-----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, KVdze1GfVZ4DtTmgg9/VzelQIFB4G8LgKlbWK+0OhnpHVnHHlYBa+8mlBAme/3zP UFuNZb1P92Nwp9i4s7mfoQ== 0000038725-03-000027.txt : 20030218 0000038725-03-000027.hdr.sgml : 20030217 20030218134325 ACCESSION NUMBER: 0000038725-03-000027 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20021228 FILED AS OF DATE: 20030218 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-00362 FILM NUMBER: 03570738 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-K 1 r10k_02.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K -------------------- [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 28, 2002 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 46714-3798 BLUFFTON, INDIANA (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (260) 824-2900 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE NONE (TITLE OF EACH CLASS) (NAME OF EACH EXCHANGE ON WHICH REGISTERED) SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.10 PAR VALUE (TITLE OF EACH CLASS) 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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2) YES X NO ----- ----- The aggregate market value of the registrant's common stock held by non- affiliates of the registrant at June 29, 2002 (the last business day of the registrant's most recently completed second quarter) was $432,296,293. The stock price used in this computation was the last sales price on that date. NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT FEBRUARY 14, 2003: 10,737,947 SHARES ----------------- Page 1 of 51 2 DOCUMENTS INCORPORATED BY REFERENCE A portion of the Proxy Statement for the Annual Meeting of Shareholders to be held on April 25, 2003 (Part III). The exhibits filed with this Form 10-K are listed in the exhibit index located on pages 43-44. 3 TABLE OF CONTENTS Page ---- Part I Item 1. Business........................................ 4-6 Item 2. Properties...................................... 6-7 Item 3. Legal Proceedings............................... 7 Item 4. Submission of Matters to a Vote of Security Holders................................ 7 Supplemental Item - Executive Officers of the Registrant...................... 7 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters................. 8 Item 6. Selected Financial Data......................... 8-9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 10-13 Item 7A. Quantitative and Qualitative Disclosures About Market Risk .................................... 13 Item 8. Financial Statements and Supplementary Data..... 14-34 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 35 Part III Item 10. Directors and Executive Officers of the Registrant............................... 35 Item 11. Executive Compensation.......................... 35 Item 12. Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters................. 35 Item 13. Certain Relationships and Related Transactions.................................... 36 Item 14. Controls and Procedures......................... 36 Part IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K......................... 37-38 Signatures ................................................ 39 Certifications ................................................ 40-43 Exhibit Index ................................................ 44-45 4 PART I ------ ITEM 1. BUSINESS - ----------------- Franklin Electric Co., Inc. is an Indiana corporation founded in 1944 and incorporated in 1946, that, together with its subsidiaries, conducts business in a single reportable segment: the design, manufacture and distribution of motors, electronic controls and related parts and equipment. Except where the content otherwise requires, "Franklin Electric" or the "Company" shall refer to Franklin Electric Co., Inc. and its consolidated subsidiaries. Description of Business - ----------------------- Franklin Electric, a technical leader in electric motors, drives and controls, is the world's largest manufacturer of submersible water and fueling systems motors, a manufacturer of underground fueling systems hardware and flexible piping systems and a leader in engineered industrial motor products. The principal application for Franklin Electric's submersible motors is providing the electrical motors for water well pumping systems. These submersible motors are also used in underground fueling systems and for the pumping of wastewater. Franklin Electric's fueling systems products are found all over the world in industrial, commercial, and agricultural fueling applications. These products consist of over 500 items, including submersible pumping systems, nozzles, fittings, flexible piping, electronic tank monitoring equipment and vapor recovery systems. Franklin Electric's engineered industrial motor products and electronic drives and controls are used in a wide variety of products, including gasoline dispensers, paint handling equipment, electric hoists, explosion-proof vapor exhaust fans, vacuum pumping systems, livestock systems, and soft-serve ice cream machines. The Company's products are sold principally by a single company sales force in the United States, Canada, Mexico, Europe, Australia, South Africa, Mexico, Japan, China and other world markets. The Company's products are also sold through independent distributors and repair shops. The market for the Company's products is highly competitive and includes both large and small suppliers. The Company's submersible water, fueling and industrial motor products are sold to original equipment manufacturers of pumps, compressors, fans, swimming pool equipment, medical furniture and business machines. ITT Industries, Inc., and its various subsidiaries and affiliates, accounted for 18.2 percent, 18.7 percent and 15.7 percent of the Company's consolidated sales in 2002, 2001, and 2000, respectively. Sta-Rite Industries, Inc. accounted for 11.5 percent of the Company's consolidated sales in 2002. The Company offers normal and customary trade terms to its customers, no significant part of which is of an extended nature. Special inventory requirements are not necessary, and customer merchandise return rights do not extend beyond normal warranty provisions. 5 The principal raw materials used in the manufacture of the Company's products are steel in coils and bars, copper wire, and aluminum ingot. Major components are capacitors, motor protectors, forgings, gray iron castings and bearings. Most of these raw materials are available from many sources in the United States and in many world markets. In the opinion of management, no single source of supply is critical to the Company's business. Availability of fuel and energy is adequate to satisfy current and projected overall operations unless interrupted by government direction or allocation. During 2002, the Company paid $30.3 million for acquisitions, net of cash acquired, of which $24.3 million was recorded as goodwill based on the estimated fair values of the net assets acquired. Included in the acquisitions were Coverco, a manufacturer of submersible and industrial electric motors and controls in Italy, and Intelligent Controls, Inc. (INCON), a producer of fueling systems electronic leak detection and inventory management systems controls in Maine. During 2000, the Company acquired all of the outstanding shares of capital stock of EBW, Inc. and Advanced Polymer Technology, Inc., manufacturers of products for use in fueling systems. Also in 2000, the Company completed transactions to integrate submersible motor production of KSB AG into its Berzo Demo, Italy operations, and acquired Mitsubishi Electric Company's submersible electric motor business. See also Item 8 Footnote 2. The Company employed 2,658 persons at the end of 2002. Segment and Geographic Information - ---------------------------------- Segment and geographic information is included within this Form 10-K at page 32. Research and Development - ---------------------------------------------------------------------------- The Company spent approximately $ 6.0 million in 2002, $ 5.2 million in 2001, and $ 5.0 million in 2000 on activities related to the development of new products, on improvements of existing products and manufacturing methods, and on other applied research and development. In 2002, the Company continued development of a more corrosion resistant 4" submersible motor, developed a new rewindable 6" submersible motor, expanded the line of variable speed constant pressure motor systems for residential applications, and developed a Turbine Pump Interface controller for petroleum products. Research continued on new materials and processes designed to achieve higher quality and more cost-effective construction of the Company's high volume products. The Company owns a number of patents. In aggregate, these patents are of material importance in the operation of the business; however, the Company believes that its operations are not dependent on any single patent or group of patents. 6 Backlog - ------- The dollar amount of backlog at the end of 2002 and 2001 was as follows: (In thousands) 2002 2001 ---- ---- Backlog....................... $18,890 $15,136 The backlog is composed of written orders at prices adjustable on a price-at- the-time-of-shipment basis for products, some of which are specifically designed for the customer, but most of which are standard catalog items. Both add-ons and cancellations of catalog items are made without charge to the customer, but charges are generally made on any cancellation of a specifically designed product. All backlog orders are expected to be filled in fiscal 2003. The Company's sales and earnings are not substantially seasonal in nature. There is no seasonal pattern to the backlog and the backlog has not proven to be a significant indicator of future sales. Environmental Matters - --------------------- Compliance with federal, state and local provisions regulating the discharge of material into the environment, or otherwise relating to the protection of the environment, is not expected to have any material adverse effect upon the financial position, capital expenditures, earnings or competitive position of the Company. Website - ------- The Company's website address is http://www.franklin-electric.com. The Company makes available free of charge on or through its website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. ITEM 2. PROPERTIES - ------------------- The Company maintains its principal executive offices in Bluffton, Indiana; manufacturing plants are located in the United States and abroad. Location and approximate square footage for the Company's principal facilities are described below. All principal properties are owned or held under operating leases. The Company's principal properties are as follows: Acres Approximate Location of Land Square Feet -------- ------- ----------- Bluffton, Indiana 35.8 405,660 Siloam Springs, Arkansas 32.6 240,400 Wilburton, Oklahoma 30.0 327,135 Jonesboro, Indiana (1) - 34,570 7 Grant County, Indiana 9.0 24,100 Muskegon, Michigan 10.8 113,951 Saco, Maine (1) - 27,800 Wittlich, Rhineland, Germany 6.9 76,937 Brno, Czech Republic 2.3 51,158 Berzo Demo, Italy (1) - 22,865 Motta di Livenza, Italy (1) - 39,152 Linares, Mexico 10.0 30,000 Fifteen facilities, each with less than 56,500 square feet(2) 6.1 260,565 ----- --------- Total 143.5 1,654,293 ===== ========= In the Company's opinion, its facilities are suitable for their intended use, adequate for the Company's business needs and in good condition. (1) Leased facility. (2) Thirteen of the facilities are leased and in the aggregate have approximately 183,474 square feet. ITEM 3. LEGAL PROCEEDINGS - -------------------------- The Company is defending various claims and legal actions, including environmental matters, which have arisen in the ordinary course of business. In the opinion of management, after discussion with counsel, these clams and legal actions can be successfully defended or resolved without a material adverse effect on the Company's financial position or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ----------------------------------------------------------- None. EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------ The names, ages and all positions and offices held by the executive officers of the Company are: In this Name Age Positions and Offices office since ---- --- --------------------- ------------ William H. Lawson 66 Chairman of the Board, 1985 Chief Executive Officer and President Jess B. Ford 51 Senior Vice President 1999 Peter C. Maske 52 Senior Vice President, 1999 Operations Gregg C. Sengstack 44 Senior Vice President and 1999 Chief Financial Officer Donald R. Hobbs 61 Vice President, Submersible 1996 Motor Marketing Thomas A. Miller 53 Vice President, Submersible 1998 Motor Engineering Kirk M. Nevins 59 Vice President, Sales 1995 Each executive officer is elected by the board of directors for a term of one year or until his successor is elected and qualified. Each executive officer was employed by the Company during the preceding five years as an officer or in a management position. 8 PART II ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS - ------------------------------------------------------------------------------ The number of shareowners of record as of February 14, 2003 was 968. The Company's stock is traded on Nasdaq National Market: Symbol FELE. All share and per share data included in this Form 10-K reflect the Company's two-for-one stock split effected in the form of a 100 percent stock distribution made on March 22, 2002. Dividends paid and the price range per common share as quoted by the Nasdaq National Market for 2002 and 2001 were as follows: DIVIDENDS PER SHARE PRICE PER SHARE 2002 2001 2002 2001 ---- ---- ---- ---- Low High Low High --- ---- --- ---- 1st Quarter... $.12 $.11 $40.600 $53.900 $32.000 $36.625 2nd Quarter... $.13 $.12 $43.520 $60.528 $33.040 $37.950 3rd Quarter... $.13 $.12 $39.900 $52.640 $34.125 $41.414 4th Quarter... $.13 $.12 $41.151 $51.000 $35.315 $42.640 ITEM 6. SELECTED FINANCIAL DATA - ---------------------------
FIVE YEAR FINANCIAL SUMMARY - ------------------------------------------------------------------------------------------------------------ FRANKLIN ELECTRIC CO., INC. (In thousands, except per share amounts) 2002 2001 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------ Operations: Net sales.............................$354,872 $322,908 $325,731 $293,236 $272,533 Gross profit.......................... 104,935 92,871 85,186 84,171 79,955 Interest expense...................... 1,317 1,193 1,111 1,317 1,364 Income taxes ......................... 18,273 16,235 13,683 15,591 15,237 Net income............................ 32,204 27,150 22,226 26,805 24,784 Depreciation and amortization......... 12,878 12,660 10,839 7,460 6,687 Capital expenditures.................. 15,568 6,709 14,108 13,691 24,601 Balance sheet: Working capital...................... 62,762 69,158 54,897 56,886 61,878 Property, plant and equipment, net... 76,033 58,839 64,604 57,047 51,461 Total assets......................... 258,583 195,643 197,179 176,101 167,590 Long-term debt....................... 25,946 14,465 15,874 17,057 18,089 Shareowners' equity.................. $153,138 $123,269 $115,998 $ 96,293 $ 91,597 Other data: % Net income to sales................ 9.1% 8.4% 6.8% 9.1% 9.1% % Net income to total average assets..................... 14.2% 13.8% 11.9% 15.6% 15.0% Current ratio........................ 2.2 2.7 2.2 2.2 2.4 Number of common shares outstanding........................ 10,824 10,668 11,008 10,826 11,148 Per share: Market price range High................................. $ 60.53 $ 42.64 $ 36.50 $ 37.438 $ 36.25 Low.................................. 39.90 32.00 26.125 29.50 20.00 Net income per weighted-average common share....................... 2.98 2.49 2.04 2.44 2.16 Net income per weighted-average common share, assuming dilution.................. 2.83 2.39 1.96 2.30 2.01 Book value........................... 13.47 10.84 10.21 8.27 7.42 Cash dividends on common stock.............................. $ .51 $ 0.47 $ 0.43 $ 0.39 $ 0.33 - ------------------------------------------------------------------------------------------------------------ 9 Includes the results of operations of its wholly-owned subsidiaries Coverco S.r.l. and Intelligent Controls, Inc., since their acquisition on January 7, 2002 and July 16, 2002, respectively. Includes the results of operations of its wholly-owned subsidiaries EBW, Inc. and Advanced Polymer Technology, Inc., since their acquisition on August 31, 2000.
10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ------------------------------------------------------------------------ RESULTS OF OPERATIONS - --------------------- RESULTS OF OPERATIONS - --------------------- Net sales for 2002 were $354.9 million, a 9.9 percent increase from 2001 net sales of $322.9 million. The increased sales were primarily the result of strong residential submersible electric motor sales in North America, as well as the inclusion of Coverco, a January 2002 acquisition, and INCON, a July 2002 acquisition. Sales from these acquisitions represented 5.2 percent of sales for the year. These increases were partially offset by lower demand from the petroleum equipment industry. Net sales for 2001 were $322.9 million, a 0.9 percent decrease from 2000 net sales of $325.7 million. The decreased sales were primarily the result of the global manufacturing recession as well as the strong U.S. dollar/weak euro and South African rand that affected foreign sales. The lower sales were partially offset by the inclusion of the full year results of EBW, Inc. ("EBW") and Advanced Polymer Technology, Inc. ("APT") which were acquired in August 2000 as well as sales to KSB AG and customers of Mitsubishi Electric Company under new motor supply agreements for a full year in 2001. 2001 sales were approximately 8.0 percent lower than 2000 excluding the incremental sales from these acquisitions and supply agreements. Cost of sales as a percent of net sales for 2002, 2001 and 2000 was 70.4 percent, 71.2 percent and 73.8 percent, respectively. Cost of sales as a percent of net sales decreased in 2002 from 2001 primarily as a result of productivity improvements, cost reductions and other operations initiatives as well as lower costs in key commodities. The Company has achieved these results by continually focusing on improving its quality and has combined certain manufacturing operations on specific products to one location, as well as identified alternative sources for certain materials. Cost of sales as a percent of net sales decreased in 2001 from 2000 primarily as a result of specific productivity initiatives and cost reduction which resulted in improved labor efficiencies and lower material costs as well as lower costs in key commodities. Selling and administrative expense as a percent of net sales for 2002, 2001 and 2000 was 15.4 percent, 14.7 percent and 13.8 percent, respectively. The addition of fixed expenses from acquired companies is the primary reason for the increase in selling and administrative expense as a percent of net sales for 2002 and 2001 (full year impact of 2000 acquisitions). Interest expense for 2002, 2001 and 2000 was $1.3 million, $1.2 million and $1.1 million, respectively. During the third quarter of 2000, the Company recorded a one-time $3.2 million ($2.0 million after-tax) charge to earnings to recognize the costs of the unsuccessful acquisition of the fuel pumping systems business of the Marley Pump Company, a division of United Dominion Industries. Included in other income for 2002, 2001 and 2000 was interest income of $0.5 million, $0.6 million and $1.2 million, respectively, primarily derived from the investment of cash balances in short-term U.S. treasury and agency securities. Foreign currency-based transactions produced a gain for 2002 of $1.4 million. The foreign currency-based transaction gain was due primarily to the 11 strengthening euro relative to the U.S. dollar during most of 2002. The foreign currency-based transaction losses in 2001 and 2000 were primarily due to the strengthening U.S. dollar relative to the euro and South African rand resulting in losses of $0.5 million and $0.7 million, respectively. The provision for income taxes in 2002, 2001 and 2000 was $18.3 million, $16.2 million and $13.7 million, respectively. The effective tax rate in 2002 of 36.2% is less than the 2001 rate of 37.4% as a result of tax planning savings realized in 2002. The effective tax rate for each year differs from the United States statutory rate of 35 percent, due principally to the effects of state and foreign income taxes, net of federal tax benefits. Net income for 2002 was $32.2 million, or $2.83 per diluted share, compared to 2001 net income of $27.2 million, or $2.39 per diluted share. Net income for 2000 was $22.2 million, or $1.96 per diluted share. All share and per share data reflect the Company's two-for-one stock split effected in the form of a 100 percent stock distribution made on March 22, 2002. CAPITAL RESOURCES AND LIQUIDITY - ------------------------------- Cash flows from operations provide the principal source of current liquidity. Net cash flows provided by operating activities were $57.9 million, $39.9 million and $18.8 million in 2002, 2001 and 2000, respectively. The primary source of cash from operations for 2002 was earnings. The increases in 2002 and 2001 were related to decreases in accounts receivable. The decrease in 2000 was related to increases in accounts receivable and decreases in accounts payable. Net cash flows used in investing activities were $57.2 million, $10.2 million and $25.6 million in 2002, 2001 and 2000, respectively. The primary uses of cash in 2002 were for the acquisitions of Coverco and INCON. The Company paid an aggregate of $30.3 million for these two acquisitions, net of cash acquired. During the third quarter of 2002, the Company paid $10.5 million in cash (included in deferred assets) as contingent consideration in accordance with the terms of an agreement entered into in 1998 in which the Company purchased certain operating and intangible assets from a motor manufacturer. The primary use of cash in 2001 was for additions to plant and equipment. The primary uses of cash in 2000 were for the acquisition of EBW and APT and additions to plant and equipment. Net cash flows used in financing activities were $2.7 million, $19.0 million and $12.3 million in 2002, 2001 and 2000, respectively. The primary uses of cash in each of these three years related to the repurchase of shares of Company common stock under the Company's repurchase program and the payment of dividends. During 2002, 2001 and 2000, the Company repurchased, or received as consideration for stock options exercised, 223,499, 408,200 and 253,400 shares of its common stock for $10.5 million, $14.2 million and $8.4 million, respectively. The Company paid $5.5 million, $5.1 million and $4.7 million in dividends on the Company's common stock in 2002, 2001 and 2000, respectively. The Company has authority under its Board-approved stock repurchase program to purchase an additional 655,253 shares of its common stock after December 28, 2002. Cash, cash equivalents and marketable securities at the end of 2002 were $20.1 million compared to $23.7 million at the end of 2001. Working capital decreased $6.4 million in 2002 and the current ratio of the Company was 2.2 and 2.7 at the end of 2002 and 2001, respectively. 12 Principal payments of $1.0 million per year on the Company's $20.0 million of unsecured long-term debt began in 1998 and will continue until 2008 when a balloon payment of $10.0 million will fully retire the debt. In November 2001, the Company entered into an unsecured, 38-month $60.0 million revolving credit agreement (the "Agreement"). The amount available for borrowing under the Agreement is reduced by the amount of certain standby letters-of-credit. These standby letters-of-credit totaled $2,008 and $1,650 at December 28, 2002 and December 29, 2001, respectively. The Agreement includes a facility fee of one-eighth of one percent on the committed amount. The Company's borrowings under the Agreement totaled $10.1 million and $0 at December 28, 2002 and December 29, 2001, respectively. The Company is subject to certain financial covenants with respect to borrowings, interest coverage, working capital, net worth, loans or advances, and investments. The Company was in compliance with all debt covenants at all times in 2002 and 2001. See Note 6. At December 28, 2002, the Company had $2.4 million of commitments for the construction of a building in Linares, Mexico and the purchase of machinery and equipment. During 2003, the Company intends to continue to seek acquisition candidates that are compatible with its existing product lines and that provide leveraged growth potential. Management believes that internally generated funds and existing credit arrangements provide sufficient liquidity to meet current commitments. ACCOUNTING PRONOUNCEMENTS - ------------------------- In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123". SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends the related existing disclosure requirements. As more fully described in Notes 1 and 9, the Company accounts for its stock-based compensation under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly, SFAS No. 148 does not have an impact on the Company's operating results or financial position. In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN No. 45 elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees it has issued and clarifies the accounting for such guarantees. The initial recognition and measurement provisions of FIN No. 45 are effective on a prospective basis to guarantees issued or modified after December 31, 2002, and the disclosure requirements are effective for periods ending after December 15, 2002. The Company does not expect the adoption of FIN No. 45 to have a material impact on its operating results or financial position. CRITICAL ACCOUNTING POLICIES AND ESTIMATES - ------------------------------------------ Management's discussion and analysis of its financial condition and results of operations are based upon the Company's 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 13 related disclosure of contingent assets and liabilities. On an on-going basis, management evaluates its estimates, including those related to allowance for doubtful accounts, 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, all as described in Exhibit 99 of this Form 10-K. These risks and uncertainties may cause actual results to differ materially from those indicated by the forward-looking statements. Any forward-looking statements included in this Form 10-K are based upon information presently available. The Company does not assume any obligation to update any forward-looking information. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - -------------------------------------------------------------------- The Company is subject to market risk associated with changes in foreign currency exchange rates and interest rates. Foreign currency exchange rate risk is mitigated through several means: maintenance of local production facilities in the markets served, invoicing of customers in the same currency as the source of the products, prompt settlement of intercompany balances utilizing a global netting system and limited use of foreign currency denominated debt. Interest rate exposure is principally limited to variable rate interest borrowings under the Company's revolving credit agreement. 14 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ---------------------------------------------------- CONSOLIDATED STATEMENTS OF INCOME FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES - ------------------------------------------------------------------------------ 2002 2001 2000 (In thousands, except per share amounts) - ------------------------------------------------------------------------------ Net sales............................. $354,872 $322,908 $325,731 Cost of sales (including research and development expenses of $6,035, $5,232 and $4,978, respectively).... 249,937 230,037 240,545 -------- -------- -------- Gross profit.......................... 104,935 92,871 85,186 Selling and administrative expenses... 54,637 47,522 44,967 -------- -------- -------- Operating income...................... 50,298 45,349 40,219 Interest expense...................... (1,317) (1,193) (1,111) Costs of unsuccessful acquisition..... - - (3,237) Other income (expense),net............ 130 (239) 764 Foreign exchange income (loss)........ 1,366 (532) (726) -------- -------- -------- Income before income taxes............ 50,477 43,385 35,909 Income taxes (Note 5)................. 18,273 16,235 13,683 -------- -------- -------- Net income............................ $ 32,204 $ 27,150 $ 22,226 ======== ======== ======== Per share data (Note 8): Net income per common share......... $ 2.98 $ 2.49 $ 2.04 ======== ======== ======== Net income per common share, assuming dilution................. $ 2.83 $ 2.39 $ 1.96 ======== ======== ======== Dividends per common share.......... $ .51 $ .47 $ .43 ======== ======== ======== See Notes to Consolidated Financial Statements. 15 CONSOLIDATED BALANCE SHEETS FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES - ------------------------------------------------------------------------------ ASSETS 2002 2001 (In thousands) - ------------------------------------------------------------------------------ Current assets: Cash and equivalents........................ $ 20,133 $ 20,750 Marketable securities....................... - 2,999 Receivables (less allowances of $1,907 and $1,658, respectively)................. 31,711 27,486 Inventories: Raw materials............................. 16,115 16,447 Work-in-process........................... 7,481 6,005 Finished goods............................ 33,905 35,662 LIFO reserve.............................. (9,233) (10,106) -------- -------- 48,268 48,008 Other current assets (including deferred income taxes of $8,615 and $8,667, respectively, Note 5)..................... 12,897 10,340 -------- -------- Total current assets.................... 113,009 109,583 Property, plant and equipment, at cost: Land and buildings.......................... 34,126 25,343 Machinery and equipment..................... 141,347 121,791 -------- -------- 175,473 147,134 Less allowance for depreciation........... 99,440 88,295 -------- -------- 76,033 58,839 Deferred and other assets (including deferred income taxes of $1,391 and $17, respectively, Note 5)...................... 30,795 12,710 Goodwill...................................... 38,746 14,511 -------- -------- Total Assets.................................. $258,583 $195,643 ======== ======== See Notes to Consolidated Financial Statements. 16 - ------------------------------------------------------------------------------ LIABILITIES AND SHAREOWNERS' EQUITY 2002 2001 (In thousands) - ------------------------------------------------------------------------------ Current liabilities: Current maturities of long-term debt and short-term borrowings (Note 6)............ $ 1,467 $ 1,058 Accounts payable............................ 18,584 11,683 Accrued expenses (Note 4)................... 28,484 24,146 Income taxes (Note 5)....................... 1,712 3,538 -------- -------- Total current liabilities................. 50,247 40,425 Long-term debt (Note 6)....................... 25,946 14,465 Employee benefit plan obligations (Note 3).... 23,988 13,199 Other long-term liabilities................... 5,264 4,285 Shareowners' equity (Note 7): Common shares outstanding (10,824 and 10,669, respectively)......... 1,082 1,067 Additional capital.......................... 34,079 23,348 Retained earnings........................... 125,308 109,103 Loan to ESOP Trust (Note 3)................. (1,130) (1,362) Accumulated other comprehensive loss........ (6,201) (8,887) -------- -------- Total shareowners' equity................ 153,138 123,269 -------- -------- Total Liabilities and Shareowners' Equity..... $258,583 $195,643 ======== ======== See Notes to Consolidated Financial Statements. 17 CONSOLIDATED STATEMENTS OF CASH FLOWS FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES - ------------------------------------------------------------------------------ 2002 2001 2000 (In thousands) - ------------------------------------------------------------------------------ Cash flows from operating activities: Net income................................. $32,204 $27,150 $22,226 Adjustments to reconcile net income to net cash flows from operating activities: Depreciation and amortization............ 12,878 12,660 10,839 Deferred income taxes.................... 664 2,916 (34) Loss on disposals of plant and equipment.......................... 428 1,980 275 Changes in assets and liabilities, excluding the effects of acquisitions: Receivables............................ 3,125 2,963 (7,473) Inventories............................ 7,434 (697) (2,516) Accounts payable and other accrued expenses..................... 2,915 (8,028) (2,612) Employee benefit plan obligations...... 1,128 (718) 2,156 Other, net............................. (2,923) 1,697 (4,113) ------- ------- ------- Net cash flows from operating activities..... 57,853 39,923 18,748 ------- ------- ------- Cash flows from investing activities: Additions to plant and equipment........... (15,568) (6,709) (14,108) Proceeds from sale of plant and equipment.. 20 354 61 Additions to deferred assets............... (14,312) (802) (2,829) Purchases of marketable securities......... - (2,999) (2,915) Cash paid for acquisitions, net of cash acquired (Note 2)........................ (30,344) - (17,687) Proceeds from maturities of marketable securities............................... 2,999 - 11,883 ------- ------- ------- Net cash flows from investing activities..... (57,205) (10,156) (25,595) ------- ------- ------- Cash flows from financing activities: Borrowing of long-term debt................ 8,575 - - Repayment of long-term debt (Note 6)....... (1,408) (1,016) (1,017) Borrowing on line of credit and short-term borrowings............................... 3,000 11,055 - Repayment of line of credit and short-term borrowings............................... (3,017) (11,073) (41) Proceeds from issuance of common stock..... 5,945 1,059 1,541 Purchases of common stock (Note 7)......... (10,517) (14,157) (8,351) Reduction of loan to ESOP Trust............ 232 232 233 Dividends paid............................. (5,505) (5,122) (4,685) ------- ------- ------- Net cash flows from financing activities..... (2,695) (19,022) (12,320) ------- ------- ------- Effect of exchange rate changes on cash...... 1,430 374 954 ------- ------- ------- Net change in cash and equivalents........... (617) 11,119 (18,213) Cash and equivalents at beginning of year.... 20,750 9,631 27,844 ------- ------- ------- Cash and equivalents at end of year.......... $20,133 $20,750 $ 9,631 ======= ======= ======= Cash paid during 2002, 2001, and 2000 for interest was $1.3 million, $1.1 million and $1.1 million, respectively. Also, cash paid during 2002, 2001 and 2000 for income taxes was $16.6 million, $13.1 million and $14.6 million, respectively. See Notes to Consolidated Financial Statements. 18
19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------------ FRANKLIN ELECTRIC CO., INC. AND CONSOLIDATED SUBSIDIARIES - ------------------------------------------------------------------------------ 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FISCAL YEAR--The Company's fiscal year ends on the Saturday nearest December 31. The financial statements and accompanying notes are as of and for the years ended December 28, 2002 (52 weeks), December 29, 2001 (52 weeks) and December 30, 2000 (52 weeks) and are referred to as 2002, 2001 and 2000, respectively. PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include the accounts of the Company and its subsidiaries. REVENUE RECOGNITION--Sales are recognized when the Company's products are shipped, at which time transfer of ownership and risk of loss pass to the customer. CASH EQUIVALENTS--Cash equivalents consist of highly liquid investments which are readily convertible to cash, present insignificant risk of changes in value due to interest rate fluctuations and have original or purchased maturities of three months or less. MARKETABLE SECURITIES--Marketable securities consist of short-term U.S. treasury and agency securities with maturities of greater than three months at the date of purchase. All securities are categorized as held-to-maturity and are stated at amortized cost. Due to the nature of these securities, the difference between the amortized cost and fair value is not significant. FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts for cash and equivalents, long-term debt and short-term debt approximate fair value. The fair value of long-term debt is estimated based on current borrowing rates for similar issues and current exchange rates for foreign currency denominated amounts. The Company's off-balance sheet instruments consist of operating leases which are not significant (see Footnote 11). ACCOUNTS RECEIVABLE--Accounts receivable are stated at estimated net realizable value. Accounts receivable comprise balances due from customers net of estimated allowances for uncollectible accounts. In determining collectibility, historical trends are evaluated and specific customer issues are reviewed to arrive at appropriate allowances. INVENTORIES--Inventories are stated at the lower of cost or market. The majority of the cost of domestic inventories is determined using the last-in, first-out (LIFO) method; all remaining inventory costs are determined using the first-in, first-out (FIFO) method. Inventories stated on the LIFO method approximated 44 percent and 53 percent of total inventories in 2002 and 2001, respectively. PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment are stated at cost. Depreciation of plant and equipment is provided principally on a straight line basis over the estimated useful lives of 5 to 50 years for land improvements and buildings, 2 to 10 years for machinery, equipment, furniture, and fixtures and 3 to 5 years for automobiles and trucks. Accelerated methods are used for income tax purposes. The Company reviews its property and 20 equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. STOCK-BASED COMPENSATION--The Company accounts for its stock-based compensation plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations. No stock-based compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. EARNINGS PER COMMON SHARE--Basic and diluted earnings per share are computed and disclosed under Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". Diluted earnings per share is computed based upon earnings applicable to common shares divided by the weighted-average number of common shares outstanding during the period adjusted for the effect of other dilutive securities. TRANSLATION OF FOREIGN CURRENCIES--All assets and liabilities of foreign subsidiaries whose functional currency is other than the U.S. dollar are translated at year end exchange rates. All revenue and expense accounts are translated at average rates in effect during the period. USE OF ESTIMATES--Management's best estimates of certain amounts are required in preparation of the consolidated financial statements in accordance with generally accepted accounting principles, and actual results could differ from those estimates. RECLASSIFICATIONS--Certain prior year amounts are reclassified when necessary to conform to the current year presentation. 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 March 22, 2002. ACCOUNTING PRONOUNCEMENTS--In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123". SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and amends the related existing disclosure requirements. As more fully described above and in Note 9 below, the Company accounts for its stock-based compensation under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly, SFAS No. 148 does not have an impact on the Company's operating results or financial position. In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others". FIN No. 45 elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees it has issued and clarifies the accounting for such guarantees. The initial recognition and measurement provisions of FIN No. 45 are effective on a prospective basis to guarantees issued or modified after December 31, 2002, and the disclosure requirements are effective for periods ending after December 15, 2002. The Company does not expect the adoption of FIN No. 45 to have a material impact on its operating results or financial position. 21 2. 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; accordingly, the Company's recorded goodwill is no longer being amortized. During the first quarter of 2002, the Company performed its initial impairment testing required by SFAS No. 142. No impairment loss or transition adjustments were required. In addition, during the fourth quarter of 2002, the Company performed its annual impairment testing required by SFAS No. 142. No impairment loss was required to be recognized. Acquisitions - ------------ During 2002, the Company paid $30.3 million for acquisitions, net of cash acquired, of which $24.3 million was recorded as goodwill based on the estimated fair values of the net assets acquired. These estimated fair values will continue to be evaluated by the Company over a one-year period from the respective dates of acquisition. In January 2002, the Company acquired certain assets and liabilities of Coverco S.p.A., and Emco S.r.L.(jointly "Coverco") manufacturers of submersible and industrial electric motors and controls in Italy. In July 2002, the Company acquired all of the outstanding shares of INCON, a producer of fueling systems electronic leak detection and inventory management systems controls in Maine. On August 31, 2000, the Company acquired all of the outstanding shares of capital stock of EBW, Inc. and Advanced Polymer Technology, Inc. ("EBW" and "APT"), manufacturers of equipment for use in fueling systems. The Company paid to the selling shareholders of EBW and APT an aggregate of $20.3 million at the closing date, consisting of $10.3 million in cash and the issuance of $10.0 million of the Company's common stock. The Company also assumed an aggregate of $7.5 million of EBW and APT's credit obligations, of which $7.4 million was paid to the creditors by the Company on the closing date. In aggregate, the acquisition was recorded at a total purchase price of $27.9 million, including $0.1 million in acquisition costs, at the closing date. The Company may pay additional consideration contingent on the future earnings performance of EBW and APT through December 31, 2003. These acquisitions were accounted for using the purchase method of accounting. Accordingly, a portion of the aggregate purchase price was allocated to the net assets acquired based on the estimated fair values. The excess of purchase price over the fair value of the net assets acquired has been recorded as goodwill which was being amortized on a straight-line basis over 20 years. The Company discontinued amortizing goodwill effective the first quarter of the Company's 2002 fiscal year under the provisions of SFAS No. 142. The following sets forth a reconciliation of reported net income and earnings per share to the same amounts adjusted to exclude amortization expense recognized on goodwill in each respective period: 22 (In thousands, except per share amounts) 2002 2001 2000 ---- ---- ---- Reported net income................. $32,204 $27,150 $22,226 Add back: Goodwill amortization.... - 757 258 ------- ------- ------- Adjusted net income................. $32,204 $27,907 $22,484 ======= ======= ======= Basic earnings per share: Reported net income................. $ 2.98 $ 2.49 $ 2.04 Add back: Goodwill amortization.... - 0.07 0.02 ------- ------- ------- Adjusted net income................. $ 2.98 $ 2.56 $ 2.06 ======= ======= ======= Diluted earnings per share: Reported net income................. $ 2.83 $ 2.39 $ 1.96 Add back: Goodwill amortization.... - 0.07 0.02 ------- ------- ------- Adjusted net income................. $ 2.83 $ 2.46 $ 1.98 ======= ======= ======= Other - ----- In September 2002, the Company paid $10.5 million in cash (included in deferred assets) as contingent consideration in accordance with the terms of an agreement entered into in 1998 in which the Company purchased certain operating and intangible assets from a motor manufacturer. The payment settled all contingencies remaining from the original transaction. The Company has determined that the intangible assets that arose from this agreement, which total $18.9 million at December 28, 2002, have an indefinite life; accordingly, the Company ceased amortizing these intangible assets after making this payment. During the third quarter of 2000, the Company recorded a one-time $3.2 million ($2.0 million after-tax) charge to earnings to recognize the costs of the unsuccessful acquisition of the fuel pumping systems business of the Marley Pump Company, a division of United Dominion Industries. 3. EMPLOYEE BENEFIT PLANS DEFINED BENEFIT PLANS - As of December 28, 2002, the Company's domestic operations maintain three separate pension plans. The Company's other postretirement benefit plans provide health and life insurance benefits to domestic employees hired prior to 1992. The Company effectively capped its cost for those benefits through plan amendments made in 1992, freezing Company contributions for insurance benefits at 1991 levels for current and future beneficiaries with actuarially reduced benefits for employees who retire before age 65. The following table sets forth aggregated information related to the Company's domestic pension benefits and other postretirement benefits, including changes in the benefit obligations, changes in plan assets, funded status, amounts recognized in the Consolidated Balance Sheets, and actuarial assumptions: 23 (In thousands) - ------------------------------------------------------------------------------ Pension Benefits Other Benefits 2002 2001 2002 2001 ---- ---- ---- ---- - ------------------------------------------------------------------------------ Change in benefit obligation: Benefit obligation, b/o/y......$109,209 $100,746 $ 12,450 $ 12,118 Service cost................... 3,276 3,163 312 307 Interest cost.................. 7,588 7,487 859 872 Plan amendments................ 1,409 717 - - Actuarial loss................. 2,923 5,111 495 360 Settlements paid............... (445) - - - Benefits paid.................. (8,216) (8,015) (1,202) (1,207) -------- -------- -------- -------- Benefit obligation, e/o/y......$115,744 $109,209 $ 12,914 $ 12,450 ======== ======== ======== ======== Change in plan assets: Fair value of assets, b/o/y....$109,190 $112,732 $ - $ - Actual return on plan assets... (3,125) 1,383 - - Company contributions.......... 551 3,090 1,202 1,207 Settlements paid............... (445) - - - Benefits paid.................. (8,216) (8,015) (1,202) (1,207) -------- -------- -------- -------- Fair value of assets, e/o/y....$ 97,955 $109,190 $ - $ - ======== ======== ======== ======== Reconciliation of funded status: Funded status..................$(17,789) $ (19) $(12,914) $(12,450) Unrecognized net (gain) loss... 5,860 (11,223) 2,898 2,547 Unrecognized transition obligation................... - - 4,889 5,378 Unrecognized prior service cost.......................... 5,699 5,504 - - -------- -------- -------- -------- Net amount recognized..........$ (6,230) $ (5,738) $ (5,127) $ (4,525) ======== ======== ======== ======== Amounts recognized in the Consolidated Balance Sheets: Accrued benefit liability......$(17,611) $ (7,647) $ (5,127) $ (4,525) Intangible asset............... 4,802 615 - - Deferred tax asset............. 2,630 516 - - Accumulated other comprehensive loss.......................... 3,949 778 - - -------- -------- -------- -------- Net amount recognized..........$ (6,230) $ (5,738) $ (5,127) $ (4,525) ======== ======== ======== ======== Actuarial assumptions: Discount rate.................. 6.75% 7.25% 6.75% 7.25% Rate of increase in future compensation................. 2.5-7.00% 3.5-9.00% 2.5%-7.00% 3.5-9.00% (Graded) (Graded) (Graded) (Graded) Expected long-term rate of return on plan assets........ 9.25% 9.25% - - - ------------------------------------------------------------------------------ 24 The following table sets forth aggregated net domestic periodic benefit cost for 2002, 2001 and 2000: (In thousands) - ------------------------------------------------------------------------------ Pension Benefits Other Benefits 2002 2001 2000 2002 2001 2000 ---- ---- ---- ---- ---- ---- Service cost.... $3,276 $3,163 $3,100 $ 312 $ 307 $ 289 Interest cost... 7,588 7,487 7,056 859 872 868 Expected return on assets...... (10,433) (9,835) (9,171) - - - Amortization of unrecognized: obligation (asset)...... - - (112) 489 489 489 Prior service cost......... 1,214 913 819 - - - Loss (Gain)... (719) (770) (677) 144 135 122 ------ ------ ------ ------ ------ ------ Net periodic benefit cost... $ 926 $ 958 $1,015 $1,804 $1,803 $1,768 Settlement cost. 117 - - - - - ------ ------ ------ ------ ------ ------ Total benefit cost $1,043 $ 958 $1,015 $1,804 $1,803 $1,768 ====== ====== ====== ====== ====== ====== - ------------------------------------------------------------------------------ The plan assets of the pension plans consist primarily of common stocks and bonds, including $25,399 and $24,888 of the Company's common stock in 2002 and 2001, respectively. The company consults with its investment advisors as to the expected return on plan assets. While past performance is not a guarantee of future returns, the plan assets of the pension plans for the past fifteen years have averaged in excess of 11% annually and the composition of the plan assets leads the company to expect a long term rate of return in excess of 9.25% despite the recent downturn in the broader stock market. One of the Company's three pension plans covers certain management employees. The Company does not fund this plan, and its assets were zero in 2002 and 2001. The plan's projected benefit obligation and accumulated benefit obligation were $5,898 and $5,231, respectively, at December 28, 2002, and $5,312 and $4,885, respectively, at December 29, 2001. The Company's German subsidiary, which does not report pension information under the Employee Retirement Income Security Act of 1974, calculates the pension liability based on local requirements. The long-term pension liability for the German subsidiary was $1,250 at December 28, 2002 and $1,036 at December 29, 2001. The difference between calculating the pension liability under local requirements versus SFAS No. 87 requirements is not significant. Pension liabilities for other foreign subsidiaries are not significant. DEFINED CONTRIBUTION PLANS - The Company maintains an integrated 401(k) and Employee Stock Ownership Plan (ESOP). 25 In 1996 and 1992, the ESOP Trustee acquired shares of Company common stock on the open market using the proceeds of a ten-year, $0.3 million loan and a fifteen-year, $3.0 million loan, respectively, from the Company. Under the terms of the variable rate loan (6.31 percent at December 28, 2002), principal plus interest is payable in equal annual installments. The shares of stock purchased with the loan proceeds are collateral for the loan and are considered outstanding for purposes of calculating earnings per share. The Company contributes a portion of its 401(k) matching contribution as well as an additional annual contribution, both subject to the Company's annual financial results, to the ESOP Trust. The ESOP Trustee uses a portion of the Company's contributions to make principal and interest payments on the loan. As loan payments are made, shares of common stock are released as collateral and are allocated to participants' accounts. The balance of the Company's contributions in cash or common stock is made to the Company stock fund of the 401(k) and ESOP Trusts, and allocated to participants' accounts to satisfy the balance of the Company's 401(k) matching contribution. At December 28, 2002, 263,079 shares were allocated to the accounts of participants, 17,220 shares were committed to be released and allocated to the accounts of participants for service rendered during 2002, and 76,116 shares were held by the ESOP Trust in suspense. The following table sets forth the interest expense and Company contributions to the integrated ESOP and 401(k) Plan. (In thousands) - ------------------------------------------------------------------------------ 2002 2001 2000 ---- ---- ---- Interest expense incurred by the plan on ESOP debt............................. $ 74 $ 88 $ 104 Company contributions to integrated plan... $1,118 $1,199 $1,308 - ------------------------------------------------------------------------------ 4. ACCRUED EXPENSES Accrued expenses consisted of: (In thousands) - ------------------------------------------------------------------------------ 2002 2001 ---- ---- Salaries, wages and commissions....... $ 11,595 $ 8,116 Product warranty costs................ 5,308 4,970 Insurance............................. 5,762 5,926 Employee benefits..................... 2,116 1,994 Other................................. 3,703 3,140 ------- ------- $28,484 $24,146 ======= ======= - ------------------------------------------------------------------------------ 26 5. INCOME TAXES Income before income taxes consisted of: (In thousands) - ------------------------------------------------------------------------------ 2002 2001 2000 ---- ---- ---- Domestic.................... $45,344 $35,643 $27,202 Foreign..................... 5,133 7,742 8,707 ------- ------- ------- $50,477 $43,385 $35,909 ======= ======= ======= - ------------------------------------------------------------------------------ The income tax provision consisted of: (In thousands) - ------------------------------------------------------------------------------ 2002 2001 2000 ---- ---- ---- Currently payable: Federal................... $ 11,890 $ 9,145 $ 8,328 Foreign................... 2,934 2,622 3,412 State..................... 2,785 1,552 1,977 Deferred: Federal................... 1,435 2,320 (188) Foreign................... (826) 152 68 State..................... 55 444 86 ------- ------- ------- $18,273 $16,235 $13,683 ======= ======= ======= - ------------------------------------------------------------------------------ Significant components of the Company's deferred tax assets and liabilities were as follows: (In thousands) - ------------------------------------------------------------------------------ 2002 2001 Deferred tax assets: Accrued expenses and reserves.............. $ 5,094 $ 5,861 Compensation and employee benefits......... 10,636 8,277 Other items................................ 2,488 2,381 ------- ------- Total deferred tax assets................ 18,218 16,519 ------- ------- Deferred tax liabilities: Accelerated depreciation on fixed assets... 7,043 6,564 Other items................................ 1,169 1,271 ------- ------- Total deferred tax liabilities........... 8,212 7,835 ------- ------- Net deferred tax assets...................... $10,006 $ 8,684 ======= ======= - ------------------------------------------------------------------------------ 27 The portions of current and non-current deferred tax assets and liabilities were as follows: (In thousands) - ------------------------------------------------------------------------------ 2002 2001 ---- ---- Deferred Deferred Deferred Deferred Tax Tax Tax Tax Assets Liabilities Assets Liabilities ------ ----------- ------ ----------- Current........ $ 8,797 $ 182 $ 9,474 $ 807 Non-current.... 9,421 8,030 7,045 7,028 ------- ------- ------- ------- $18,218 $ 8,212 $16,519 $ 7,835 ======= ======= ======= ======= - ------------------------------------------------------------------------------ There was no valuation allowance for deferred tax assets required in 2002 or 2001. The differences between the statutory and effective tax rates were as follows: - ------------------------------------------------------------------------------ 2002 2001 2000 ---- ---- ---- U.S. Federal statutory rate...... 35.0% 35.0% 35.0% State income taxes, net of federal benefit................ 3.7 3.0 3.4 Extraterritorial Income Exclusion (1.9) (1.4) (1.1) R&D Tax Credits.................. (1.3) - - Other Items...................... .7 0.8 0.8 ----- ----- ----- 36.2% 37.4% 38.1% ===== ===== ===== 28 6. DEBT Long-term debt consisted of: (In thousands) - ------------------------------------------------------------------------------ 2002 2001 ---- ---- Insurance Company--6.31%, principal payments of $1.0 million due in annual installments, with a balloon payment of $10,000 in 2008 ($2,920 denominated in yen at 12/28/02)........ $14,697 $15,448 Revolving Credit Agreement--average Interest rate of 3.60% due in 2006, denominated in euros at 12/28/02....... 10,128 - Other.................................... 2,564 34 ------ ------- 27,389 15,482 Less current maturities.................. (1,443) (1,017) ------- ------- $25,946 $14,465 ======= ======= - ------------------------------------------------------------------------------ The Company's short-term borrowings were $24 and $41 at December 28, 2002 and December 29, 2001, respectively. On November 26, 2001, the Company entered into an unsecured, 38-month, $60.0 million revolving credit agreement (the "Agreement"). The amount available for borrowing under the Agreement is reduced by the amount of certain standby letters-of-credit. These standby letters-of-credit totaled $2,008 and $1,650 at December 28, 2002 and December 29, 2001, respectively. The Agreement includes a facility fee of one-eighth of one percent on the committed amount. The Agreement provides for various borrowing rate options including interest rates based on the London Interbank Offered Rates (LIBOR) plus interest spreads keyed to the Company's ratio of debt to earnings before interest, taxes, depreciation, and amortization (EBITDA). The Agreement contains certain financial covenants with respect to borrowings, interest coverage, working capital, net worth, loans or advances and investments. The Company was in compliance with all debt covenants at all times in 2002 and 2001. 7. SHAREOWNERS' EQUITY The Company had 10,824,000 shares of common stock (25,000,000 shares authorized, $.10 par value) outstanding at the end of 2002. During 2002 and 2001, pursuant to stock repurchase programs authorized by the Company's Board of Directors, the Company repurchased a total of 85,131 shares for $3.6 million and 408,200 shares for $14.2 million, respectively. Of these shares, 40,000 were repurchased from an officer of the Company in 2001. All repurchased shares were retired. 29 During 2002, under terms of a Company stock option plan, participants delivered 138,368 shares of Company common stock as consideration for stock issued upon the exercise of stock options. Of these shares, 138,248 were from an officer of the Company. The total exercise price of the respective stock options was $6.9 million. The Company recorded a $4.8 million reduction in its deferred tax liability and an increase to shareowners' equity as a result of these exercises. The shares delivered to the Company were subsequently retired. Accumulated other comprehensive loss, consisting of the currency translation adjustment and the pension liability adjustment, were $2,251 and $3,950, respectively, at December 28, 2002, and $8,109 and $778, respectively, as of December 29,2001. 8. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share: (In thousands, except per share amounts) - ------------------------------------------------------------------------------ 2002 2001 2000 ---- ---- ---- - ------------------------------------------------------------------------------ Numerator: Net Income.......................... $32,204 $27,150 $22,226 ======= ======= ======= Denominator: Basic ----- Weighted-average common shares..... 10,792 10,886 10,908 Diluted ------- Effect of dilutive securities: Employee and director incentive stock options and awards........ 574 484 460 ------- ------- ------- Adjusted weighted-average common shares.......................... 11,366 11,370 11,368 ======= ======= ======= Basic earnings per share.............. $ 2.98 $ 2.49 $ 2.04 ======= ======= ======= Diluted earnings per share............ $ 2.83 $ 2.39 $ 1.96 ======= ======= ======= - ------------------------------------------------------------------------------ 30 9. STOCK-BASED COMPENSATION The Company has authorized the grant of options to purchase common stock of the Company to employees and non-employee directors of the Company and its subsidiaries under four fixed stock option plans. The plans and the original number of authorized shares available for grants are as follows: - ----------------------------------------------------------------------------- Shares ------ Employee Plans: 1986 Non-Qualified Stock Option Plan 1,110,000 1996 Employee Stock Option Plan 1,200,000 Non-Employee Director Plans: 1990 Non-Employee Director Stock Option Plan 120,000 Amended and Restated 1996 Non-Employee Director Stock Option Plan 600,000 - ----------------------------------------------------------------------------- Under each of the above plans, the exercise price of each option equals the market price of the Company's common stock on the date of grant and the options expire ten years after the date of the grant. Generally, options granted under the Employee Plans vest 20 percent a year and become fully vested and exercisable after five years. Options granted under the Non- Employee Director Plans vest 33 percent a year and become fully vested and exercisable after three years. A summary of the Company's fixed stock option plans activity and related information for 2002, 2001 and 2000 follows:
- ------------------------------------------------------------------------------------------------------------ 2002 2001 2000 ---- ---- ---- Weighted-Average Weighted-Average Weighted-Average Fixed Options Shares Exercise Price Shares Exercise Price Shares Exercise Price - ------------- ------------------------- ------------------------- ------------------------- Outstanding at beginning of year 1,662,300 $26.30 1,421,700 $23.45 1,179,834 $19.40 Granted 230,500 48.18 322,000 36.90 368,666 32.51 Exercised (378,500) 15.71 (68,000) 15.58 (126,800) 12.15 Forfeited (50,400) 36.96 (13,400) 31.96 - - --------- --------- --------- Outstanding at end of year 1,463,900 $32.12 1,662,300 $26.30 1,421,700 $23.45 ========= ========= ========= - ------------------------------------------------------------------------------------------------------------
The following summarizes information about fixed stock options outstanding at December 28, 2002:
- ------------------------------------------------------------------------------------------------------------ Options Outstanding Options Exercisable ------------------------------------------------- ------------------------------ Number Weighted-Average Number Range of Outstanding Remaining Weighted-Average Exercisable Weighted-Average Exercise Prices at 12/28/02 Contractual Life Exercise Price at 12/28/02 Exercise Price - --------------- ----------- ---------------- ----------------- ----------- --------------- $12.25 to 31.37 411,000 3.00 years $17.76 411,000 $17.76 31.38 to 42.44 832,400 7.58 34.84 358,600 34.68 42.45 to 49.95 220,500 9.66 48.61 - - --------- ------- $12.25 to 49.95 1,463,900 6.61 $32.12 769,600 $25.64 ========= ======= - ------------------------------------------------------------------------------------------------------------
31 For pro forma information regarding net income and earnings per share, the fair value for the options awarded in 2002, 2001 and 2000 for all fixed stock option plans was estimated as of the date of the grant using a Black-Scholes option valuation model. The following table sets forth the weighted-average assumptions for 2002, 2001 and 2000, respectively. - ------------------------------------------------------------------------------ 2002 2001 2000 ---- ---- ---- Risk-free interest rate............ 4.23% 4.93% 6.19% Dividend yield..................... 1.10% 1.30% 1.30% Volatility factor.................. .207 .204 .198 Weighted-average expected life..... 6 years 6 years 6 years - ------------------------------------------------------------------------------ For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the option's vesting period. Therefore, in the year of adoption and subsequently affected years, the effects of applying SFAS No. 123 for providing pro forma net income and earnings per share are not likely to be representative of the effects on reported income in future years. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation: (In thousands, except per share amounts) - ------------------------------------------------------------------------------ 2002 2001 2000 ---- ---- ---- Reported net income................. $32,204 $27,150 $22,226 Less: Total fair value computed stock-based compensation, net of tax (1,270) (1,086) (967) ------- ------- ------- Pro forma net income................ $30,934 $26,064 $21,259 ======= ======= ======= Reported net income available per common share.................. $2.98 $2.49 $2.04 Pro forma net income available per common share.................. $2.87 $2.39 $1.96 Reported net income available per common share, assuming dilution... $2.83 $2.39 $1.96 Pro forma net income available per common share, assuming dilution... $2.72 $2.29 $1.87 - ------------------------------------------------------------------------------ The Black-Scholes option valuation model used by the Company was developed for use in estimating the fair value of fully tradable options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. It is management's opinion that the Company's stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options. 32 During 2000, the Franklin Electric Co., Inc. Key Employee Performance Incentive Stock Plan (Incentive Plan) was established. Under the Incentive Plan, employees may be granted restricted shares of the Company's common stock, vesting subject to the performance of certain goals. No shares were awarded under the Incentive Plan in 2002 and 2001. At December 28, 2002, 200,000 shares were available for future awards. The Company has 1,776,000 shares of its common stock available for issuance under the 1988 Executive Stock Purchase Plan (1988 Purchase Plan). Under the 1988 Purchase Plan, executives of the Company are awarded the right to purchase shares of its common stock through a Company loan at the closing price on the day prior to the date of purchase. In 1998, the Company extended the 1988 Purchase Plan ten additional years. At December 28, 2002, 1,025,600 shares were available for future awards. At December 28, 2002 there were no outstanding loans to Company executives; further, the Sarbanes-Oxley Act of 2002 prohibits the type of loan contemplated under the 1988 Purchase Plan. 10. SEGMENT AND GEOGRAPHIC INFORMATION Based on the management approach established by SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information", the Company's business consists of two operating segments that offer different products: the motor segment and the electronic controls segment. The motor segment designs, manufactures and sells motors and related parts and equipment for use in submersible water and fueling systems, and in a wide variety of industrial motor products. The electronic controls segment designs and manufactures electronic controls for the principal purpose of being a supplier to the motor segment. Under SFAS No. 131's quantitative threshold and aggregation criteria, the Company's two operating segments have been combined into a single reportable segment. As a result, there are no significant differences between reportable segment financial information and the Company's consolidated results. The Company's products are primarily sold to original equipment manufacturers and through independent distributors in the United States, Canada, Mexico, Europe, Australia, South Africa, Mexico, Japan, China and other world markets. Net sales attributed to customers located in the United States were $232.3 million, $218.8 million and $224.4 million in 2002, 2001 and 2000, respectively. Net sales attributed to foreign customers were $122.6 million, $104.1 million and $101.3 million in 2002, 2001 and 2000, respectively, of which no single country was significant. Long-lived assets located in the United States totaled $47.8 million, $47.4 million and $53.0 million in 2002, 2001 and 2000, respectively. Long-lived assets in foreign countries totaled $28.2 million, $11.4 million and $11.6 million in 2002, 2001 and 2000, respectively, of which no single country was significant. ITT Industries, Inc. accounted for 18.2 percent, 18.7 percent, and 15.7 percent of the Company's consolidated sales in 2002, 2001 and 2000, respectively. Sta-Rite Industries, Inc. accounted for 11.5% of the Company's consolidated sales in 2002. 33 11. CONTINGENCIES AND COMMITMENTS The Company is defending various claims and legal actions, including environmental matters, which have arisen in the ordinary course of business. In the opinion of management, after discussion with counsel, these claims and legal actions can be successfully defended or resolved without a material adverse effect on the Company's financial position or results of operations. Total rent expense charged to operations for operating leases including contingent rentals was $2.7 million, $2.4 million and $2.2 million for 2002, 2001 and 2000, respectively. The future minimum rental payments for noncancellable operating leases as of December 28, 2002, are as follows: 2003, $1.7 million; 2004, $1.1 million; and 2005, $0.7 million. Rental commitments subsequent to 2005 are not significant. 12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) Unaudited quarterly financial information for 2002 and 2001 is as follows: (In thousands, except per share amounts) - ------------------------------------------------------------------------------ Basic Diluted Net Gross Net Earnings Earnings Sales Profit Income Per Share Per Share ----- ------ ------ --------- --------- 2002 - ---- 1st Quarter..... $ 68,069 $ 17,851 $ 3,682 $ .34 $ .32 2nd Quarter..... 93,682 26,600 9,006 .83 .79 3rd Quarter..... 97,125 29,553 9,628 .89 .85 4th Quarter..... 95,996 30,931 9,888 .91 .88 -------- -------- ------- $354,872 $104,935 $32,204 $2.98 $2.83 ======== ======== ======= 2001 - ---- 1st Quarter..... $ 65,899 $ 17,113 $ 3,016 $ .27 $ .26 2nd Quarter..... 82,860 23,156 6,614 .60 .58 3rd Quarter..... 86,764 25,035 8,192 .75 .72 4th Quarter..... 87,385 27,567 9,328 .87 .83 -------- -------- ------- $322,908 $ 92,871 $27,150 $2.49 $2.39 ======== ======== ======= - ------------------------------------------------------------------------------ 34 INDEPENDENT AUDITORS' REPORT - ---------------------------- To the Shareowners and Directors, Franklin Electric Co., Inc.: We have audited the accompanying consolidated balance sheets of Franklin Electric Co., Inc. and consolidated subsidiaries as of December 28, 2002 and December 29, 2001 and the related consolidated statements of income, shareowners' equity and cash flows for each of the three years in the period ended December 28, 2002. Our audits also included the financial statement schedule listed in the index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Franklin Electric Co., Inc. and consolidated subsidiaries as of December 28, 2002 and December 29, 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 2002, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ DELOITTE & TOUCHE LLP Deloitte & Touche LLP Chicago, Illinois January 24, 2003 35 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND - ------------------------------------------------------------------------- FINANCIAL DISCLOSURE - -------------------- None. PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------ The information concerning directors required by this Item 10 is set forth in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 25, 2003, under the headings of "ELECTION OF DIRECTORS" and "INFORMATION CONCERNING NOMINEES AND DIRECTORS," and is incorporated herein by reference. The information concerning executive officers required by this Item 10 is contained in Part I of this Form 10-K under the heading of "EXECUTIVE OFFICERS OF THE REGISTRANT." The information concerning Item 405 disclosures of delinquent Form 3,4 or 5 filers required by this Item 10 is set forth in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 25, 2003, under the heading of "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE," and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION - -------------------------------- The information required by Item 11 is set forth in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 25, 2003, under the headings of "INFORMATION ABOUT THE BOARD AND ITS COMMITTEES," "COMPENSATION COMMITTEE REPORT," "SUMMARY COMPENSATION TABLE," "OPTION GRANTS IN 2002 FISCAL YEAR," "AGGREGATED OPTION EXCERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES", "PENSION PLANS" and "AGREEMENTS," and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND - ---------------------------------------------------------------------------- RELATED STOCKHOLDER MATTERS - --------------------------- The information required by Item 12 is set forth in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 25, 2003, under the headings of "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" and "SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS," and is incorporated herein by reference. 36 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------------------------------------------------------- The information required by Item 13 is set forth in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 25, 2003, under the headings of "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" and "AGREEMENTS," and is incorporated herein by reference. ITEM 14. CONTROLS AND PROCEDURES - --------------------------------- Within the 90 days prior to the date of this report (the "Evaluation Date"), the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's Chief Executive Officer and the Company's Chief Financial Officer concluded that as of the Evaluation Date, the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company and its subsidiaries required to be included in the Company's periodic SEC filings. Since the Evaluation Date there have been no significant changes in the Company's internal controls or in other factors which could significantly affect internal controls. 37 PART IV ------- ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - ------------------------------------------------------------------------- Form 10-K Annual Report (page) ------------- (a) 1. Financial Statements - Franklin Electric ---------------------------------------- Independent Auditors' Report........................ 34 Consolidated Statements of Income for the three years ended December 28, 2002............... 14 Consolidated Balance Sheets as of December 28, 2002 and December 29, 2001........... 15-16 Consolidated Statements of Cash Flows for the three years ended December 28, 2002....... 17 Consolidated Statements of Shareowners' Equity for the three years ended December 28, 2002....... 18 Notes to Consolidated Financial Statements (including quarterly financial data).............. 19-33 2. Financial Statement Schedules - Franklin Electric ------------------------------------------------- II Valuation and Qualifying Accounts................ 38 Schedules other than those listed above are omitted for the reason that they are not required or are not applicable, or the required information is disclosed elsewhere in the financial statements and related notes. 3. Exhibits -------- See the Exhibit Index located on pages 44-45. Management Contract or Compensatory Plan or Arrangement is denoted by an asterisk (*). (b) Reports on Form 8-K filed during the fourth quarter ended December 28, 2002: None. (c) See the Exhibit Index located on pages 44-45. (d) Individual financial statements and all other schedules of the Registrant are omitted as they are not required. 38 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS For the years 2002, 2001 and 2000 (In thousands) -------------- Additions Balance at charged to Balance beginning costs and at end Description of period expenses Deductions Other of period - ----------- --------- -------- ---------- ----- --------- Allowance for doubtful accounts: 2002 $1,658 $142 $296 (A) $403 $1,907 ====== ==== ==== ==== ====== 2001 $1,949 $172 $463 (A) $ - $1,658 ====== ==== ==== ==== ====== 2000 $1,333 $673 $ 99 (A) $ 42 $1,949 ====== ==== ==== ==== ====== NOTES: - ------ (A) Uncollectible accounts written off, net of recoveries. 39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Franklin Electric Co., Inc. /s/ WILLIAM H. LAWSON ---------------------- William H. Lawson Chairman of the Board, Chief Date: February 14, 2003 Executive Officer and President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ WILLIAM H. LAWSON Chairman of the Board, Chief - ------------------------------------- Executive Officer and President William H. Lawson February 14, 2003 (Principal Executive Officer) /s/ GREGG C. SENGSTACK Senior Vice President and Chief - ------------------------------------- Financial Officer (Principal Gregg C. Sengstack February 14, 2003 Financial and Accounting Officer) /s/ JEROME D. BRADY - ------------------------------------- Director Jerome D. Brady February 14, 2003 /s/ JOHN B. LINDSAY - ------------------------------------- Director John B. Lindsay February 14, 2003 /s/ ROBERT H. LITTLE - ------------------------------------- Director Robert H. Little February 14, 2003 /s/ PATRICIA SCHAEFER - ------------------------------------- Director Patricia Schaefer February 14, 2003 /s/ DONALD J. SCHNEIDER - ------------------------------------- Director Donald J. Schneider February 14, 2003 /s/ R. SCOTT TRUMBULL - ------------------------------------- Director R. Scott Trumbull February 14, 2003 /s/ JURIS VIKMANIS - ------------------------------------- Director Juris Vikmanis February 14, 2003 /s/ HOWARD B. WITT - ------------------------------------- Director Howard B. Witt February 14, 2003 40 CERTIFICATIONS CERTIFICATION OF CHIEF EXECUTIVE OFFICER ---------------------------------------- I, William H. Lawson, Chairman, Chief Executive Officer and President of Franklin Electric Co., Inc., certify that: 1. I have reviewed this Annual Report on Form 10-K of Franklin Electric Co., Inc.; 2. Based on my knowledge, this Annual 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 Annual Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Annual 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 Annual Report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report (the "Evaluation Date"); and c. presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 41 6. The registrant's other certifying officer and I have indicated in this Annual Report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 14, 2003 ----------------------- /s/ William H. Lawson ----------------------- William H. Lawson Chairman, Chief Executive Officer and President Franklin Electric Co., Inc. 42 CERTIFICATION OF CHIEF FINANCIAL OFFICER ---------------------------------------- I, Gregg C. Sengstack, Senior Vice President and Chief Financial Officer of Franklin Electric Co., Inc., certify that: 1. I have reviewed this Annual Report on Form 10-K of Franklin Electric Co., Inc.; 2. Based on my knowledge, this Annual 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 Annual Report; 3. Based on my knowledge, the financial statements, and other financial information included in this Annual 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 Annual Report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Annual Report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report (the "Evaluation Date"); and c. presented in this Annual Report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors: a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 43 6. The registrant's other certifying officer and I have indicated in this Annual Report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 14, 2003 ---------------------- /s/ Gregg C. Sengstack ---------------------- Gregg C. Sengstack Senior Vice President and Chief Financial Officer Franklin Electric Co., Inc. 44 FRANKLIN ELECTRIC CO., INC. EXHIBIT INDEX TO THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 28, 2002 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 April 3, 1999) 3.2 By-Laws of Franklin Electric Co., Inc. as amended to date 10.1 Rights Agreement dated as of October 15, 1999 between Franklin Electric Co., Inc. and Illinois Stock Transfer Company (incorporated herein by reference to the Company's registration statement on Form 8-A dated October 15, 1999) 10.2 Amended 1988 Executive Stock Purchase Plan (incorporated herein by reference to the Company's 1998 Proxy Statement for the Annual Meeting held on April 17, 1998, and included as Exhibit A to the Proxy Statement)* 10.3 Amended 1986 Stock Option Plan (incorporated herein by reference to the Company's 1988 Proxy Statement for the Annual Meeting held on April 15, 1988, and included as Exhibit C to the Proxy Statement)* 10.4 1990 Franklin Electric Non-Employee Director Stock Option Plan (incorporated herein by reference to the Company's 1991 Proxy Statement for the Annual Meeting on April 19, 1991)* 10.5 1996 Franklin Electric Co., Inc., Employee Stock Option Plan (incorporated herein by reference to the Company's 1996 Proxy Statement for the Annual Meeting held on April 12, 1996, and included as Exhibit A to the Proxy Statement)* 10.6 Franklin Electric Co., Inc. Amended and Restated 1996 Nonemployee Director Stock Option Plan (incorporated herein by reference to the Company's 2000 Proxy Statement for the Annual Meeting held on April 14, 2000, and included as Exhibit A to the Proxy Statement)* 10.7 Franklin Electric Co., Inc. Key Employee Performance Incentive Stock Plan (incorporated herein by reference to the Company's 2000 Proxy Statement for the Annual Meeting held on April 14, 2000, and included as Exhibit B to the Proxy Statement)* 45 10.8 Franklin Electric Co., Inc. Nonemployee Directors' Deferred Compensation Plan (incorporated herein by reference to Exhibit 10.9 of the Company's Form 10-K for the fiscal year ended December 30, 2000)* 10.9 Amended and Restated Franklin Electric Co., Inc. Pension Restoration Plan (incorporated herein by reference to Exhibit 10.9 of the Company's Form 10-K for the fiscal year ended December 29, 2001)* 10.10 Employment Agreement dated December 3, 2002 between the Company and Scott Trumbull* 10.11 Employment Agreement dated October 23, 1995 between the Company and Jess B. Ford (incorporated herein by reference to Exhibit 10.7 of the Company's Form 10-K for the fiscal year ended December 30, 1995)* 10.12 Amended Employment Agreement dated December 20, 2002 between the Company and Gregg C. Sengstack* 10.13 $60,000,000 Credit Agreement dated as of November 26, 2001 between the Company and various commercial banks (incorporated herein by reference to Exhibit 10.13 of the Company's Form 10-K for the fiscal year ended December 29, 2001) 10.14 Amended and Restated Note Purchase and Private Shelf Agreement dated March 1, 2002 between the Company and the Prudential Insurance Company of America (incorporated herein by reference to Exhibit 10.1 of the Company's Form 10-Q for the quarter ended March 30, 2002) 10.15 Consulting Agreement dated January 31, 2003 between the Company and William H. Lawson* 21 Subsidiaries of the Registrant 23 Independent Auditors' Consent 99.1 Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 99.2 Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350 As Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 99.3 Forward-Looking Statements * Management contract or compensatory plan or arrangement 46 EXHIBIT 21 ---------- FRANKLIN ELECTRIC CO., INC. SUBSIDIARIES OF THE REGISTRANT ------------ Percent of State or country voting of incorporation stock owned ---------------- ----------- Subsidiaries consolidated: Advanced Polymer Technology, Inc. Michigan 100 Coverco S.r.l. Italy 100 EBW, Inc. Michigan 100 FE Petro, Inc. Indiana 100 Franklin Electric International, Inc. Delaware 100 Franklin Electric Subsidiaries, Inc. [inactive] Indiana 100 Franklin Electric Foreign Sales Corporation U.S. Virgin Islands 100 Franklin Electric B.V. Netherlands 100 Franklin Electric Europa, GmbH Germany 100 Franklin Electric spol s.r.o. Czech Republic 100 Franklin Electric (Australia) Pty. Ltd. Australia 100 Franklin Electric (South Africa) Pty. Limited South Africa 100 Franklin Electric (Suzhou) Co., Ltd. China 100 Intelligent Controls, Inc. Maine 100 Motores Electricos Sumergibles De Mexico S De Rl De Co Mexico 100 Motores Franklin S.A. de C.V. Mexico 100 Motori Sommersi Riavvolgibili S.r.l. Italy 75 Servicios De Mesmex S De Rl De Co Mexico 100 47 EXHIBIT 23 ---------- INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in the Registration Statements of Franklin Electric Co., Inc. on Form S-8 (file numbers 2-90330, 33-05034, 33- 21303, 33-35958, 33-35960, 33-35962, 33-38200, 333-01957, 333-01959, 333- 59771, 333-93121, 333-34992, 333-34994 and 333-34996) of our report dated January 24, 2003 appearing in this Annual Report on Form 10-K of Franklin Electric Co., Inc. for the year ended December 28, 2002. /s/ DELOITTE & TOUCHE LLP Deloitte & Touche LLP Chicago, Illinois February 14, 2003 48 EXHIBIT 99.1 ------------ CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS --------------------------------------------------------------------------- ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 ----------------------------------------------------------------- In connection with the Annual Report of Franklin Electric Co., Inc. (the "Company") on Form 10-K for the period ending December 28, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, William H. Lawson, Chairman, Chief Executive Officer and President 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: February 14, 2003 ------------------------- /s/ William H. Lawson ------------------------- William H. Lawson Chairman, Chief Executive Officer and President Franklin Electric Co., Inc. 49 EXHIBIT 99.2 ------------ CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS --------------------------------------------------------------------------- ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 ----------------------------------------------------------------- In connection with the Annual Report of Franklin Electric Co., Inc. (the "Company") on Form 10-K for the period ending December 28, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Gregg C. Sengstack, Senior Vice President and Chief Financial 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: February 14, 2003 ------------------------- /s/ Gregg C. Sengstack ------------------------- Gregg C. Sengstack Senior Vice President and Chief Financial Officer Franklin Electric Co., Inc. 50 EXHIBIT 99.3 ------------ ADDITIONAL EXHIBITS Forward-Looking Statements - -------------------------- Written and oral statements provided by the Company from time to time, including in the Company's annual report to shareholders and its annual report on Form 10-K and other filings under the Securities Exchange Act of 1934, may contain certain forward-looking information, as that term is defined by the Private Securities Litigation Reform Act of 1995 (the "Act") and in releases made by the Securities and Exchange Commission ("SEC"). While the Company believes that the assumptions underlying such forward-looking statements are reasonable based on present conditions, forward-looking statements made by the Company involve risks and uncertainties and are not guarantees of future performance. Actual results may differ materially from those in the Company's written or oral forward-looking statements as a result of various factors, including, but not limited to, the following: A significant decline in sales with the Company's largest two customers, each of whom represents over 10% of consolidated sales, or other significant customers. Continued or increased competitive pressure to reduce selling prices of products or increase financial incentives to customers. A prolonged disruption of scheduled deliveries from suppliers when alternative sources of supply are not available to satisfy the Company's requirements for raw material and components. Delays in the Company's ability to pass along significant increases in the cost of raw material, components, other materials and/or services. The amount of and rate of growth in selling, general and administrative expenses, and occurrences which could affect the Company's ability to reduce or limit the increase in such expenses. The costs and other effects of legal and administrative cases and proceedings (whether civil or criminal), settlements and investigations, claims, developments or assertions by or against the Company relating to intellectual property rights and licenses. The adoption of new, or changes in, accounting policies and practices. Difficulties or delays in the development, production, testing and marketing of products, including, but not limited to, a failure to ship new products when anticipated, failure of customers to accept these products when planned, any defects in products or a failure of manufacturing economies to develop when planned. Circumstances impacting the Company's ability to fund and accomplish technological innovation, improve processes, and attract and retain capable staff in order to deal with increasing volume and complexity in its products. 51 Occurrences affecting the slope or speed of decline of the life cycle of the Company's products, or affecting the Company's ability to reduce product costs and other costs or to increase productivity. The impact of unusual items resulting from the Company's ongoing evaluation of its business strategies, acquisitions or divestitures, asset valuations and organizational structures. The effects of and changes in, trade, monetary and fiscal policies, laws and regulations and other activities of governments, agencies and similar organizations, including, but not limited to, trade restrictions or prohibitions, inflation, monetary fluctuations, import and other charges or taxes, foreign exchange rates, nationalizations and unstable governments. The future health of the U.S. and international economies and other economic factors that directly or indirectly affect the demand for the Company's products. Labor strikes or work stoppages by employees of the Company, its customers, suppliers, or freight contractors or other providers. Environmental factors such as fires, floods, or other natural disasters and weather conditions which could impact the Company's ability to produce products or the demand for its products. Increased competition due to industry consolidation or new entrants into the Company's existing markets. The introduction of alternative products or governmental and regulatory activities that favor alternative methods of serving the same function as the Company's products. All forward-looking statements included herein are based upon information presently available, and the Company assumes no obligation to update any forward-looking statements. 1 EX-3.2 3 rby-laws_10k.txt BY-LAWS EXHIBIT 3 (ii) Effective as of 2/14/03. 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. 2 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 seventy days nor less than ten 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 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 3 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 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 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 4 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. (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 5 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 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. 6 ARTICLE III. DIRECTORS --------- Section 3.1. Number and Classes. The Board of Directors shall consist of no more than ten and no fewer than five 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. 7 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. 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: 8 (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. 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 9 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 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. 10 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 (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. 11 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 a 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 agent to obtain a blanket lost original instruments bond naming this Corporation and such transfer agent as the obligees therein. Section 6.5. Transfer Agents 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. 12 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 shall be fully protected and shall be under no duty to inquire whether the Board of Directors has taken action in respect thereof. 13 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. 14 (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 Corporation's best interest; 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: 15 (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 Directors 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 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. 16 (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, 17 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 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. 18 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. 5 EX-10.10 4 rtrumbull_10k.txt TRUMBULL EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT is entered into this 3rd day of December, 2002 between FRANKLIN ELECTRIC CO., INC. ("Franklin"), an Indiana corporation, and R. Scott Trumbull (the "Executive"). WHEREAS, Franklin desires to employ Executive as its Chairman of the Board and Chief Executive Officer, and Executive is willing to accept such employment upon the terms and conditions set forth below; NOW THEREFORE, in consideration of the premises and mutual covenants and agreements herein contained, the parties hereto hereby agree as follows: 1. EMPLOYMENT. Franklin agrees to employ Executive as its Chairman of the Board and Chief Executive Officer to perform all such duties as are normally associated with such positions in companies of similar size and nature or are prescribed for such offices by the by-laws or directed by the Board of Directors, and Executive agrees to serve Franklin in such capacities and devote his full business time and attention to the business of Franklin, subject to vacations, holidays, normal illnesses and a reasonable amount of time for civic, community and industry affairs. Executive agrees not to accept membership on the Board of Directors of any other business corporation without the prior approval of the Personnel and Compensation Committee of the Board of Directors of Franklin. 2. ELECTION AS DIRECTOR. Franklin shall take all such action as may be necessary during the term of this Agreement to cause Executive to be elected and remain elected as a member and as Chairman of the Board of the Board of Directors of Franklin and its subsidiaries. 3. TERM. The employment of Executive hereunder (the "Term") shall be for a period of three years commencing January 1, 2003, and ending on December 31, 2005, provided that on January 1, 2004 and each January 1 thereafter during the Term (each such January 1 occurring during the Term being an "Anniversary Date"), the Term shall automatically and without any action by either party hereto be extended for an additional period of one year unless at least ninety (90) days prior to any Anniversary Date that occurs after December 31, 2005 either party notifies the other of its election not to extend the then current Term, in which case the Term shall end at the expiration of the Term as last extended. Following any such notice by the Company of its election not to extend the Term, the Executive may terminate his employment at any time prior to the expiration of the Term by giving written notice to the Company at least thirty (30) days prior to the effective date of termination, and upon the earlier of such effective date of termination or the expiration of the Term the Executive shall be entitled to receive the same compensation and benefits as are provided in subparagraph (b) of paragraph 7 but for a severance period which shall begin on the effective date of termination or expiration of the Term, as the case may be, and ending on the earlier of (i) the date on which Executive would attain his normal retirement age (as defined in the Franklin Electric Co., Inc. Basic Retirement Plan, hereinafter referred to as "Normal Retirement Age"), or (ii) twelve (12) months. 4. COMPENSATION. Franklin shall pay for or provide to Executive for all services to be performed by Executive under this Agreement the following: 2 (a) A fixed salary of $475,000 per annum, or such higher amount as the Board of Directors of Franklin may from time to time authorize (which amount shall not be reduced below the amount at any time in effect without Executive's consent), payable in equal monthly installments (such amount from time to time in effect being referred to herein as "Executive's Salary"); (b) Such bonus as may be allocated to Executive by the Compensation Committee of Franklin's Board of Directors pursuant to the Franklin Executive Officer Bonus Plan except that notwithstanding the terms of such plan, the maximum annual bonus that may be earned shall be 100% of Executive's Salary; (c) Participation in Franklin's Stock Option Plans, as long as such plans remain in effect, and in any future compensation plans covering senior executives of Franklin, including an initial grant of stock options to purchase an aggregate of 200,000 shares of Franklin Common Stock at an option price per share equal to the Fair Market Value (as defined in the Franklin Electric Co., Inc. 1996 Employee Stock Option Plan or other similar plan) of a share of Franklin Common Stock on the date of the commencement of the Term; (d) Participation in Franklin's employee benefit plans, policies, practices and arrangements in which other senior executives of Franklin participate as long as such plans, policies, practices and arrangements remain in effect, and in any future employee benefit plans and arrangements covering senior executives, including without limitation any defined benefit retirement plan, excess plan, profit sharing plan, health or dental plan, disability plan, survivor income plan, or life insurance plan (collectively, the "Benefit Plans"). For all purposes under Franklin's qualified and non-qualified retirement plans, including but not limited to vesting and benefit accrual, Executive shall be deemed to have completed five (5) years of full-time service with Franklin as of January 1, 2003, and Executive's compensation for benefit computation purposes thereunder shall include only compensation payable hereunder and not his prior compensation received as a member of the Board of Directors of Franklin, the intent being that from and after January 1, 2003 Executive shall be entitled to a fully accrued minimum five-year benefit under such plans in the aggregate irrespective of the date of his termination of employment for any reason whatsoever, such benefit enhancement having been referred to from time to time in the past by Franklin as the Bluffton Supplement. It is further understood that to the extent such enhanced benefit cannot for legal reasons be provided under Franklin's qualified defined benefit retirement plan or plans, the same shall be fully provided by its non- qualified supplemental retirement plan or plans. (e) Paid vacations and sick leave in accordance with Franklin's policies respecting same as in effect from time to time; and (f) All fringe benefits and perquisites offered by Franklin from time to time to senior executives. 5. EXPENSES. Franklin shall promptly pay or reimburse Executive for 3 all reasonable expenses incurred by Executive in the performance of duties hereunder in accordance with expense policies from time to time in effect for senior executives of Franklin. 6. CONDITIONS OF EMPLOYMENT. During the Term, Executive shall be furnished office space, assistance and accommodations suitable to the character of his positions with Franklin and adequate for the performance of his duties. Executive's services shall be performed at Franklin's principal executive office in Bluffton, Indiana, except when the nature of Executive's duties hereunder requires reasonable domestic and foreign travel. 7. TERMINATION OF EMPLOYMENT. Either Executive or Franklin may terminate Executive's employment hereunder at any time upon giving the other at least ninety (90) days advance written notice of such termination, provided that Franklin may specify an earlier date of termination (not earlier than the date of such notice) if termination is for Good Cause (as defined below), and Executive may specify an earlier date of termination (not earlier than the date of such notice) if termination is for Good Reason (as defined below), and provided further that if termination is due to the death of Executive, termination shall be effective immediately upon such death and without any requirement for written notice. In the event of any termination hereunder Executive shall be entitled to receive compensation and benefits only as hereinafter set forth or as provided in paragraph 3: (a) If Executive's employment is terminated by Executive without Good Reason or by Franklin with Good Cause (i) Executive's compensation under (a) and (b) of Paragraph 4 shall be limited to a pro-rata portion of Executive's Salary (and not any bonus) for the year of termination, and (ii) Executive shall continue to be provided with the benefits under (c), (d), (e) and (f) of Paragraph 4, (subject however to all terms, if any, of the Benefit Plans that may be applicable to termination of employment) until the effective date of the termination; (b) If at any time other than as specified in subparagraph (c) of this paragraph 7, Franklin shall terminate Executive's employment without Good Cause, or Executive shall voluntarily terminate such employment with Good Reason, (i) Executive's compensation under (a) and (b) of Paragraph 4 for the portion of the year of termination prior to the effective date of termination shall be a pro-rata portion of Executive's Salary for such year, together with a bonus equal to not less than a pro-rata portion of his bonus paid or payable for the year prior to the year of termination (except that if the termination shall be in his first year of employment he shall receive a pro rata portion of an assumed annualized bonus amount of 100% of Executive's Salary then in effect), (ii) Executive shall receive as compensation for the severance period described below an additional amount, payable in a lump sum within thirty (30) days after the effective date of his termination of employment, computed by annualizing the compensation which he is to receive pursuant to clause (i) above, (iii) Executive shall continue to be provided with the benefits under (c) and (d) of Paragraph 4 for such severance period, and (iv) any stock options granted to Executive by Franklin shall be accelerated and become immediately exercisable in full on the effective date of termination, 4 subject to any limitations on the order of exercise which may be applicable to incentive stock options (as defined in Section 422 of the Internal Revenue Code of 1986, as amended), if any, that may hereafter be granted, and shall remain exercisable for such period after the effective date of termination as is provided under the terms of the options and the plans pursuant to which they were issued. The severance period for this subparagraph (b) of paragraph 7 shall be the period beginning on the date of termination and ending on the earlier of (A) the date on which Executive would attain his Normal Retirement Age, or whichever of the following clauses is applicable, (B) thirty- six (36) months if the effective date of termination is prior to the Third Anniversary Date, or (C) eighteen (18) months if the effective date of termination is after the Third Anniversary Date. (c) If within two (2) years after a Change in Control, (i) Franklin shall terminate Executive's employment with Franklin without Good Cause, (ii) Executive shall voluntarily terminate such employment with Good Reason, or (iii) Executive shall voluntarily terminate such employment for any reason whatsoever during the period beginning on the first anniversary of the Change in Control and ending thirty (30) days thereafter, Franklin shall, within thirty (30) days after any such termination, pay to Executive (A) a lump sum cash amount as compensation under (a) and (b) of Paragraph 4 for the portion of the year of termination prior to the effective date of termination equal to a pro-rata portion of Executive's Salary for such year, together with a bonus equal to not less than a pro-rata portion of his bonus paid or payable for the year prior to the year of termination (except that if the termination shall be in his first year of employment he shall receive a pro rata portion of an assumed annualized bonus amount of 100% of Executive's Salary then in effect), (B) a lump sum cash amount, as compensation for the severance period described below, computed by annualizing the compensation which he is to receive pursuant to clause (A) above, and (C) in settlement of any stock options then outstanding (whether or not then exercisable), a lump sum cash payment equal to the difference between the aggregate fair market value of the shares subject to such options as of the date of such termination and the aggregate exercise price thereof. In addition, Executive shall, following his termination of employment under this subparagraph (c) of paragraph 7, for the severance period described below continue to be provided with the benefits under (c) and (d) of Paragraph 4 The severance period for this subparagraph (c) of paragraph 7 shall be the period beginning on the date of termination and ending on the earlier of (A) the date on which Executive would attain his Normal Retirement Age, or (B) thirty-six (36) months. (d) Franklin agrees that with respect to any compensation or benefits payable hereunder to Executive with respect to termination of his employment with Franklin for any reason whatsoever, Executive shall not be required to mitigate his damages by seeking other employment or otherwise, and Franklin's obligations hereunder shall not be reduced in any way by reason of any compensation received by Executive from sources other than Franklin after the termination of Executive's employment with Franklin for any reason whatsoever. 5 (e) In the event that Executive is subject to an excise tax under Section 4999 of the Internal Revenue Code of 1986 with respect to any cash, benefits or other property received, or any acceleration of vesting of any benefit or award, in the event of a Change of Control, Franklin shall pay Executive an amount (a "Gross-Up Payment") such that after payment by Employee of (i) all taxes imposed upon the Gross-Up Payment, and (ii) any interest, penalties and additions which are imposed on Executive with respect to such taxes, the Executive retains an amount of the Gross-Up Payment equal to the sum of (i) the Excise Tax imposed and (ii) the product of any deductions disallowed because of the inclusion of the Gross-Up Payment in the Employee's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-Up Payment is to be made, and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (f) For purposes of this paragraph 7: (1) "Good Cause" shall mean (A) Executive's death or disability, (B) Executive's fraud, (C) Executive's misappropriation of, or intentional material damage to, the property or business of Franklin, (D) Executive's commission of a felony which is likely to result in material harm or injury (whether financial or otherwise) to Franklin, provided that if Executive is ultimately not convicted of the alleged felony, Franklin's termination of his employment based on this provision shall be deemed to have been without Good Cause, or (E) with respect to any termination not subject to subparagraph (c) of this paragraph 7, Executive's willful and continued material failure to perform his obligations under this Agreement, provided that Franklin shall have given written notice to Executive describing such failure(s) and, as long as it is capable of being cured and does not involve acts of material dishonesty directed against Franklin, the same shall not have been substantially cured or corrected within thirty (30) days thereafter, or if the same could not reasonably be cured within such period, cure was not commenced within such period and diligently pursued and fully cured within sixty (60) days of Franklin's original notice to Executive. (2) "Good Reason" shall exist if (A) there is a change in the Executive's title of Chief Executive Officer or a significant change in the nature or the scope of Executive's authority, (B) there is a reduction in Executive's Salary or retirement benefits described in paragraph 4(d) or a material reduction in Executive's compensation and benefits in the aggregate, excluding (in the case of incentive benefits that are based upon the performance of Executive or Franklin) reductions in benefits resulting from diminished performance by Executive or Franklin, 6 (C) Franklin changes the principal location in which Executive is required to perform services to a location more than fifty (50) miles from Franklin's corporate headquarters as of the date of this Agreement, (D) there is a reasonable determination by Executive that, as a result of a change in circumstances significantly affecting his position, he is unable to exercise the authority, powers, function or duties attached to his positions, or (E) any purchaser (or affiliate thereof) who purchases substantially all of the assets of Franklin shall decline to assume all of Franklin's obligations under this Agreement. (3) "Change in control" shall be deemed to have taken place if (A) a third person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, and excluding any person who, as of the date of this Agreement, is the beneficial owner of shares of Franklin stock representing 20% or more of the total number of votes that may be cast for the election of Directors, becomes the beneficial owner of shares of Franklin stock representing 20% or more of the total number of votes that may be cast for the election of Directors, or (B) as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who immediately prior thereto were directors of Franklin cease to constitute a majority of the Board of Directors of Franklin. Notwithstanding the foregoing sentence, a Change of Control shall not be deemed to occur by virtue of any transaction in which Executive is a participant in a group effecting an acquisition of Franklin if Executive holds an equity interest in the entity acquiring Franklin at the time of such acquisition. 8. INDEMNIFICATION. Franklin shall indemnify, protect, defend and hold harmless Executive from and against all liabilities, costs and expenses (including but not limited to attorneys' fees) incurred as a result of Executive's employment with Franklin to the fullest extent permitted by the Indiana Business Corporation Law. 9. LITIGATION EXPENSES Franklin shall pay to Executive all out-of- pocket expenses, including attorneys' fees, incurred by Executive in connection with any claim or legal action or proceeding involving this Agreement, whether brought by Executive or by or on behalf of Franklin or by another party; provided, however, Franklin shall not be obligated to pay to Executive out-of-pocket expenses, including attorneys' fees, incurred by Executive in any claim or legal action or proceeding in which Franklin is a party adverse to Executive if Franklin prevails in such litigation. Franklin shall pay prejudgment interest on any money judgment obtained by Executive, calculated at the published prime interest rate charged by Franklin's principal banking connection, as in effect from time to time, from the date that payment(s) to him should have been made under this Agreement. 10. POST-TERMINATION PAYMENT OBLIGATIONS ABSOLUTE. Franklin's obligation to pay Executive the compensation and to make the other arrangements provided herein to be paid and made after termination of 7 Executive's employment with Franklin shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right that Franklin may have against him or anyone else. All amounts so payable by Franklin shall be paid without notice or demand. Each and every such payment made by Franklin shall be final and Franklin will not seek to recover all or any part of such payment from Executive or from whomsoever may be entitled thereto, for any reason whatsoever. Payment by Franklin of the termination benefits provided in paragraphs 3 or 7 hereof, and the acceptance thereof by Executive, shall constitute a release by Executive of all claims and actions that Executive may have against Franklin arising out of Executive's employment or the termination thereof except for continuing obligations of Franklin under this Agreement. 11. DISCLOSURE OF CONFIDENTIAL INFORMATION. Without the consent of Franklin, Executive shall not at any time divulge, furnish or make accessible to anyone (other than in the regular course of business of Franklin) any knowledge or information with respect to confidential or secret processes, inventions, formulae, machinery, plan, devices or materials of Franklin or with respect to any confidential or secret engineering development or research work of Franklin or with respect to any other confidential or secret aspect of the business of Franklin. Executive recognizes that irreparable injury will result to Franklin and its business and properties, in the event of any breach by Executive of any of the provisions of this paragraph 11. In the event of any breach of any of the commitments of Executive pursuant to this paragraph 11, Franklin shall be entitled, in addition to any other remedies and damages available, to injunctive relief to restrain the violation of such commitments by Executive or by any person or persons acting for or with Executive in any capacity whatsoever. 12. SOLICITATION OF CUSTOMERS OR EMPLOYEES. During the term of this Agreement and for a period of twenty-four (24) months after termination of employment, Executive shall not, directly of indirectly, or assist any other person to, solicit, or communicate with, whether by written or personal contact, any customer or prospect of Franklin on behalf of any organization offering products competitive with products Franklin sold or developed while Executive was employed by Franklin, and Executive shall not (i) directly or indirectly, employ or retain or solicit for employment or arrange to have any other person, firm or other entity employ or retain or solicit for employment or otherwise participate in the employment or retention of any person who is an employee of Franklin or (ii) encourage or solicit any such employee to leave the service of Franklin. 13. MODIFICATION OF STOCK OPTION PLAN. In connection with the initial grant of stock options to Executive as provided in paragraph 4 hereof, Franklin shall take all appropriate action following commencement of Executive's employment hereunder to increase the number of shares available for grant under the Franklin Electric Co., Inc. 1996 Employee Stock Option Plan or other similar plan and all such additional actions in accordance with such plan or plans to implement the initial grant contemplated by paragraph 4 as soon as practicable, it being understood that in any event such options shall be deemed granted and the vesting period commenced as of January 1, 2003. 8 14. NOTICES. Notices given pursuant to this Agreement shall be in writing and shall be deemed given when received or, if mailed, two days after mailing by United States registered or certified mail, return receipt requested, postage prepaid and addressed as herein provided. Notice to Franklin shall be addressed to Corporate Secretary, Franklin Electric Co., Inc. at 400 East Spring Street, Bluffton, Indiana 46714. Notices to Executive shall be addressed to the Executive at his last permanent address as shown on Franklin's records. Notwithstanding the foregoing, if either party shall designate a different address by notice to the other party given in the foregoing manner, then notices to such party shall be addressed as designated until the designation is revoked by further notice given in such manner. 15. PAYMENT OF LEGAL FEES. Franklin shall pay Executive's reasonable attorneys' fees and legal expenses in connection with the negotiation of this Agreement. 16. RELOCATION EXPENSES. Franklin shall pay reasonable expenses of Executive incurred in relocating his residence to the Bluffton/Fort Wayne, Indiana area, including customary and normal expenses of moving the household and personal property of Executive's immediate family, travel expenses for Executive and his wife incurred in searching for a new residence, and temporary commuting expenses of Executive pending his relocation. 17. ENTIRE AGREEMENT. This Agreement contains the entire understanding between the parties with respect to the subject matter hereof and cannot be amended, modified or supplemented in any respect, except by a subsequent written agreement entered into by both parties hereto. 18. SEVERABILITY. If any provision of this Agreement or the application thereof is held invalid, such invalidity shall not affect other provisions or applications of this Agreement that can be given effect without the invalid provision or application and, to such end, the provisions of this Agreement are declared to be severable. 19. SUCCESSORS. This Agreement may not be assigned by Franklin except in connection with a merger involving Franklin or a sale of substantially all of its assets, and the obligations of Franklin provided for in this Agreement shall be the binding legal obligations of any successor to Franklin by purchase (if such successor assumes this Agreement), merger, consolidation, or otherwise. Without limiting the foregoing the provisions of this Agreement relating to termination of employment with Franklin shall be applicable to termination of employment with any such successor. This Agreement may not be assigned by Executive during his life, and upon his death will be binding upon and inure to the benefit of his heirs, legatees and the legal representatives of his estate. 20. WAIVER, MODIFICATION AND INTERPRETATION. No provisions of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in a writing signed by Executive and an appropriate officer of Franklin empowered to sign the same by the Board of Directors of Franklin. No waiver by either party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any 9 prior or subsequent time. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Indiana. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 21. WITHHOLDING. Franklin may withhold from any payment that it is required to make under this Agreement amounts sufficient to satisfy applicable withholding requirements under any federal, state, or local law. 22. HEADINGS. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of any provision of this Agreement. 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first written above. FRANKLIN ELECTRIC CO., INC. By: /s/ WILLIAM H. LAWSON ------------------------------------ William H. Lawson Its: Chairman and Chief Executive Officer EXECUTIVE /s/ R. SCOTT TRUMBULL ------------------------------------------ R. Scott Trumbull EX-10.12 5 rsengstack_10k.txt SENGSTACK EMPLOYMENT AGREEMENT AMENDED EMPLOYMENT AGREEMENT ---------------------------- THIS EMPLOYMENT AGREEMENT is entered into as of this 20th day of December, 2002 between FRANKLIN ELECTRIC CO., INC. ("Franklin"), an Indiana corporation, and Gregg C. Sengstack (the "Executive"). WHEREAS, Franklin and Executive previously entered into an employment agreement dated as of December 7, 2000 (the "Employment Agreement") and now desire to amend and restate that Employment Agreement in its entirety; NOW THEREFORE, in consideration of the premises and mutual covenants and agreements herein contained, the parties hereto hereby agree as follows: 1. EMPLOYMENT. Franklin agrees to employ Executive as its Senior Vice President and Chief Financial Officer to perform all such duties as are normally associated with such position in companies of similar size and nature or are prescribed for such office by the by-laws or directed by the Board of Directors, and Executive agrees to serve Franklin in such capacity and devote his full business time and attention to the business of Franklin, subject to vacations, holidays, normal illnesses and a reasonable amount of time for civic, community and industry affairs. Executive agrees not to accept membership on the Board of Directors of any other business corporation without the prior approval of the Personnel and Compensation Committee of the Board of Directors of Franklin. 2. TERM. The employment of Executive hereunder (the "Term") shall be for a period of three years ending on December 31, 2005, provided that on January 1, 2004 and each January 1 thereafter during the Term (each such January 1 occurring during the Term being an "Anniversary Date"), the Term shall automatically and without any action by either party hereto be extended for an additional period of one year unless at least ninety (90) days prior to any Anniversary Date that occurs after December 31, 2005 either party notifies the other of its election not to extend the then current Term, in which case the Term shall end at the expiration of the Term as last extended. Following any such notice by the Company of its election not to extend the Term, the Executive may terminate his employment at any time prior to the expiration of the Term by giving written notice to the Company at least thirty (30) days prior to the effective date of termination, and upon the earlier of such effective date of termination or the expiration of the Term the Executive shall be entitled to receive the same compensation and benefits as are provided in subparagraph (b) of paragraph 6 but for a severance period which shall begin on the effective date of termination or expiration of the Term, as the case may be, and ending on the earlier of (i) the date on which Executive would attain his normal retirement age (as defined in the Franklin Electric Co., Inc. Basic Retirement Plan, hereinafter referred to as "Normal Retirement Age"), or (ii) twelve (12) months. 3. COMPENSATION. Franklin shall pay for or provide to Executive for all services to be performed by Executive under this Agreement the following: (a) A fixed salary of $235,000 per annum, or such higher amount as the Board of Directors of Franklin may from time to time authorize (which amount shall not be reduced below the amount at any time in effect without Executive's consent), payable in equal monthly 2 installments (such amount from time to time in effect being referred to herein as "Executive's Salary"); (b) Such bonus as may be allocated to Executive by the Compensation Committee of Franklin's Board of Directors pursuant to the Franklin Executive Officer Bonus Plan; (c) Participation in Franklin's Stock Option Plans, as long as such plans remain in effect, and in any future compensation plans covering senior executives of Franklin; (d) Participation in Franklin's employee benefit plans, policies, practices and arrangements in which other senior executives of Franklin participate as long as such plans, policies, practices and arrangements remain in effect, and in any future employee benefit plans and arrangements covering senior executives, including without limitation any defined benefit retirement plan, excess plan (including, but not limited to the Pension Restoration Plan), profit sharing plan, health or dental plan, disability plan, survivor income plan, or life insurance plan (collectively, the "Benefit Plans"). (e) Paid vacations and sick leave in accordance with Franklin's policies respecting same as in effect from time to time; and (f) All fringe benefits and perquisites offered by Franklin from time to time to senior executives. 4. EXPENSES. Franklin shall promptly pay or reimburse Executive for all reasonable expenses incurred by Executive in the performance of duties hereunder in accordance with expense policies from time to time in effect for senior executives of Franklin. 5. CONDITIONS OF EMPLOYMENT. During the Term, Executive shall be furnished office space, assistance and accommodations suitable to the character of his position with Franklin and adequate for the performance of his duties. Executive's services shall be performed at Franklin's principal executive office in Bluffton, Indiana, except when the nature of Executive's duties hereunder requires reasonable domestic and foreign travel. 6. TERMINATION OF EMPLOYMENT. Either Executive or Franklin may terminate Executive's employment hereunder at any time upon giving the other at least ninety (90) days advance written notice of such termination, provided that Franklin may specify an earlier date of termination (not earlier than the date of such notice) if termination is for Good Cause (as defined below), and Executive may specify an earlier date of termination (not earlier than the date of such notice) if termination is for Good Reason (as defined below), and provided further that if termination is due to the death of Executive, termination shall be effective immediately upon such death and without any requirement for written notice. In the event of any termination hereunder Executive shall be entitled to receive compensation and benefits only as hereinafter set forth or as provided in paragraph 2: (a) If Executive's employment is terminated by Executive without Good Reason or by Franklin with Good Cause (i) Executive's 3 compensation under (a) and (b) of Paragraph 3 shall be limited to a pro-rata portion of Executive's Salary (and not any bonus) for the year of termination, and (ii) Executive shall continue to be provided with the benefits under (c), (d), (e) and (f) of Paragraph 3, (subject however to all terms, if any, of the Benefit Plans that may be applicable to termination of employment) until the effective date of the termination; (b) If at any time other than as specified in subparagraph (c) of this paragraph 6, Franklin shall terminate Executive's employment without Good Cause, or Executive shall voluntarily terminate such employment with Good Reason, (i) Executive's compensation under (a) and (b) of Paragraph 3 for the portion of the year of termination prior to the effective date of termination shall be a pro-rata portion of Executive's Salary for such year, together with a bonus equal to not less than a pro-rata portion of his bonus paid or payable for the year prior to the year of termination, (ii) Executive shall receive as compensation for the severance period described below an additional amount, payable in a lump sum within thirty (30) days after the effective date of his termination of employment, computed by annualizing the compensation which he is to receive pursuant to clause (i) above, (iii) Executive shall continue to be provided with the benefits under (c) and (d) of Paragraph 3 for such severance period, and (iv) any stock options granted to Executive by Franklin shall be accelerated and become immediately exercisable in full on the effective date of termination, subject to any limitations on the order of exercise which may be applicable to incentive stock options (as defined in Section 422 of the Internal Revenue Code of 1986, as amended), if any, that may hereafter be granted, and shall remain exercisable for such period after the effective date of termination as is provided under the terms of the options and the plans pursuant to which they were issued. The severance period for this subparagraph (b) of paragraph 6 shall be the period beginning on the date of termination and ending on the earlier of (A) the date on which Executive would attain his Normal Retirement Age, or (B) eighteen (18) months. (c) If within two (2) years after a Change in Control, (i) Franklin shall terminate Executive's employment with Franklin without Good Cause, (ii) Executive shall voluntarily terminate such employment with Good Reason, or (iii) Executive shall voluntarily terminate such employment for any reason whatsoever during the period beginning on the first anniversary of the Change in Control and ending thirty (30) days thereafter, Franklin shall, within thirty (30) days after any such termination, pay to Executive (A) a lump sum cash amount as compensation under (a) and (b) of Paragraph 3 for the portion of the year of termination prior to the effective date of termination equal to a pro-rata portion of Executive's Salary for such year, together with a bonus equal to not less than a pro-rata portion of his bonus paid or payable for the year prior to the year of termination, (B) a lump sum cash amount, as compensation for the severance period described below, computed by annualizing the compensation which he is to receive pursuant to clause (A) above, and (C) in settlement of any stock options then outstanding (whether or not then exercisable), a lump sum cash payment equal to the difference between the aggregate fair market value of the shares subject to such options as of the date of such 4 termination and the aggregate exercise price thereof. In addition, Executive shall, following his termination of employment under this subparagraph (c) of paragraph 6, for the severance period described below continue to be provided with the benefits under (c) and (d) of Paragraph 3. The severance period for this subparagraph (c) of paragraph 6 shall be the period beginning on the date of termination and ending on the earlier of (A) the date on which Executive would attain his Normal Retirement Age, or (B) thirty-six (36) months. (d) Franklin agrees that with respect to any compensation or benefits payable hereunder to Executive with respect to termination of his employment with Franklin for any reason whatsoever, Executive shall not be required to mitigate his damages by seeking other employment or otherwise, and Franklin's obligations hereunder shall not be reduced in any way by reason of any compensation received by Executive from sources other than Franklin after the termination of Executive's employment with Franklin for any reason whatsoever. (e) In the event that Executive is subject to an excise tax under Section 4999 of the Internal Revenue Code of 1986 with respect to any cash, benefits or other property received, or any acceleration of vesting of any benefit or award, in the event of a Change of Control, Franklin shall pay Executive an amount (a "Gross-Up Payment") such that after payment by Employee of (i) all taxes imposed upon the Gross-Up Payment, and (ii) any interest, penalties and additions which are imposed on Executive with respect to such taxes, the Executive retains an amount of the Gross-Up Payment equal to the sum of (i) the Excise Tax imposed and (ii) the product of any deductions disallowed because of the inclusion of the Gross-Up Payment in the Employee's adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-Up Payment is to be made. For purposes of determining the amount of the Gross-Up Payment, the Employee shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-Up Payment is to be made, and (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. (f) For purposes of this paragraph 6: (1) "Good Cause" shall mean (A) Executive's death or disability, (B) Executive's fraud, (C) Executive's misappropriation of, or intentional material damage to, the property or business of Franklin, (D) Executive's commission of a felony which is likely to result in material harm or injury (whether financial or otherwise) to Franklin, provided that if Executive is ultimately not convicted of the alleged felony, Franklin's termination of his employment based on this provision shall be deemed to have been without Good Cause, or (E) with respect to any termination not subject to subparagraph (c) of this paragraph 6, Executive's willful and continued material failure to perform his obligations under this Agreement, provided that Franklin shall have given written notice to Executive 5 describing such failure(s) and, as long as it is capable of being cured and does not involve acts of material dishonesty directed against Franklin, the same shall not have been substantially cured or corrected within thirty (30) days thereafter, or if the same could not reasonably be cured within such period, cure was not commenced within such period and diligently pursued and fully cured within sixty (60) days of Franklin's original notice to Executive. (2) "Good Reason" shall exist if (A) there is a change in the Executive's title of Chief Financial Officer or a significant change in the nature or the scope of Executive's authority, (B) there is a reduction in Executive's Salary or retirement benefits described in paragraph 3(d) or a material reduction in Executive's compensation and benefits in the aggregate, excluding (in the case of incentive benefits that are based upon the performance of Executive or Franklin) reductions in benefits resulting from diminished performance by Executive or Franklin, (C) Franklin changes the principal location in which Executive is required to perform services to a location more than fifty (50) miles from Franklin's corporate headquarters as of the date of this Agreement, (D) there is a reasonable determination by Executive that, as a result of a change in circumstances significantly affecting his position, he is unable to exercise the authority, powers, function or duties attached to his positions, or (E) any purchaser (or affiliate thereof) who purchases substantially all of the assets of Franklin shall decline to assume all of Franklin's obligations under this Agreement. (3) "Change in control" shall be deemed to have taken place if (A) a third person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, and excluding any person who, as of the date of this Agreement, is the beneficial owner of shares of Franklin stock representing 20% or more of the total number of votes that may be cast for the election of Directors, becomes the beneficial owner of shares of Franklin stock representing 20% or more of the total number of votes that may be cast for the election of Directors, or (B) as the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, or any combination of the foregoing transactions, the persons who immediately prior thereto were directors of Franklin cease to constitute a majority of the Board of Directors of Franklin. Notwithstanding the foregoing sentence, a Change of Control shall not be deemed to occur by virtue of any transaction in which Executive is a participant in a group effecting an acquisition of Franklin if Executive holds an equity interest in the entity acquiring Franklin at the time of such acquisition. 6 7. INDEMNIFICATION. Franklin shall indemnify, protect, defend and hold harmless Executive from and against all liabilities, costs and expenses (including but not limited to attorneys' fees) incurred as a result of Executive's employment with Franklin to the fullest extent permitted by the Indiana Business Corporation Law. 8. LITIGATION EXPENSES Franklin shall pay to Executive all out-of- pocket expenses, including attorneys' fees, incurred by Executive in connection with any claim or legal action or proceeding involving this Agreement, whether brought by Executive or by or on behalf of Franklin or by another party; provided, however, Franklin shall not be obligated to pay to Executive out-of-pocket expenses, including attorneys' fees, incurred by Executive in any claim or legal action or proceeding in which Franklin is a party adverse to Executive if Franklin prevails in such litigation. Franklin shall pay prejudgment interest on any money judgment obtained by Executive, calculated at the published prime interest rate charged by Franklin's principal banking connection, as in effect from time to time, from the date that payment(s) to him should have been made under this Agreement. 9. POST-TERMINATION PAYMENT OBLIGATIONS ABSOLUTE. Franklin's obligation to pay Executive the compensation and to make the other arrangements provided herein to be paid and made after termination of Executive's employment with Franklin shall be absolute and unconditional and shall not be affected by any circumstances, including, without limitation, any set-off, counterclaim, recoupment, defense or other right that Franklin may have against him or anyone else. All amounts so payable by Franklin shall be paid without notice or demand. Each and every such payment made by Franklin shall be final and Franklin will not seek to recover all or any part of such payment from Executive or from whomsoever may be entitled thereto, for any reason whatsoever. Payment by Franklin of the termination benefits provided in paragraphs 2 or 6 hereof, and the acceptance thereof by Executive, shall constitute a release by Executive of all claims and actions that Executive may have against Franklin arising out of Executive's employment or the termination thereof except for continuing obligations of Franklin under this Agreement. 10. DISCLOSURE OF CONFIDENTIAL INFORMATION. Without the consent of Franklin, Executive shall not at any time divulge, furnish or make accessible to anyone (other than in the regular course of business of Franklin) any knowledge or information with respect to confidential or secret processes, inventions, formulae, machinery, plan, devices or materials of Franklin or with respect to any confidential or secret engineering development or research work of Franklin or with respect to any other confidential or secret aspect of the business of Franklin. Executive recognizes that irreparable injury will result to Franklin and its business and properties, in the event of any breach by Executive of any of the provisions of this paragraph 10. In the event of any breach of any of the commitments of Executive pursuant to this paragraph 10, Franklin shall be entitled, in addition to any other remedies and damages available, to injunctive relief to restrain the violation of such commitments by Executive or by any person or persons acting for or with Executive in any capacity whatsoever. 11. SOLICITATION OF CUSTOMERS OR EMPLOYEES. During the term of this Agreement and for a period of twenty-four (24) months after termination of employment, Executive shall not, directly of indirectly, or assist any other 8 by the other party of, or compliance with, any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same time or at any prior or subsequent time. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Indiana. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. 18. WITHHOLDING. Franklin may withhold from any payment that it is required to make under this Agreement amounts sufficient to satisfy applicable withholding requirements under any federal, state, or local law. 19. HEADINGS. The headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of any provision of this Agreement. 9 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first written above. FRANKLIN ELECTRIC CO., INC. By: /s/ WILLIAM H. LAWSON ------------------------------------ William H. Lawson Its: Chairman and Chief Executive Officer EXECUTIVE /s/ GREGG C. SENGSTACK ------------------------------------------ Gregg C. Sengstack EX-10.15 6 rlawson_10k.txt LAWSON CONSULTING AGREEMENT CONSULTING AGREEMENT -------------------- This Consulting Agreement is made this 31st day of January, 2003, by Franklin Electric Co., Inc. ("Franklin") and William H. Lawson ("Consultant"). Services will begin on March 1, 2003 and continue until February 7, 2007. 1. SERVICES. Consultant agrees to provide up to 500 hours of consulting services per annum as and if requested by the Chief Executive Officer and Chairman of the Board of Franklin respecting the general operations of Franklin, both domestic and international, acquisitions and business strategy. Services will be scheduled on a mutually acceptable basis. Consultant shall exercise a reasonable degree of skill and care in performing the consulting services under this Agreement. 2. FEES. In return for services provided by Consultant, Franklin agrees to pay to Consultant a retainer, paid on a calendar month basis, in arrears as follows: March 1, 2003 until February 7, 2004, $28,333/month ($340,000 annual rate) February 8, 2003 until February 7, 2007, $21,250/month ($255,000 annual rate) Daily rates will be determined on the basis of a thirty day month. Compensation rates are subject to increase (but in no case decrease), at the discretion of the Chief Executive Officer, based on compensation increases for similarly situated consultants. Further, Consultant will be eligible to receive an annual performance bonus. The performance bonus will be a percent of the annual retainer, calculated using the Franklin Executive Officer Performance Bonus Plan formula. The Consultant will receive the same percentage bonus earned as if the Consultant were an executive officer of Franklin during the term of this Agreement. 3. RELATIONSHIP OF PARTIES. Consultant is an independent contractor and not an agent or employee of Franklin. Franklin shall have no right to control Consultant's methods or means for providing the services designated in this Agreement. 4. INSURANCE, FRINGE BENEFITS AND TAXES. Consultant is not covered by nor eligible for any of Franklin's insurance coverages or programs, employee benefit programs or any other fringe benefits provided to any of Franklin's directors, officers, agents, or employees. This Agreement in no way nullifies or changes the insurance and fringe benefits the consultant may have earned with Franklin for his employment years. As an independent contractor, Consultant will be responsible for obtaining and paying for his or her own insurance coverage and for reporting and paying all federal, state and local taxes. Franklin will not withhold any taxes from fees paid to Consultant. At year end, Franklin will issue an IRS Form 1099 to include consulting fees plus all expenses paid on Consultant's behalf. 5. EXPENSES. Consultant may incur expenses in connection with providing the services. Consultant shall be responsible for paying all such expenses except that Franklin agrees to reimburse Consultant for the following expenses: Reasonable travel and related business expenses upon receipt of appropriate documentation. 2 6. CONFIDENTIALITY. All information provided to Consultant Franklin or obtained by Consultant from Franklin shall be held in confidence and shall not be disclosed by Consultant to any third party. Consultant shall not use any of the confidential information for any purpose other than to provide the consulting services to Franklin. All confidential information, including all copies or other reproductions made by Consultant, shall be deemed the property of Franklin and shall be returned to Franklin. 7. INVENTIONS AND INFORMATION. All inventions and information developed in connection with Consultant's services shall be the property of Franklin. Consultant shall execute any documents (including patent applications or the assignments thereof) necessary to vest in Franklin the full title and interest in all information, inventions and improvements developed. 8. COVENANT NOT TO COMPETE. During the term of this Agreement, Consultant shall not, by himself or in connection with any entity, directly or indirectly, undertake, carry on, participate in or have any financial interest in, or in any manner advise or assist any person or entity in, any business which competes with Franklin. 9. TERMINATION. This Agreement expires on February 7, 2007. 10. MISCELLANEOUS. This Agreement constitutes the entire Agreement between the parties and it shall be governed by and enforced in accordance with the laws of the State of Indiana. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of the Agreement. Franklin shall defend Consultant against all claims and proceedings and shall hold Consultant harmless from all liabilities and losses arising from anything done or any recommendations made under this Agreement. IN WITNESS WHEREOF, the parties have executed this Agreement in duplicate on the date first written above. Franklin Electric Co., Inc. Consultant By /s/ R. SCOTT TRUMBULL /s/ WILLIAM H. LAWSON - --------------------------------- --------------------------------- (signature) - --------------------------------- -------------------------------- (printed name and title) (printed name) --------------------------------- --------------------------------- (address) --------------------------------- (social security number) -----END PRIVACY-ENHANCED MESSAGE-----