the shareholders. At the annual meeting, the
Board shall elect the officers of the Corporation for the ensuing year and
transact such other business as may properly come before the meeting. Other
regular meetings may be held at the principal office of the Corporation or at
any other place and at such times as the Board may fix from time to time.
Notice shall be given in accordance with Article IV of these By-Laws.
Section 3.4. Special Meetings. Special meetings of the Board of Directors
shall be held at the principal office of the Corporation or at any other place
reasonably convenient for directors to attend whenever called by the Chairman
or the President or a majority of the Board of Directors. Notice shall be
given in accordance with the Article IV of these By-Laws.
Section 3.5. Quorum and Voting. Except as provided in Section 3.2, a
majority of the actual number of directors elected and qualified from time to
time shall be necessary to constitute a quorum for the transaction of any
business at any meeting of the Board of Directors. The affirmative vote of a
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors, unless the act of a greater number
is expressly required by the IBCL, the Articles of Incorporation, or these By-
Laws. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present may adjourn the meeting from time to time,
without notice other than an announcement at the meeting, until a quorum is
present.
35
Section 3.6. Compensation. Each member of the Board of Directors shall be
paid such compensation as shall be fixed by the Board of Directors, provided,
that nothing herein contained shall be construed to preclude any director from
serving in any other capacity and receiving compensation therefore.
Section 3.7. Qualification. Upon attaining the age of seventy years, a
director shall submit a written notice of resignation to the Board of
Directors effective as of the end of the next regularly scheduled meeting of
the Board of Directors. Any employee director (other than the President or
Chairman) whose employment with the Corporation is terminated prior to
attaining the age of seventy years shall submit a written notice of
resignation to the Board of Directors effective immediately. The Board, at
its discretion, may determine not to accept, or may defer the effective date
of, any resignation received pursuant to this Section 3.7. In addition, any
person who first becomes a director of the Company after December 12, 2003
shall be limited to a term of twelve consecutive years as a director of the
Company.
Section 3.8. Committees. (a) The Board of Directors may from time to time,
in its discretion, by resolution passed by a majority of the Board, designate,
and appoint, from the directors, committees of one or more persons which shall
have and may exercise such lawfully delegable powers and duties conferred or
authorized by the resolutions of designation and appointment. The Board of
Directors shall have power at any time to change the members of any such
committee, to fill vacancies, and to discharge any such committee.
(b) Unless the Board of Directors shall provide otherwise, the presence of
one-half of the total membership of any committee of the Board of Directors
shall constitute a quorum for the transaction of business at any meeting of
such committee and the affirmative vote of a majority of those present shall
be necessary and sufficient for the taking of any action thereat.
Section 3.9. Directors' or Committee Action by Consent in Lieu of Meeting.
Any action required or permitted to be taking at any meeting of the Board of
Directors or any committee thereof may be taken without a meeting if the
action is taken by all members of the Board or such committee as the case may
be. The action shall be evidenced by one or more written consents describing
the action taken, signed by each director, and included in the minutes or
filed with the Corporation's records reflecting the action taken. Any such
written consent is effective when the last director signs the consent, unless
the consent specifies a different prior or subsequent effective date.
Section 3.10. Meetings by Telephone or Other Communications. Members of
the Board of Directors, or any committee of the Board, may participate in a
meeting of the Board or such committee by means of telephone or other
communication by which all directors participating may simultaneously hear
each other during the meeting. A director participating in a meeting by this
means is deemed to be present in person at the meeting.
Section 3.11. Assent by Director to Action Taken at a Meeting. A director
who is present at a meeting of the Board of Directors or a committee of the
Board at which action on any corporate matter is taken is deemed to have
assented to the action taken unless:
(a) The director objects at the beginning of the meeting (or promptly upon
the director's arrival) to holding it or transacting business at the meeting;
(b) The director's dissent or abstention from the action taken is entered
in the minutes of the meeting; or
(c) The director delivers written notice of the director's dissent or
abstention to the presiding officer of the meeting before its adjournment or
to the Secretary of the Corporation immediately after adjournment of the
meeting.
The right of dissent or abstention is not available to a director who votes
in favor of the action taken.
36
ARTICLE IV.
NOTICES.
Section 4.1. Notices. Notices to directors and shareholders shall be in
writing and delivered personally or mailed to their addresses appearing on the
records of the Corporation or, with respect to directors only, by telegram,
cable, telephone, telecopy, facsimile or a nationally recognized overnight
delivery service. Notice to directors of special meetings by mail shall be
given at least two days before the meeting. Notice to directors of special
meetings by personal delivery, telegram, cable, telephone, telecopy or
facsimile shall be given a reasonable time before the meeting, but in no event
less than one hour before the meeting. Notice by mail or recognized overnight
delivery service shall be deemed to be given when sent to the director at his
or her address appearing on the records of the Corporation. Notice by telegram
or cable shall be deemed to be given when the telegram or cable addressed to
the director at his or her address appearing on the records of the Corporation
is delivered to the telegraph company. Notice by telephone, telecopy or
facsimile shall be deemed to be given when transmitted by telephone, telecopy
or facsimile to the telephone, telecopy or facsimile number appearing on the
records of the Corporation for the director (regardless of whether the
director shall have personally received such telephone call or telecopy or
facsimile message).
Section 4.2. Waiver of Notice. Whenever any notice is required, a waiver
thereof signed by the person entitled to such notice, whether before or after
the time stated therein, and filed with the minutes or corporate records,
shall be deemed equivalent to the giving of notice. Attendance of any person
at any meeting of shareholders or directors shall constitute a waiver of
notice of such meeting, except when such person attends only for the express
purpose of objecting, at the beginning of the meeting (or in the case of a
director's meeting, promptly upon such director's arrival), to the transaction
of any business at the meeting and does not thereafter vote for or assent to
action taken at the meeting.
ARTICLE V.
OFFICERS.
Section 5.1. Officers (Including Removal). The officers of the Corporation
may consist of a Chairman of the Board, a President, one or more Vice
Presidents, a Treasurer, and a Secretary, all of whom shall be elected by the
Board of Directors of the Corporation at the first meeting thereof immediately
following the annual meeting of the shareholders (or at such other time as the
Board deems appropriate), and shall hold office until their successors are
elected and qualify. One person may hold more than one office. The Board of
Directors shall have the power from time to time to appoint such other
officers as may be necessary for the proper conduct of the business of the
Corporation. Any officer elected or appointed by the Board of Directors may be
removed at any time with or without cause by the affirmative vote of a
majority of the whole Board of Directors.
Section 5.2. Compensation. The compensation of the officers of the
Corporation elected or appointed by the Board of Directors, shall be fixed by
the Board of Directors or a committee of the Board.
Section 5.3. Chairman. The Chairman shall be the chief executive officer of
the Corporation and shall have general authority and supervision over the
management and direction of the affairs of the Corporation and supervision of
all departments and of all officers of the Corporation. The Chairman shall,
subject to the other provisions of these By-Laws, have such other powers and
perform such other duties as usually devolve upon the chief executive officer
of a corporation or as may be prescribed by the Board of Directors, and shall,
when present, preside at all meetings of the shareholders and of the Board of
37
Directors. In case of the absence, disability, death, resignation or removal
from office of the Chairman, the powers and duties of the Chairman shall, for
the time being, devolve upon and be exercised by the President, unless
otherwise ordered by the Board of Directors.
Section 5.4. President. The President shall be the chief operating officer
of the Corporation and shall have such general authority and supervision over
the management and direction of the affairs of the Corporation, subject to the
authority of the Chairman. The President shall, subject to the other
provisions of these By-Laws, have such other powers and perform such other
duties as usually devolve upon the President of a corporation, and such
further duties as may be prescribed by the Chairman or the Board of Directors.
In case of the absence, disability, death, resignation or removal from office
of the President, the powers and duties of the President shall, for the time
being, devolve upon and be exercised by the Chairman, and in case of the
absence, disability, death, resignation, or removal from office of both the
Chairman and the President, the powers and duties of the President shall, for
the time, being devolve upon and be exercised by the Vice President so
appointed by the Board of Directors.
Section 5.5. Vice Presidents. Each of the Vice Presidents shall have such
powers and duties as may be prescribed by the Board of Directors, the Chairman
or the President. The Board of Directors, the Chairman or the President may
designate one or more of such Vice Presidents as Executive Vice President,
Senior Vice President or Assistant Vice President.
Section 5.6. Secretary. The Secretary shall attend and keep the minutes of
all meetings of the Board of Directors and of the shareholders. The Secretary
shall have charge and custody of the corporate records and corporate seal of
the Corporation, and shall in general perform all duties incident to the
office of secretary of a corporation, subject at all times to the direction
and control of the Board of Directors, the Chairman and the President.
Section 5.7. Treasurer. The Treasurer shall have charge of, and shall be
responsible for, the collection, receipt, custody and disbursement of the
funds of the Corporation, and shall also have the custody of all securities
belonging to the Corporation. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper
receipts or making proper vouchers for such disbursements, and shall at all
times preserve the same during the term of office. When necessary or proper,
the Treasurer shall endorse, on behalf of the Corporation, all checks, notes,
or other obligations payable to the Corporation or coming into possession of
the Treasurer for and on behalf of the Corporation, and shall deposit the
funds arising therefrom, together with all other funds of the Corporation
coming into possession of the Treasurer, in the name and to the credit of the
Corporation in such bank or banks as the Board of Directors shall from time to
time by resolution direct. The Treasurer shall perform all duties incident to
the office of treasurer of a corporation, subject at all time to the direction
and control of the Board of Directors, the Chairman and the President.
ARTICLE VI.
CAPITAL STOCK.
Section 6.1. Certificates for Shares. Unless the Articles of Incorporation
provide otherwise, all shares of stock of the Corporation shall be represented
by a certificate. The certificates for shares of the Corporation shall be in
such form not inconsistent with the Articles of Incorporation and the IBCL and
as shall be approved by the Board of Directors. At a minimum, each certificate
for shares must state on its face:
(a) The name of the Corporation and that it is organized under the law of
the State of Indiana;
(b) The name of the person to whom issued; and
38
(c) The number and class of shares and the designation of the series, if
any, the certificate represents. Each certificate must be signed (either
manually or in facsimile) by the Chairman or the President and Secretary or
such other two officers as may be designated by the Board. Share certificates
which have been signed (whether manually or in facsimile) by officers may be
used and shall continue to be valid even though any individual whose signature
appears on a certificate shall no longer be an officer of the Corporation at
the time of the issue of the certificate.
Section 6.2. Registration of Transfer and Registered Shareholders.
Registration of transfer of shares and issuance of a new certificate or
certificates therefor shall be made only upon surrender to the Corporation or
its transfer agent and cancellation of a certificate or certificates for a
like number of shares of the same class, properly endorsed for transfer,
accompanied by (a) such assurance as the Corporation or transfer agent may
require as to the genuineness and effectiveness of each necessary endorsement,
(b) satisfactory evidence of compliance with all laws relating to collection
of taxes, and (c) satisfactory evidence of compliance with or removal of any
restriction on transfer of which the Corporation or transfer agent may have
notice.As respects the Corporation, its stock record books shall be conclusive
as to the ownership of its shares for all purposes and the Corporation shall
not be bound to recognize adverse claims.
Section 6.3. Consideration for Issue of Shares. The shares of the capital
stock of the Corporation may be issued by the Corporation from time to time
for such an amount of consideration as may be fixed by the Board of Directors
and consisting of any tangible or intangible property or benefit to the
Corporation, including cash, promissory notes, services performed, contracts
for services to be performed, or other securities of the Corporation. When
payment of the consideration for which any share was authorized to be issued
shall have been received by the Corporation, the shares issued therefor shall
be fully paid and nonassessable. Shares may be issued to the Corporation's
shareholders without consideration to the extent permitted by the IBCL and
shares so issued shall be fully paid and nonassessable. If the Corporation
authorizes the issuance of shares for promissory notes or for promises to
render services in the future, the Corporation shall report in writing to the
shareholders the number of shares authorized to be issued with or before the
notice of the next shareholders' meeting. The Board may (but is not required)
to place in escrow shares issued for a contract for future services or
benefits or a promissory note or may make such other arrangements or
conditions or place such other restrictions on the transfer of the shares
until the services are performed, the note is paid, or the benefits are
received.
Section 6.4. Lost, Stolen or Destroyed Certificates. No certificate for
shares of the capital stock of the Corporation shall be issued in place of any
certificate alleged to have been lost, stolen or destroyed except upon proper
evidence to the satisfaction of the Board of Directors of such loss, theft, or
destruction, and (unless waived by the Board of Directors) except upon
delivery to the Corporation of a bond of indemnity in such amount as may be
fixed by the Board of Directors, executed by the person to whom the new
certificate or certificates should be issued and also by a surety company
approved by the Board of Directors, indemnifying the Corporation against any
claim upon or in respect of such lost, stolen, or destroyed certificate;
provided, however, that whenever this Corporation has a duly appointed,
qualified and acting transfer agent for its said shares, the Board of
Directors may delegate to said transfer agent the authority to determine the
sufficiency of the proof of such loss, theft or destruction and to issue new
certificate or certificates in replacement thereof, and the Board of Directors
may waive the necessity of obtaining a separate bond of indemnity in
connection with the issuance of each certificate replacing such lost, stolen
or destroyed certificates and in lieu thereof may authorize such transfer
39
agent to obtain a blanket lost original instruments bond naming this
Corporation and such transfer agent as the obligees therein.
Section 6.5. Transfer Agent and Registrars. The Board of Directors may
from time to time appoint a transfer agent and a registrar in one or more
cities, may require all certificates evidencing shares of the Corporation to
bear signatures of a transfer agent and a registrar, may provide that such
certificates shall be transferable in more than one city, and may provide for
the functions of transfer agent and registrar to be combined in one agency.
ARTICLE VII.
CONDUCT OF BUSINESS.
Section 7.1. Contracts, Deeds and Other Instruments. All agreements
evidencing obligations of the Corporation, including but not limited to
contracts, trust deeds, promissory notes, sight drafts, time drafts and
letters of credit (including applications therefor), may be signed by any one
of the Chairman, the President, any Vice President, the Treasurer, the
Secretary, and any person authorized by a resolution of the Board of
Directors.
A certified copy of these By-Laws and/or any authorization given hereunder
may be furnished as evidence of the authorities herein granted, and all
persons shall be entitled to rely on such authorities in the case of a
specific contract, conveyance or other transaction without the need of a
resolution of the Board of Directors specifically authorizing the transaction
involved.
Section 7.2. Checks. Checks and other negotiable instruments for the
disbursement of Corporation funds may be signed by any one of the Chairman,
the President, any Vice President and the Treasurer. In addition to the
foregoing, other persons may sign instruments for the disbursement of
Corporation funds under written authorization signed by any two of the
foregoing officers acting jointly. Electronic or wire transfers of funds may
be authorized by any officer of the Corporation who is authorized pursuant to
this Section 7.2 to disburse Corporation funds by check or other negotiable
instrument.
Section 7.3. Deposits. Securities, notes and other evidences of
indebtedness shall be kept in such places, and deposits of checks, drafts and
funds shall be made in such banks, trust companies or depositories, as shall
be recommended and approved by any two of the Chairman, the President, any
Vice President and the Treasurer.
Section 7.4. Voting of Stock. Unless otherwise ordered by the Board of
Directors, the Chairman, the President or any Vice President shall have the
power to execute and deliver on behalf of the Corporation proxies on stock
owned by the Corporation appointing a person or persons to represent and vote
such stock at any meeting of stockholders, with full power of substitution,
and shall have power to alter or rescind such appointment. Unless otherwise
ordered by the Board of Directors, the Chairman, the President or any Vice
President shall have the power on behalf of the Corporation to attend and to
act and vote at any meeting of stockholders of any corporation in which the
Corporation holds stock and shall possess and may exercise any and all rights
and powers incident to the ownership of such stock, which, as the owner
thereof, the Corporation might have possessed and exercised if present. The
Board of Directors may confer like powers upon any other person or persons.
Section 7.5. Transfer of Stock. Such form of transfer or assignment customary
or necessary to effect a transfer of stocks or other securities standing in
the name of the Corporation shall be signed by the Chairman, the President,
any Vice President or the Treasurer, and the Secretary shall sign as witness
if required on the form. A corporation or person transferring any such stocks
or other securities pursuant to a form of transfer or assignment so executed
40
shall be fully protected and shall be under no duty to inquire whether the
Board of Directors has taken action in respect thereof.
ARTICLE VIII
INDEMNIFICATION.
Section 8.1. Definitions. As used in this Article VIII:
(a) "Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the Corporation, is or
was serving at the Corporation's request as a director, officer, partner,
member, manager, trustee, employee, or agent of another foreign or domestic
corporation, partnership, limited liability company, joint venture, trust,
employee benefit plan, or other enterprise, whether for profit or not. A
director is considered to be serving an employee benefit plan at the
Corporation's request if the director's duties to the Corporation also impose
duties on, or otherwise involve services by, the director to the plan or to
participants in or beneficiaries of the plan. "Director" includes, unless the
context requires otherwise, the estate or personal representative of a
director.
(b) "Expenses" include counsel fees.
(c) "Liability" means the obligation to pay a judgment, settlement,
penalty, fine (including an excise tax assessed with respect to an employee
benefit plan), or reasonable expenses incurred with respect to a proceeding.
(d) "Officer" means an individual who is or was an officer of the
Corporation or an individual who, while an officer of the Corporation, is or
was serving at the Corporation's request as a director, officer, partner,
member, manager, trustee, employee, or agent of another foreign or domestic
corporation, partnership, limited liability company, joint venture, trust,
employee benefit plan, or other enterprise, whether for profit or not. An
officer is considered to be serving an employee benefit plan at the
Corporation's request if the officer's duties to the Corporation also impose
duties on, or otherwise involve services by, the officer to the plan or to
participants in or beneficiaries of the plan. "Officer" includes, unless the
context requires otherwise, the estate or personal representative of an
officer.
(e) "Official capacity" means:
(1) When used with respect to a director, the office of director in the
Corporation;
(2) When used with respect to an officer, the office of the Corporation
held by the officer; and
(3) When used with respect to an individual other than an officer or
director, the employment or agency relationship undertaken by the employee or
agent on behalf of the Corporation.
"Official capacity" does not include service for any other foreign or domestic
corporation or any partnership, limited liability company, joint venture,
trust, employee benefit plan, or other enterprise, whether for profit or not.
(f) "Party" includes an individual who was, is, or is threatened to be made
a named defendant or respondent in a proceeding.
(g) "Proceeding" means any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative, or investigative and
whether formal or informal.
Section 8.2. Indemnification.
(a) The Corporation shall indemnify an individual made a party to a
proceeding because the individual is or was a director or officer against any
liability incurred in the proceeding if:
(1) the individual's conduct was in good faith; and
(2) the individual reasonably believed:
(A) in the case of conduct in the individual's official capacity
with the Corporation, that the individual's conduct was in the
41
Corporation's best interests; and
(B) In all other cases, that the individual's conduct was at least
not opposed to the Corporation's best interest; and
(3) In the case of any criminal proceeding, the individual either:
(A) Had reasonable cause to believe the individual's conduct was
lawful; or
(B) Had no reasonable cause to believe the individual's conduct was
unlawful.
(b) A director's or officer's conduct with respect to an employee benefit
plan for a purpose the director or officer reasonably believed to be in the
interests of the participants in and beneficiaries of the plan is conduct that
satisfies the requirement of subsection (a)(2)(B) of this Section 8.2.
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director or officer did not meet the standard
of conduct described in this Section 8.2.
Section 8.3. Additional Indemnification. In addition to the indemnification
to which a director or officer may be entitled pursuant to Section 8.2, the
Corporation shall indemnify a director or officer who was wholly successful,
on the merits or otherwise, in the defense of any proceeding to which the
director or officer was a party because the director or officer was a director
or officer of the Corporation against reasonable expenses incurred by the
director or officer in connection with the proceeding.
Section 8.4. Advance Indemnification.
(a) The Corporation shall pay for or reimburse the reasonable expenses
incurred by a director or officer who is a party to a proceeding in advance of
final disposition of the proceeding if:
(1) The director or officer furnishes the Corporation a written
affirmation of the director's or officer's good faith belief that the director
or officer has met the standard of conduct described in Section 8.2.
(2) The director or officer furnishes the Corporation a written
undertaking, executed personally or on the director's or officer's behalf, to
repay the advance if it is ultimately determined that the director or officer
did not meet the standard of conduct; and
(3) A determination is made that the facts then known to those making
the determination would not preclude indemnification under this Article VIII.
(b) The undertaking required by subsection (a)(2) of this Section 8.4 must
be an unlimited general obligation of the director or officer but need not be
secured and may be accepted without reference to financial ability to make
repayment.
(c) Determinations and authorizations of payments under this section shall
be made in the manner specified in Section 8.5 below.
Section 8.5. Procedure for Determining Indemnification.
(a) The Corporation may not indemnify a director or officer under Section
8.2 of this Article VIII unless authorized in the specific case after a
determination has been made that indemnification of the director or officer is
required in the circumstances because the director or officer has met the
standard of conduct set forth in Section 8.2 of this Article VIII.
(b) The determination shall be made by any one of the following procedures:
(1) By the board of director by majority vote of a quorum consisting of
directors not at the time parties to the proceeding.
(2) If a quorum cannot be obtained under subdivision (1), by majority
vote of a committee duly designated by the board of directors (in which
designation directors who are parties may participate), consisting solely of
two or more directors not at the time parties to the proceeding.
(3) By special legal counsel:
(A) Selected by the board of directors or its committee in the
manner prescribed in subdivision (1) or (2); or
(B) If a quorum of the board of directors cannot be obtained
42
under subdivision (1) and a committee cannot be designated under
subdivision (2), selected by majority vote of the full board of
directors (in which selection directors who are parties may
participate).
(4) By the shareholders, but shares owned by or voted under the control
of directors who are at the time parties to the proceeding may not be voted on
the determination.
(c) Authorization of indemnification and evaluation as to reasonableness of
expenses shall be made in the same manner as the determination that
indemnification under Section 8.2 is required, except that if the
determination is made by special legal counsel, authorization of
indemnification and evaluation as to reasonableness of expenses shall be made
by those entitled under subsection (b)(3) of this Section 8.5 to select
counsel.
Section 8.6. Indemnification of Agents and Employees.
(a) The Corporation may indemnify and advance expenses under this Article
VIII to an employee, or agent of the Corporation, whether or not an officer or
director, to the same extent as to a director or officer; and
(b) The Corporation may also indemnify and advance expenses to an officer,
employee or agent, whether or not a director, to the extent, consistent with
public policy, that may be provided by the Articles of Incorporation, general
or specific action of the Board of Directors, or contract.
Section 8.7. Indemnification Not Exclusive.
(a) The indemnification and advance for expenses provided for or authorized
by this Article VIII does not exclude any other rights to indemnification and
advance for expenses that a person may have under:
(1) the IBCL;
(2) the Corporation's Article of Incorporation or By-Laws;
(3) a resolution of the board of directors or of the shareholders;
(4) any contract or policy of insurance; or
(5) any other authorization, whenever adopted, after notice, by a
majority vote of all the voting shares then issued and outstanding.
(b) Without limiting the foregoing subsection (a), nothing contained in
this Article VIII shall be construed to limit in any manner the
indemnification or advance for expenses that may be permitted or required, in
the absence of the provisions of this Article VIII, pursuant to the IBCL.
(c) This Article VIII does not limit the Corporation's power to pay or
reimburse expenses incurred by a director, officer, employee, or agent in
connection with the person's appearance as a witness in a proceeding at a time
when the person has not been made a named defendant or respondent to the
proceeding.
Section 8.8. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent
of the Corporation or who while a director, officer, employee or agent of the
Corporation is or was serving at the request of the Corporation as a director,
officer, partner, member, manager, trustee, employee, or agent of another
foreign or domestic corporation, partnership, limited liability company, joint
venture, trust, employee benefit plan, or other enterprise, against any
liability asserted against him or her and incurred by him or her in any such
capacity, or arising out of his or her status as such, whether or not the
Corporation would have the power to indemnify him or her against such
liability under the provisions of this Article VIII or under the IBCL.
Section 8.9. Contract With The Corporation. The provisions of this Article
VIII shall be deemed to be a contract between the Corporation and each
director or officer who serves in any such capacity at any time while this
Article VIII is in effect, and any repeal or modification of any provisions of
this Article VIII shall not affect any rights or obligations theretofore
accruing under this Article VIII with respect to any state of facts then or
theretofore existing or any claim, action, suit or proceeding theretofore or
43
thereafter brought or threatened based in whole or in part upon any such state
of facts.
ARTICLE IX.
SEAL.
If a corporate seal is used, it shall have inscribed thereon the name
"Franklin Electric Co., Inc." around the circumference thereof and the word
"Seal" in the center thereof. The seal can be used by causing it or a
facsimile thereof to be impressed, affixed, reproduced or otherwise.
ARTICLE X.
FISCAL YEAR.
The fiscal year of the Corporation shall end with the Saturday nearest to
December 31 and begin with the Sunday following the Saturday nearest to
December 31.
ARTICLE XI.
AMENDMENT.
These By-Laws may be amended by the Board of Directors, by the affirmative
vote of a majority of all the members of the Board of Directors, at any
regular or special meeting, notice of which contains the proposed amendment or
a digest thereof; or at any meeting, regular or special, at which all
directors are present, or by the written consent of all directors pursuant to
Section 3.2 of Article III of these By-Laws.
ARTICLE XII.
CONTROL SHARES.
The terms "control shares" and "control share acquisition" used in this
Article XII shall have the meanings set forth in Indiana Business Corporation
Law Section 23-1-42-1, et seq. (the "Act"). Control shares of the Corporation
acquired in a control share acquisition shall have only such voting rights as
are conferred by the Act.
Control shares of the Corporation acquired in a control share acquisition
with respect to which the acquiring person has not filed with the Corporation
the acquiring person statement required by the Act may, at any time during the
period ending sixty days after the last acquisition of control shares by the
acquiring person, be redeemed by the Corporation at the fair value thereof
pursuant to procedures authorized by a resolution of the Board of Directors.
Such authority may be exercised generally or confined to specific instances.
Control shares of the Corporation acquired in a control share acquisition with
respect to which the acquiring person was not granted full voting rights by
the shareholders as provided in the Act may, at any time after the shareholder
vote required by the Act, be redeemed by the Corporation at the fair value
thereof pursuant to procedures authorized by a resolution of the Board of
Directors. Such authority may be exercised generally or confined to specific
instances.
44
EXHIBIT 31.1
------------
CERTIFICATIONS
--------------
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
----------------------------------------
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
---------------------------------------------------------
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-15(e) and 15d-15(e)) for the registrant
and we have:
a. designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of end of the period covered by this Quarterly
Report based on such evaluation; and
c. disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrants fourth
quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal controls over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's
board of directors or persons performing similar functions:
45
a. All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability
to record, process, summarize and report financial information;
and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 2, 2004
---------------------
/s/ R. Scott Trumbull
---------------------
R. Scott Trumbull
Chairman and Chief Executive Officer
Franklin Electric Co., Inc.
46
EXHIBIT 31.2
------------
CERTIFICATION OF CHIEF FINANCIAL OFFICER
----------------------------------------
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
---------------------------------------------------------
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-15(e) and 15d-15(e)) for the registrant
and we have:
a. designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of end of the period covered by this Quarterly
Report based on such evaluation; and
c. disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrants fourth
quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal controls over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's
board of directors or persons performing similar functions:
a. All significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant's ability
47
to record, process, summarize and report financial information;
and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: August 2, 2004
----------------------
/s/ Gregg C. Sengstack
----------------------
Gregg C. Sengstack
Senior Vice President, Chief Financial Officer and Secretary
Franklin Electric Co., Inc.
48
EXHIBIT 32.1
------------
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 July 3, 2004 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: August 2, 2004 -
---------------------
/s/ R. Scott Trumbull
-------------------------------------
R. Scott Trumbull
Chairman and Chief Executive Officer
Franklin Electric Co., Inc.
49
EXHIBIT 32.2
------------
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 July 3, 2004 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: August 2, 2004
----------------------
/s/ Gregg C. Sengstack
----------------------
Gregg C. Sengstack
Senior Vice President, Chief Financial Officer and Secretary
Franklin Electric Co., Inc.
5