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.
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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".
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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.
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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.
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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.
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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
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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
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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.
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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.