-----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, MiSyTacy18TlMJn3HNWqY8R8WA51/7CrV8KcBwFvvFki0gJB6iBdNa1XduXyzy/S P64zUCBzo8llND8DZe9pdg== 0000038725-04-000039.txt : 20040223 0000038725-04-000039.hdr.sgml : 20040223 20040223154652 ACCESSION NUMBER: 0000038725-04-000039 CONFORMED SUBMISSION TYPE: PRE 14A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20040223 FILED AS OF DATE: 20040223 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: PRE 14A SEC ACT: 1934 Act SEC FILE NUMBER: 000-00362 FILM NUMBER: 04622049 BUSINESS ADDRESS: STREET 1: 400 E SPRING ST CITY: BLUFFTON STATE: IN ZIP: 46714 BUSINESS PHONE: 2608242900 MAIL ADDRESS: STREET 1: 400 E SPRING STREET CITY: BLUFFTON STATE: IN ZIP: 46714 PRE 14A 1 rpre_proxy.txt PRELIMINARY PROXY 2004 PRELIMINARY COPY - FOR INFORMATION OF SEC ONLY FRANKLIN ELECTRIC CO., INC. 400 East Spring Street Bluffton, Indiana 46714 NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held May 5, 2004 at 9:00 A.M., E.S.T. To the Shareholders of Franklin Electric Co., Inc. THE ANNUAL MEETING OF SHAREHOLDERS OF FRANKLIN ELECTRIC CO., INC. (THE "COMPANY"), AN INDIANA CORPORATION, WILL BE HELD AT THE PRINCIPAL OFFICE OF THE COMPANY, 400 EAST SPRING STREET, BLUFFTON, INDIANA, ON WEDNESDAY, MAY 5, 2004, AT 9:00 A.M., E.S.T. THE PURPOSES OF THE MEETING ARE TO: 1. Elect three directors for terms expiring at the 2007 Annual Meeting of Shareholders; 2. Approve an amendment to the Company's Restated Articles of Incorporation to increase the number of shares of authorized common stock; 3. Ratify the appointment of Deloitte & Touche LLP as independent auditors for the 2004 fiscal year; and 4. Transact such other business as may properly come before the Annual Meeting or any adjournment or postponement thereof. Only shareholders of record at the close of business on February 27, 2004 will be entitled to notice of and to vote at the Annual Meeting. You are urged to vote your proxy regardless of whether you plan to attend the Annual Meeting. If you do attend, you may nevertheless vote in person which will revoke any previously executed proxy. By order of the Board of Directors. Gregg C. Sengstack Senior Vice President, Chief Financial Officer and Secretary Bluffton, Indiana March xx, 2004 2 FRANKLIN ELECTRIC CO., INC. 400 East Spring Street Bluffton, Indiana 46714 ----------------------- PROXY STATEMENT --------------- ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 5, 2004 GENERAL INFORMATION This Proxy Statement and the enclosed proxy are furnished to shareholders in connection with the solicitation of proxies by the Board of Directors of Franklin Electric Co., Inc. (the "Company"), 400 East Spring Street, Bluffton, Indiana, for use at the Annual Meeting of Shareholders to be held on May 5, 2004 or any adjournment or postponement thereof. This Proxy Statement, together with the Company's Annual Report to shareholders, including financial statements contained therein, is being mailed to shareholders on or about March xx, 2004. Neither the Annual Report nor the financial statements contained therein are to be considered part of this soliciting material. The expenses of solicitation, including the cost of printing and mailing, will be paid by the Company. Officers and employees of the Company, without additional compensation, may solicit proxies personally, by telephone or by facsimile. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries to forward proxy solicitation material to the beneficial owners of shares held of record by such persons, and the Company will reimburse such entities for reasonable out-of-pocket expenses incurred by them in connection therewith. 3 VOTING INSTRUCTIONS Shareholders may attend the Annual Meeting and vote their shares in person. Shareholders may also choose to submit their proxies by any of the following methods: VOTING BY MAIL: Complete the enclosed proxy, date and sign it, and return it in the envelope provided. VOTING BY TELEPHONE: Call the toll-free telephone number provided on the proxy. Telephone voting will be available through April 30, 2004, 24 hours a day. Detailed instructions will be provided during the call, and the procedures are designed to authenticate votes cast by using the last 4 digits of a shareholder's social security/taxpayer I.D. number. Shareholders that vote by telephone should not return the proxy card. VOTING BY INTERNET: Sign-on to the website address identified on the proxy. Internet voting will be available through April 30, 2004, 24 hours a day. Detailed instructions will be provided on the website, and the procedures are designed to authenticate votes cast by using the last 4 digits of a shareholder's social security/taxpayer I.D. number. Shareholders that vote by internet should not return the proxy card. SHAREHOLDERS WHO ARE PARTICIPANTS IN THE COMPANY'S EMPLOYEE STOCK OWNERSHIP PLAN AND/OR DIRECTED INVESTMENT SALARY PLAN WILL RECEIVE A VOTING INSTRUCTION CARD THAT COVERS THE SHARES CREDITED TO THEIR PLAN ACCOUNTS. SUCH SHAREHOLDERS MAY NOT VOTE BY TELEPHONE OR INTERNET. If the enclosed proxy is properly voted, the shares represented thereby will be voted in the manner specified in the proxy. If a shareholder does not specify the manner in which the proxy shall be voted, the shares represented thereby will be voted: FOR the election of the nominees for director as set forth in this Proxy Statement; FOR approval of an amendment to the Company's Restated Articles of Incorporation to increase the number of shares of authorized common stock; FOR the ratification of the appointment of Deloitte & Touche LLP as independent auditors for the 2004 fiscal year; and in accordance with the recommendations of management with respect to other matters that may properly come before the Annual Meeting. A shareholder who has executed a proxy has the power to revoke it at any time before it is voted by (i) delivering written notice of such revocation to Mr. Gregg C. Sengstack, Senior Vice President, Chief Financial Officer and Secretary, 400 East Spring Street, Bluffton, Indiana 46714, (ii) executing and delivering a subsequently dated proxy by mail, over the telephone or through the Internet, or (iii) by attending the Annual Meeting and voting in person. 4 SHAREHOLDERS ENTITLED TO VOTE AND SHARES OUTSTANDING The Board of Directors of the Company fixed the close of business on February 27, 2004 as the record date (the "Record Date") for determining shareholders entitled to notice of and to vote at the Annual Meeting. As of the Record Date, there were 25,000,000 shares of common stock, $.10 par value (the "Common Stock"), authorized, of which xx,xxx,xxx shares were outstanding. Each share of Common Stock is entitled to one vote on each matter submitted to a vote of the shareholders of the Company. Votes cast by proxy or in person at the Annual Meeting will be tabulated by the inspectors of election appointed for the Annual Meeting and will be counted as present for purposes of determining whether a quorum is present. A majority of the outstanding shares of Common Stock, present in person or represented by proxy, will constitute a quorum for the transaction of business at the Annual Meeting. Abstentions and broker non-votes will be counted for purposes of determining the presence or absence of a quorum but will not be counted as votes cast on any matter submitted to shareholders. As a result, abstentions and broker non-votes will not have any effect on the voting results with respect to any of the matters scheduled to be submitted to shareholders at the Annual Meeting. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table shows the persons known by the Company to be the beneficial owners of more than five percent of the Company's Common Stock as of February 27, 2004, unless otherwise noted. The nature of beneficial ownership is sole voting and investment power, unless otherwise noted. NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS Wells Fargo Bank Minnesota, N.A. 1,183,834 (1) xx.xx Midwest Plaza, West Tower Suite 700 801 Nicolette Mall Minneapolis, MN 55479-0065 Select Equity Group, Inc., jointly 1,171,213 (2) x.xx with George S. Loening 380 Lafayette Street, 6th Floor New York, NY 10003 Patricia Schaefer 986,042 (3) x.xx 5400 Deer Run Court Muncie, IN 47304 Diane D. Humphrey 922,199 x.xx 2279 East 250 North Road Bluffton, IN 46714 T. Rowe Price Associates, Inc. 773,600 (4) x.xx 100 E. Pratt Street Baltimore, MD 21202 Ruane, Cunniff & Co., Inc. 572,973 (5) x.xx 767 5th Avenue, Suite 4701 New York, NY 10153 5 Marvin C. Schwartz 456,520 (6) x.xx c/o Neuberger & Berman 605 Third Avenue New York, NY 10158 (1) Wells Fargo Bank holds these shares as Trustee under the Company's Employee Stock Ownership Plan (the "ESOP"), Directed Investment Salary Plan (the "401(k) Plan"), and defined benefit pension plans. Share information is from January 2004 Trust records provided by Wells Fargo Bank. The shares held in the ESOP and 401(k) Plan will be voted pursuant to the direction of the participants to the extent these shares are allocated to participants' accounts. Unallocated shares and allocated shares for which no direction is received from participants will be voted by the Trustee in accordance with the direction of the Employee Benefits Committee of the Company. The Employee Benefits Committee is appointed by the Company's Board of Directors to oversee the Company's employee benefit plans. In the absence of any direction from the Employee Benefits Committee, such shares will be voted by the Trustee in the same proportion that the allocated shares were voted, unless inconsistent with the Trustee's fiduciary obligations. The Trustee has no investment power over allocated shares and has shared investment power over unallocated shares. The shares held in the defined benefit pension plans will be voted pursuant to the direction of the Employee Benefits Committee of the Company, which also has investment power over these shares. (2) According to a Schedule 13G jointly filed with the SEC on February 12, 2004, Select Equity Group, Inc., Select Offshore Advisors, LLC and George S. Loening have sole investment and voting power with respect to 1,171,213 shares, and no shared voting or investment power. (3) Includes 32,000 shares issuable pursuant to stock options exercisable within 60 days after February 27, 2004. (4) According to a Schedule 13G filed with the SEC on February 13, 2004, T. Rowe Price Associates, Inc. has sole investment power with respect to 773,600 shares, sole voting power with respect to 314,900 shares and no shared voting or investment power. These securities are owned by various individual and institutional investors which T. Rowe Price Associates, Inc. serves as investment advisor with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, T. Rowe Price Associates, Inc. is deemed to be a beneficial owner of such securities; however, T. Rowe Price Associates, Inc. expressly disclaims that it is, in fact, the beneficial owner of such securities. (5) According to a Schedule 13G filed with the SEC on February 13, 2004, Ruane, Cunniff & Co., Inc. has sole investment power with respect to 572,973 shares, sole voting power with respect to 126,912 shares and no shared voting or investment power. (6) According to a Schedule 13D filed with the SEC on December 10, 2003, Marvin C. Schwartz has sole investment and sole voting power with respect to 456,520 shares, shared investment power with respect to 39,872 shares and no shared voting power. 6 The following table shows the number of shares of Common Stock beneficially owned by directors, nominees, each of the executive officers named in the "Summary Compensation Table" below, and all executive officers and directors as a group, as of February 27, 2004. The nature of beneficial ownership is sole voting and investment power, unless otherwise noted. NAME OF AMOUNT AND NATURE OF PERCENT BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS Peter-Christian Maske 135,098(1)(2) * Donald J. Schneider 105,042(1)(3) * Gregg C. Sengstack 96,693(1)(2) * Jess B. Ford 67,233(1)(2) * R. Scott Trumbull 62,481(1)(3) * Robert H. Little 41,490(1) * Howard B. Witt 39,300(1) * William H. Lawson 39,009 * Jerome D. Brady 20,411(1)(3) * Kirk M. Nevins 6,686(1)(2) * David A. Roberts 0 * All directors and 1,798,073(1)(2)(3) xx.xx executive officers as a group * Less than 1 percent of class (1) Includes shares issuable pursuant to stock options exercisable within 60 days after February 27, 2004 as follows: Mr. Maske, 96,000; Mr. Schneider, 32,000; Mr. Sengstack, 38,800; Mr. Ford, 60,000; Mr. Trumbull, 60,000; Mr. Little, 27,000; Mr. Witt, 26,000; Mr. Brady, 20,000; Mr. Nevins, 3,000; and all directors and executive officers as a group, 505,800. (2) Includes shares held by the ESOP Trustee as to which the individuals do not have investment power as follows: Mr. Maske, 835; Mr. Sengstack, 3,031; Ford, 1,547; Mr. Nevins, 1,606 and all directors and executive officers as a group, 15,401. (3) Excludes 1,401 stock units credited to Mr. Schneider, 890 stock units credited to Mr. Trumbull and 2,499 stock units credited to Mr. Brady pursuant to the terms of the Nonemployee Directors' Deferred Compensation Plan described under "Information About the Board and its Committees". 7 SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors, officers and greater than 10 percent shareholders of a registered class of the Company's equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock of the Company and to furnish the Company with copies of all Section 16(a) reports they file. Based solely on a review of the copies of these reports furnished to the Company and written representations that no other reports were required to be filed, the Company believes that its directors, officers and greater than 10 percent shareholders complied with all applicable Section 16(a) filing requirements applicable to them during 2003. ELECTION OF DIRECTORS The Company's By-laws provide that the Board of Directors shall consist of five to nine directors, with the exact number set by the Board of Directors by resolution. The Board of Directors currently consists of seven directors, divided into three classes of two or three directors each. Each year, the directors of one of the three classes are elected to serve terms of three years and until their successors have been elected and qualified. Two directors will be elected at the Annual Meeting this year. Directors are elected by the affirmative vote of a plurality of the shares voted (i.e., the two nominees who receive the most votes will be elected). Donald J. Schneider and R. Scott Trumbull have been nominated to serve as directors of the Company for terms expiring in 2007. Mr. Schneider and Mr. Trumbull are currently directors of the Company. The nominees have indicated their willingness to serve as a director if elected. If, however, any nominee is unwilling or unable to serve as a director, shares represented by the proxies will be voted for the election of another nominee proposed by the Board of Directors or the Board may reduce the number of directors to be elected at the Annual Meeting. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF EACH NOMINEE. 8 INFORMATION CONCERNING NOMINEES AND DIRECTORS The ages, principal occupations during the past five years and certain other affiliations of the director nominees and the continuing directors, and the years in which they first became directors of the Company, are as follows: NOMINEES FOR TERMS EXPIRING IN 2007 - ----------------------------------- DIRECTOR NAME AND POSITION AGE PRINCIPAL OCCUPATION SINCE Donald J. Schneider, 68 Chairman of the Board of Schneider 1988 Director of the Company National Inc., an asset based logistics company. Director of Green Bay Packers. R. Scott Trumbull, 55 Chairman of the Board 1998 Chairman of the Board and Chief Executive Officer and Chief Executive of the Company. Formerly Officer of the Company Executive Vice President and Chief Financial Officer, International Operations and Corporate Development, Owens-Illinois, a manufacturer of glass and plastic packaging. Director, Health Care REIT and Schneider National, Inc. 9 CONTINUING DIRECTORS - -------------------- DIRECTORS WHOSE TERMS EXPIRE IN 2005 DIRECTOR NAME AND POSITION AGE PRINCIPAL OCCUPATION SINCE Howard B. Witt, 63 Chairman of the Board, President 1994 Director of the Company and Chief Executive Officer, Littelfuse, Inc.; a manufacturer of electronic, electrical and automotive fuses. Director, Artisan Funds, Inc. David A. Roberts 56 President and Chief Executive 2003 Director of the Company Officer, Graco, Inc., a manufacturer of fluid-handling equipment and systems, since June 2001; Formerly, Group Vice President, The Marmon Group, Inc. a diversified manufacturer, 1995 to 2001. DIRECTORS WHOSE TERMS EXPIRE IN 2006 DIRECTOR NAME AND POSITION AGE PRINCIPAL OCCUPATION SINCE Jerome D. Brady, 60 Retired in 2000; Formerly 1998 Director of the Company President & Chief Executive Officer of C&K Components; a manufacturer of electro- mechanical switches; Director, Circor International, Inc. Robert H. Little, 68 Retired in 1997; Formerly 1987 Director of the Company President, Waddle Manufacturing Inc., a producer of precision fabrications for the electronics and medical device industries. Patricia Schaefer, 73 Retired; Director Muncie Public 1982 Director of the Company Library; Muncie, Indiana. 10 INFORMATION ABOUT THE BOARD AND ITS COMMITTEES Nonemployee directors are paid an annual director's fee of $35,000 plus a fee of $1,500 for each Board and Board committee meeting attended. The audit committee chairman receives an additional fee of $6,000 and the personnel and compensation committee chairman receives a fee of $3,500. Directors who are employees of the Company receive no additional compensation for serving on the Board or Board committees. John B. Lindsay, a director of the Company until his retirement in August 2003, received $22,500 for consulting services he rendered to the Company. Nonemployee directors participate in the Franklin Electric Co., Inc. Stock Option Plan (the "Stock Option Plan"). Under the Stock Option Plan, each person who is a nonemployee director of the Board following each Annual Meeting is granted an option to purchase 4,000 shares at an option price equal to the fair market value of the Company's Common Stock on the date the option is granted. On April 25, 2003, Mr. Brady, Mr. Lindsay, Mr. Little, Ms. Schaefer, Mr. Schneider, and Mr. Witt each received an option to purchase 4,000 shares at an exercise price of $50.45 per share. Nonemployee directors may also participate in the Nonemployee Directors' Deferred Compensation Plan (the "Deferred Compensation Plan"). Under the Deferred Compensation Plan, each nonemployee director may elect to receive his or her annual director's fee in Company shares or in cash. If Company shares are elected, nonemployee directors may also elect to defer issuance of the shares (until service on the Board terminates), in which case the director's fee is converted into stock units. Mr. Schneider elected to receive his respective fiscal 2003 director's fees in Company shares and to defer issuance of the shares. Accordingly, on April 25, 2003, Mr. Schneider was credited with 693 stock units. The Company has a Consulting Directors' Plan for nonemployee directors who retire from Board service at age 70 or older. Under the Consulting Directors' Plan, a retiring director may enter into a consulting agreement with the Company under the terms of which the consulting director agrees to be available for consultation from time to time and is entitled to receive an annual fee for such services equal to the director's fee in effect at retirement. The consulting director can receive this fee up to the same number of years that were served as director. During 2003, Dr. N. A. Lamberti and Mr. William W. Keefer, who retired in 1988 and 1996, with 19 and 28 years of service, respectively, participated in the Consulting Directors' Plan. In 2003, Messrs. Lamberti and Keefer received an annual fee of $15,000 and $20,000, respectively. The Company froze the Consulting Directors' Plan in 2003; accordingly, future participation in the Consulting Directors' Plan will be limited to the Company's nonemployee directors first elected for service before 2003, and those retired nonemployee directors currently receiving annual fees for their consulting services. DIRECTOR INDEPENDENCE The Board of Directors of the Company has determined that each of the current directors, except for R. Scott Trumbull, Chairman of the Board and Chief Executive Officer of the Company, is an independent director in compliance with the independence standards set forth in the Company's Corporate Governance Guidelines and under the applicable rules adopted by the Nasdaq Stock Market ("Nasdaq"). 11 MEETINGS The Board held six (6) regularly scheduled meetings during 2003. Each director attended at least 75 percent of the aggregate meetings of the Board and Board committees of which he or she was a member during the period that each served as a director. All directors, who were members of the Board at that time, attended the 2003 Annual Meeting of Shareholders. COMMITTEES The committees of the Board are: the Audit Committee and the Personnel and Compensation Committee. AUDIT COMMITTEE. The current members of the Audit Committee are Jerome D. Brady (Chairman), Robert H. Little and Patricia Schaefer. The Board of Directors has determined that each member of the Audit Committee is an independent director in compliance with the independence standards set forth in the Company's Corporate Governance Guidelines and under applicable Nasdaq rules. In February 2004, the Board of Directors adopted a revised Audit Committee charter. A copy of the charter is included as Exhibit A to this Proxy Statement and is also available on the Company's website at www.fele.com under "Corporate Governance." Under its charter, the Audit Committee assists the Board of Directors in fulfilling its oversight responsibilities by reviewing the financial information which will be provided to shareholders and others, the system of internal control which management has established, the Company's process for monitoring compliance with laws and regulations, and the audit process. It is the general responsibility of the Audit Committee to advise and make recommendations to the Board of Directors in all matters regarding the Company's accounting methods and internal control procedures. The Audit Committee held five (5) meetings in 2003. PERSONNEL AND COMPENSATION COMMITTEE. The current members of the Personnel and Compensation Committee (the "Compensation Committee") are Howard B. Witt (Chairman), David A. Roberts and Donald J. Schneider. The Board of Directors has determined that each member of the Compensation Committee is an independent director in compliance with the independence standards set forth in the Company's Corporate Governance Guidelines and under applicable Nasdaq rules. In February 2004, the Board of Directors adopted a Compensation Committee charter, a copy of which is available on the Company's website at www.fele.com under "Corporate Governance." Under its charter, the Compensation Committee determines and approves the annual salary, bonus and other benefits of the chief executive officer and the other executive officers and directors of the Company; reviews and submits to the Board of Directors recommendations concerning stock plans; periodically reviews the Company's policies in the area of management benefits; and oversees the Company's management development and organization structure. The Compensation Committee held four (4) meetings in 2003. The Compensation Committee is also responsible for identifying and recommending to the Board candidates for director. The Compensation Committee seeks to identify as candidates for director persons from various backgrounds and with a variety of life experiences who have a reputation for and a record of integrity and good business judgment. The Committee also considers whether a person has experience in a highly responsible position in a profession or industry relevant to the conduct of the Company's business. The Compensation Committee takes into account the current composition of the Board and the extent to which a person's particular expertise, experience and ability and willingness to make an appropriate time commitment will complement the expertise and experience of other directors. Candidates for director should 12 also be free of conflicts of interest or relationships that may interfere with the performance of their duties. Based on its evaluation and consideration, the Compensation Committee submits its recommendation for director candidates to the full Board of Directors, which is then responsible for selecting the candidates to be elected by the shareholders. The Compensation Committee will consider as candidates for director persons recommended or nominated by shareholders. Nominations of directors may be made by any shareholder entitled to vote in the election of directors, provided that written notice of intent to make a nomination is given to the Secretary of the Company not later than ninety (90) days prior to the anniversary date of the immediately preceding annual meeting of shareholders. The notice must set forth: (i) information regarding the proposed nominee as would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC, and (ii) the consent of such nominee to serve as a director of the Corporation if so elected. OTHER CORPORATE GOVERNANCE MATTERS In February 2004, the Board of Directors adopted revised Corporate Governance Guidelines, a copy of which is available on the Company's website at www.fele.com under "Corporate Governance." The Guidelines provide, among other things, that the Company's independent directors will meet in executive session, outside the presence of the non-independent directors and management, at least twice a year. Shareholders may contact the Board of Directors, any Board committee, any independent director or any other director by writing to the Secretary of the Company as follows: Franklin Electric Co., Inc. Attention: [Board of Directors] [Board Committee] [Board Member] c/o Corporate Secretary Franklin Electric Co., Inc. 400 E. Spring Street Bluffton, IN 46714 The independent directors of the Board have approved a process for collecting, organizing and responding to written shareholder communications addressed to the Board, Board committees or individual directors. 13 AUDIT COMMITTEE REPORT In accordance with SEC rules the Audit Committee of the Company states that: The Audit Committee has reviewed and discussed with management the Company's audited financial statements for the fiscal year ended January 3, 2004. The Audit Committee has reviewed and discussed with Deloitte & Touche LLP, the Company's independent auditors, the matters required to be discussed by Statement on Auditing Standards No. 61, as modified or supplemented ("Communications with Audit Committees"). The Audit Committee has received the written disclosures and the letter from Deloitte & Touche LLP required by Independence Standards Board Standard No. 1, as modified or supplemented ("Independence Discussions with Audit Committees"), and has discussed with Deloitte & Touche LLP the independent accountant's independence. Based upon the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the Company's audited financial statements be included in the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2004 for filing with the SEC. This report is submitted on behalf of the members of the Audit Committee: Jerome D. Brady (Chairman) Robert H. Little Patricia Schaefer 14 COMPENSATION COMMITTEE REPORT It is the philosophy of the Compensation Committee to maintain a compensation program to attract and retain executive officers who can successfully build the Company's long-term strategic capability. The Compensation Committee has retained a compensation consulting firm to provide information on compensation packages of firms of similar size and industries to aid in the design of its package for the Company's executive officers. The Committee encourages superior performance through the use of annual performance targets for the purpose of determining cash bonuses as well as stock incentive vehicles designed to closely align the executive's reward to that of the shareholders. For the Chief Executive Officer, the current compensation package includes a base salary, an annual incentive cash bonus and stock options. The Compensation Committee believes the combined value of base salary plus incentive cash bonus approximates the market value of compensation provided to similarly situated executives as reflected in published market surveys. The Compensation Committee believes, however, that a significant portion of executive officer compensation, including the Chief Executive Officer, should be dependent upon corporate performance. Accordingly, base salaries have been established at average market levels, while a greater than average annual incentive cash bonus may be achieved. The Compensation Committee fixed a benchmark to determine the level, if any, of the annual incentive cash bonus to be paid. The benchmarks used were pre-tax return on net assets and earnings per share growth rate. Considering these ratios, a bonus percentage of base salary was then determined. For 2003, however, according to the terms of his employment contract, the bonus percentage for the Chief Executive Officer was set at 100 percent of base salary for 2003. As an additional incentive, the Committee makes grants and awards under the Company's shareholder-approved stock option plans. The purpose of these plans is to encourage elective stock ownership, offer long-term performance incentive and to more closely align the executive's compensation with the return received by the Company's shareholders. Using information, observations and recommendations on incentive compensation programs provided by an outside consultant, the Committee reviews annually the financial incentives to officers under prior grants and awards and determines whether additional grants or awards are appropriate. In 2003, according to the terms of his employment contract the Committee made a stock option grant to the Chief Executive Officer for 200,000 shares. The Committee did not make any other stock option grants in 2003 to any of the other executive officers named in the Summary Compensation Table. The annual compensation of the other executive officers includes a base salary and an annual incentive cash bonus, determined similarly to that described above for the Chief Executive Officer. Section 162(m) of the Internal Revenue Code, which sets limitations on the deductibility of executive compensation, did not affect compensation paid to any executive officer in 2003 and is not expected to have an effect on compensation payable in 2004. Howard B. Witt (Chairman) David A. Roberts Donald J. Schneider 15 STOCK PERFORMANCE GRAPH The following graph compares the cumulative total shareholder return on an investment in (1) the Company's Common Stock (including reinvestment of dividends), (2) the Standard & Poor's 500 Stock Index (including reinvestment of dividends), and (3) the Russell 2000 Stock Index (including reinvestment of dividends) for the period December 31, 1998 through December 31, 2003. In each case, the graph assumes the investment of $100 on December 31, 1998. $200 189 149 141 126 121 118 121 121 110 105 104 $100 97 96 97 76 $0 1998 1999 2000 2001 2002 2003 YEAR FRANKLIN ELECTRIC S&P 500 Russell 2000 16 SUMMARY COMPENSATION TABLE The following table sets forth compensation information for the years 2001 through 2003 for the Company's Chief Executive Officer and the Company's other four most highly compensated executive officers who served as executive officers of the Company during 2003.
ANNUAL COMPENSATION LONG-TERM COMPENSATION ------------------- ---------------------- BONUS SECURITIES (PERFORMANCE UNDERLYING NAME AND BASED OPTIONS ALL OTHER PRINCIPAL POSITION YEAR SALARY INCENTIVE) (# OF SHARES) COMPENSATION - ------------------ ---- ------ --------- ----------- ------------ R. Scott Trumbull, 2003 $475,000 $475,000 200,000 $ 7,000 Chairman of the 2002 - - - - Board and CEO 2001 - - - - Peter-Christian Maske,2003 $251,508 $xxx,xxx - $86,791 Senior Vice 2002 235,000 176,250 - 7,000 President, 2001 220,000 165,000 - 5,950 President-Europa Jess B. Ford, 2003 $235,000 $xxx,xxx - $7,000 Senior Vice 2002 235,000 176,250 - 7,000 President 2001 220,000 165,000 15,000 5,950 Gregg C. Sengstack, 2003 $235,000 $xxx,xxx - $7,000 Senior Vice 2002 205,000 153,750 8,000 7,000 President, Chief 2001 175,000 131,250 13,000 5,950 Financial Officer and Secretary Kirk M. Nevins 2003 $165,000 $xxx,xxx - $7,000 Vice President, 2002 165,000 123,750 - 17,000 Sales 2001 155,000 116,250 15,000 5,950 William H. Lawson, 2003 $109,890 - - $ 7,000 Retired Chairman of 2002 510,000 382,500 - 7,000 the Board, CEO and 2001 475,000 356,250 40,000 5,950 President All Other Compensation for 2003 reflects Company matching contributions to employee benefit plans of $7,000 for each executive officer and Mr. Maske received two months base salary of $39,167 plus additional relocation costs (including tax gross-up) of $40,624. In 2002, Mr. Nevins received a Chairman's Bonus of $10,000; All Other Compensation reflects Company matching contributions to the employee benefit plans. Mr. Trumbull became Chairman and CEO effective with Mr. Lawson's retirement. Mr. Lawson retired in February 2003 as an officer and director of the Company.
17 OPTION GRANTS IN 2003 FISCAL YEAR Percent Potential Number of of Total Realizable Value Securities Options Exercise at Assumed Annual Underlying Granted to or Rates of Stock Price Options Employees Base Appreciation for Granted(1) in Fiscal Price Expiration Option Term ----------- Name (#) Year ($/Sh) Date 5% ($) 10%($) - ---- ------- --------- ------ ---------- ------ ------ R. Scott Trumbull 200,000 100% $48.01 1/1/13 $6,038,646 $15,303,115 Jess B. Ford - - - - - - Peter-Christian Maske - - - - - - Gregg C. Sengstack - - - - - - Kirk M. Nevins - - - - - - William H. Lawson - - - - - - (1) Options were granted on January 1, 2003 and vest at a rate of 20% per year beginning on January 1, 2004. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Shares Options at Options at Acquired Fiscal Fiscal on Value Year-End (#) Year-End($) Exercise Realized(1) Exercisable/ Exercisable/ Name (#) ($) Unexercisable Unexercisable(2) - ---- -------- -------- ------------- ------------- R.Scott Trumbull - - 60,000/170,000 $ 953,330/$2,112,860 Jess B. Ford 60,000 $2,877,000 60,000/25,000 $1,974,750/$636,525 Peter-Christian Maske - - 96,000/36,000 $2,387,040/$932,640 Gregg C. Sengstack 10,000 $507,300 38,800/26,200 $1,096,674/$576,783 Kirk M. Nevins 35,000 $869,690 3,000/17,000 $ 62,895/$412,605 William H. Lawson 128,000 $4,428,040 0/0 $0/$0 (1) Based on the excess of the fair market value of the Common Stock on the date of exercise over the option exercise price. (2) Based on the excess of the fair market value of the Common Stock of $60.24 on January 3, 2004 over the option exercise price. 18 PENSION PLANS The Company has three pension plans in which executive officers participate: the Franklin Electric Co., Inc. Basic Retirement Plan, the Franklin Electric Co., Inc. Cash Balance Plan, and the Franklin Electric Co., Inc. Pension Restoration Plan (collectively referred to herein as the "Pension Plans"). The following table illustrates the approximate combined annual pension benefit payable upon retirement at age 65 under the Pension Plans, after integration with social security. In the table, Annual Compensation is based on the highest thirty-six consecutive months' compensation which includes salary and bonus. COMBINED ANNUAL PENSION AMOUNT, INCLUDING SOCIAL SECURITY ANNUAL COMPEN- YEARS OF SERVICE SATION 10 15 20 25 30 35 $ 150,000 $ 52,500 $ 60,000 $ 67,600 $ 79,300 $ 91,000 $102,700 200,000 70,000 80,000 90,000 100,000 112,000 127,200 250,000 87,500 100,000 112,500 125,000 133,000 151,700 300,000 105,000 120,000 135,000 150,000 154,000 176,200 350,000 122,500 140,000 157,500 175,000 175,000 200,700 400,000 140,000 160,000 180,000 200,000 200,000 225,200 450,000 157,500 180,000 202,500 225,000 225,000 249,700 500,000 175,000 200,000 225,000 250,000 250,000 274,200 550,000 192,500 220,000 247,500 275,000 275,000 298,700 600,000 210,000 240,000 270,000 300,000 300,000 323,200 650,000 227,500 260,000 292,500 325,000 325,000 347,700 700,000 245,000 280,000 315,000 350,000 350,000 372,200 750,000 262,500 300,000 337,500 375,000 375,000 396,700 800,000 280,000 320,000 360,000 400,000 400,000 421,200 850,000 297,500 340,000 382,500 425,000 425,000 445,700 900,000 315,000 360,000 405,000 450,000 450,000 470,200 950,000 332,500 380,000 427,500 475,000 475,000 494,700 Years of service for the named executive officers eligible to receive the foregoing pension amounts are as follows: Mr. Trumbull, 1 year; Mr. Ford, 8 years; Mr. Sengstack, 15 years; and Mr. Nevins, 32 years. For Mr. Maske's pension calculations, he has 4 years of service under pension plans of the Company and 26 years of service under pension plans of one of the Company's foreign subsidiaries. His combined annual pension amount, including social security (both U.S. and foreign) does not exceed the benefits listed in the table above. 19 AGREEMENTS The Company has employment agreements with R. Scott Trumbull, Chairman of the Board and Chief Executive Officer; Gregg C. Sengstack, Senior Vice President, Chief Financial Officer and Secretary and Jess B. Ford, Senior Vice President. The agreements with Messrs. Trumbull and Sengstack are three-year agreements which automatically extend for an additional year unless either party provides 90 days advance written notice of an election not to extend the then current term. Under Mr. Trumbull's agreement, the Company, depending on the reason for termination of employment, may be required to pay Mr. Trumbull his annual compensation, including bonus, for the period from termination to the earlier of (i)the date on which Mr. Trumbull reaches his normal retirement age, or (ii)whichever is applicable, (a)thirty-six months if termination is prior to January 1, 2006, or (b)eighteen months if termination is after January 1, 2006, and all stock options held by Mr. Trumbull may become immediately exercisable. Under Mr. Sengstack's agreement, the Company, depending on the reason for termination of employment, may be required to pay Mr. Sengstack his annual compensation, including bonus, for a period of eighteen months after termination, and all stock options held by Mr. Sengstack may become immediately exercisable. If termination is effected within two years after a Change in Control of the Company (as defined in the agreements), the Company may be required to pay Messrs. Trumbull and Sengstack their respective annual compensation for up to three years from the date of termination or change in control, whichever is earlier, and to continue to provide them with certain benefits under the Company's benefit plans in which they were a participant at the time of their termination of employment. Under his agreement, Mr. Trumbull is deemed to have five years of full-time service with the Company as of January 1, 2003 for purposes of vesting provisions and benefit accruals under certain employee benefit plans of the Company. The agreement with Mr. Ford may be terminated by either the Company or by Mr. Ford upon 90 days advance written notice. Under the agreement, the Company, depending on the reason for termination of employment, may be required to pay Mr. Ford his annual compensation, including bonus, for a period of one year after termination, and all stock options held by Mr. Ford may become immediately exercisable. If termination is effected in connection with a change in control of the Company, the Company may be required to pay Mr. Ford his annual compensation for up to two years from the date of termination or change in control, whichever is earlier, and to continue to provide him with certain benefits under the Company's benefit plans in which he was a participant at the time of his termination of employment. The Company has a consulting agreement with its former Chairman, Chief Executive Officer and President, Mr. William H. Lawson, effective from March 1, 2003 and continuing through February 7, 2007. Mr. Lawson provides the Company with up to 500 hours of consulting services per year respecting the general domestic and international operations of the Company, acquisitions and business strategy. The Company will pay Mr. Lawson $28,333 per month (an annual rate of $340,000) for services to be performed through February 7, 2004, and $21,250 per month (an annual rate of $255,000) thereafter. In addition, Mr. Lawson is eligible to receive an annual performance bonus calculated in the same manner as the annual performance bonuses for the Company's executive officers. 20 SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS The following table sets forth information about the Company's equity compensation plans as of January 3, 2004. (C) Number of Securities (A) (B) Remaining Available Number of Securities Weighted-Average for Future Issuance to be Issued Upon Exercise Price Under Equity Exercise of of Outstanding Compensation Plans Outstanding Options, Options, (Excluding Securities Plan Category Warrants & Rights Warrants & Rights Reflected in Column A) - ------------- ------------------- ----------------- ---------------------- Equity Compensation Plans Approved by Security Holders(1) 1,266,900 $37.85 1,409,900 Equity Compensation Plans Not Approved by Security Holders(2) 4,790 NA 45,210 (1) This Plan category includes the following plans: Franklin Electric Co., Inc. Stock Option Plan (184,300 shares remain available for issuance), Key Employee Performance Incentive Stock Plan (200,000 shares remain available for issuance), Amended 1988 Executive Stock Purchase Plan (1,025,600 shares remain available for issuance), 1990 Nonemployee Director Stock Option Plan (zero shares remain available for issuance), 1986 Non-qualified Stock Option Plan (zero shares remain available for issuance). (2) This Plan category includes the Nonemployee Directors' Deferred Compensation Plan, adopted in 2000 and described above under the caption "Information About the Board and its Committees". The information included in column A represents shares underlying stock units, payable on a one-for-one basis, credited to the directors' respective stock unit accounts as of January 3, 2004. Nonemployee directors may elect to receive the distribution of stock units in cash or in shares of the Company's Common Stock. 21 APPROVAL OF AMENDMENT TO THE RESTATED ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK At its meeting on February 13, 2004, the Board of Directors unanimously adopted, subject to shareholder approval, an amendment to the Company's Restated Articles of Incorporation (the "Restated Articles of Incorporation") to increase the number of shares of common stock, par value $.10 per share, authorized for issuance by 20,000,000 from 25,000,000 to 45,000,000 shares. If the amendment is approved by shareholders, ARTICLE VI of the Restated Articles of Incorporation would be amended to provide, in pertinent part, that the shares of authorized capital stock shall be divided into, among others, a class of "45,000,000 shares of Common Stock, par value $.10 per share." The Company currently is authorized to issue 25,000,000 shares of common stock. As of __________, 2004, there were __________ shares of common stock issued and outstanding, and an additional __________ shares were reserved for issuance under the Company's benefit plans or upon exercise of options issued under such plans. As a result, as of __________ , 2004, a total of __________ authorized shares of common stock remained available for future issuance. Adoption of the proposed amendment would increase the number of authorized shares of common stock available for future issuance to 45,000,000 shares. The additional shares of common stock for which authorization is sought would be part of the existing class of common stock and, if and when issued, would have the same rights and privileges as the currently outstanding shares of common stock. Holders of shares of common stock do not have preemptive rights to subscribe for and purchase any new or additional shares of common stock or securities convertible into shares of common stock. The purpose of increasing the number of authorized shares of common stock is to provide additional authorized shares of common stock which may be issued for such corporate purposes as the Board of Directors may determine in its discretion, including, without limitation, stock splits, stock dividends or other distributions, future financings, acquisitions and benefit plans. The increase in the number of shares of common stock authorized for issuance would enable the Company, as the need may arise, to take timely advantage of market conditions and the availability of favorable opportunities without the delay and expense associated with the holding of a special meeting of its shareholders. Under the provisions of the Indiana Business Corporation Law, a board of directors may issue authorized but unissued shares of common stock without shareholder approval. Upon adoption of the amendment, the Board of Directors would be authorized to issue additional shares of common stock at such time or times, to such persons and for such consideration as it may determine, except as may otherwise be required by law. Although the Company anticipates that it may issue shares of common stock for one or more of the foregoing purposes, the Company has no firm plans, understanding or agreements for the issuance of any additional shares of common stock (other than the shares under its benefit and stock option plans). However, the Company has considered the possibility of a stock split, but any such decision would require Board approval and would only be made after further consideration of the availability of sufficient shares to fund the stock split, the stock price of the Company's Common Stock and then current market conditions. Except as required by law or as a condition to continued inclusion in the Nasdaq National Market System, or listing on any stock exchange which the shares of common stock may in the future be listed, it is unlikely that further authorization by vote of shareholders would be sought for any issuance 22 of the shares of common stock. Nasdaq rules currently require shareholder approval as a condition of continued eligibility for designation as a National Market System security in several instances, including issuances of shares in acquisition transactions where the number of outstanding shares of common stock could increase by 20% or more. The decision of the Board of Directors to propose an amendment increasing the number of shares of common stock authorized for issuance did not result from any effort by any person to accumulate the Company's stock or effect a change in control of the Company. However, one result of an increase may be to help the Board discourage or render more difficult a change in control. The additional shares could be used under certain circumstances to dilute the voting power of, create voting impediments for, or otherwise frustrate the efforts of, persons seeking to affect a takeover or gain control of the Company, whether or not the change of control is favored by a majority of unaffiliated shareholders. For example, such shares could be privately placed with purchasers who might side with the Board in opposing a hostile takeover bid. The issuance of any additional shares of common stock could also have the effect of diluting the equity of existing holders and the earnings per share of existing shares of stock. The Company's Restated Articles of Incorporation and By-Laws contain certain provisions which may be viewed as having an antitakeover effect. The Restated Articles of Incorporation and By-Laws classify the Board into three classes; provide that vacancies on the Board are to be filled by a majority vote of directors (except that shareholders may fill vacancies on the Board if a majority of the directors remaining in office are unable to agree on a person to fill a vacancy and, in that event, call a special meeting of shareholders for that purpose), and that directors so chosen shall hold office until the end of the full term of the class in which the vacancy occurred; and provide that directors may only be removed by a vote of the holders of not less than two-thirds of the outstanding voting shares at a meeting of shareholders. Under the Company's By-Laws, a shareholder who wishes to nominate a candidate for election to the Board of Directors or to introduce business to be considered at the annual meeting must give advance notice to the Company. If the election of directors is to take place at an annual meeting of shareholders, notice of a proposed nomination must be given no later than 90 days before the anniversary date of the prior annual meeting. If the election is to be held at a special meeting of shareholders called for that purpose, notice of a proposed nomination must be given not later than the close of business on the seventh day following the earlier of the date on which notice of the special meeting was first given to shareholders or the date on which public disclosure of the special meeting was made. Notice of business to be brought before an annual meeting of shareholders must be given no later than 90 days before the anniversary date of the prior meeting. The By-Laws further provide that special meetings of shareholders may only be called by the Chairman, President or a majority of the Board of Directors. Amendment of the provisions of the Restated Articles of Incorporation relating to the number and classes of directors as fixed by the By-Laws requires the vote of the holders of not less than two-thirds of the outstanding voting shares, whereas the By-Laws may be amended only by the Board of Directors of the Company. All of the foregoing provisions tend to make a change in control of the Board more difficult or time consuming. In addition, on October 15, 1999, the Company adopted a Rights Agreement ("Rights Agreement") and issued, as a dividend, one right (a "Right") for each outstanding share of common stock. Each share of common stock issued since the date of that dividend also includes one Right. Each Right, when 23 exercisable, entitles the holder to buy one one-hundredth of a share of Series I Junior Participating Preference Stock, without par value, of the Company, at an exercise price of $300, subject to adjustment. The Rights become exercisable twenty (20) days after the date of a public announcement that a person or group (i) has acquired 15% or more of the voting power of the Company or (ii) has announced a tender or exchange offer, following which it would hold 30% or more of the Company's voting power. Upon the occurrence of certain specified events thereafter, each Right entitles the holder to acquire that number of shares of common stock of the Company (or shares of the acquirer under certain circumstances) having a market value of two times the exercise price of the Right. The Company may redeem the Rights at the price of $.01 per Right prior to the occurrence of an event that causes the Rights to be exercisable. The Rights will expire on February 28, 2011. The Rights Agreement is designed to protect the value of the shareholders' investment in the Company, while preserving the possibility of a fair acquisition bid. The affirmative vote of the holders of a majority of the votes cast at the Annual Meeting is required to approve the amendment to the Restated Articles of Incorporation. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK FROM 25,000,000 TO 45,000,000. 24 RATIFICATION OF THE APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS The Audit Committee has appointed the firm of Deloitte & Touche LLP as independent auditors for the 2004 fiscal year. Although shareholder ratification is not legally required, the Board of Directors believes it advisable to submit its decision to the shareholders. If the shareholders fail to ratify Deloitte & Touche LLP as independent auditors, the Audit Committee will reassess its appointment. Deloitte & Touche LLP has acted as independent auditors for the Company since 1988. Representatives of Deloitte & Touche LLP are expected to be present at the Annual Meeting with the opportunity to make a statement if they desire to do so, and to be available to respond to questions relating to their examinations of the Company's financial statements. AUDIT FEES The aggregate fees for professional services rendered by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, "Deloitte") for the audit of the Company's annual financial statements and the reviews of the financial statements included in the Corporation's Quarterly Reports on Form 10-Q were $243,000 and $204,600, respectively, for the fiscal years ended January 3, 2004 and December 28, 2002. Audit related expenses were $32,000 and $26,000, respectively, for the fiscal years ended January 3, 2004 and December 28, 2002. AUDIT-RELATED FEES The fees for audits of the Company's employee benefit plans rendered by Deloitte were $30,000 and $38,000, respectively, for the fiscal years ended January 3, 2004 and December 28, 2002. TAX FEES The fees for tax services rendered by Deloitte were $xxx,xxx and $xxx,xxx respectively, for the fiscal years ended January 3, 2004 and December 28, 2002. AUDIT COMMITTEE PRE-APPROVAL POLICY In February 2004, the Audit Committee adopted a Pre-Approval Policy for Audit, Audit-Related and Non-Audit Services. The Audit Committee has delegated to the Audit Committee Chairman the authority to pre-approve services not prohibited by law up to a maximum of $10,000 individually or $50,000 in the aggregate, provided that the Audit Committee Chairman shall report any decisions to pre-approve services to the full Audit Committee at its next meeting. For the fiscal year ended January 3, 2004 the Company did not pay any fees for services pursuant to the exceptions to the pre-approval requirements set forth in 17 CFR 210.2-01(c)(7)(i)(c). 25 STOCKHOLDER PROPOSALS November 5, 2004 is the date by which proposals of shareholders intended to be presented at the next annual meeting must be received by the Company to be considered for the inclusion in the Company's proxy statement for the 2005 Annual Meeting. Also, other proposals intended to be presented at the next Annual Meeting but not included in the Company's proxy statement must be received by the Company no later than February 4, 2005 to be considered for presentation at that meeting. OTHER BUSINESS Management has no knowledge of any other matters to be presented for action by the shareholders at the 2004 Annual Meeting. The enclosed proxy gives discretionary authority to the persons designated as proxies therein to vote on any additional matters that should properly and lawfully be presented. By order of the Board of Directors Dated: March xx, 2004 Gregg C. Sengstack Senior Vice President, Chief Financial Officer and Secretary 26 EXHIBIT A FRANKLIN ELECTRIC CO., INC. AUDIT COMMITTEE CHARTER Effective: February 13, 2004 A. PURPOSE The purpose of the Franklin Electric Co., Inc. Audit Committee (the "Committee") is to assist the Board of Directors (the "Board") of Franklin Electric Co., Inc. (the "Company") in fulfilling its legal and fiduciary obligations with respect to matters involving the accounting, auditing, financial reporting, internal control and legal compliance functions of the Company and its subsidiaries. Specifically, the Committee shall assist the Board in overseeing (a) the accounting and financial reporting processes of the Company and the audits of the Company's financial statements and the attestation on management's assertion on internal controls for financial reporting, (b) the Company's compliance with legal and regulatory requirements, (c) the qualifications and independence of the Company's independent auditors, and (d) the performance of the Company's internal audit function and the independent auditors. The Committee also shall develop and recommend to the Board Corporate Governance Guidelines applicable to the Company and review and approve the audit committee report required to be included in the Company's annual proxy statement under the applicable rules of the Securities and Exchange Commission (the "SEC"). B. DUTIES AND RESPONSIBILITIES 1. FINANCIAL REPORTING Review the annual financial statements and independent auditor's reports to be filed with the SEC, and determine whether to recommend to the Board that the financial statements be included in the Company's annual report on Form 10-K for its most recent fiscal year. In connection with such review of the annual financial statements, consider and discuss with the Company's independent auditors and, if appropriate, management: (a) the development, selection and disclosure of critical accounting estimates and judgments made by management; (b) the initial selection of or changes in significant accounting policies or their application during the year; (c) the accounting methods used to account for significant, complex or unusual transactions; (d) any significant adjustments proposed by the independent auditors; and (e) all other matters required by professional standards to be communicated to the Committee by the independent auditors, including the matters required to be communicated under Statement on Auditing Standards No. 61, as modified or supplemented from time to time. 27 In connection with each audit, receive a report from the independent auditors regarding (a) all critical accounting policies and practices used, (b) alternative treatments of financial information within GAAP related to material items that have been discussed with management, and the ramifications of the use of such alternatives and the treatment preferred by the independent auditors, and (c) any other material written communications between the independent auditors and management. Comply with the requirements of the SEC, The Nasdaq Stock Market ("Nasdaq") and any other applicable regulatory requirements with respect to interim financial information that are determined to be applicable to the Committee. 2. INDEPENDENT AUDITORS Have the sole authority to engage, retain and terminate, and determine the funding for, the independent auditors. Be directly responsible for overseeing the work of the independent auditors (including the resolutions of disagreements between management and the independent auditors regarding financial reporting) for the purpose of preparing or issuing an audit report or related work. Review and pre-approve (a) all engagements in connection with audit, review and attest reports required under the securities laws and, (b) subject to the provisions of the Securities Exchange Act of 1934, as amended (the "1934 Act"), any non-auditing services to be provided by the independent auditors, including the terms of the engagement and fees paid to the independent auditors, subject to the de minimis exception under the 1934 Act for the provision of non-auditing services that are approved by the Committee before the completion of the audit. The Committee may establish appropriate pre-approval policies and delegate to a subcommittee of one or more of its members the authority to pre- approve auditing and permitted non-auditing services. Any decision by such subcommittee to pre-approve auditing or non- auditing services shall be presented to the full Committee for its approval at its next scheduled meeting. Evaluate, at the time of the engagement and periodically thereafter, the independence of the independent auditors and report its conclusions to the Board. In connection with such evaluation, the Committee shall require the independent auditors to deliver at least annually a formal written statement delineating all relationships between the independent auditors and the Company and addressing at least the matters set forth in Independence Standards Board Standard No. 1, as such standard may be amended, supplemented or replaced, and shall discuss with the independent auditors any relationships or services disclosed in the statement that may impact the objectivity and independence of the auditors. The Committee also shall obtain from the independent auditors a written statement of the aggregate fees billed for each of the categories of services set forth in Item 9 of Schedule 14A under the 1934 Act. 28 Ask the Company's independent auditors to confirm, each year before work is begun on the audit of the Company's financial statements, that the persons who are serving as "audit partners," as defined in applicable SEC rules, in connection with such audit have complied with applicable SEC rules relating to audit partner rotation. The Committee shall also consider, as part of its annual review of the independence of its independent auditors, whether or not there should be a regular rotation of the independent auditing firm. Meet with the independent auditors before each audit to discuss the planning and staffing of the audit. Evaluate the performance of the independent auditors and the lead partner and report its conclusions to the Board. In connection with such evaluation, the Committee shall obtain, at least annually, from the independent auditors a report that describes (a) the independent auditors' internal quality-control procedures, (b) any material issues raised by the most recent internal quality-control review or peer review of the independent auditors or by any inquiry or investigation by any governmental or professional authority respecting one or more independent audits conducted by the independent auditors, and (c) any steps taken to address those issues. The Committee shall also solicit and take into account the opinions of management and of the Company's internal auditors. Ensure that the Company complies with applicable SEC rules relating to the hiring of employees or former employees of the independent auditors who participated in the audit of the Company's financial statements. Annually assess management's performance in maintaining effective accounting, financial and compliance policies, procedures and controls. 3. INTERNAL CONTROL Review with the independent auditors, the internal auditors and with Company management the quality as well as the acceptability of the Company's accounting policies and the adequacy and effectiveness of the Company's procedures and controls, and elicit any recommendations for improvement thereof. Review with internal auditors and independent auditors the circumstances with respect to the existence of unresolved disagreements or differences of opinion (if any) regarding accounting policies, treatments, procedures, controls, or financial disclosures and determine that such items have been resolved in a manner consistent with the Committee's knowledge and understanding of the issues. 4. INTERNAL AUDIT Review annually the internal audit function of the Company, including its proposed programs, the coordination of its programs with the independent auditors and the significant findings of internal audit reviews. 29 Confirm and assist in assuring the independence of the internal audit function. Review with management the performance of the internal audit function and concur in the appointment, replacement, reassignment or dismissal of the manager of internal audit. Ensure that the internal audit function has adequate resources. 5. COMPLIANCE WITH LEGAL AND REGULATORY REQUIREMENTS Discuss with management and the independent auditors any correspondence with the SEC, Nasdaq or other regulatory or self- regulatory agency relating to the Company's financial reporting obligations, including any comment letters received from the SEC on the Company's financial statements and the Company's proposed response to those comments. Establish procedures for receiving, processing, retaining and handling complaints regarding any accounting, internal accounting controls or auditing matters, and anonymous or confidential submissions by Company employees of concerns regarding questionable accounting or auditing matters as required by applicable law including the "Whistleblower" statute under Sarbanes-Oxley. Develop and recommend to the Board, for its approval, a code of ethics for the Company's senior financial officers that complies with the requirements of the 1934 Act and applicable SEC rules and recommend to the Board, from time to time, for its approval, any revision and changes to the code that the Committee believes are necessary or advisable. Discuss with the Company's Secretary and outside counsel, as appropriate, any litigation or other legal matters that may have a material effect on the Company's financial statements or its compliance policies. Establish procedures for monitoring compliance by the Company's directors, officers and employees with the Company's Code of Business Conduct and Ethics and advise the Board of any material compliance problems identified by the Committee as the result of such procedures. Obtain from the independent auditors confirmation that they have not become aware of any illegal acts that are required to be disclosed to the Committee under the 1934 Act. 6. OTHER DUTIES Have authority to engage and determine funding for independent counsel and other outside advisors and to pay administrative expenses that are necessary or appropriate in carrying out its duties. Review and consider the impact of emerging business issues and changing conditions on the scope of the internal and external 30 audit activities. Inquire about significant risks or exposures and assess the steps management has taken to minimize or mitigate such risks or exposures. Review and approve all related party transactions required to be disclosed pursuant to Item 404 of Regulation S-K. Review annually the results and administration of the various defined benefit and defined contribution plans of the Company. Review annually expenses reported by officers and directors of the Company and the policies and procedures in effect for considering such expenses. Conduct or authorize investigations into any matters within the Committee's scope of responsibility. The Committee may retain independent counsel, accountants and others to assist it in the conduct of such investigations. Annually review the Audit Committee Charter and recommend to the Board, for its approval, any changes the Committee believes are necessary or advisable. Annually conduct and review with the Board a performance evaluation of the Committee, which evaluation shall compare the performance of the Committee against the requirements of this Committee Charter and set the goals of the Committee for the upcoming year. Meet separately, from time to time, with management, the internal auditors, and the independent auditors, as appropriate, to discuss matters within the scope of the Committee's duties. Review and reassess, at least annually, the adequacy of the Corporate Governance Guidelines and recommend to the Board, for its approval, any changes the Committee believes are necessary or advisable. Report, at each Board meeting, on Committee activities. C. COMMITTEE MEMBERSHIP The Committee shall consist of at least three directors, all of whom shall be "independent directors" under the Company's Corporate Governance Guidelines and the applicable rules of the SEC and Nasdaq. The Board shall appoint the Committee members and the Chairman of the Committee annually based on the recommendations of the Company's Personnel and Compensation Committee. The Board may fill vacancies on the Committee and remove a member from Committee membership at any time with or without cause. All committee members shall have, in the judgment of the Board, the literacy and experience requirements under the applicable rules of the SEC and Nasdaq and the provisions of the Sarbanes-Oxley Act of 2002 (the "Act"). Each committee member must be able to read and understand fundamental financial statements, including a company's balance sheet, income statement and cash flow statement. At least one Committee member shall have past employment 31 experience in finance or accounting, requisite professional certification in accounting, or any other comparable experience or background which results in the individual's financial sophistication, such as serving or having served as a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities, as required by applicable Nasdaq rules. At least one Committee member shall be an "audit committee financial expert," as defined by applicable SEC rules. Committee members shall not simultaneously serve on the audit committee of more than two other public companies. D. COMMITTEE STRUCTURE AND OPERATIONS 1. MEETINGS The Committee shall meet at least four times a year. Additional meetings may be held, or actions may be taken by unanimous written consent, as deemed necessary or appropriate by the Committee Chairman or by any other member of the Committee. Minutes of each meeting shall be prepared by the Secretary or any Assistant Secretary of the Company or such other person designated by the Committee Chairman as Acting Secretary of the Committee, and when approved, shall be distributed to all Board members. The Committee may meet with the CEO, other members of management, the Company's internal auditors, the Company's independent auditors, and outside consultants or advisors as it may deem necessary or appropriate. The Committee shall meet separately, periodically, with management, the Company's internal auditors, and the Company's independent auditors, in each case to discuss any matters that the Committee or any of the above persons or firms believes should be discussed privately. 2. RESOURCES The Committee shall have the resources and authority appropriate to discharge its duties and responsibilities. In particular, the Committee shall have (a) direct and unrestricted access to the Company's management and non- management personnel, all corporate records and the Company's independent auditors, and (b) the authority to obtain advice and assistance from internal or external legal, accounting or other advisors, without the approval of the engagement by the Board or management, and may direct the proper officers of the Company to pay the reasonable fees and expenses of any such advisor. The Committee may request its advisors to attend a meeting of the Committee or to meet with members of the Committee. 3. DELEGATION OF AUTHORITY The Committee may, in its discretion, delegate all or a portion of its duties and responsibilities to a subcommittee of the Committee. 4. COMPENSATION Director's fees (including any additional amounts paid to chairmen of committees and to members of committees of the Board) are the only compensation a member of the Committee may receive from the Company; provided, however, that a member of the Committee may also receive pension or other forms of deferred compensation for prior service so long as such compensation is not contingent in any way on continued service. 32 E. LIMITATIONS ON AUDIT COMMITTEE'S DUTIES AND RESPONSIBILITIES The Committee's responsibility is one of oversight. The responsibility for the completeness and accuracy of the financial statements rests with the Company's management. The responsibility of the Company's independent auditors is to perform an audit and to express an opinion as to whether the Company's annual financial statements are free of material misstatement and presented in accordance with generally accepted accounting principles. The Committee shall perform its responsibilities in accordance with the requirements of the Act, the SEC and Nasdaq. In fulfilling their responsibilities hereunder, it is recognized that members of the Committee are not full-time employees of the Company and are not, and do not represent themselves to be, accountants or auditors by profession or experts in the fields of accounting or auditing, including in respect of auditor independence. Each member of the Committee shall be entitled to rely on (a) the integrity of those persons and organizations within and outside the Company from which he or she receives information, (b) the accuracy of the financial and other information provided to the Committee by such persons or organizations absent actual knowledge to the contrary (which shall be promptly reported to the Board) and (c) representations made by the Company's management as to any information technology, internal audit and other non-audit services provided by the Company's independent auditors to the Company. The Company's independent auditors shall be accountable to the Board and the Committee. The independent auditors shall report directly to the Committee. The Committee shall have the authority and responsibility to evaluate, select, and, as appropriate, replace the Company's independent auditors. APPENDIX 1 FRANKLIN ELECTRIC PROXY Franklin Electric Co., Inc. 400 East Spring Street Bluffton, IN 46714 This Proxy is Solicited on Behalf of the Board of Directors. The undersigned hereby appoints R. Scott Trumbull and Gregg C. Sengstack as Proxies, and each of them, with full power of substitution, with all power the undersigned would possess if personally present, and to vote all shares of common stock of Franklin Electric Co., Inc. held of record by the undersigned on February 27, 2004, which the undersigned would be entitled to vote at the Annual Meeting of Shareholders to be held on May 5, 2004 or any adjournment or postponement thereof. 1. ELECTION OF DIRECTORS. Proposal to elect Donald J. Schneider and R. Scott Trumbull as directors to serve until the 2007 Annual Meeting of Shareholders. FOR all nominees[ ] WITHHOLD AUTHORITY to vote for all nominees[ ] (INSTRUCTION: To withhold authority to vote for any individual nominee strike a line through the nominee's name in the list below.) Donald J. Schneider R. Scott Trumbull 2. FOR approval of an amendment to the Company's Restated Articles of Incorporation to increase the number of shares of authorized common stock. [ ]FOR [ ]AGAINST [ ]ABSTAIN 3. APPOINTMENT OF INDEPENDENT AUDITORS. Proposal to ratify the appointment of Deloitte & Touche LLP as independent auditors for the 2004 fiscal year. [ ]FOR [ ]AGAINST [ ]ABSTAIN 4. In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting, or any adjournment or postponements thereof. This proxy, when properly executed, will be voted in the manner directed herein by the undersigned shareholder. If no direction is made, this proxy will be voted FOR proposals 1, 2, and 3. Please sign exactly as name appears below. When shares are held by joint tenants, both should sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. DATED________________________________, 2004 ___________________________________________ Signature ___________________________________________ Signature if held jointly PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. -----END PRIVACY-ENHANCED MESSAGE-----