-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PNi0YtkJeMCZtSHZhWu5/Z9ajDGrQqFA71PL2qPzqJkw+nb/bzBRKCZMybl90PgP qKffYHzNB1BHLSywvGgQFA== 0000038725-00-000009.txt : 20000516 0000038725-00-000009.hdr.sgml : 20000516 ACCESSION NUMBER: 0000038725-00-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000401 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FRANKLIN ELECTRIC CO INC CENTRAL INDEX KEY: 0000038725 STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621] IRS NUMBER: 350827455 STATE OF INCORPORATION: IN FISCAL YEAR END: 0103 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-00362 FILM NUMBER: 632221 BUSINESS ADDRESS: STREET 1: 400 E SPRING ST CITY: BLUFFTON STATE: IN ZIP: 46714 BUSINESS PHONE: 2198242900 MAIL ADDRESS: STREET 1: 400 E SPRING STREET CITY: BLUFFTON STATE: IN ZIP: 46714 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------- [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 1, 2000 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ Commission file number 0-362 FRANKLIN ELECTRIC CO., INC. --------------------------- (Exact name of registrant as specified in its charter) INDIANA 35-0827455 ------- ---------- (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) (219) 824-2900 -------------- (Registrant's telephone number, including area code) NOT APPLICABLE -------------- (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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. OUTSTANDING AT CLASS OF COMMON STOCK MAY 11, 2000 --------------------- ------------ $.10 par value 5,407,020 shares Page 1 of 3 2 FRANKLIN ELECTRIC CO., INC. Index Page PART I. FINANCIAL INFORMATION Number - --------------------------------- ------ Item 1. Financial Statements Condensed Consolidated Balance Sheets as of April 1, 2000 (Unaudited) and January 1, 2000 (Unaudited)............... 3 Condensed Consolidated Statements of Income for the Three Months Ended April 1, 2000 (Unaudited) and April 3, 1999 (Unaudited) .................... 4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 1, 2000 (Unaudited)and April 3, 1999 (Unaudited) .................... 5 Notes to Condensed Consolidated Financial Statements (Unaudited).............. 6-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations......................... 9-10 Item 3. Quantitative and Qualitative Disclosures About Market Risk............................. 10 PART II. OTHER INFORMATION - ----------------------------- Item 4. Submission of Matters to a Vote of Security Holders............................ 11 Item 6. Exhibits and Reports on Form 8-K.............. 11-12 Signatures................................................ 13 - --------- 3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------- FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands) April 1, January 1, 2000 2000 - ---- ---- ASSETS Current assets: Cash and equivalents.................... $ 10,540 $ 27,844 Marketable securities................... - 8,968 Receivables, less allowances of $1,342 and $1,333, respectively....... 21,895 17,995 Inventories (Note 2).................... 50,535 39,717 Other current assets (including deferred income taxes of $7,956 and $7,934, respectively.............. 9,762 9,719 ------- ------- Total current assets.................. 92,732 104,243 Property, plant and equipment, net (Note 3)............................ 57,409 57,047 Deferred and other assets (including deferred income taxes of $1,519 and $1,530, respectively)............... 14,466 14,811 ------- ------- Total assets.............................. $164,607 $176,101 ======== ======== LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Current maturities of long-term debt and short-term borrowings........ $ 1,017 $ 1,018 Accounts payable........................ 9,639 20,669 Accrued expenses........................ 21,392 23,558 Income taxes............................ 3,838 2,112 ------- ------- Total current liabilities............. 35,886 47,357 Long-term debt............................ 17,054 17,057 Employee benefit plan obligations......... 12,145 11,892 Other long-term liabilities............... 3,543 3,502 Shareowners' equity: Common stock (Note 5)................... 540 541 Additional capital...................... 18,672 17,695 Retained earnings....................... 83,695 84,242 Loan to ESOP Trust...................... (1,594) (1,827) Accumulated other comprehensive loss (Note 7)......................... (5,334) (4,358) ------- ------- Total shareowners' equity............. 95,979 96,293 ------- ------- Total liabilities and shareowners' equity. $164,607 $176,101 ======== ======== See Notes to Condensed Consolidated Financial Statements. 4 FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (In thousands, except per share amounts) Three Months Ended ------------------ April 1, April 3 2000 1999 - ---- ---- Net sales................................. $66,051 $58,014 Costs and expenses: Cost of sales........................... 48,864 42,576 Selling and administrative expenses..... 10,309 9,759 Interest expense........................ 285 326 Other expense/(income), net............. 316 (166) ------ ------ 59,774 52,495 Income before income taxes................ 6,277 5,519 Income taxes.............................. 2,374 2,042 ------ ------ Net income................................ $ 3,903 $ 3,477 ======= ======= Per share data (Note 6): Net income per common share............. $ .72 $ .63 ======= ======= Net income per common share, assuming dilution..................... $ .69 $ .59 ======= ======= Dividends per common share.............. $ .20 $ .17 ======= ======= See Notes to Condensed Consolidated Financial Statements. 5 FRANKLIN ELECTRIC CO., INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Three Months Ended ------------------ April 1, April 3, 2000 1999 - ---- ---- Cash flows from operating activities: Net income................................ $ 3,903 $ 3,477 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization........... 2,514 1,731 Loss on disposals of plant and equipment............................. 42 - Changes in assets and liabilities: Receivables........................... (4,249) (3,618) Inventories........................... (11,579) (10,872) Other assets.......................... (61) (117) Accounts payable and other accrued expenses............................ (11,033) (2,371) Employee benefit plan obligations..... 307 (36) Other long-term liabilities........... 52 915 ------ ------ Net cash flows from operating activities.............. (20,104) (10,891) ------ ------ Cash flows from investing activities: Additions to plant and equipment.......... (2,932) (2,529) Proceeds from sale of plant and equipment............................... 22 - Additions to deferred assets.............. (353) - Proceeds from maturities of marketable securities ............................. 8,968 27,921 ------ ------ Net cash flows from investing activities.................. 5,705 25,392 ------ ------ Cash flows from financing activities: Borrowing on line of credit............... - 366 Repayment of line of credit............... - (174) Proceeds from issuance of common stock.... 981 401 Purchase of common stock.................. (3,367) (1,043) Reduction of stock subscriptions.......... - (324) Reduction of loan from ESOP Trust......... 233 232 Dividends paid............................ (1,088) (948) ------ ------ Net cash flows from financing activities.................. (3,241) (1,490) ------ ------ Effect of exchange rate changes on cash..... 336 173 ------ ------ Net change in cash and equivalents.......... (17,304) 13,184 Cash and equivalents at beginning of period....................... 27,844 17,034 ------ ------ Cash and equivalents at end of period....... $10,540 $30,218 ======= ======= 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 adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended April 1, 2000 are not necessarily indicative of the results that may be expected for the year ending December 30, 2000. For further information, 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 1, 2000. Note 2: Inventories - -------------------- Inventories consist of the following: (In thousands) April 1, January 1, 2000 2000 ---- ---- Raw Materials........................ $ 15,829 $ 15,749 Work in Process...................... 6,242 6,101 Finished Goods....................... 38,952 28,239 LIFO Reserve......................... (10,488) (10,372) ------- ------- Total Inventory...................... $ 50,535 $ 39,717 ======== ======== Note 3: Property, Plant and Equipment - -------------------------------------- Property, plant and equipment, at cost, consists of the following: (In thousands) April 1, January 1, 2000 2000 - ---- ---- Land and Buildings................... $ 22,627 $ 22,145 Machinery and Equipment.............. 114,246 113,452 ------- ------- 136,873 135,597 Allowance for Depreciation........... 79,464 78,550 ------- ------- $ 57,409 $ 57,047 ======== ======== 7 Note 4: Tax Rates - ------------------ The effective tax rate on income before income taxes in 2000 and 1999 varies from the United States statutory rate of 35 percent principally due to the effect of state and foreign income taxes. Note 5: Shareowners' Equity - ---------------------------- The Company had 5,403,720 shares of common stock (25,000,000 shares authorized, $.10 par value) outstanding as of April 1, 2000. During the first quarter of 2000, pursuant to the stock repurchase program authorized by the Company's Board of Directors, the Company repurchased a total of 41,300 shares for $2.7 million. All repurchased shares were retired. During the first quarter of 2000, under terms of a Company stock option plan, a participant remitted 10,000 shares of company common stock as consideration for stock issued upon the exercise of stock options. The total exercise price of the respective stock options was $0.7 million, and the shares remitted to the Company were subsequently retired. Note 6: Earnings Per Share - --------------------------- Following is the computation of basic and diluted earnings per share: (In thousands, Three Months Ended ------------------ except per share amounts) April 1, April 3, 2000 1999 - ---- ---- Numerator: Net Income.......................... $3,903 $3,477 ====== ====== Denominator: Basic Weighted average common shares..... 5,424 5,553 Diluted Effect of dilutive securities: Employee and director incentive stock options and awards........ 234 362 ----- ----- Adjusted weighted average common shares.......................... 5,658 5,915 ====== ====== Basic earnings per share.............. $ .72 $ .63 ====== ====== Diluted earnings per share............ $ .69 $ .59 ====== ====== 8 Note 7: Other Comprehensive Income - ----------------------------------- Comprehensive income is as follows: (In thousands) Three Months Ended ------------------ April 1, April 3, 2000 1999 - ---- ---- Net income.................................. $ 3,903 $ 3,477 Other comprehensive loss: Foreign currency translation adjustments.. (976) (1,255) ------ ------ Comprehensive income, net of tax............ $ 2,927 $ 2,222 ======= ======= Accumulated other comprehensive loss consists of the following: (In thousands) April 1, January 1, 2000 2000 - ---- ---- Cumulative translation adjustment........... $(5,039) $(4,063) Minimum pension liability adjustment, net of tax................................ (295) (295) ------ ------ $(5,334) $(4,358) ======= ======= Note 8: Accounting Pronouncements - ---------------------------------- Accounting for Derivative Instruments and Hedging Activities: SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998 and, as amended by SFAS No. 137, is effective in the first quarter of the Company's fiscal year ending December 29, 2001. SFAS No. 133 establishes a new model for accounting for derivatives in the balance sheet as either assets or liabilities and measures them at fair value. Certain disclosures concerning the designation and assessment of hedging relationships are also required. The adoption of SFAS No. 133 is not expected to have a material impact on the Company's financial position or its results of operations. 9 Item 2. Management's Discussion And Analysis Of Financial Condition And - ------------------------------------------------------------------------ Results Of Operations - --------------------- Operations - ---------- Net sales for the first quarter of 2000 were $66.1 million, a 14.0 percent increase from 1999 first quarter net sales of $58.0 million. The increased sales resulted primarily from higher volume of submersible water systems motors and increased sales of fractional horsepower motors. A portion of the growth is from supply agreements entered into in December 1998. The increases were partially offset by lower sales of submersible petroleum motor systems. Net income for the first quarter of 2000 was $3.9 million, or $.69 per diluted share, compared to net income of $3.5 million, or $.59 per diluted share, for the same period a year ago. Cost of sales as a percentage of net sales for the first quarter of 2000 was 74.0 percent compared to 73.4 percent for the same period in 1999. The increase is primarily a result of higher material costs in key commodities. Selling and administrative expenses as a percent of net sales for the first quarter of 2000 was 15.6 percent compared to 16.8 percent for the same period in 1999. The decrease is primarily due to modest increases in fixed expenses while sales increased at a higher rate. Interest expense was $0.3 million for both the first quarter of 2000 and 1999. Included in other income, net, for the first quarter of 2000 was $0.4 million of interest income and $0.6 million of foreign currency losses. The increase in the foreign currency transaction loss in 2000 was primarily due to the strengthening dollar relative to the German mark. Interest income was $0.5 million and foreign currency losses were $0.3 million for the same period in 1999. Interest income was attributable to amounts invested principally in short-term US treasury and agency securities. Capital Resources and Liquidity - ------------------------------- Cash, cash equivalents and marketable securities decreased $26.3 million during the first quarter of 2000. The principal use of cash for operating activities was the typical seasonal increase in inventories and changes in accounts payable. Working capital did not change during the first quarter of 2000. The current ratio was 2.6 and 2.2 at April 1, 2000, and January 1, 2000, respectively. "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, 10 future trends, and other risks which are detailed in the Company's Securities and Exchange Commission filings. These risks and uncertainties may cause actual results to differ materially from those indicated by the forward looking statements. Item 3. Quantitative and Qualitative Disclosures about Market Risk - ------------------------------------------------------------------- The Company is subject to market risk associated with changes in foreign currency exchange rates and interest rates. Foreign currency exchange rate risk is mitigated through several means: maintenance of local production facilities in the markets served, invoicing of customers in the same currency as the source of the products, prompt settlement of intercompany balances utilizing a global netting system and limited use of foreign currency denominated debt. The Company does not use derivative contracts. Interest rate exposure is principally limited to any marketable U.S. treasury and agency securities owned by the Company ($0.0 at April 1, 2000), and is mitigated by the short-term, generally less than 6 months, nature of these investments. 11 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ The 2000 Annual Meeting of Shareholders of the Company was held on April 14, 2000 for the following purposes: 1) To elect three directors for terms expiring at the 2003 Annual Meeting of Shareholders; 2) To approve the Amended and Restated 1996 Nonemployee Director Stock Option Plan; 3) To approve the Key Employee Performance Incentive Stock Plan; and 4) To ratify the appointment of Deloitte & Touche LLP as independent auditors for the 2000 fiscal year. The results were: 1) Nominees for Director For Withhold Authority --------------------- --- ------------------ Jerome D. Brady 4,932,689 8,851 Robert H. Little 4,932,897 8,643 Patricia Schaefer 4,932,738 8,802 For Against Abstain --- ------- ------- 2) Amended and Restated 1996 Nonemployee Director Stock Option Plan 3,453,075 820,095 36,585 3) Key Employee Performance Incentive Stock Plan 3,376,086 897,602 36,015 4) Ratification of Deloitte & Touche LLP 4,918,919 3,150 10,410 Total shares represented at the Annual Meeting in person or by proxy were 4,941,540 of a total of 5,430,420 shares outstanding. This represented 91 percent of Company common stock and constituted a quorum. Total broker non- votes related to the approval of the Amended and Restated 1996 Director Stock Option Plan, Key Employee Performance Incentive Stock Plan and the ratification of Deloitte & Touche LLP were 631,785, 631,837 and 9,061 shares, respectively. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits (Filed with this quarterly report) 10(i) Franklin Electric Co., Inc. Amended and Restated 1996 Nonemployee Director Stock Option Plan. 10(ii) Franklin Electric Co., Inc. Key Employee Performance Incentive Stock Plan. 10(iii) Franklin Electric Co., Inc. Nonemployee Directors' Deferred Compensation Plan. 12 (b) Reports on Form 8-K None. 13 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned thereunto duly authorized. FRANKLIN ELECTRIC CO., INC. --------------------------- Registrant Date May 11, 2000 By /s/ William H. Lawson ---------------------- -------------------------- William H. Lawson, Chairman and Chief Executive Officer (Principal Executive Officer) Date May 11, 2000 By /s/ Gregg C. Sengstack ---------------------- -------------------------- Gregg C. Sengstack, Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 5 EX-3 2 14 EXHIBIT 3(i) FRANKLIN ELECTRIC CO., INC. AMENDED AND RESTATED 1996 NONEMPLOYEE DIRECTOR STOCK OPTION PLAN ARTICLE 1. ESTABLISHMENT, PURPOSE, AND DURATION 1.1. Establishment of the Plan. Franklin Electric Co., Inc., an Indiana corporation (hereinafter referred to as the "Company"), hereby amends and restates its incentive compensation plan to be known as the "Amended and Restated 1996 Franklin Electric Co., Inc. Nonemployee Director Stock Option Plan" (hereinafter referred to as the "Plan"), as set forth in this document. The Plan permits the grant of Nonqualified Stock Options to Nonemployee Directors, subject to the terms and provisions set forth herein. Upon approval by the Board of Directors of the Company, subject to ratification within twelve (12) months by an affirmative vote of a majority of Shares of the Common Stock present and entitled to vote at the Annual Meeting at which a quorum is present, the Plan shall become effective as of February 11, 2000 (the "Effective Date"), and shall remain in effect as provided in Section 1.3 herein. 1.2. Purpose of the Plan. The purpose of the Plan is to promote the achievement of long-term objectives of the Company by linking the personal interests of Nonemployee Directors to those of Company shareholders, and to attract and retain Nonemployee Directors of outstanding competence. 1.3. Duration of the Plan. The Plan shall commence on February 11, 2000, and shall remain in effect, subject to the right of the Board of Directors to amend or terminate the Plan at any time pursuant to Article 8.1 herein, until all Shares subject to it shall have been purchased or acquired according to the Plan's provisions. However, in no event may an Award be granted under the Plan on or after March 30, 2006. ARTICLE 2. DEFINITIONS AND CONSTRUCTION 2.1. Definitions. Whenever used in the Plan, the following terms shall have the meanings set forth below and, when the meaning is intended, the initial letter of the word is capitalized: "Award" means a grant of Nonqualified Stock Options under the Plan. "Award Agreement" means an agreement entered into by the Company and each Participant setting forth the terms and provisions applicable to Awards granted under the Plan. "Beneficial Owner" shall have the meaning ascribed to such term in Rule 13d-3 of the General Rules and Regulations under the Exchange Act. 15 "Board" or "Board of Directors" means the Board of Directors of the Company, and includes any committee of the Board of Directors designated by the Board to administer part or all of the Plan. "Change in Control" of the Company shall be deemed to have occurred if the conditions set forth in any one or more of the following paragraphs shall have been satisfied: (i) Any Person (other than the Person in control of the Company on the Effective Date, or other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of Shares of the Company), is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; or (ii) The election to the Board of Directors of the Company, without the recommendation or approval of a majority of the incumbent Board of Directors, of the lesser of (a) three directors, or (b) directors constituting a majority of the numbers of directors then in office; or (iii) The stockholders of the Company approve (a) a plan of complete liquidation of the Company; or (b) an agreement for the sale or disposition of all or substantially all the Company's assets; or (c) a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting securities of the Company (or such surviving entity) outstanding immediately after such merger or consolidation. However, in no event shall a Change in Control be deemed to have occurred, with respect to a Participant, if that Participant is part of a purchasing group which consummates the Change in Control transaction. A Participant shall be deemed "part of a purchasing group" for purposes of the preceding sentence if the Participant is an equity participant or has agreed to become an equity participant in the purchasing company or group (except for (i) passive ownership of less than 3% of the Shares of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not deemed to be significant, as determined prior to the Change in Control by a majority of the disinterested Directors). "Code" means the Internal Revenue Code of 1986, as amended, in effect at the time of reference, or any successor revenue Code that may hereafter be adopted in lieu thereof, and references to any specific provisions of the Code shall refer to the corresponding provisions of the Code as it may hereafter be amended or replaced. "Company" means Franklin Electric Co., Inc., an Indiana corporation, and the Company's subsidiaries, as well as any successor to any such entities, as provided in Section 9.3 herein. "Director" means any individual who is a member of the Board of Directors of the Company. "Disability" means a permanent and total disability, within the meaning of Code Section 22(e)(3), as determined by the Board in good faith. 16 "Employee" means any full-time, nonunion, salaried employee of the Company. For purposes of the Plan, an individual whose only employment relationship with the Company is as a Director, shall not be deemed to be an Employee. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, or any successor Act thereto. "Fair Market Value" means the closing sale price of a Share on the principal securities exchange on which the Shares are publicly traded, or if there is no such sale on the relevant date, then on the last previous day on which a sale was reported. "Nonemployee Director" means any individual who is a member of the Board of Directors of the Company, but is not, as of the date of the grant of an Award hereunder, an Employee of the Company. "Nonqualified Stock Option" or "NQSO" means an option to purchase Shares, granted under Article 6 herein, which is not intended to meet the requirements of Code Section 422. "Option" means a Nonqualified Stock Option granted under the Plan. "Participant" means a Nonemployee Director of the Company who has an outstanding Award granted under the Plan. "Person" shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). "Shares" means the $.10 par value common stock of the Company. "Subsidiary" means any corporation, partnership, joint venture, affiliate, or other entity in which the Company has a majority voting interest, and which the Committee designates as a participating entity in the Plan. 2.2. Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine; the plural shall include the singular and the singular shall include the plural. 2.3. Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included. ARTICLE 3. ADMINISTRATION 3.1. The Board of Directors. The Plan shall be administered by the Board of Directors of the Company. 3.2. Administration by the Board. The Board shall have the full power, discretion, and authority to interpret and administer the Plan in a manner which is consistent with the Plan's provisions. However, in no event shall the Board have the sole and exclusive power to determine Plan eligibility, or to determine the number, the Option Price, the vesting period, or the frequency and timing of Awards to be made under the Plan to any Participant (all such determinations are automatic pursuant to the provisions of the Plan). 17 3.3. Decisions Binding. All determinations and decisions made by the Board pursuant to the provisions of the Plan and all related orders or resolutions of the Board shall be final, conclusive, and binding on all Persons, including the Company, its stockholders, employees, Participants, and their estates and beneficiaries. ARTICLE 4. SHARES SUBJECT TO THE PLAN 4.1. Number of Shares. Subject to adjustment as provided in Section 4.3 herein, no more than three hundred thousand (300,000) Shares shall be eligible for purchase by Participants pursuant to Options granted under the Plan. 4.2. Lapsed Awards. If any Option granted under the Plan terminates, expires, or lapses for any reason, any Shares subject to purchase pursuant to such Option again shall be available for the grant of an Option under the Plan. 4.3. Adjustment in Available Shares. Any increase in the number of outstanding Shares of the Company occurring through stock splits or stock dividends after the adoption of the Plan shall be reflected proportionately in an increase in the aggregate number of Shares then available for issuance under the Plan. Any fractional Shares resulting from such adjustments shall be eliminated. If changes in capitalization other than those considered above shall occur, the Board shall make such adjustment in the number and class of Shares which may thereafter be issued, as the Board in its discretion may consider appropriate, and all such adjustments shall be conclusive upon all persons. ARTICLE 5. ELIGIBILITY AND PARTICIPATION 5.1. Eligibility. Persons eligible to participate in the Plan are limited to Nonemployee Directors. 5.2. Actual Participation. Subject to the provisions of Article 6 of the Plan, all Nonemployee Directors shall receive grants of Options upon election and/or reelection to serve on the Board of Directors. ARTICLE 6. NONQUALIFIED STOCK OPTIONS 6.1. Grants of Options. Subject to the limitation on the number of Shares subject to the Plan, each person who is a Nonemployee Director following each Annual Meeting of the Shareholders shall automatically be granted an Option to purchase five thousand (5,000) Shares. 6.2. Limitation on Grant of Options. Other than those grants of Options set forth in Section 6.1, no additional Options shall be granted under the Plan. 6.3. Award Agreement. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, and the number of Shares available for purchase under the Option as set forth in the Plan. 18 6.4. Option Price. The Option Price per Share available for purchase under an Option shall be equal to the Fair Market Value of such Share on the date the Option is granted. 6.5. Duration of Options. Each Option shall expire on the tenth (10th) anniversary date of its grant. 6.6. Vesting of Shares Subject to Option. Participants shall be entitled to exercise Options at any time and from time to time, within the time period beginning one (1) year after grant of the Option, and ending ten (10) years after grant of the Option, and according to the following vesting schedule: one-third of the Options shall vest on each of the first, second, and third anniversaries of the date of grant of the Options. 6.7. Payment. A Participant may exercise an Option by delivery of a written notice, specifying the number of Shares with respect to which the Option is being exercised, accompanied by payment in full of the Option Price of any Shares to be purchased (in the form of a cashier's or certified check). No Shares shall be issued upon exercise of an Option until full payment has been made therefor. Notwithstanding the preceding sentence, the Board may permit a Participant to pay the Option Price of the Shares to be purchased (i) in Shares valued at their Fair Market Value at the date of exercise, (ii) by agreeing to surrender Options then exercisable by him valued at the excess of the aggregate Fair Market Value of the Shares subject to such Options on the date of exercise over the aggregate Option Price of such Shares, (iii) by directing the Company to withhold such number of Shares otherwise issuable upon exercise of such Options having an aggregate Fair Market Value on the date of exercise equal to the Option Price of the Option, or (iv) by such other medium of payment as the Board, in its discretion, shall authorize, or by any combination of the aforementioned methods of payment. Shares issued upon exercise of an Option shall be issued only in the name of the Participant. All notices shall be delivered to the Secretary of the Company and shall become effective when received. 6.8. Termination of Service on Board of Directors Due to Death or Disability. In the event the service of a Participant on the Board is terminated by reason of death, Disability, or retirement on or after attaining the age of seventy (70), any outstanding Options granted to that Participant that are not exercisable as of the date of death (or as of the date that the definition of Disability is satisfied, or the date of retirement, as applicable) shall immediately become exercisable. To the extent an Option is exercisable by reason of death, as of the date that the definition of Disability is satisfied, or retirement on or after attaining the age of seventy (70), as applicable, such Option shall remain exercisable at any time prior to its expiration date, or for two (2) years after the date of death, or the date that the definition of Disability is satisfied, or the date of retirement, as applicable, whichever period is shorter, by the Participant or such person or persons as shall have been named as the Participant's legal representative or beneficiary, or by such persons that have acquired the Participant's rights under the Option by will or by the laws of descent and distribution. 6.9. Termination of Service on Board of Directors for Other Reasons. If the service of the Participant on the Board shall terminate for any reason other than for death, Disability, or retirement on or after attaining the age of seventy (70), any outstanding Options held by the Participant that are not exercisable as of the date of termination immediately shall be forfeited to the Company (and shall once again become available for grant under the Plan). 19 To the extent an Option is exercisable as of the date of termination of the Participant's service on the Board, it shall remain exercisable at any time prior to its expiration date, or for six (6) months after the date the Participant's service on the Board terminates, whichever period is shorter. 6.10. Nontransferability of Options. No Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all Options granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant. Notwithstanding the preceding provisions of this Section, a Participant, at any time prior to his or her death, may assign all or any portion of an Option granted to him or her to (i) his or her spouse or lineal descendant, (ii) the trustee of a trust established for the primary benefit of his or her spouse or lineal descendant, (iii) a partnership of which his or her spouse and lineal descendants are the only partners, or (iv) a tax-exempt organization as described in Section 501(c)(3) of the Code. In such event, the spouse, lineal descendants, trustee, partnership or tax-exempt organization, will be entitled to all the rights of the Participant with respect to the assigned portion of such Option, and such portion of the Option will continue to be subject to all of the terms, conditions and restrictions applicable to the Option as set forth herein immediately prior to the effective date of the assignment. Any such assignment will be permitted only if (i) the Participant does not receive any consideration therefor, and (ii) the assignment is expressly approved by the Board. Any such assignment shall be evidenced by an appropriate written document executed by the Participant and a copy thereof shall be delivered to the Board on or prior to the effective date of the assignment. 6.11. Restrictions on Share Transferability. The Board may impose such restrictions on any Shares acquired pursuant to the exercise of an Option under the Plan, as it may deem advisable, including, without limitation, restrictions under applicable Federal securities laws, under the requirements of any Stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares. ARTICLE 7. CHANGE IN CONTROL In the event of a Change in Control of the Company, all Options granted under the Plan that are still outstanding and not yet vested and exercisable, shall become immediately one hundred percent (100%) vested in and exercisable by each Participant, as of the first date that the definition of Change in Control has been fulfilled, and shall remain as such for the remaining life of the Option, as such life is provided herein, and within the provisions of the related Award Agreements. All Options that are exercisable as of the Change in Control shall remain as such for the remaining life of the Options. ARTICLE 8. AMENDMENT, MODIFICATION, AND TERMINATION 8.1. Amendment, Modification, and Termination. The Board, without further action on the part of the Company's shareholders, may at any time terminate, suspend or modify the Plan to the extent permitted by law, regulation or stock exchange requirements. No termination or amendment of the Plan, or amendment of any Option, shall adversely affect any right acquired by any Participant 20 under an Option granted before the date of such termination or amendment, unless such Participant shall consent; but it shall be conclusively presumed that any adjustments in capitalization as provided in Section 4.3 above does not adversely affect any such right. 8.2. Options Previously Granted. Unless required by law, no termination, amendment, or modification of the Plan shall in any manner adversely affect any Option previously granted under the Plan, without the written consent of the Participant holding the Option. ARTICLE 9. MISCELLANEOUS 9.1. Indemnification. Each individual who is or shall have been a member of the Board shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such individuals may be entitled under the Company's Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. 9.2. Beneficiary Designation. Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in the event of his or her death. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Board, and will be effective only when filed by the Participant in writing with the Board during his or her lifetime. In the absence of any such designation, or if all beneficiaries predecease the Participant, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate. 9.3. Successors. All obligations of the Company under the Plan, with respect to Awards granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. 9.4. Requirements of Law. The granting of Options under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. 9.5. Governing Law. To the extent not preempted by Federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Indiana. 5 EX-3 3 21 EXHIBIT 3 (ii) FRANKLIN ELECTRIC CO., INC. KEY EMPLOYEE PERFORMANCE INCENTIVE STOCK PLAN PREAMBLE Employees of the Company who are from time to time materially responsible for the management, growth and protection of a material part or all of the business or major product lines or major functions of the Company are eligible to be granted Restricted Shares under the Plan. At the time of the grant a Committee of the Board of Directors will establish at least two criteria for employees to earn the shares granted. First, the Committee will establish a Restriction Period. Second, the Committee will also set performance goals for the employees to achieve during the restriction period. These goals will be based on financial and other metrics that are recognized as measures of the enhancement of shareholder value. At the end of a Restriction Period, the Committee, in its own discretion, shall determine (i) whether and to what extent the Company has achieved the Performance Objectives and satisfied any other terms, conditions or restrictions established for the Restriction Period, and (ii) the number of Shares of Restricted Stock with respect to which the restrictions imposed should lapse. If at the end of the Restriction Period the Committee determines that the Company failed to achieve the Performance Objectives or otherwise failed to satisfy any other restrictions, terms or conditions set by the Committee, then to the extent provided in the Restricted Stock Agreement or otherwise by the Committee, the Shares of Restricted Stock shall be forfeited by the Participant and returned to the Company, and all rights of the Participant in such Shares shall terminate without any further obligation on the part of the Company. SECTION 1. ESTABLISHMENT, PURPOSE AND EFFECTIVE DATE 1.1. Establishment. Franklin Electric Co., Inc. (the "Company") hereby establishes an incentive stock plan for certain employees, as described herein, which shall be known as the FRANKLIN ELECTRIC CO., INC. KEY EMPLOYEE PERFORMANCE INCENTIVE STOCK PLAN (the "Plan"). 1.2. Purpose. The purposes of the Plan are as follows: (i) to advance the interests of the Company by providing the additional incentives inherent in stock ownership to those employees of the Company materially responsible, now and in the future, for the management, growth and protection of some part or all of the business of the Company and thereby to bring them into closer identity with the future of the Company; (ii) to aid the Company in attracting and retaining employees in key management positions; and (iii) to enable the Company to compete effectively with other enterprises for the services of new employees as may be needed for the continued success of the Company. The Plan seeks to accomplish such purposes by providing to such employees an equity interest in the Company. 1.3. Effective Date. This Plan shall become effective upon its adoption by the Board of Directors of the Company and the effective date of any grant of Restricted Stock shall be the day on which it is granted to the Participant hereunder; provided, however, that the validity of the Plan and any Restricted 22 Stock provided hereunder is subject to approval of the Plan at the next shareholders meeting following its adoption by the Board of Directors of the Company and the approval must be by a majority of the votes entitled to vote at a duly held meeting of the shareholders. If the shareholders fail to timely approve the Plan, the Plan and any Restricted Stock that may be issued hereunder shall be null and void. SECTION 2. DEFINITIONS 2.1. Definitions. Whenever used herein, the following terms shall have the meanings set forth below: "Board" means the Board of Directors of the Company. "Change in Control" of the Company shall be deemed to have occurred if the conditions set forth in any one or more of the following paragraphs shall have been satisfied: (i) Any Person (other than the Person in control of the Company on the Effective Date, or other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company, or a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of Shares of the Company), is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 30% or more of the combined voting power of the Company's then outstanding securities; or (ii) The election to the Board of Directors of the Company, without the recommendation or approval of a majority of the incumbent Board of Directors, of the lesser of (a) three directors, or (b) directors constituting a majority of the numbers of directors then in office; or (iii) The stockholders of the Company approve (a) a plan of complete liquidation of the Company; or (b) an agreement for the sale or disposition of all or substantially all the Company's assets; or (c) a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 50% of the combined voting securities of the Company (or such surviving entity) outstanding immediately after such merger or consolidation. However, in no event shall a Change in Control be deemed to have occurred, with respect to a Participant, if that Participant is part of a purchasing group which consummates the Change-in-Control transaction. A Participant shall be deemed "part of a purchasing group" for purposes of the preceding sentence if the Participant is an equity participant or has agreed to become an equity participant in the purchasing company or group (except for (i) passive ownership of less than 3% of the Shares of the purchasing company; or (ii) ownership of equity participation in the purchasing company or group which is otherwise not deemed to be significant, as determined prior to the Change in Control by a majority of the disinterested Directors). "Code" means the Internal Revenue Code of 1986, as amended, in effect at the time of reference, or any successor Code that may hereafter be adopted in lieu thereof, and references to any specific provisions of the Code shall refer to 23 the corresponding provisions of the Code as it may hereinafter be amended or replaced. "Committee" means a committee of the Board consisting of two or more members of the Board who are "outside directors," as defined under section 162(m) of the Code and the regulations thereunder. "Disability" means a permanent and total disability, within the meaning of Code Section 22(e)(3), as determined by the Board in good faith. "Employee" means any person (including officers who are directors of the Company) employed by the Company on a full-time salaried basis. "Normal Retirement" means termination of employment on or after a Participant's sixty-fifth birthday under the Company's Basic Retirement Plan as may be amended from time to time. "Participant" means any individual designated by the Committee to participate in the Plan. "Performance Objectives" means the performance goals set by the Committee based on one or more of the following: (i) net income growth; (ii) average return on equity; (iii) net income as a percentage of sales; (iv) sales growth; (v) return on assets; (vi) earnings per share; and (vii) Common Stock price. "Restriction Period" means that period of time determined by the Committee during which the transfer of Shares of Restricted Stock are restricted and are subject to forfeiture. "Restricted Stock" means Stock granted to a Participant pursuant to Section 7 of the Plan. "Stock," "Shares," and "Restricted Stock" mean the common shares of the Company. 2.2. Gender and Number. Except when otherwise indicated by the context, words in the masculine gender when used in this Plan also shall include the feminine and neuter genders, the singular shall include the plural, and the plural shall include the singular. SECTION 3. ELIGIBILITY AND PARTICIPATION 3.1. Eligible Employees. The officers and other employees of the Company who, in the opinion of the Committee, are from time to time materially responsible for the management, growth and protection of a material part or all of the business or major product lines or major functions of the Company shall be eligible to be granted Shares of Restricted Stock under the Plan. SECTION 4. ADMINISTRATION 4.1. Administration. The Committee shall be responsible for the administration and interpretation of the Plan. Without limiting other rights or powers delegated to the Committee elsewhere under the Plan, the Committee, 24 in administering and interpreting the Plan, and consistent with the express provisions of the Plan, is hereby authorized and empowered as follows: (a) The Committee shall determine the identity of the Participant of the Plan and the number of Shares of Restricted Stock to be granted to Participants. (b) The Committee shall determine the Restriction Period, the Performance Objectives, and any other restrictions, terms or conditions with respect to the granting of any Restricted Stock. (c) The Committee may prescribe, award, and rescind rules or regulations relating to the Plan. (d) The Committee may make all other determinations necessary or advisable for the administration or interpretations of the Plan. (e) The Committee shall prescribe the terms and conditions of the Restricted Stock Agreements. (f) The Committee may require that all Stock certificates issued in connection with Shares of Restricted Stock be held by the Company or in escrow or otherwise pursuant to such terms and conditions that the Committee may require until all the restrictions have lapsed and the Restricted Stock is freely transferable. SECTION 5. STOCK SUBJECT TO PLAN 5.1. Number. The total number of Shares of Restricted Stock that may be granted under the Plan may not exceed one hundred thousand (100,000), subject to the adjustment as provided in Section 5.3. Those Shares of Restricted Stock granted may consist, in whole or in part, of authorized but unissued Stock or Shares of Stock reacquired by the Company, including Shares purchased in the open market and not reserved for any other purpose. 5.2. Unused Stock. In the event any Shares of Restricted Stock granted under the Plan are forfeited and reacquired by the Company, such reacquired Shares again shall become available for issuance under the Plan. 5.3. Adjustment in Available Shares. Any increase in the number of outstanding Shares of the Company occurring through Stock splits or Stock dividends after the adoption of the Plan shall be reflected proportionately in an increase in the aggregate number of Shares then available for issuance grant under the Plan. Any fractional share of Restricted Stock resulting from such adjustments shall be eliminated. If changes in capitalization other than those considered above shall occur, the Board shall make such adjustment in the number and class of Restricted Stock which may thereafter be issued, as the Board in its discretion may consider appropriate, and all such adjustments shall be conclusive upon all persons. SECTION 6. TERMINATION OF THE PLAN 6.1. Termination of the Plan. Subject to the Board's right to earlier terminate the Plan pursuant to Section 10.1 hereof, the Plan shall terminate not later than ten (10) years after the date of adoption of the Plan by the 25 Board of Directors and no Restricted Stock shall be granted after termination of the Plan; provided, however, that termination of the Plan will not adversely affect Shares of Restricted Stock granted prior to termination of the Plan. SECTION 7. RESTRICTED STOCK 7.1. Selection of Participants and Grant of Restricted Stock. Subject to the terms of the Plan, from time to time the Committee may select eligible employees to be Participants under the Plan and to receive the opportunity to earn grants of Restricted Stock. Grants will generally be made at the beginning of a Restriction Period, but may, in the Committee's discretion, be made during the term of a Restriction Period. The Committee shall determine the number of Shares of Restricted Stock which will be granted to a Participant. 7.2. Restriction Period. At the time of the grant of Shares of Restricted Stock, the Committee shall select the Restriction Period to apply to the Shares of Restricted Stock. 7.3. Performance Objectives. At the time of the grant of the Restricted Stock (which generally will be prior to the beginning of the Restriction Period), Performance Objectives designed to enhance shareholder value shall be established by the Committee. Subject to the provisions of this Plan, the degree of achievement of the Performance Objectives may determine the number of Shares (if any) of Restricted Stock that ultimately shall be free of any restrictions at the end of the Restriction Period. 7.4. Nontransferability of Restricted Stock. Prior to the lapse of restrictions as provided in Section 7.6, Shares of Restricted Stock may not be sold, exchanged, transferred, pledged, assigned, or otherwise alienated or hypothecated, whether voluntarily or involuntarily. Notwithstanding the preceding provisions of this Section, a Participant, at any time prior to his or her death, may assign all or any Shares of Restricted Stock granted to him to (i) his or her spouse or lineal descendant, (ii) the trustee of a trust established for the primary benefit of his or her spouse or lineal descendant, (iii) a partnership of which his or her spouse and lineal descendants are the only partners, or (iv) a tax-exempt organization as described in Section 501(c)(3) of the Code. In such event, the spouse, lineal descendants, trustee, partnership or tax-exempt organization, will be entitled to all the rights of the Participant with respect to the assigned Shares of such Restricted Stock, and such portion of the grant will continue to be subject to all of the terms, conditions and restrictions applicable to the Restricted Stock as set forth herein immediately prior to the effective date of the assignment. Any such assignment will be permitted only if (i) the Participant does not receive any consideration therefor, and (ii) the assignment is expressly approved by the Board. Any such assignment shall be evidenced by an appropriate written document executed by the Participant and a copy thereof shall be delivered to the Board on or prior to the effective date of the assignment. 7.5. Forfeiture and Return of Restricted Stock to the Company. (a) Failure to Achieve Performance Objective or Other Conditions. If at the end of the Restriction Period the Committee determines that the Company failed to achieve the Performance Objectives or otherwise failed to satisfy any other restrictions, terms or conditions set by the Committee, then to the extent provided in the Restricted Stock Agreement or otherwise by the Committee, the 26 Shares of Restricted Stock shall be forfeited by the Participant and returned to the Company, and all rights of the Participant in such Shares shall terminate without any further obligation on the part of the Company. Pursuant to the Plan, the Restricted Stock Agreement or otherwise, the Committee may determine that some but not all of a Participant's Shares of Restricted Stock shall be forfeited. The Committee shall have the exclusive authority to determine whether the Company has achieved its Performance Objectives and the level or extent of achievement, whether any other terms, conditions or restrictions have been satisfied, and the number of Shares of Restricted Stock which shall be forfeited. (b) Termination of Employment for Reasons Other than Death, Disability, or Normal Retirement Prior to End of Restricted Period. If during the Restricted Period a Participant's employment with the Company is terminated for any reason other than death, Disability, or Normal Retirement, including without limitation termination by the Company, then all Shares of Restricted Stock of the Participant (excluding any Shares for which any restrictions have previously lapsed under Section 7.6) shall be forfeited by the Participant and returned to the Company and all rights of the Participant in such Shares shall terminate without any further obligation on the part of the Company. 7.6. Lapse of Restrictions. (a) Achievement of Performance Objectives and Other Conditions. At the end of a Restriction Period, the Committee, in its discretion, shall determine (i) whether and to what extent the Company has achieved the Performance Objectives and satisfied any other terms, conditions or restrictions established for the Restriction Period, and (ii) the number of Shares of Restricted Stock with respect to which the restrictions imposed should lapse. If the Committee determines that the restrictions imposed pursuant to this Plan should lapse, then the restrictions with respect to those Shares shall lapse, and the Committee shall so notify the Participant. A lapse of restrictions shall occur on the date the Committee notifies the Participant in writing of the lapse. (b) Termination of Employment as a Result of Death, Disability, or Normal Retirement Prior to the End of the Restriction Period. If a Participant terminates his or her employment because of death, Disability, or Normal Retirement during the Restriction Period, the restrictions applicable to the Shares of Restricted Stock shall lapse and terminate (regardless of whether Performance Objectives or any other terms, conditions or restrictions have been satisfied) with respect to that number of Shares (rounded to the nearest whole number) equal to the total number of Shares of Restricted Stock granted to such Participant multiplied by a fraction, the numerator of which is equal to the number of full months which have elapsed since the date of grant to the date of termination of employment, and the denominator is the maximum number of full months of the Restriction Period. The Committee shall so notify the Participant or his or her representative of the number of Shares with respect to which the restrictions have lapsed. All remaining Shares shall be forfeited and returned to the Company, and all rights of the Participant in such Shares shall terminate without any further obligations on the part of the Company; provided, however, that the Committee may, in its sole discretion, waive the restrictions remaining on any or all such remaining Shares. 7.7. Certificate Legend. In addition to any legends placed on certificates pursuant to Subsection 7.8 hereof, each certificate representing Shares of Restricted Stock granted pursuant to the Plan shall bear the following legend: 27 "The sale or other transfer of the Shares of stock represented by this certificate, whether voluntary, involuntary, or by operation of law, is subject to certain restrictions on transfer set forth in The Franklin Electric Co., Inc. Key Employee Performance Incentive Stock Plan, rules of administration adopted pursuant to such Plan, and a Restricted Stock Agreement dated _________. A copy of the Plan, such rules, and the Restricted Stock Agreement may be obtained from the Secretary of Franklin Electric Co., Inc." 7.8. Other Restrictions. The Committee may impose such other restrictions on any Shares granted pursuant to this Plan as it may deem advisable including, without limitation, restrictions under applicable Federal or state securities laws, and may legend the certificates representing Restricted Stock to give appropriate notice of such restrictions. 7.9. Voting Rights and Dividends with Respect to Restricted Stock. With respect to Shares of Restricted Stock, prior to the lapse of restrictions under Section 7.6, each Participant shall generally have the rights and privileges of a shareholder, including the right to vote the Shares and to receive dividends or other distributions made with respect to the Shares; provided, however, that the Shares of Restricted Stock shall be subject to all the terms, conditions and restrictions of the Plan and the Restricted Stock Agreement, including without limitation the provisions of Section 7.4 (restrictions on transfer), Section 7.5 (forfeiture), and Section 4.1(f) (escrow of certificates). If any dividends are paid on Restricted Stock in the form of Shares of Stock, the Stock dividends shall be treated as Restricted Stock and subject to the same restrictions, terms and conditions as the Shares of Restricted Stock with respect to which they were paid. SECTION 8. RIGHTS OF EMPLOYEES 8.1. Employment. Nothing in the Plan or in any Restricted Stock Agreement shall in any manner be construed to limit or restrict in any way the right of the Company to terminate any Participant's employment at any time and without regard to the effect of such termination to the Participant under the Plan, nor confer upon any Participant any right to continue in the employ of the Company. 8.2. Participation. No employee shall have a right to be selected as a Participant, or, having been so selected, to be selected again as a Participant. SECTION 9. MERGER, CONSOLIDATION, OR ACQUISITION 9.1. Treatment of Restricted Stock Shares. Without limiting the authority of the Committee as provided in Section 9.2, in the event of a dissolution or a liquidation of the Company or a merger or consolidation in which the Company is not the surviving corporation, at the time of the grant of the Restricted Stock, the Committee may provide in the Restricted Stock Agreement or otherwise that all the restrictions with respect to some or all of the outstanding Shares of Restricted Stock shall lapse in a manner similar to the provisions of Section 7.6. 9.2. Change in Control. The Committee, at the time of the grant of Restricted Stock, may provide in the Restricted Stock Agreement or otherwise that upon a 28 Change in Control of the Company, all the restrictions with respect to some or all of the outstanding Shares of Restricted Stock shall lapse in a manner similar to the provisions of Section 7.6. 9.3. Limitation on Payments. The Committee may provide that if the receipt of any payment (or lapse of restrictions) under this Section by any Participant shall, in the opinion of independent tax counsel of recognized standing selected by the Company, result in the loss of a tax deduction to the Company or the payment by such Participant of any excise tax, provided for in Section 280G and Section 4999 of the Code, then the amount of such payment (or lapse of restrictions) shall be reduced or modified to the extent required, in the opinion of independent tax counsel selected as aforesaid, to prevent such loss of deduction and the imposition of such excise tax. SECTION 10. AMENDMENT AND TERMINATION 10.1. Amendment and Termination. The Board, without further action on the part of the Company's shareholders, may at any time terminate, suspend or modify the Plan to the extent permitted by law, regulation or stock exchange requirements. No termination or amendment of the Plan, or amendment of any grant, shall adversely affect any right acquired by any Participant under a grant before the date of such termination or amendment, unless such Participant shall consent; but it shall be conclusively presumed that any adjustment for changes in capitalization as provided in Section 5.3 above does not adversely affect any such right. SECTION 11. TAX WITHHOLDING 11.1. Tax Withholding. The Company, as appropriate, shall have the right to deduct from all payments any Federal, state, or local taxes required by law to be withheld with respect to such payments and, in the case of awards paid in Stock, the Participant or other person receiving such Stock may be required to pay to the Company, as appropriate, the amount of any such taxes which the Company is required to withhold with respect to such Stock. SECTION 12. GOVERNING LAW 12.1. Governing Law. The Plan, and all grants and other documents delivered hereunder, shall be construed in accordance with and governed by the laws of Indiana. SECTION 13. EXPENSE OF PLAN 13.1. Expense of Plan. The expenses of administering the Plan shall be borne by the Company. 29 SECTION 14. RESTRICTED STOCK AGREEMENT 14.1. Restricted Stock Agreement. Each grant of Shares of Restricted Stock shall be evidenced by a written agreement ("Restricted Stock Agreement"), executed by the Participant and the Company, which shall contain such restrictions, terms or conditions as the Committee may require. 5 EX-3 4 30 EXHIBIT 3 (iii) FRANKLIN ELECTRIC CO., INC. NONEMPLOYEE DIRECTORS' DEFERRED COMPENSATION PLAN SECTION 1. INTRODUCTION Franklin Electric Co., Inc., an Indiana corporation (the "Company') hereby establishes a plan to be known as the Nonemployee Directors' Deferred Compensation Plan (the "Plan") for members of its Board of Directors (the "Board"), who are not employees of the Company or an affiliate of the Company (the 'Nonemployee Directors"). The Plan is effective as of February 11, 2000 (the "Effective Date"). SECTION 2. SHARES SUBJECT TO THE PLAN (a) Number of Shares. Subject to adjustment as provided in Section II (b) herein, the total number of Shares available for issuance under the Plan shall be twenty-five (25,000) shares of common stock. Such shares of common stock may be either authorized but unissued, reacquired or a combination thereof. (b) Adjustment in Available Shares of Common Stock. Any increase in the number of outstanding shares of common stock of the Company occurring through stock splits or stock dividends after the adoption of the Plan shall be reflected proportionately in an increase in the aggregate number of shares of common stock then available for issuance under the Plan. Any fractional shares of common stock resulting from such adjustments shall be eliminated. If changes in capitalization other than those considered above shall occur, the Board shall make such adjustment in the number and class of shares of common stock which may thereafter be issued, as the Board in its discretion may consider appropriate, and all such adjustments shall be conclusive upon all persons. SECTION 3. PLAN PARTICIPANTS Each Nonemployee Director shall become a Participant under the Plan by filing the written Election Form described in Section IV below with the Plan Administrator appointed by the Personnel and Compensation Committee of the Board (the "Committee") with respect to the Retainers payable to each Participant for his or her services as a member of the Board. SECTION 4. DEFERRAL ELECTIONS (a) Each Participant shall make the following election with respect to his or her Retainer: 31 (i) The Participant may elect to defer receipt of his or her entire Retainer until the date on which his or her service on the Board terminates for any reason, and have the cash value of such Retainer credited to the Stock Unit Account established for him or her under the Plan and converted to Stock Units, pursuant to the provisions of paragraph (a) of Section V below; or (ii) If an election is not made pursuant to clause (i) above, a Participant shall receive, at the Participant's option, cash equal to the Retainer, or a distribution of a number of shares of common stock of the Company ("Common Stock") equal to the cash value of his or her Retainer divided by the Fair Market Value (as defined in paragraph (b) of Section IX) of a share of Common Stock on the date on which such Retainer is payable. Such stock distribution shall be evidenced by a certificate representing the applicable number of shares of Common Stock, registered in the name of the Participant, and distributed to the Participant as soon as practicable after the date on which such Retainer is payable. (b) Each election with respect to a Retainer for a calendar year shall be set forth on an Election Form provided by the Plan Administrator. Such Election Form shall be in writing and shall specify the elections described above with respect to Retainers. (c) An Election Form effective for a calendar year shall be delivered to the Plan Administrator prior to the first day of such calendar year. An Election Form shall remain in effect for subsequent calendar years until a written notice to revise the Election Form is delivered to the Plan Administrator on or before the first day of the calendar year in which the revision is to become effective. Except as provided in paragraph (d) below, an initial Election Form or a revised Election Form shall only apply to a Retainer otherwise payable to a Participant after the end of the calendar year in which such initial or revised Election Form is delivered to the Plan Administrator. Any Election Form delivered by a Participant shall be irrevocable with respect to any Retainer covered by the elections set forth therein. If an Election Form is not in effect for a Nonemployee Director for a calendar year, he or she shall be deemed to have elected the cash distribution option specified in clause (ii) of paragraph (a) of this Section for such calendar year. (d) Notwithstanding the preceding provisions of this Section: (i) An election by a Participant with respect to a Retainer payable on or after April 1, 2000 may be made pursuant to an Election Form delivered to the Plan Administrator prior to March 31, 2000; and (ii) An election made by a Participant in the calendar year in which he or she first becomes eligible to participate in the Plan may be made pursuant to an Election Form delivered to the Plan Administrator within thirty (30) days after the date on which he or she initially becomes eligible to participate, and such Election Form shall be effective with respect to Retainers earned from and after the date such Election Form is delivered to the Plan Administrator. 32 SECTION 5. PARTICIPANT ACCOUNTS (a) (i) A Retainer of a Participant deferred pursuant to clause (i) of paragraph (a) of Section IV shall be credited as a dollar amount to the Participant's Stock Unit Account as of the date on which payment of such Retainer otherwise would have been paid, and shall be converted as of such date into Stock Units equivalent to Common Stock. Such conversion shall be determined by dividing the dollar balance of the payment of such Retainer by the Fair Market Value of a share of Common Stock on such payment date. The number of Stock Units for full shares of Common Stock so determined shall be credited to the Participant's Stock Unit Account and the aggregate value thereof shall be charged to the cash balance of his or her Stock Unit Account. Any cash balance remaining in the Participant's Stock Unit Account after such conversion, together with other subsequent credits of deferred Retainers thereto and credits thereto pursuant to clause (ii) next below, shall be converted into Stock Units on the next conversion date. (ii) Additional credits shall be made to a Participant's Stock Unit Account in dollar amounts equal to the cash dividends (or the fair market value of dividends paid in property other than Common Stock) that the Participant would have received had he or she been the owner on each record date of a number of shares of Common Stock equal to the number of Stock Units in his or her Stock Unit Account on such date. In the case of a dividend in Common Stock or a Common Stock split, additional credits will be made to a Participant's Stock Unit Account of a number of Stock Units equal to the number of full shares of Common Stock that the Participant would have received had he or she been the owner on each record date of a number of shares of Common Stock equal to the number of Stock Units in his or her Stock Unit Account on such date. Any cash dividends (or dividends paid in property other than Common Stock) shall be converted into Stock Units at the next conversion date as set forth in clause (i) of this paragraph. (b) Each Stock Unit Account shall be maintained on the books of the Company until full payment of the balance thereof has been made to the applicable Participant (or the beneficiaries of a deceased Participant). No funds shall be set aside or earmarked for any Stock Unit Account, which shall be purely a bookkeeping device. SECTION 6. DISTRIBUTION OF ACCOUNTS (a) The entire balance of a Participant's Stock Unit Account shall be paid to him or her (or to his or her beneficiaries in the event of his or her death) in a single lump sum as of the January 31 next following the date the Participant's service on the Board terminates for any reason. (b) The balance of a Participant's Stock Unit Account shall be distributed in shares of Common Stock or in cash as designated by the Participant (or his or her beneficiaries in the event of his or her death) by written notice delivered to the Plan Administrator prior to the applicable January 31 distribution date. If a timely designation is not received by the Plan Administrator, distribution shall be made in cash or in Common Stock as the Company shall decide. In the event of a distribution in Common Stock, a certificate representing a number of shares of Common Stock equal to the number of Stock Units in the Participant's Stock Unit Account, registered in the name of the Participant (or his or her beneficiaries), and any remaining 33 cash in the Stock Unit Account, shall be distributed to the Participant (or his or her beneficiaries). In the event of a cash distribution, the Participant (or his or her beneficiaries) shall receive an amount in cash equal to the aggregate of (i) the number of Stock Units in the Stock Unit Account multiplied by the Fair Market Value of a share of Common Stock on the applicable January 31, and (ii) any remaining cash in the Stock Unit Account. (c) If a Participant's service on the Board shall terminate by reason of his or her death, or if he shall die after becoming entitled to distribution hereunder, but prior to receipt of his or her entire distribution, all cash or Common Stock then distributable hereunder with respect to him or her shall be distributed to such beneficiary or beneficiaries as such Participant shall have designated by an instrument in writing last filed with the Committee prior to his or her death, or in the absence of such designation or of any living beneficiary, to his or her spouse, or if not then living, to his or her then living descendants, per stirpes, or if none is then living, to the personal representative of his or her estate, in the same manner as would have been distributed to the Participant had he or she continued to live. (d) In the written discretion of the Plan Administrator, and at the written request of a Participant, up to 100% of the balance in his or her Stock Unit Account, determined as of the last day of the calendar month prior to the date of distribution, may be distributed to a Participant in a lump sum in the case of an Unforeseeable Emergency, subject to the limitations set forth below. For purposes of this paragraph an Unforeseeable Emergency is a severe financial hardship of the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in Section 152(a) of the Internal Revenue Code of 1986, as amended) of the Participant, loss of the Participant's property due to casualty or other similar, extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that will constitute an Unforeseeable Emergency will depend upon the facts of each case, as determined by the Plan Administrator in its discretion, but in any case payment may not be made to the extent that such hardship is or may be relieved: (i) Through reimbursement or compensation by insurance or otherwise; (ii) By liquidation of the Participant's assets to the extent the liquidation of such assets would not itself cause severe financial hardship; or (iii) By cessation of deferrals under the Plan. Withdrawal of amounts because of an Unforeseeable Emergency shall be permitted only to the extent reasonably needed to satisfy the Unforeseeable Emergency. SECTION 7. ADMINISTRATION OF THE PLAN (a) The Employee Benefits Committee of the Company, consisting of one or more employees of the Company, shall act as the Plan Administrator. The Plan Administrator shall be responsible for the general operation and administration of the Plan, and shall have such powers as are necessary to discharge its duties under the Plan, including, without limitation, the following: 34 (i) To construe and interpret the Plan, to decide all questions of eligibility, to determine the amount, manner and time of payment of any benefits hereunder, to prescribe rules and procedures to be followed by Participants and their beneficiaries under the Plan, and to otherwise carry out the purposes of the Plan; and (ii) To appoint or employ individuals to assist in the administration of the Plan and any other agents deemed advisable. The decisions of the Plan Administrator shall be binding and conclusive upon all Participants, beneficiaries and other persons. (b) Any Participant claiming a benefit, requesting an interpretation or ruling, or requesting information, under the Plan, shall present the request in writing to the Plan Administrator, which shall respond in writing as soon as practicable. If the claim or request is denied, the written notice of denial shall state the following: (i) The reasons for denial, with specific reference to the Plan provisions upon which the denial is based; (ii) A description of any additional material or information required and an explanation of why it is necessary; and (iii) An explanation of the Plan's review procedure. The initial notice of denial shall normally be given within ninety (90) days after receipt of the claim. If special circumstances require an extension of time, the claimant shall be so notified and the time limit shall be one hundred eighty (180) days. Any person whose claim or request is denied, or who has not received a response within thirty (30) days, may request review by notice in writing to the Plan Administrator. The original decision shall be reviewed by the Plan Administrator, which may, but shall not be required to, grant the claimant a hearing. On review, whether or not there is a hearing, the claimant may have representation, examine pertinent documents and submit issues and comments in writing. The decision on review shall ordinarily be made within sixty (60) days. If an extension of time is required for a hearing or other special circumstances, the claimant shall be so notified and the time limit shall be extended to one hundred twenty (120) days. The decision on review shall be in writing and shall state the reasons and the relevant Plan provisions. All decisions on review shall be final and bind all parties concerned. SECTION 8. AMENDMENT OR TERMINATION (a) The Company intends the Plan to be permanent but reserves the right to amend or terminate the Plan when, in the sole opinion of the Company, such amendment or termination is advisable. Any such amendment or termination shall be made pursuant to a resolution of the Board without further action on the part of the Company's shareholders to the extent permitted by law, regulation or stock exchange requirements, and shall be effective as of the date of such resolution or such later date as the resolution may expressly state. 35 (b) No amendment or termination of the Plan shall (i) directly or indirectly deprive any current or former Participant or his or her beneficiaries of all or any portion of his or her Stock Unit Account as determined as of the effective date of such amendment or termination, or (ii) directly or indirectly reduce the balance of any Account held hereunder as of the effective date of such amendment or termination. Upon termination of the Plan, distribution of balances in all Accounts shall be made to Participants or their beneficiaries in the manner and at the time described in Section VI as if each Participant's service on the Board had then terminated. No additional deferred Retainers shall be credited to the Stock Unit Accounts of Participants after termination of the Plan, but the Company shall continue to credit earnings, gains and losses to Stock Unit Accounts pursuant to Section VI until the balances of such Stock Unit Accounts have been fully distributed to Participants or their beneficiaries. (c) No such amendment, modification or termination of the Plan may occur without the approval of the stockholders of the Company, if stockholder approval for such amendment, modification or termination is required by the federal securities laws, any national securities exchange or system on which the Shares are then listed or reported, or a regulatory body having jurisdiction with respect thereto. SECTION 9. GENERAL PROVISIONS (a) The Plan at all times shall be entirely unfunded and no provision shall at any time be made with respect to segregating any assets of the Company for payment of any benefits hereunder. The right of a Participant or his or her beneficiary to receive a benefit hereunder shall be an unsecured claim against the general assets of the Company, and neither the Participant nor a beneficiary shall have any rights in or against any specific assets of the Company. All amounts credited to Stock Unit Accounts shall constitute general assets of the Company. (b) For all purposes of the Plan, the Fair Market Value of a share of Common Stock as of a given date shall be the closing sale price of a share of common stock on the principal securities exchange on which the shares of common stock are publicly traded, or if there is no such sale on the relevant date, then on the last previous day on which a sale was reported. (c) Shares of Common Stock distributed under the Plan may be treasury shares of the Company or shares purchased by the Company in the open market. The Company shall reserve such number of shares of Common Stock as may be issuable under the Plan. (d) Nothing contained in the Plan shall constitute a guaranty by the Company, the Committee, the Plan Administrator, or any other person or entity, that the assets of the Company will be sufficient to pay any benefit hereunder. No Participant or beneficiary shall have any right to receive a distribution under the Plan except in accordance with the terms of the Plan. (e) Establishment of the Plan shall not be construed to give any Participant the right to be retained as a member of the Board. (f) No interest of any person or entity in, or right to receive a distribution under, the Plan, shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor may such interest or right to receive a 36 distribution be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings. (g) The Plan shall be construed and administered under the laws of the State of Indiana, except to the extent preempted by federal law. (h) If any person entitled to a payment under the Plan is deemed by the Company to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until claim therefor shall have been made by a duly appointed guardian or other legal representative of such person, the Company may provide for such payment or any part thereof to be made to any other person or institution that is contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and a complete discharge of any liability of the Company, the Committee, the Plan Administrator and the Plan therefor. (i) The Plan shall be continued, following a transfer or sale of assets of the Company, or following the merger or consolidation of the Company into or with any other corporation or entity, by the transferee, purchaser or successor entity, unless the Plan has been terminated by the Company pursuant to the provisions of Section VIII prior to the effective date of such transaction. (j) Each Participant or beneficiary shall keep the Plan Administrator informed of his or her current address. The Plan Administrator shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Plan Administrator within three (3) years after the date on which payment of the Participant's benefits under the Plan may first be made, payment may be made as though the Participant had died at the end of the three-year period. If, within one (1) additional year after such three-year period has elapsed, or, within three (3) years after the actual death of a Participant, the Plan Administrator is unable to locate any beneficiary of the Participant, then the Company shall have no further obligation to pay any benefit hereunder to such Participant, or beneficiary or any other person and such benefit shall be forfeited. If such Participant, or his or her beneficiary or any other person, subsequently makes a valid claim for distribution of the amount forfeited, such amount, without gains or earnings thereon, shall be distributed to such Participant or his or her beneficiary or such other person pursuant to Section VI. (k) Notwithstanding any of the preceding provisions of the Plan, none of the Company, any member of the Committee, any Plan Administrator or any individual acting as an employee or agent of the Company, the Committee or the Plan Administrator, shall be liable to any Participant, former Participant, or any beneficiary or other person for any claim, loss, liability or expense incurred by such Participant, or beneficiary or other person in connection with the Plan. (l) Notwithstanding anything to the contrary contained in the Plan, if (a) the Internal Revenue Service prevails in a claim by it that amounts credited to a Participant's Account, and/or earnings thereon, constitute taxable income to the Participant or his or her beneficiary for any taxable year of his, prior to the taxable year in which such credits and/or earnings are distributed to him or (b) legal counsel satisfactory to the Company, and the applicable Participant or his or her beneficiary, renders an opinion that 37 the Internal Revenue Service would likely prevail in such a claim, the balance of such Participant's Account shall be immediately distributed to the Participant or his or her beneficiary. For purposes of this paragraph, the Internal Revenue Service shall be deemed to have prevailed in a claim if such claim is upheld by a court of final jurisdiction, or if the Company, or a Participant or beneficiary, based upon an opinion of legal counsel satisfactory to the Company and the Participant or his or her beneficiary, fails to appeal a decision of the Internal Revenue Service, or a court of applicable jurisdiction, with respect to such claim, to an appropriate Internal Revenue Service appeals authority or to a court of higher jurisdiction, within the appropriate time period. (m) Any notice under the Plan shall be in writing, or by electronic means, and shall be received when actually delivered, or mailed postage paid as first class U.S. Mail. Notices shall be directed to the Company at its principal business office at 400 East Spring Street, Bluffton, Indiana 46714, to a Participant at the address stated in his or her Election Form, and to a beneficiary entitled to benefits at the address stated in the Participant's beneficiary designation, or to such other addresses any party may specify by notice to the other parties. 5 EX-27 5
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-Q FOR THE PERIOD ENDED APRIL 1, 2000 AND IS QUALIFIED IN ITS ENTIRETY REFERENCE TO SUCH FINANCIAL STATEMENTS. 3-MOS DEC-30-2000 APR-01-2000 10540 0 23237 1342 50535 92732 136873 79464 164607 35886 0 0 0 540 95439 164607 66051 66051 48864 59774 0 0 285 6277 2374 3903 0 0 0 3903 .72 .69
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