DEF 14A
1
rproxy.txt
PROXY
FRANKLIN ELECTRIC CO., INC.
400 East Spring Street
Bluffton, Indiana 46714
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held
April 25, 2003 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 FRIDAY, APRIL 25,
2003, AT 9:00 A.M., E.S.T. THE PURPOSES OF THE MEETING ARE TO:
1. Elect three directors for terms expiring at the 2006 Annual Meeting of
Shareholders;
2. Approve the merger of the Franklin Electric Co., Inc. Amended and Restated
1996 Nonemployee Director Stock Option Plan with and into the Franklin
Electric Co., Inc. 1996 Employee Stock Option Plan;
3. Approve certain amendments to the Franklin Electric Co., Inc. Key Employee
Performance Incentive Stock Plan;
4. Ratify the appointment of Deloitte & Touche LLP as independent auditors for
the 2003 fiscal year; and
5. 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 28, 2003
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.
/s/ Gregg C. Sengstack
Senior Vice President, Chief Financial
Officer and Secretary
Bluffton, Indiana
March 14, 2003
FRANKLIN ELECTRIC CO., INC.
400 EAST SPRING STREET
BLUFFTON, INDIANA 46714
------------------------------
PROXY STATEMENT
------------------------------
ANNUAL MEETING OF SHAREHOLDERS
APRIL 25, 2003
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
April 25, 2003 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 14, 2003. 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.
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 21, 2003, 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 identified on the proxy. Internet
voting will be available through April 21, 2003, 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 HIS OR HER 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 (i)FOR the election of the nominees for director as set
forth in this Proxy Statement, (ii)FOR the approval of the merger of the
Franklin Electric Co., Inc. Amended and Restated 1996 Nonemployee Director
Stock Option Plan (the "Nonemployee Director Option Plan") with and into the
Franklin Electric Co., Inc. 1996 Employee Stock Option Plan (the "Employee
Option Plan"), (iii)FOR the approval of certain amendments to the Franklin
Electric Co., Inc. Key Employee Performance Incentive Stock Plan (the
"Incentive Stock Plan"), (iv)FOR the ratification of the appointment of
Deloitte & Touche LLP as independent auditors for the 2003 fiscal year, and
(v)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.
SHAREHOLDERS ENTITLED TO VOTE AND SHARES OUTSTANDING
The Board of Directors of the Company fixed the close of business on
February 28, 2003 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 10,736,447 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 28, 2003, 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. 1,435,047 (1) 13.37
Midwest Plaza, West Tower
Suite 700
801 Nicolette Mall
Minneapolis, MN 55479-0065
Patricia Schaefer 986,042 (2) 9.16
5400 Deer Run Court
Muncie, IN 47304
Diane D. Humphrey 924,042 8.61
2279 East 250 North Road
Bluffton, IN 46714
Marvin C. Schwartz 754,292 (3) 7.03
c/o Neuberger & Berman
605 Third Avenue
New York, NY 10158
T. Rowe Price Associates, Inc. 738,700 (4) 6.88
100 E. Pratt Street
Baltimore, MD 21202
Ruane, Cunniff & Co., Inc. 653,538 (5) 6.09
767 5th Avenue, Suite 4701
New York, NY 10153
Select Equity Group, Inc., jointly 621,525 (6) 5.79
with George S. Loening
380 Lafayette Street, 6th Floor
New York, NY 10003
(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 2003 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) Includes 32,000 shares issuable pursuant to stock options exercisable
within 60 days after February 28, 2003.
(3) According to a Schedule 13D filed with the SEC on December 19, 2000,
Marvin C. Schwartz has sole investment and sole voting power with
respect to 592,320 shares, shared investment power with respect to
161,972 shares and no shared voting power.
(4) According to a Schedule 13G filed with the SEC on January 31, 2003, T.
Rowe Price Associates, Inc. has sole investment power with respect to
738,700 shares, sole voting power with respect to 268,200 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 14, 2003,
Ruane, Cunniff & Co., Inc. has sole investment power with respect to
653,538 shares, sole voting power with respect to 137,762 shares and no
shared voting or investment power.
(6) According to a Schedule 13G jointly filed with the SEC on February 14,
2003, Select Equity Group, Inc. and George S. Loening have sole
investment and voting power with respect to 621,525 shares, and no
shared voting or investment power.
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 28, 2002. 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
Patricia Schaefer 986,042(1) 9.16
John B. Lindsay 201,336(1)(2) 1.87
William H. Lawson 141,336(2) 1.32
Jess B. Ford 111,015(1)(2) 1.02
Peter-Christian Maske 106,869(1)(2) *
Donald J. Schneider 105,042(1)(3) *
Gregg C. Sengstack 96,078(1)(2) *
Thomas A. Miller 43,786(1)(2) *
Robert H. Little 41,650(1) *
Howard B. Witt 39,300(1) *
R. Scott Trumbull 22,400(1)(3) *
Jerome D. Brady 20,411(1)(3) *
All directors and 2,009,592(1)(2)(3) 17.91
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 28, 2003 as follows: Ms. Schaefer, 32,000; Mr.
Lindsay, 20,000; Mr. Ford, 109,000; Mr. Maske, 68,000; Mr. Schneider,
32,000; Mr. Sengstack, 38,600; Mr. Miller, 11,000; Mr. Little, 32,000;
Mr. Witt, 38,000; Mr. Trumbull, 20,000; Mr. Brady, 20,000; and all
directors and executive officers as a group, 482,600.
(2) Includes shares held by the ESOP Trustee as to which the individuals do
not have investment power as follows: Mr. Lawson, 4,355; Mr. Lindsay,
2,671; Mr. Ford, 1,399; Mr. Maske, 655; Mr. Sengstack, 2,869; Mr. Miller,
2,823; and all directors and executive officers as a group, 20,353.
(3) Excludes 700 stock units credited to Mr. Schneider, 882 stock units
credited to Mr. Trumbull and 2,473 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".
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 2002.
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. William H. Lawson,
Chairman of the Board and Chief Executive Officer of the Company since 1985,
and Juris Vikmanis, a director of the Company since 1988, each retired
effective February 18, 2003. 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. Three 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 three nominees who receive the most
votes will be elected).
Jerome D. Brady, Robert H. Little and Patricia Schaefer have been
nominated to serve as directors of the Company for terms expiring in 2006. Mr.
Brady, Mr. Little and Ms. Schaefer are currently directors of the Company. All
three 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.
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 2006
-----------------------------------
DIRECTOR
NAME AND POSITION AGE PRINCIPAL OCCUPATION SINCE
Jerome D. Brady, 59 Retired in 2000; Formerly 1998
Director of the Company President & Chief Executive
Officer of C&K Components
from 1997, a manufacturer
of electro-mechanical switches;
prior thereto, Chairman, President
and Chief Executive Officer
of AM International from
1994-1997.
Robert H. Little, 67 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, 72 Retired; Director Muncie Public 1982
Director of the Company Library; Muncie, Indiana.
CONTINUING DIRECTORS
--------------------
DIRECTORS WHOSE TERMS EXPIRE IN 2004
DIRECTOR
NAME AND POSITION AGE PRINCIPAL OCCUPATION SINCE
Donald J. Schneider, 67 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, 54 Chairman of the Board 1998
Chairman of the Board and Chief Executive Officer
and Chief Executive Officer of the Company. Formerly
of the Company Executive Vice President and
Chief Financial Officer,
International Operations and
Corporate Development, Owens-Illinois,
a manufacturer of glass and plastic
packaging, since August 1998.
Prior thereto, Vice President
International Operations, 1993 to 1998.
Director, Health Care REIT and
Schneider National, Inc.
DIRECTORS WHOSE TERMS EXPIRE IN 2005
DIRECTOR
NAME AND POSITION AGE PRINCIPAL OCCUPATION SINCE
John B. Lindsay, 60 Retired in February 2000; 1996
Vice Chairman of the Formerly President of the
Board of the Company Company from 1995
Howard B. Witt, 62 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
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 regular Board and Board committee meeting attended.
Each committee chairman receives an additional fee of $3,500. Directors who
are employees of the Company receive no additional compensation for serving on
the Board or Board committees. In 2002, Mr. Lindsay received $236,250 for
consulting services he rendered to the Company.
Nonemployee directors participate in the Nonemployee Director Option
Plan. Under the Nonemployee Director Option Plan, each person who is a
nonemployee director of the Board following each Annual Meeting is granted an
option to purchase 10,000 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 19, 2002, Mr. Brady, Mr. Lindsay, Mr. Little, Ms. Schaefer, Mr.
Schneider, Mr. Trumbull, Mr. Vikmanis and Mr. Witt each received an option to
purchase 10,000 shares at an exercise price of $49.95 per share. As discussed
below, the Company, subject to shareholder approval, proposes to eliminate
this annual stock option grant and merge the Nonemployee Director Option Plan
into the Employee Option Plan. Based upon its periodic review of Board
compensation practices of similarly situated companies, in April 2003, the
Board intends to grant from the merged plan to each nonemployee director an
option to purchase 4,000 shares of Common Stock of the Company.
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. Brady and Mr. Schneider each elected to
receive his respective fiscal 2002 director's fees in Company shares and to
defer issuance of the shares. Accordingly, on April 19, 2002, Mr. Brady and
Mr. Schneider were each credited with 700 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 2002, Dr. N. A. Lamberti,
Mr. William W. Keefer and Mr. Gerard E. Veneman, who retired in 1988, 1996 and
1998, with 19, 28 and 29 years of service, respectively, participated in the
Consulting Directors' Plan. In 2002, Messrs. Lamberti and Keefer received an
annual fee of $15,000 and $20,000, respectively. Mr. Veneman, who passed away
during 2002, received a fee of $5,000 in 2002. The Company froze the
Consulting Directors' Plan in 2003; accordingly, future participation in the
Consulting Directors' Plan will be limited to the Company's current
nonemployee directors, and those retired nonemployee directors currently
receiving annual fees for their consulting services.
The Board held five (5) regularly scheduled meetings during 2002. Each
director attended 75 percent or more of the aggregate meetings of the Board
and Board committees of which he or she was a member.
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. Throughout 2002
and until his retirement from the Board of Directors on February 18, 2003,
Juris Vikmanis also served on the Audit Committee. Each member of the Audit
Committee is an "independent director", as that term is defined in Rule
4200(a)(15) of the listing standards of the National Association of Securities
Dealers, Inc. ("NASD"). The Company's Board of Directors adopted on February
11, 2000 a revised "Franklin Electric Co., Inc. Audit Committee Charter" (the
"Charter"). Pursuant to the 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 three (3) meetings in 2002.
PERSONNEL AND COMPENSATION COMMITTEE. The current members of the
Personnel and Compensation Committee (the "Compensation Committee") are Donald
J. Schneider (Chairman) and Howard B. Witt. Throughout 2002 and until his
election as Chairman of the Board and Chief Executive Officer of the Company
on February 18, 2003, R. Scott Trumbull also served on the Compensation
Committee. 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; and periodically
reviews the Company's policies in the area of management benefits. The
Compensation Committee also oversees the Company's management development and
organization structure. The Compensation Committee also initiates nominations
of directors, submitting recommendations to the Board for approval.
Nominations for the election of directors may also 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. The Personnel and Compensation Committee held nine (9) meetings in
2002.
AUDIT COMMITTEE REPORT
In accordance with rules enacted by the Securities and Exchange
Commission, 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 December 28,
2002.
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 December 28, 2002 for filing with the Securities and
Exchange Commission.
This report is submitted on behalf of the members of the Audit Committee:
Jerome D. Brady (Chairman)
Robert H. Little
Patricia Schaefer
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. The
Committee awarded the Chief Executive Officer an incentive cash bonus of 75
percent of base salary for 2002.
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 2002, the Committee did not
make any stock option grants to the Chief Executive Officer or any other
executive officer named in the Summary Compensation Table, except as set forth
in the "Option Grants in 2002 Fiscal Year" table below.
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 2002 and is not expected to have an effect on
compensation payable in 2003.
Donald J. Schneider (Chairman)
Howard B. Witt
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, 1997 through December 31, 2002. In each
case, the graph assumes the investment of $100 on December 31, 1997.
$200
133 158
156 141 125
129 118 115 118
106 112 110
$100
97 97
94
$0
1997 1998 1999 2000 2001 2002
YEAR
FRANKLIN ELECTRIC
S&P 500
RUSSELL 2000
SUMMARY COMPENSATION TABLE
The following table sets forth compensation information for the years
2000 through 2002 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 2002.
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- -----------------------
BONUS SECURITIES
(PERFORMANCE UNDERLYING
NAME AND BASED OPTIONS ALL OTHER
PRINCIPAL POSITION YEAR SALARY INCENTIVE) (# OF SHARES) COMPENSATION
------------------ ---- ------ ---------- ------------- ------------
William H. Lawson, 2002 $510,000 $382,500 - $ 7,000
Retired Chairman of 2001 475,000 356,250 40,000 5,950
the Board, CEO and 2000 475,000 134,000 - 11,181
President
Jess B. Ford, 2002 $235,000 $176,250 - $ 7,000
Senior Vice 2001 220,000 165,000 15,000 5,950
President 2000 200,000 94,000 40,000 5,950
Peter-Christian Maske, 2002 $235,000 $176,250 - $ 7,000
Senior Vice 2001 220,000 165,000 - 5,950
President, 2000 200,000 94,000 40,000 5,950
Operations
Gregg C. Sengstack, 2002 $205,000 $153,750 8,000 $ 7,000
Senior Vice 2001 175,000 131,250 13,000 5,950
President, Chief 2000 175,000 82,250 30,000 5,950
Financial Officer
and Secretary
Thomas A. Miller, 2002 $165,000 $123,750 - $10,173
Vice President, 2001 155,000 116,250 15,000 5,950
Submersible Motor 2000 155,000 72,850 20,000 5,950
Engineering
All Other Compensation for 2002 reflects (i)Company matching
contributions to employee benefit plans of $7,000 for each executive
officer, and (ii)payment of $3,173 to Mr. Miller representing one week of
salary as a 25th anniversary bonus.
Mr. Lawson retired effective February 18, 2003 as an officer and director
of the Company.
OPTION GRANTS IN 2002 FISCAL YEAR
Percent Potential
Number of of Total Realizable Value
Securities Options Exercise at Assumed Annual
Underlying Granted to or Rates of Stock Price
Options Employees Base Appreciation for
Granted(1) in Fiscal Price Expiration Option Term
-----------
Name (#) Year ($/Sh) Date 5% ($) 10%($)
---- -------- -------- ------- ---------- ------ ------
William H. Lawson - - - - - -
Jess B. Ford - - - - - -
Peter-Christian
Maske - - - - - -
Gregg C. Sengstack 8,000 5% $48.15 12/13/12 $242,250 $613,909
Thomas A. Miller - - - - - -
(1) Options were granted on December 13, 2002 and vest at a rate of 20% per
year beginning on December 13, 2003.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired Fiscal Fiscal
on Value Year-End (#) Year-End($)
Exercise Realized(1) Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable(2)
---- -------- -------- ------------- ---------------
William H. Lawson 240,000 $8,628,000 128,000/32,000 $3,962,160/$277,440
Jess B. Ford - - 109,000/36,000 $3,001,635/$480,600
Peter-Christian
Maske 26,000 $ 495,520 68,000/64,000 $ 841,920/$854,160
Gregg C. Sengstack - - 38,600/36,400 $ 850,000/$372,590
Thomas A. Miller 17,200 $ 535,610 11,000/24,000 $ 151,515/$292,320
(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
$47.94 on December 27, 2002 over the option exercise price.
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 $ 67,500 $ 78,400 $ 90,000 $101,700
200,000 70,000 80,000 90,000 100,000 111,000 126,200
250,000 87,500 100,000 112,500 125,000 132,000 150,700
300,000 105,000 120,000 135,000 150,000 153,000 175,200
350,000 122,500 140,000 157,500 175,000 175,000 199,700
400,000 140,000 160,000 180,000 200,000 200,000 224,200
450,000 157,500 180,000 202,500 225,000 225,000 248,700
500,000 175,000 200,000 225,000 250,000 250,000 273,200
550,000 192,500 220,000 247,500 275,000 275,000 297,700
600,000 210,000 240,000 270,000 300,000 300,000 322,200
650,000 227,500 260,000 292,500 325,000 325,000 346,700
700,000 245,000 280,000 315,000 350,000 350,000 371,200
750,000 262,500 300,000 337,500 375,000 375,000 395,700
800,000 280,000 320,000 360,000 400,000 400,000 420,200
850,000 297,500 340,000 382,500 425,000 425,000 444,700
900,000 315,000 360,000 405,000 450,000 450,000 469,200
Years of service for the named executive officers eligible to receive the
foregoing pension amounts are as follows: Mr. Lawson, 17 years; Mr. Ford, 7
years; Mr. Sengstack, 14 years; and Mr. Miller, 30 years. For Mr. Maske's
pension calculations, he has 3 years of service under pension plans of the
Company and 25 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.
AGREEMENTS
The Company has employment agreements with R. Scott Trumbull, elected
Chairman of the Board and Chief Executive Officer effective February 18, 2003;
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.
APPROVAL OF THE MERGER OF THE FRANKLIN ELECTRIC CO., INC.
AMENDED AND RESTATED 1996 NONEMPLOYEE DIRECTOR STOCK OPTION
PLAN WITH AND INTO THE FRANKLIN ELECTRIC CO., INC. 1996
EMPLOYEE STOCK OPTION PLAN
BACKGROUND
On December 8, 1995, the Company's Board of Directors adopted the
Franklin Electric Co., Inc. 1996 Employee Stock Option Plan (the "Employee
Option Plan"), which was approved by the Company's shareholders at the April
12, 1996 annual meeting. The Employee Option Plan provided for 1,200,000
shares of the Company's Common Stock to be used for granting options to key
employees. Also at the 1996 annual meeting, the Company adopted the Franklin
Electric Co., Inc. 1996 Nonemployee Director Stock Option Plan which was
amended and restated at the 2000 annual meeting of shareholders (as amended
and restated, the "Nonemployee Director Option Plan"), and provided for
600,000 shares of the Company's Common Stock to be used for the granting of
options to nonemployee directors.
On December 13, 2002, the Company's Board of Directors approved, subject
to shareholder approval, the merger of the Nonemployee Director Option Plan
with and into the Employee Option Plan. The plan merger will (i)permit
nonemployee directors to participate in the Employee Option Plan, (ii)change
the name of the Employee Option Plan to the "Franklin Electric Co., Inc. Stock
Option Plan" (the "Plan"), and (iii)amend certain other provisions of the
Employee Option Plan as described more fully below. If the plan merger is not
approved by the shareholders, the Company will maintain the Employee Option
Plan and the Nonemployee Director Option Plan, although as described below
there are only 27,300 remaining shares available to be issued under the
Employee Option Plan. All share numbers identified in this proposal have been
adjusted to reflect the Company's two-for-one stock split in March 2002.
DESCRIPTION OF THE PLAN
General. The Plan is a stock-based compensation plan which provides for
the grant of options not intended to meet the requirements of section 422 of
the Internal Revenue Code (the "IRC") (nonqualified stock options) and stock
appreciation rights which are an award granted in connection with a related
option, the exercise of which requires forfeiture of the right to purchase a
share of the Company's stock under the related option.
In the opinion of the Board of Directors, the Company and its
shareholders benefit substantially from having certain officers and key
employees as well as nonemployee directors acquire shares of its common stock
through options granted under a stock option plan. Options provide a strong
incentive for stock ownership which can contribute markedly to the success and
growth of the Company. An option plan aids the Company in attracting and
retaining key employees and nonemployee directors and enables the Company to
compete effectively with other enterprises for the services of key employees
and nonemployee directors.
Administration. The Plan is to be administered by a committee (the
"Committee") of the Board of Directors consisting of not less than two (2)
"nonemployee directors" within the meaning of Rule 16b-3 of the Securities
Exchange Act of 1934 and who are "outside directors" within the meaning of
Section 162(m) of the IRC. The Committee shall have the sole power to select
the participants in the Plan, determine the terms and conditions of the awards
under the Plan, construe and interpret the Plan, establish, amend or waive
rules relating to the administration of the Plan, and amend the terms and
conditions of any outstanding awards to the extent provided under the Plan.
Eligibility. The Committee may select to be a participant in the Plan
(i) any officer or key employee who, in the opinion of the Committee, is
responsible for the management, growth and protection of all or a material
part of the business or major product lines or major functions of the Company
or its subsidiaries or (ii) any nonemployee director who, in the opinion of
the Committee, has performed services on the Board of Directors warranting
such an award. The determination of who is eligible to participate and the
awards to be granted is made on a year-to-year basis. Approximately 100
employees were eligible to participate in the Plan in 2002, and after the
effectiveness of the proposed plan merger contemplated by this proposal, all
six nonemployee directors would be eligible to participate in the Plan in
2003.
Types of Awards. The Plan provides for the grant of stock options and
stock appreciation rights. A stock option is the right to purchase shares of
the Company's Common Stock at a fixed price for a fixed period of time in the
future. Options granted under the Plan are nonqualified stock options and do
not meet the requirements of Section 422 of the IRC. Unless otherwise
designated by the Committee, the purchase price of the shares subject to any
option will be equal to the fair market value of the shares on the date of the
grant. On February 28, 2003, the closing price of the Company's Common Stock
on the Nasdaq Stock Market was $49.03. The Committee will determine the
period during which the option can be exercised. All options expire no later
than ten years from the date on which the option is granted. A stock
appreciation right may be granted in conjunction with a stock option. Under a
stock appreciation right, a participant may surrender such right and receive
in exchange, payment in cash and/or stock equal to the excess of the fair
market value of one share of the Company's Common Stock on the date of
exercise over the related option price of one share of the Company's Common
Stock.
Shares Available for Issuance. As described below, as a result of the
plan merger, the maximum number of the Company's shares of Common Stock that
may be subject to awards would increase from 27,300 shares (representing the
number of shares remaining under the Employee Option Plan) to 361,300 shares
(representing the sum of the 27,300 shares remaining under the Employee Option
Plan plus the 334,000 shares remaining under the Nonemployee Director Option
Plan). Generally no more than 600,000 shares may be awarded to any one
individual during the term of the Plan. All shares available are subject to
adjustments to be made by the Committee for a merger, recapitalization, stock
dividend, stock split or other similar change affecting the number of
outstanding shares of Common Stock of the Company. Unpurchased shares subject
to an option that lapses or terminates without exercise are available for
future awards.
Information relating to awards granted under the Employee Option Plan in
the last three years to the executive officers named in the Summary
Compensation Table is presented in the "Long-Term Compensation" column of the
Summary Compensation Table set forth above. In 2002, no options were granted
to any other current executive officer; 80,000 options were granted to
nonemployee directors at an exercise price of $49.95 (the options granted to
nonemployee directors were granted under the Nonemployee Director Option
Plan); and 142,500 options were granted to employees, including current
officers who are not executive officers, as a group, at exercise prices
ranging from $38.795 to $49.95. All future awards to be made are within the
discretion of the Committee.
Exercise of Options and Purchase Price. Upon the exercise of options, a
participant must deliver to the Company the full purchase price of the shares
being exercised with such purchase price being paid in either cash or its
equivalent. Participants in the Plan may also deliver common stock of the
Company having a then fair market value equivalent to the purchase price,
provided that such shares must have been held by the participant for at least
six months prior to their delivery.
Termination of Employment or Board Service. Unless otherwise determined
by the Committee, in the event a participant's employment with the Company or
service on the Board of Directors is terminated due to death or disability,
all options under the Plan shall immediately become fully vested on the date
of termination and shall be exercisable for the lesser of two years following
the date of termination or the expiration date of the option. Unless
otherwise determined by the Committee, in the event a participant's employment
with the Company or service on the Board of Directors is terminated by any
reason other than death or disability, all options which are unvested at the
date of termination shall be forfeited to the Company. Options which are
vested at the date of termination shall be exercisable for the lesser of six
months following the date of termination or the expiration date of the option.
Change in Control. In order to protect the rights of participants in
the Plan in the event of a "Change in Control" (as defined in the Plan) of the
Company, the Plan provides for the immediate vesting of all outstanding
options and stock appreciation rights.
Modification of the Plan. Subject to any requirements for shareholder
approval under applicable law, the Board of Directors may amend the Plan at
any time. The Committee may amend or waive rules and regulations governing
the Plan's administration, and amend the terms and conditions of any
outstanding award to the extent that such terms and conditions are within the
Committee's discretion as provided in the Plan. No modification of the Plan
that would adversely affect the rights of participants with respect to
outstanding options may be made without their consent.
Effective Date And Duration. The plan merger was approved by the Board
of Directors on December 13, 2002, and subject to shareholder approval, will
be effective as of April 25, 2003. The Plan shall remain in effect until all
shares subject to it have been purchased or acquired. However, in no event
may an award be granted on or after June 30, 2005. The Board of Directors,
however, can terminate the Plan at any time prior thereto.
Federal Tax Consequences. Options granted under the Plan are
nonqualified stock options. An optionee receiving a nonqualified stock option
is not subject to federal income tax upon grant of the option. The optionee
will, however, realize ordinary income at the time of the exercise to the
extent that the then fair market value of the Company's Common Stock at the
date of exercise, exceeds the exercise price. Subject to certain requirements
imposed by Section 162(m) of the IRC, the Company will be entitled to a
federal tax deduction in an amount equal to the ordinary income realized by
the optionee in connection with the stock option exercise.
The Plan also provides for the grant of stock appreciation rights. An
optionee receiving a stock appreciation right will not be subject to federal
income tax upon the grant of such right. Upon exercise of the right, the
optionee will realize ordinary income in the amount of the cash received.
Subject to certain requirements imposed by Section 162(m) of the IRC, the
Company will then be entitled to a federal tax deduction in an amount equal to
the ordinary income realized by the optionee.
Under Section 162(m) of the IRC, compensation paid by the Company in
excess of $1 million for any taxable year to "covered employees" generally is
deductible by the Company or its affiliates for federal income tax purposes if
it is "performance-based compensation", is paid pursuant to a plan approved by
shareholders of the Company, and meets certain other requirements. Generally,
"covered employee" under Section 162(m) means the chief executive officer and
the four other highest-paid executive officers of the Company as of the last
day of the taxable year. It is presently intended that the Committee will at
all times consist of "outside directors" as required for purposes of Section
162(m), and that the Committee will take the effect of Section 162(m) into
consideration in granting awards under the Plan.
The foregoing discussion of federal income tax consequences is a summary
only and is not intended to be a comprehensive analysis of the subject matter.
PROPOSED AMENDMENTS
Under the current Employee Option Plan, the Committee may only grant
options and stock appreciation rights to officers and key employees who, in
the opinion of the Committee, are responsible for the management, growth and
protection of all or a material part of the business or major product lines or
major functions of the Company or its subsidiaries. Under the current
Nonemployee Director Option Plan, nonemployee directors automatically receive
10,000 stock options annually. Under the Plan resulting from the plan merger,
(i) the Committee, in addition to granting awards to employees under the Plan,
would be able to grant options and stock appreciation rights to nonemployee
directors who, in the opinion of the Committee, have performed services on the
Board of Directors warranting such an award, and (ii) the automatic grant of
stock options to the nonemployee directors currently contained in the
Nonemployee Director Option Plan would cease.
Under the Plan resulting from the plan merger, the maximum number of the
Company's shares of Common Stock that may be subject to awards would increase
from 27,300 shares (representing the number of shares remaining under the
Employee Option Plan) to 361,300 shares (representing the sum of the 27,300
shares remaining under the Employee Option Plan plus the 334,000 shares
remaining under the Nonemployee Director Option Plan). While the Company is
not requesting that the shareholders authorize an increase in the number of
shares subject to awards under the Plan, the number of shares subject to
awards under the Plan would automatically be increased due to the merger of
the Nonemployee Director Option Plan with and into the Employee Option Plan.
The shareholders had previously authorized that 1,200,000 shares of the
Company's Common Stock would be subject to awards under the Employee Option
Plan and that 600,000 shares of the Company's Common Stock would be subject to
awards under the Nonemployee Director Option Plan. As of February 28, 2003,
(i)1,267,500 options had been granted under the Employee Option Plan
(including 94,800 options previously granted but subsequently forfeited),
leaving 27,300 remaining shares available for future awards under that plan,
and (ii)270,000 options had been granted under the Nonemployee Director Option
Plan (including 4,000 options previously granted but subsequently forfeited),
leaving 334,000 shares available for future awards under that plan. After the
merger of the Nonemployee Director Option Plan with and into the Employee
Option Plan, the combined 361,300 shares remaining available for future awards
will be shares available for future awards under the Plan.
As a result of the plan merger, the Plan also would include a new
article which incorporates certain terms and conditions from the Nonemployee
Director Option Plan applicable to the grants of options and stock
appreciation rights made to nonemployee directors under the Nonemployee
Director Option Plan outstanding prior to the effective date of the plan
merger. Each award granted under the Nonemployee Director Option Plan prior
to the effective date of the plan merger would be assumed by the Plan;
however, each award would be governed by the terms and conditions incorporated
into the Plan from the Nonemployee Director Option Plan.
Except as otherwise incorporated into the Plan as discussed herein, the
Nonemployee Director Option Plan will terminate as of the effective date of
the plan merger.
VOTE REQUIRED
The approval of the merger of the Nonemployee Director Option Plan with
and into the Employee Option Plan as discussed herein will require the
affirmative vote of the majority of the shares voted.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE MERGER OF
THE NONEMPLOYEE DIRECTOR OPTION PLAN WITH AND INTO THE EMPLOYEE OPTION PLAN.
APPROVAL OF AMENDMENTS TO THE FRANKLIN ELECTRIC CO., INC. KEY EMPLOYEE
PERFORMANCE INCENTIVE STOCK PLAN
BACKGROUND
On February 11, 2000, the Company's Board of Directors adopted the
Franklin Electric Co., Inc. Key Employee Performance Incentive Stock Plan (the
"Incentive Stock Plan"), which was approved by the Company's shareholders at
the April 14, 2000 annual meeting. The Incentive Stock Plan allowed for the
granting of restricted shares of the Company's Common Stock ("Restricted
Stock") to certain key employees of the Company and its subsidiaries. On
December 13, 2002, the Company's Board of Directors approved, subject to
shareholder approval, the amendment and restatement of the Company's Incentive
Stock Plan to (i) permit the participation of nonemployee directors in the
Incentive Stock Plan, (ii) change the name of the Incentive Stock Plan to the
"Franklin Electric Co., Inc. Performance Incentive Stock Plan" (the "Amended
Incentive Plan"), and (iii) amend certain other provisions as described more
fully below. All share numbers identified in this proposal have been adjusted
to reflect the Company's two-for-one stock split in March 2002.
DESCRIPTION OF THE AMENDED INCENTIVE PLAN
General. The Amended Incentive Plan is a stock-based plan which
provides for the grant of Restricted Stock which may consist, in whole or in
part, of authorized but unissued Common Stock or shares of Common Stock
reacquired by the Company, including Common Stock purchased in the open market
and not reserved for any other purpose.
In the opinion of the Board of Directors, the Company and its
shareholders benefit substantially from granting key employees and nonemployee
directors the opportunity to earn shares of the Company's Common Stock upon
achievement of performance goals that are set above industry or equity market
median benchmarks. Achievement of those goals should enhance shareholder
value. Ownership of shares by key employees and nonemployee directors
furthers the identity of interest between these individuals and the Company's
shareholders and provides an additional incentive to promote the achievement
of long-term objectives of the Company. Affording the Company's key employees
and nonemployee directors the opportunity to earn shares under a performance
incentive program also enables the Company to attract, retain and reward the
employees and nonemployee directors responsible for the continued success of
the Company.
Administration. The Amended Incentive Plan is to be administered by a
committee (the "Committee") of the Board of Directors consisting of not less
than two members of the Board of Directors who are "outside directors" within
the meaning of Section 162(m) of the IRC and the regulations thereunder. The
Committee shall be responsible for the administration and interpretation of
the Amended Incentive Plan. The Committee shall have the authority to (i)
determine the identity of the employees and or nonemployee directors to
participate in the Amended Incentive Plan and the number of shares of
Restricted Stock to be granted to each participant, (ii) determine the
restriction period, the performance objectives and any other terms and
conditions with respect to the granting of the Restricted Stock, (iii)
prescribe, award, and rescind rules or regulations relating to the Amended
Incentive Plan, and (iv) make all other determinations necessary or advisable
for the administration of the Amended Incentive Plan.
Eligibility. Officers and other full-time salaried employees of the
Company who are from time to time materially responsible for the management,
growth and protection of a material part or all of the business or major
product lines or major functions of the Company and nonemployee directors who,
in the opinion of the Committee, have performed services on the Board of
Directors warranting a grant of Restricted Stock are eligible to be granted
Restricted Stock under the Amended Incentive Plan. Approximately 100
employees were eligible to participate in the Amended Incentive Plan in 2002,
and after the effectiveness of the proposed amendments, all six nonemployee
directors would be eligible to participate in the Amended Incentive Plan in
2003.
Types of Awards. The only type of award available under the Amended
Incentive Plan is the grant of Restricted Stock. "Restricted Stock" is Common
Stock of the Company which is issued to the eligible participant with certain
conditions or restrictions on the participant's ownership of the share of
Common Stock. At the time of the grant, the Committee will establish a
"restriction period" with respect to the Restricted Stock granted. The
restriction period for grants under the prior plan has typically been five
years. Prior to the termination of the restriction period, the participant
will not be entitled to sell, transfer, assign, pledge or otherwise alienate
or hypothecate the shares except, however, the participant may, subject to
approval by the Board of Directors, assign his or her Restricted Stock to a
spouse, lineal descendent, trust or partnership for the primary benefit of a
spouse or lineal descendent, or a tax-exempt organization. The participant
will be entitled to vote the Restricted Stock granted to him or her and
receive all dividends paid on such Restricted Stock.
In addition to establishing a restriction period for the Restricted
Stock granted pursuant to the Amended Incentive Plan, the Committee will also
place performance-related restrictions on the shares in the form of
performance goals which must be achieved during the restriction period. These
goals will be based upon financial metrics that are recognized as measures of
shareholder value, including one or more of the following: (i) net income
growth, (ii) average return on equity, (iii) net income as a percentage of
sales, (iv) sales growth, (v) return on assets, (vi) earnings per share and
(vii) common stock price. Under these restrictions, a participant's
unrestricted ownership of the Restricted Stock will be conditioned upon
satisfaction of the performance goals set by the Committee. These goals will
be set above industry or equity market median benchmarks. If the performance
goals established by the Committee are not satisfied, the participant would
forfeit some or all of the Restricted Stock back to the Company even though he
or she continued to be employed by the Company during the entire restricted
period.
Restricted Stock will be issued to the eligible participant without
requiring any payment for the shares by the participant. The Committee will
decide whether to grant Restricted Stock to an eligible participant, the
number of shares of Restricted Stock to be granted to a participant, the
length of the restriction period, the nature of any performance goals and all
other terms and conditions of the Restricted Stock not specified under the
Amended Incentive Plan. In 2002, no shares of Restricted Stock were granted to
the executive officers named in the Summary Compensation Table, no shares of
Restricted Stock were granted to any other executive officers, and no shares
of Restricted Stock were granted to any other employees. No shares of
Restricted Stock were granted to any directors who are not executive officers
since the nonemployee directors do not currently participate in the Incentive
Stock Plan. Any future awards will be made at the discretion of the
Committee. The maximum number of shares to be granted to any participant
under the Amended Incentive Plan will not exceed 200,000 shares, subject to
adjustment as provided in the Amended Incentive Plan.
Shares Available for Issuance. A total of 200,000 shares of Common
Stock will be subject to awards under the Amended Incentive Plan. As of
February 28, 2003, no shares of Common Stock had been issued under the Amended
Incentive Plan, leaving a total of 200,000 shares to be issued. The shares
used for the Amended Incentive Plan may be authorized, but not issued shares,
or shares acquired by the Company and held in its treasury. All shares
available under the Amended Incentive Plan are subject to adjustment for a
merger, recapitalization, stock dividend, stock split or other similar change
affecting the number of outstanding common shares of the Company. If any award
granted under the Amended Incentive Plan terminates or lapses, the
corresponding shares will again be available for the grant of an award under
the terms of the Amended Incentive Plan.
Termination of Employment. Unless the Committee determines otherwise, a
participant will forfeit all rights in any Restricted Stock upon termination
of employment or service on the Board of Directors for any reason, other than
death, disability or retirement on or after the employee's or director's
sixty-fifth birthday, prior to the expiration or termination of the
restriction period and the satisfaction of the performance goals set by the
Committee. In the case of death, disability or retirement of an employee or
director on or after the employee's or director's sixty-fifth birthday, the
employee or director will forfeit only a portion of the Restricted Stock
awarded to him or her. The number of shares of Restricted Stock to which the
employee or director will be entitled will be determined by the Committee in
accordance with the terms and conditions of the Amended Incentive Plan.
Change in Control. The Committee has the discretion under the Amended
Incentive Plan to provide for the lapse of restrictions in the event of a
dissolution or liquidation of the Company or a merger or consolidation in
which the Company is not the surviving corporation. The Committee also has the
option of providing for the lapse of restrictions upon a "Change in Control"
(as defined in the Amended Incentive Plan) of the Company.
Modification of the Plan. The Board of Directors, without further
action on the part of the shareholders, may at any time terminate, suspend or
modify the Amended Incentive Plan to the extent permitted by law. However, no
termination or amendment of the Amended Incentive Plan, or amendment of any
grants, shall adversely affect any rights of a participant of the Amended
Incentive Plan, unless the participant consents.
Effective Date and Duration. The Amended Incentive Plan was approved by
the Board of Directors on December 13, 2002, and subject to shareholder
approval, will be effective as of April 25, 2003. Subject to the certain
rights of the Board of Directors to earlier terminate the Amended Incentive
Plan, the Amended Incentive Plan will terminate no later than December 13,
2010.
Federal Income Tax Consequences. The following is a summary of the
federal income tax consequences to a participant and the Company resulting
from its grant of Restricted Stock. A participant generally will not realize
taxable income upon the grant of Restricted Stock and the Company will not be
entitled to any deduction upon the grant. When the shares of Restricted Stock
are no longer subject to a substantial risk of forfeiture or become
transferable, the participant will realize ordinary income in an amount equal
to the fair market value of the shares at that time and, subject to certain
requirements imposed by Section 162(m) of the IRC, the Company will be
entitled to a deduction in the same amount, provided it complies with
applicable withholding requirements.
Under Section 83(b) of the IRC, a participant has the option of altering
the foregoing federal income tax consequences. Under that section, a
participant may elect to realize taxable ordinary income in the year the
Restricted Stock is awarded in an amount equal to the share's fair market
value at that time, determined without regard to the restrictions. In that
event, the Company will be entitled to a deduction in that year in the same
amount, provided it complies with applicable withholding requirements. Any
gain or loss realized by the participant upon the subsequent disposition of
the Restricted Stock will be capital gain or loss and will not result in any
further deduction to the Company. If the participant elects to be taxed on the
Restricted Stock on the date of grant and the participant subsequently
forfeits such Restricted Stock, the participant is not entitled to a deduction
as a consequence of such forfeiture and the Company must include as gross
income the amount previously deducted in the year of the grant with respect to
such Restricted Stock.
Any dividends received with respect to Restricted Stock which are paid
or made available to a participant (who has not elected to be taxed on the
date of the grant) while the shares remain forfeitable are treated as
additional compensation taxable as ordinary income to the participant and
deductible to the Company when paid. If the election under Section 83(b) has
been made with respect to the shares of Restricted Stock, the dividends
represent ordinary dividend income to the participant which are not deductible
to the Company.
PROPOSED AMENDMENTS
Under the Incentive Stock Plan, the Committee may only grant Restricted
Stock to officers and other full-time salaried employees of the Company who,
in the opinion of the Incentive Committee, are from time to time materially
responsible for the management, growth and protection of a material part or
all of the business or major product lines or major functions of the Company.
Under the proposed amendments, the Committee, in addition to being permitted
to grant awards to such officers and other employees, would be able to grant
Restricted Stock to nonemployee directors who, in the opinion of the
Committee, have performed services on the Board of Directors warranting such
an award.
All of the other amendments contained in the Amended Incentive Plan are
intended to conform the Amended Incentive Plan to reflect the proposed
amendment to permit the participation of nonemployee directors in the Amended
Incentive Plan.
VOTE REQUIRED
The approval of the amendments to the Incentive Stock Plan will require
the affirmative vote of the majority of the shares voted.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE AMENDMENTS
TO THE FRANKLIN ELECTRIC CO., INC. KEY EMPLOYEE PERFORMANCE INCENTIVE STOCK
PLAN.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER
EQUITY COMPENSATION PLANS
The following table sets forth information about the Company's equity
compensation plans as of December 28, 2002.
(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) 1,463,900 $32.12 1,586,900
Equity Compensation
Plans Not Approved
by Security Holders(2) 4,055 $39.93 45,945
(1) This Plan category includes the following plans: Nonemployee Director
Option Plan (334,000 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), Employee Option Plan (27,300 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). As
described above, the Company plans to merge the Nonemployee Director
Option Plan with and into the Employee Option Plan, subject to
shareholder approval.
(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 December 28, 2002. Nonemployee directors may elect to
receive the distribution of stock units in cash or in shares of the
Company's Common Stock.
RATIFICATION OF THE APPOINTMENT
OF DELOITTE & TOUCHE LLP AS INDEPENDENT AUDITORS
The Board of Directors has appointed, subject to ratification by the
shareholders, the firm of Deloitte & Touche LLP as independent auditors for
the 2003 fiscal year. Although shareholder ratification is not legally
required, the Board of Directors believes it advisable to submit its decision
to the shareholders. Deloitte & Touche LLP has acted as auditor 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.
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 for the fiscal year ended December 28, 2002 and for the
reviews of the financial statements included in the Corporation's Quarterly
Reports on Form 10-Q for that fiscal year were $202,600. Audit related
expenses for the fiscal year ended December 28, 2002 were $26,000.
The aggregate fees for other services rendered by Deloitte for the fiscal
year ended December 28, 2002 were $49,000. These fees were incurred for the
audits of the Company's employee benefit plans and tax services. The Audit
Committee of the Company's Board of Directors has considered whether such
other services rendered by Deloitte is compatible with maintaining the
principal accountant's independence. In 2002, the Company did not engage
Deloitte for management or information systems consulting, or information
technology services relating to financial information systems design and
implementation.
SHAREHOLDER PROPOSALS
November 3, 2003 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 2004
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 January 18, 2004 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 2003 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 14, 2003
/s/ Gregg C. Sengstack
Senior Vice President, Chief
Financial Officer and Secretary
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 28, 2003, which the undersigned would be entitled to vote at the
Annual Meeting of Shareholders to be held on April 25, 2003 or any adjournment
or postponement thereof.
1. ELECTION OF DIRECTORS. Proposal to elect Jerome D. Brady, Robert H.
Little and Patricia Schaefer as directors to serve until the 2006 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.)
Jerome D. Brady Robert H. Little Patricia Schaefer
2. PLAN MERGER. Approve the merger of the Franklin Electric Co., Inc.
Amended and Restated 1996 Nonemployee Director Stock Option Plan with and into
the Franklin Electric Co., Inc. 1996 Employee Stock Option Plan.
[ ]FOR [ ]AGAINST [ ]ABSTAIN
3. PLAN AMENDMENT. Approve certain amendments to the Franklin Electric Co.,
Inc. Key Employee Performance Incentive Stock Plan.
[ ]FOR [ ]AGAINST [ ]ABSTAIN
4. APPOINTMENT OF INDEPENDENT AUDITORS. Proposal to ratify the appointment
of Deloitte & Touche LLP as independent auditors for the 2003 fiscal year.
[ ]FOR [ ]AGAINST [ ]ABSTAIN
5. 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, 3 and 4.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as 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________________________________, 2003
___________________________________________
Signature
___________________________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
APPENDIX 2
FRANKLIN ELECTRIC CO., INC.
STOCK OPTION PLAN
(AS AMENDED AND RESTATED EFFECTIVE APRIL 25, 2003)
TABLE OF CONTENTS PAGE
ARTICLE 1. AMENDMENT AND RESTATEMENT...............................1
ARTICLE 2. DEFINITIONS.............................................2
ARTICLE 3. ADMINISTRATION..........................................5
ARTICLE 4. SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS...........6
ARTICLE 5. ELIGIBILITY AND PARTICIPATION...........................6
ARTICLE 6. STOCK OPTIONS...........................................7
ARTICLE 7. TANDEM STOCK APPRECIATION RIGHTS........................8
ARTICLE 8. BENEFICIARY DESIGNATION................................10
ARTICLE 9. RIGHTS OF EMPLOYEES AND NONEMPLOYEE DIRECTORS..........10
ARTICLE 10. CHANGE IN CONTROL......................................11
ARTICLE 11. AMENDMENT, MODIFICATION, AND TERMINATION...............11
ARTICLE 12. WITHHOLDING............................................12
ARTICLE 13. INDEMNIFICATION........................................12
ARTICLE 14. SUCCESSORS.............................................13
ARTICLE 15. LEGAL CONSTRUCTION.....................................13
ARTICLE 16. PLAN PROVISIONS APPLICABLE TO GRANTS MADE UNDER THE
NONEMPLOYEE DIRECTOR OPTION PLAN.......................13
FRANKLIN ELECTRIC CO., INC.
STOCK OPTION PLAN
(AS AMENDED AND RESTATED EFFECTIVE APRIL 25, 2003)
ARTICLE 1.
AMENDMENT AND RESTATEMENT
1.1 AMENDMENT AND RESTATEMENT. Franklin Electric Co., Inc., an
Indiana corporation (the "Company") established the Franklin Electric Co.,
Inc. 1996 Employee Stock Option Plan (the "Employee Option Plan"), effective
as of July 1, 1995, and the Franklin Electric Co., Inc. Amended and Restated
1996 Nonemployee Director Stock Option Plan (the "Nonemployee Director Option
Plan"), effective as of February 11, 2000. The Company hereby amends and
restates the Employee Option Plan to (i) merge the Nonemployee Director Option
Plan into the amended and restated Employee Option Plan, (ii) change the name
of the Employee Option Plan to the "Franklin Electric Co., Inc. Stock Option
Plan" (the "Plan"), and (iii) make other desired changes as provided herein.
The amendment and restatement of the Employee Option Plan, as reflected
herein, was adopted by the Board of Directors on December 13, 2002 and,
subject to approval of the shareholders of the Company at the 2003 annual
meeting of shareholders, shall become effective on April 25, 2003 (the
"Effective Date"). The amendment and restatement of the Employee Option Plan,
as reflected herein, shall be null and void if shareholder approval is not
obtained.
1.2 OBJECTIVES OF THE PLAN. The objectives of the Plan are to: (i)
optimize the profitability and growth of the Company through incentives which
are consistent with the Company's goals and which link and align the personal
interests of Participants to those of the Company's shareholders, (ii) provide
Participants with an incentive for excellence in individual performance, (iii)
promote teamwork among Participants, and (iv) aid the Company in attracting
and retaining Participants who make significant contributions to the Company's
success.
1.3 DURATION OF THE PLAN. The Plan shall be effective on the
Effective Date, as described in Section 1.1 herein, and shall remain in
effect, subject to the right of the Board of Directors to amend or terminate
the Plan at any time pursuant to Article 11 herein, until all Shares subject
to it shall have been purchased or acquired according to the Plan's
provisions. However, in no event may an Award be granted under the Plan on or
after June 30, 2005.
ARTICLE 2.
DEFINITIONS
Whenever used in the Plan, the following terms shall have the meanings
set forth below, and when the meaning is intended, the initial letter of the
word shall be capitalized:
2.1 "AWARD" means a grant of Nonqualified Stock Options or Tandem SARs
under this Plan.
2.2 "AWARD AGREEMENT" means an agreement entered into by the Company
and each Participant setting forth the terms and provisions applicable to
Awards granted under this Plan.
2.3 "BENEFICIAL OWNER" or "Beneficial Ownership" shall have the
meaning ascribed to such term in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act.
2.4 "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of
the Company.
2.5 "CHANGE IN CONTROL" of the Company shall be deemed to have
occurred if the conditions set forth in any one or more of the following
paragraphs shall have been satisfied:
(i) Any Person (other than the Person in control of the Company on the
Effective Date, or other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company,
or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their
ownership of Shares of the Company), is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the
Company's then outstanding securities; or
(ii) The election to the Board of Directors of the Company, without the
recommendation or approval of a majority of the incumbent Board of
Directors, of the lesser of (a) three directors, or (b) directors
constituting a majority of the numbers of directors then in
office; or
(iii) The shareholders of the Company approve (a) a plan of complete
liquidation of the Company; or (b) an agreement for the sale or
disposition of all or substantially all the Company's assets; or
(c) a merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities
of the surviving entity) at least 50% of the combined
voting securities of the Company (or such surviving entity)
outstanding immediately after such merger or consolidation.
However, in no event shall a Change in Control be deemed to have
occurred, with respect to a Participant, if that Participant is part of
a purchasing group which consummates the Change-in-Control transaction.
A Participant shall be deemed "part of a purchasing group" for purposes
of the preceding sentence if the Participant is an equity participant or
has agreed to become an equity participant in the purchasing company or
group (except for (i) passive ownership of less than 3% of the Shares of
the purchasing company; or (ii) ownership of equity participation in the
purchasing company or group which is otherwise not deemed to be
significant, as determined prior to the Change in Control by a majority
of the disinterested Directors).
2.6 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
2.7 "COMMITTEE" means the Stock Option Committee of the Board, as
specified in Article 3 herein, or such other Committee appointed by the Board
to administer the Plan with respect to grants of Awards.
2.8 "COMPANY" means Franklin Electric Co., Inc., an Indiana
corporation, and the Company's subsidiaries, as well as any successor to any
of such entities as provided in Article 14 herein.
2.9 "DIRECTOR" means any individual who is a member of the Board of
Directors of the Company.
2.10 "DISABILITY" means a permanent and total disability, within the
meaning of Code Section 22(e)(3), as determined by the Board in good faith.
2.11 "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.12 "EMPLOYEE" means any employee of the Company. Nonemployee
Directors shall not be considered Employees under this Plan unless
specifically designated otherwise.
2.13 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor act thereto.
2.14 "FAIR MARKET VALUE" means the closing sale price of a Share on the
principal securities exchange on which the Shares are publicly traded, or if
there is no such sale on the relevant date, then on the last previous day on
which a sale was reported.
2.15 "INSIDER" shall mean an individual who is, on the relevant date,
an officer, director or ten percent (10%) beneficial owner of any class of the
Company's equity securities that is registered pursuant to Section 12 of the
Exchange Act, all as defined under Section 16 of the Exchange Act.
2.16 "NAMED EXECUTIVE OFFICER" means a Participant who, as of the date
of vesting and/or payout of an Award, as applicable, is one of the group of
"covered employees," as defined in Code Section 162(m) or the regulations
promulgated thereunder, or any successor statute.
2.17 "NONEMPLOYEE DIRECTOR" means an individual who is a member of the
Board of Directors of the Company but is not an Employee of the Company.
2.18 "NONEMPLOYEE DIRECTOR OPTION PLAN" means the Franklin Electric
Co., Inc. Amended and Restated 1996 Nonemployee Director Stock Option Plan
which, pursuant to Section 1.1 of the Plan, will be merged into the Plan.
2.19 NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.
2.20 "OPTION" means a Nonqualified Stock Option granted under this
Plan.
2.21 "OPTION PRICE" means the price at which a Share may be purchased
by a Participant pursuant to an Option.
2.22 "PARTICIPANT" means an Employee or a Nonemployee Director who has
outstanding an Award granted under the Plan.
2.23 "PERFORMANCE-BASED EXCEPTION" means the performance-based
exception from the tax deductibility limitations of Code Section 162(m).
2.24 "PERSON" shall have the meaning ascribed to such term in Section 3
(a) (9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
2.25 "SHARES" means the $10 par value common stock of the Company.
2.26 "SUBSIDIARY" means any corporation, partnership, joint venture,
affiliate, or other entity in which the Company has a majority voting
interest, and which the Committee designates as a participating entity in the
Plan.
2.27 "TANDEM SAR" or "SAR" means an Award that is granted in connection
with a related Option pursuant to Article 7 herein, the exercise of which
shall require forfeiture of the right to purchase a Share under the related
Option (and when a Share is purchased under the Option, the Tandem SAR shall
similarly be canceled).
ARTICLE 3.
ADMINISTRATION
3.1 THE COMMITTEE. The Plan shall be administered by the Stock Option
Committee of the Board, or by any other Committee appointed by the Board
consisting of not less than two (2) Nonemployee Directors who fulfill the
requirements for an exempt grant transaction under Rule 16b-3 of the Exchange
Act, and who are "outside directors" within the meaning of Code Section 162(m)
and regulations thereunder. The members of the Committee shall be appointed
from time to time by, and shall serve at the discretion of, the Board of
Directors.
The Committee shall be comprised solely of Nonemployee Directors who are
eligible to administer the Plan pursuant to Rule 16b-3 of the Exchange Act and
Code Section 162(m) and regulations thereunder. However, if for any reason
the Committee does not qualify to administer the Plan as contemplated by Rule
16b-3 of the Exchange Act and Code Section 162(m) and regulations thereunder,
the Board of Directors may appoint a new Committee so as to comply with Rule
16b-3 and Code Section 162(m) and regulations thereunder.
3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to select Employees and
Nonemployee Directors who shall participate in the Plan; determine the terms
and conditions of Awards in a manner consistent with the Plan; construe and
interpret the Plan and any agreement or instrument entered into under the
Plan; establish, amend, or waive rules and regulations for the Plan's
administration; and (subject to the provisions of Article 11 herein) amend the
terms and conditions of any outstanding Award to the extent such terms and
conditions are within the discretion of the Committee as provided in the Plan.
Further, the Committee shall make all other determinations which may be
necessary or advisable for the administration of the Plan. As permitted by
law, the Committee may delegate its authority as identified herein.
The Committee shall keep minutes of its meetings. A majority of the
Committee shall constitute a quorum, and only the acts of a majority of the
members present at any meeting at which a quorum is present, or acts approved
in writing by a majority of the Committee, shall be valid acts of the
Committee.
3.3 DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all
persons, including the Company, its stockholders, Employees, Nonemployee
Directors, Participants, and their estates and beneficiaries.
ARTICLE 4.
SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS
4.1 NUMBER OF SHARES AVAILABLE FOR GRANTS. Prior to the
Effective Date, there were (i) six hundred thousand (600,000) Shares reserved
for issuance upon the exercise of Options granted under the Nonemployee
Director Option Plan, of which three hundred thirty-four thousand (334,000)
shares remained available for grants as of February 28, 2003, and (ii) one
million two hundred thousand (1,200,000) Shares reserved for issuance under
the Employee Option Plan, of which twenty-seven thousand three hundred
(27,300) Shares remained available for grants as of February 28, 2003. From
and after the Effective Date and subject to adjustment as provided in Section
4.2, the total number of Shares hereby reserved for issuance upon the exercise
of Options granted under the Plan shall be one million eight hundred thousand
(1,800,000), of which three hundred sixty-one thousand three hundred (361,300)
Shares remained available for grants as of February 28, 2003. If any Option
granted hereunder shall expire or terminate for any reason without having been
exercised in full, the unpurchased Shares subject thereto shall again be
available for issuance under this Plan.
Unless and until the Committee determines that an Award to a Named Executive
Officer shall not be designed to comply with the Performance-Based Exception,
the maximum aggregate number of Options and Tandem SARs that may be granted or
that may vest, as applicable, pursuant to any Award held by any Named
Executive Officer shall be six hundred thousand (600,000) during the term of
the Plan.
4.2 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether
or not such reorganization comes within the definition of such term in Code
Section 368) or any partial or complete liquidation of the Company, such
adjustment shall be made in the number and class of Shares available for
issuance and in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, as may be determined to be
appropriate and equitable by the Committee, in its sole discretion, to prevent
dilution or enlargement of rights; provided, however, that the number of
Shares subject to any Award shall always be a whole number.
ARTICLE 5.
ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. Persons eligible to participate in this Plan include
(i) all officers and key employees of the Company who, in the opinion of the
Committee, are materially responsible for the management, growth, and
protection of all or a material part of the business or major product lines or
major functions of the Company or its Subsidiaries, and (ii) all
Nonemployee Directors of the Company who, in the opinion of the Committee,
have performed services on the Board warranting the grant of Awards under the
Plan.
5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees and
Nonemployee Directors, those to whom Awards shall be granted and shall
determine the nature and amount of each Award.
ARTICLE 6.
STOCK OPTIONS
6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the
Plan, Options may be granted to one or more Participants in such number, and
upon such terms, and at any time and from time to time as shall be determined
by the Committee.
6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as
the Committee shall determine.
6.3 OPTION PRICE. Unless otherwise designated by the Committee at the
time of grant, the Option Price for each grant of an Option under this Plan
shall be equal to one hundred percent (100%) of the Fair Market Value of a
Share on the date the Option is granted; provided, however, that the Option
Price designated by the Committee shall be at least equal to fifty percent
(50%) of the Fair Market Value of a Share on the date the Option is granted.
6.4 DURATION OF OPTIONS. Each Option granted to a Participant shall
expire at such time as the Committee shall determine at the time of grant;
provided, however, that unless otherwise designated by the Committee at the
time of grant, no Option shall be exercisable later than the tenth (10th)
anniversary date of its grant.
6.5 EXERCISE OF OPTIONS. Options granted under this Article 6 shall
be exercisable at such times and be subject to such restrictions and
conditions as are set forth in the applicable Award Agreement, which need not
be the same for each grant or for each Participant.
6.6 PAYMENT. OPTIONS GRANTED under this Article 6 shall be exercised
by the delivery of a written notice of exercise to the Company, setting forth
the number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the
Company in full either: (a) in cash or its equivalent, or (b) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time
of exercise equal to the total Option Price (provided that the Shares which
are tendered must have been held by the Participant for at least six (6)
months prior to their tender to satisfy the Option Price).
As soon as practicable after receipt of a written notification of
exercise and full payment, the Company shall deliver to the Participant, in
the Participant's name, Share certificates in an appropriate amount based upon
the number of Shares purchased under the Option(s).
In the event that a Tandem SAR is granted with an Option, the exercise
of such related Option shall cause the surrender of the right to exercise the
equivalent portion of the related Tandem SAR.
6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose
such restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
limitation, restrictions under applicable Federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, and under any blue sky or state securities laws
applicable to such Shares.
6.8 TERMINATION OF EMPLOYMENT OR SERVICE ON THE BOARD. Unless
otherwise determined by the Committee, in the event a Participant's employment
with the Company and/or its Subsidiaries, or service on the Board, is
terminated due to death or Disability, all of his or her Options shall
immediately become fully vested on the date of termination and shall be
exercisable for the lesser of two (2) years following the date of termination
or the expiration date of the Options.
Unless otherwise determined by the Committee, in the event a
Participant's employment with the Company and/or its Subsidiaries or service
on the Board is terminated for any reason other than death or Disability, all
of his or her Options which are unvested at the date of termination shall be
forfeited to the Company; and his or her Options which are vested at the date
of termination shall be exercisable for the lesser of six (6) months following
the date of termination or the expiration date of the Options.
6.9 NONTRANSFERABILITY OF OPTIONS. Except as otherwise provided in a
Participant's Award Agreement, no Option granted under this Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, except as
otherwise provided in a Participant's Award Agreement, all NQSOs granted to a
Participant under this Article 6 shall be exercisable during his or her
lifetime only by such Participant.
ARTICLE 7
TANDEM STOCK APPRECIATION RIGHTS
7.1 GRANT OF TANDEM SARs. Subject to the terms and conditions of the
Plan, Tandem SARs may be granted to Participants at any time and from time to
time as shall be determined by the Committee. Subject to the terms and
conditions of the Plan, the Committee shall have complete discretion in
determining the number of Tandem SARs granted to each Participant (provided,
however, that in no event shall the number of Tandem SARs granted exceed the
number of related Options) and, in determining the terms and conditions
pertaining to such Tandem SARs. The grant price of Tandem SARs shall equal
the Option Price of the related Option.
7.2 EXERCISE OF TANDEM SARs. Tandem SARs may be exercised for all or
part of the Shares subject to the related Option upon the surrender of the
right to exercise the equivalent portion of the related Option. A Tandem SAR
may be exercised only with respect to the Shares for which its related Option
is then exercisable.
7.3 TANDEM SAR AGREEMENT. Each Tandem SAR grant shall be evidenced by
an Award Agreement that shall specify the grant price, the term of the Tandem
SAR, and such other provisions as the Committee shall determine.
7.4 TERM OF TANDEM SARs. The term of Tandem SARs granted under the
Plan shall be determined by the Committee, in its sole discretion; provided,
however, that unless otherwise designated by the Committee, such term shall
not exceed the term of the related Option.
7.5 PAYMENT OF TANDEM SAR AMOUNT. Upon exercise of a Tandem SAR, a
Participant shall be entitled to receive payment from the Company in an amount
determined by multiplying:
(a) The difference between the Fair Market Value of a Share on the
date of exercise over the grant price; by
(b) The number of Shares with respect to which the Tandem SAR is
exercised.
At the election of Participant and upon approval by the Committee, the
payment upon Tandem SAR exercise may be in cash, in Shares of equivalent
value, or in any combination thereof.
7.6 RULE 16b-3 REQUIREMENTS. Notwithstanding any other provision of
the Plan, the Committee may impose such conditions on exercise of a Tandem SAR
(including, without limitation, the right of the Committee to limit the time
of exercise to specified periods) as may be required to satisfy the
requirements of Section 16 of the Exchange Act (or any successor rule).
7.7 TERMINATION OF EMPLOYMENT OR SERVICE ON THE BOARD. Unless
otherwise determined by the Committee, in the event a Participant's employment
with the Company and/or its Subsidiaries, or service on the Board, is
terminated due to death or Disability, all of his or her Tandem SARs shall
immediately become fully vested on the date of termination and shall be
exercisable for the lesser of two (2) years following the date of termination
or the expiration date of the Tandem SARs.
Unless otherwise determined by the Committee, in the event a
Participant's employment with the Company and/or its Subsidiaries, or service
on the Board, is terminated for any reason other than death or Disability, all
of his or her Tandem SARs which are unvested at the date of termination shall
be forfeited to the Company; and his or her Tandem SARs which are vested at
the date of termination shall be exercisable for the lesser of six
(6) months following the date of termination or the expiration date of the
Tandem SARs.
7.8 NONTRANSFERABILITY OF TANDEM SARs. Except as otherwise provided
in a Participant's Award Agreement, no Tandem SAR granted under the Plan may
be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
Further, except as otherwise provided in a Participant's Award Agreement, all
Tandem SARs granted to a Participant under the Plan shall be exercisable
during his or her lifetime only by such Participant.
ARTICLE 8.
BENEFICIARY DESIGNATION
Each Participant under the Plan may, from time to time, name any
beneficiary or beneficiaries (who may be named contingently or successively)
to whom any benefit under the Plan is to be paid in case of his or her death
before he or she receives any or all of such benefit. Each such designation
shall revoke all prior designations by the same Participant, shall be in a
form prescribed by the Company, and will be effective only when filed by the
Participant in writing with the Company during the Participant's lifetime, In
the absence of any such designation or if all beneficiaries predecease the
Participant, benefits remaining unpaid at the Participant's death shall be
paid to the Participant's estate.
ARTICLE 9.
RIGHTS OF EMPLOYEES AND NONEMPLOYEE DIRECTORS
9.1 EMPLOYMENT AND SERVICE ON THE BOARD. Nothing in the Plan shall
interfere with or limit in any way the right of the Company to terminate any
Participant's employment or service on the Board at any time, nor confer upon
any Participant any right to continue in the employ of the Company or continue
to serve on the Board.
For purposes of this Plan, a transfer of a Participant's employment
between the Company and a Subsidiary, or between Subsidiaries, shall not be
deemed to be a termination of employment. Upon such a transfer, the Committee
may make such adjustments to outstanding Awards as it deems appropriate to
reflect the changed reporting relationships.
9.2 PARTICIPATION. No Participant shall have the right to be selected
to receive an Award under this Plan, or, having been so selected, to be
selected to receive a future Award.
ARTICLE 10.
CHANGE IN CONTROL
10.1 TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change
in Control, unless otherwise specifically prohibited under applicable laws, or
by the rules and regulations of any governing governmental agencies or
national securities exchanges, any and all Options and Tandem SARs granted
hereunder shall become immediately exercisable, and shall remain exercisable
throughout their entire term.
10.2 TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL
Provisions. Notwithstanding any other provision of this Plan or any Award
Agreement provision, the provisions of this Article 10 may not be terminated,
amended, or modified to affect adversely any Award theretofore granted under
the Plan without the prior written consent of the Participant with respect to
said Participant's outstanding Awards.
ARTICLE 11.
AMENDMENT, MODIFICATION, AND TERMINATION
11.1 AMENDMENT, MODIFICATION, AND TERMINATION. The Board may at any
time and from time to time, alter, amend, suspend or terminate the Plan in
whole or in part; provided, however, that no amendment which fails to comply
with the exemptions available under Rule 16b-3 of the Exchange Act, including
any successor to such Rule, shall be effective.
The Committee shall not have the authority to cancel outstanding Awards
and issue substitute Awards in replacement thereof.
11.2 AWARDS PREVIOUSLY GRANTED. Unless required by law, no
termination, amendment, or modification of the Plan shall adversely affect in
any material way any Award previously granted under the Plan, without the
written consent of the Participant holding such Award.
11.3 COMPLIANCE WITH CODE SECTION 162(m). At all times when Code
Section 162(m) is applicable, all Awards granted under this Plan shall comply
with the Performance-Based Exception requirements of Code Section 162(m) and
regulations thereunder; provided, however, that in the event the Committee
determines that such compliance is not desired with respect to any Award or
Awards available for grant under the Plan, then compliance with Code Section
162(m) and regulations thereunder will not be required. In addition, in the
event that changes are made to Code Section 162(m) and regulations thereunder
to permit greater flexibility with respect to any Award or Awards available
under the Plan, the Committee may, subject to this Article 11, make any
adjustments it deems appropriate.
ARTICLE 12.
WITHHOLDING
12.1 TAX WITHHOLDING. The Company shall have the power and the right
to deduct or withhold, or require a Participant to remit to the Company, an
amount sufficient to satisfy federal, state, and local taxes, domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of this Plan.
12.2 SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or Tandem SARs, Participants may elect, subject to the
approval of the Committee, to satisfy the withholding requirement, in whole or
in part, by having the Company withhold Shares having a Fair Market Value on
the date the tax is to be determined equal to the minimum statutory total tax
which could be imposed on the transaction. All such elections shall be
irrevocable, made in writing, signed by the Participant, and shall be subject
to any restrictions or limitations that the Committee, in its sole discretion,
deems appropriate.
ARTICLE 13.
INDEMNIFICATION
Each person who is or shall have been a member of the Committee, or of
the Board, shall be indemnified by the Company against and from any loss,
cost, liability, or expense that may be imposed upon or reasonably incurred by
him or her in connection with or resulting from any claim, action, suit, or
proceeding to which he or she may be a party or in which he or she may be
involved by reason of any action taken or failure to act under the Plan. Such
person shall be indemnified by the Company for all amounts paid by him or her
in settlement thereof, with the Company's approval, or paid by him or her in
satisfaction of any judgment in any such action, suit, or proceeding against
him or her, provided he or she shall give the Company an opportunity, at its
own expense, to handle and defend the same before he or she undertakes to
handle and defend it on his or her own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification
to which such persons may be entitled under the Company's Articles of
Incorporation or Bylaws, as a matter of law, or otherwise, or any power that
the Company may have to indemnify them or hold them harmless.
ARTICLE 14.
SUCCESSORS
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether
the existence of such successor is the result of a direct or indirect
purchase, merger, consolidation, or otherwise, of all or substantially all of
the business and/or assets of the Company.
ARTICLE 15.
LEGAL CONSTRUCTION
15.1 GENDER AND NUMBER. Except where otherwise indicated by the
context, any masculine term used herein also shall include the feminine; the
plural shall include the singular and the singular shall include the plural.
15.2 SEVERABILITY. In the event any provision of the Plan shall be
held illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining parts of the Plan, and the Plan shall be construed and
enforced as if the illegal or invalid provision had not been included.
15.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
15.4 GOVERNING LAW. To the extent not preempted by Federal law, the
Plan, and all agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of Indiana.
ARTICLE 16.
PLAN PROVISIONS APPLICABLE TO GRANTS MADE UNDER THE NONEMPLOYEE
DIRECTOR OPTION PLAN
As provided in Section 1.1 of the Plan, the Nonemployee Director Option Plan
shall be merged into the Plan effective as of the Effective Date. Each Award
granted under the Nonemployee Director Option Plan prior to the Effective Date
shall be assumed by the Plan. Notwithstanding any provisions in the Plan to
the contrary, all Awards granted under the Nonemployee Director Option Plan
prior to the Effective Date shall be subject to the terms of this Article 16
and the terms of the Plan to the extent such terms are not inconsistent with
this Article 16.
16.1 DEFINITIONS.
(i) "Board" or "Board of Directors" means the Board of Directors of
the Company, and includes any committee of the Board of Directors
designated by the Board to administer part or all of the
Nonemployee Director Option Plan.
(ii) "Nonemployee Director" means any individual who was a member of
the Board of Directors of the Company, but was not, as of the date
of the grant of an Option, an Employee of the Company.
(iii) "Option" means a grant of Nonqualified Stock Options under the
Nonemployee Director Option Plan prior to the Effective Date.
16.2 ADMINISTRATION BY THE BOARD. The Board shall have the full power,
discretion and authority to interpret and administer the Options in a manner
which is consistent with the provisions of this Article 16.
16.3 GRANTS OF OPTIONS. Prior to the Effective Date, and subject to
the limitation on the number of Shares contained in the Nonemployee Director
Option Plan, each person who was a Nonemployee Director following each Annual
Meeting of the Shareholders was automatically granted an Option to purchase
ten thousand (10,000) Shares. Other than these automatic grants of Options,
no additional Options were granted under the Nonemployee Director Option Plan.
On and after the Effective Date there will be no automatic grants of Options
to Nonemployee Directors under the Plan or the Nonemployee Director Option
Plan that was merged into the Plan. All grants of Options to Nonemployee
Directors under the Plan will be made pursuant to Section 6.1 above.
16.4 AWARD AGREEMENT. Each Option granted under the Nonemployee
Director Option Plan is evidenced by an Award Agreement that specifies the
Option Price, the duration of the Option, and the number of Shares available
for purchase under the Option as set forth in this Article 16.
16.5 OPTION PRICE. The Option Price per Share available for purchase
under an Option was equal to the Fair Market Value of such Share on the date
the Option was granted.
16.6 DURATION OF OPTIONS. Each Option shall expire on the tenth (10th)
anniversary date of its grant.
16.7 VESTING OF SHARES SUBJECT TO OPTION. Nonemployee Directors shall
be entitled to exercise Options at any time and from time to time, within the
time period beginning one (1) year after grant of the Options, and ending ten
(10) years after grant of the Options, and according to the following vesting
schedule: one-third of the Options shall vest on each of the first, second,
and third anniversaries of the date of grant of the Options.
16.8 PAYMENT. A Nonemployee Director may exercise an Option by delivery
of a written notice, specifying the number of Shares with respect to which the
Option is being exercised, accompanied by payment in full of the Option Price
of any Shares to be purchased (in the form of a cashier's or certified check).
No Shares shall be issued upon exercise of an Option until full payment has
been made therefor. Notwithstanding the preceding sentence, the Board may
permit a Nonemployee Director to pay the Option Price of the
Shares to be purchased (i) in Shares valued at their Fair Market Value at the
date of exercise, (ii) by agreeing to surrender Options then exercisable by
him or her valued at the excess of the aggregate Fair Market Value of the
Shares subject to such Options on the date of exercise over the aggregate
Option Price of such Shares, (iii) by directing the Company to withhold such
number of Shares otherwise issuable upon exercise of such Options having an
aggregate Fair Market Value on the date of exercise equal to the Option Price
of the Option, or (iv) by such other medium of payment as the Board, in its
discretion, shall authorize, or by any combination of the aforementioned
methods of payment. Shares issued upon exercise of an Option shall be issued
only in the name of the Nonemployee Director. All notices shall be delivered
to the Secretary of the Company and shall become effective when received.
16.9 TERMINATION OF SERVICE ON BOARD OF DIRECTORS DUE TO DEATH OR
DISABILITY. In the event the service of a Nonemployee Director on the Board
is terminated by reason of death, Disability, or retirement on or after
attaining the age of seventy (70), any outstanding Options granted to that
Nonemployee Director that are not exercisable as of the date of death (or as
of the date that the definition of Disability is satisfied, or the date of
retirement, as applicable) shall immediately become exercisable.
To the extent an Option is exercisable by reason of death, as of the
date that the definition of Disability is satisfied, or retirement on or after
attaining the age of seventy (70) as applicable, such Option shall remain
exercisable at any time prior to its expiration date, or for two (2) years
after the date of death, or the date that the definition of Disability is
satisfied, or the date of retirement, as applicable, whichever period is
shorter, by the Nonemployee Director or such person or persons as shall have
been named as the Nonemployee Director's legal representative or beneficiary,
or by such persons that have acquired the Nonemployee Directors' rights under
the Option by will or by the laws of descent and distribution.
16.10 TERMINATION OF SERVICE ON BOARD OF DIRECTORS FOR OTHER REASONS. If
the service of the Nonemployee Director on the Board shall terminate for any
reason other than for death, Disability, or retirement on or after attaining
the age of seventy (70), any outstanding Options held by the Nonemployee
Director that are not exercisable as of the date of termination immediately
shall be forfeited to the Company (and shall once again become available for
grant under the Plan). To the extent an Option is exercisable as of the date
of termination of the Nonemployee Director's service on the Board, it shall
remain exercisable at any time prior to its expiration date, or for six (6)
months after the date the Nonemployee Director's service on the Board
terminates, whichever period is shorter.
16.11 NONTRANSFERABILITY OF OPTIONS. No Option granted under the
Nonemployee Director Option Plan may be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated, other than by will or by the laws of
descent and distribution. Further, all Options granted to a Nonemployee
Director under the Nonemployee Director Option Plan shall be exercisable
during his or her lifetime only by such Nonemployee Director.
Notwithstanding the preceding provisions of this Section, a Nonemployee
Director, at any time prior to his or her death, may assign all or any portion
of an Option granted to him or her to (i) his or her spouse or lineal
descendant, (ii) the trustee of a trust established for the primary benefit of
his or her spouse or lineal descendant, (iii) a partnership of which his or
her spouse and lineal descendants are the only partners, or (iv) a tax-exempt
organization as described in Section 501(c)(3) of the Code. In such event, the
spouse, lineal descendants, trustee, partnership or tax-exempt organization,
will be entitled to all the rights of the Nonemployee Director with respect to
the assigned portion of such Option, and such portion of the Option will
continue to be subject to all of the terms, conditions and restrictions
applicable to the Option as set forth herein immediately priorto the effective
date of the assignment. Any such assignment will be permitted only if (i) the
Nonemployee Director does not receive any consideration therefor, and (ii) the
assignment is expressly approved by the Board. Any such assignment shall be
evidenced by an appropriate written document executed by the Nonemployee
Director and a copy thereof shall be delivered to the Board on or prior to the
effective date of the assignment.
APPENDIX 3
FRANKLIN ELECTRIC CO., INC.
PERFORMANCE INCENTIVE STOCK PLAN
(AS AMENDED AND RESTATED EFFECTIVE APRIL 25, 2003)
TABLE OF CONTENTS PAGE
SECTION 1. AMENDMENT AND RESTATEMENT...............................1
SECTION 2. DEFINITIONS.............................................2
SECTION 3. ELIGIBILITY AND PARTICIPATION...........................4
SECTION 4. ADMINISTRATION..........................................4
SECTION 5. STOCK SUBJECT TO PLAN...................................5
SECTION 6. TERMINATION OF THE PLAN.................................6
SECTION 7. RESTRICTED STOCK........................................6
SECTION 8. RIGHTS OF EMPLOYEES AND NONEMPLOYEE DIRECTORS...........9
SECTION 9. MERGER, CONSOLIDATION, OR ACQUISITION...................9
SECTION 10. AMENDMENT AND TERMINATION..............................10
SECTION 11. TAXWITHHOLDING.........................................10
SECTION 12. GOVERNING LAW..........................................10
SECTION 13. EXPENSE OF PLAN........................................10
SECTION 14. RESTRICTED STOCK AGREEMENT.............................11
FRANKLIN ELECTRIC CO., INC.
PERFORMANCE INCENTIVE STOCK PLAN
(AS AMENDED AND RESTATED EFFECTIVE APRIL 25, 2003)
PREAMBLE
Employees of Franklin Electric Co., Inc., an Indiana corporation (the
"Company"), who are from time to time materially responsible for the
management, growth and protection of a material part or all of the business or
major product lines or major functions of the Company, and Nonemployee
Directors of the Company who have performed services on the Board warranting
the grant of Restricted Stock under the Franklin Electric Co., Inc.
Performance Incentive Plan, as amended and restated herein (the "Plan"), are
eligible to be granted Restricted Stock as Participants under the Plan.
At the time of the grant a Committee of the Board of Directors will establish
at least two criteria for Participants to earn the shares granted. First, the
Committee will establish a Restriction Period. Second, the Committee will
also set Performance Objectives to be achieved during the Restriction Period.
These Performance Objectives will be based on financial and other metrics that
are recognized as measures of the enhancement of shareholder value.
At the end of a Restriction Period, the Committee, in its discretion, shall
determine (i) whether and to what extent the Company has achieved the
Performance Objectives and satisfied any other terms, conditions or
restrictions established for the Restriction Period, and (ii) the number of
Shares of Restricted Stock with respect to which the restrictions imposed
should lapse.
If at the end of the Restriction Period the Committee determines that the
Company failed to achieve the Performance Objectives or otherwise failed to
satisfy any other restrictions, terms or conditions set by the Committee, then
to the extent provided in the Restricted Stock Agreement or otherwise by the
Committee, the Shares of Restricted Stock shall be forfeited by the
Participant and returned to the Company, and all rights of the Participant in
such Shares shall terminate without any further obligation on the part of the
Company.
SECTION 1.
AMENDMENT AND RESTATEMENT
1.1 AMENDMENT AND RESTATEMENT. The Company established the Franklin
Electric Co., Inc. Key Employee Performance Incentive Stock Plan (the
"Employee Plan"), effective April 14, 2000. The Company hereby amends and
restates the Employee Plan to (i) authorize participation by Nonemployee
Directors, (ii) change the name of the Employee Plan to the "Franklin Electric
Co., Inc. Performance Incentive Stock Plan," and (iii) make other desired
changes as provided herein.
1.2 PURPOSE. The purposes of the Plan are to: (i) advance the interests of
the Company by providing the additional incentives inherent in stock ownership
to those Employees of the Company materially responsible, now and in the
future, for the management, growth and protection of some part or all of the
business of the Company and thereby to bring them into closer identity with
the future of the Company; (ii) aid the Company in attracting and retaining
Employees in key management positions; (iii) enable the Company to compete
effectively with other enterprises for the services of new Employees as may be
needed for the continued success of the Company; (iv) promote the achievement
of long-term objectives of the Company by linking the interests of Nonemployee
Directors to those of Company stockholders; and (v) attract and retain
Nonemployee Directors of outstanding competence. The Plan seeks to accomplish
such purposes by providing to such employees and Nonemployee Directors an
equity interest in the Company.
1.3 EFFECTIVE DATE. The amendment and restatement of the Employee Plan, as
reflected herein, was adopted by the Board of Directors of the Company on
December 13, 2002 and, subject to approval of the shareholders of the Company
at the 2003 annual meeting of shareholders, shall become effective on April
25, 2003 (the "Effective Date"). The amendment and restatement of the
Employee Plan, as reflected herein, shall be null and void if shareholder
approval is not obtained.
SECTION 2.
DEFINITIONS
2.1 DEFINITIONS. Whenever used herein, the following terms shall have the
meanings set forth below:
"Board" means the Board of Directors of the Company.
"Change in Control" of the Company shall be deemed to have occurred if the
conditions set forth in any one or more of the following paragraphs shall have
been satisfied:
(i) Any Person (other than the Person in control of the Company on the
Effective Date, or other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, or a corporation owned directly
or indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of Shares of the Company), is or becomes the
Beneficial Owner, directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's then
outstanding securities; or
(ii) The election to the Board of Directors of the Company, without the
recommendation or approval of a majority of the incumbent Board of Directors,
of the lesser of (a) three directors, or (b) directors constituting a majority
of the numbers of directors then in office; or
(iii) The stockholders of the Company approve (a) a plan of complete
liquidation of the Company; or (b) an agreement for the sale or disposition of
all or substantially all the Company's assets; or (c) a merger or
consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the combined voting securities of the
Company (or such surviving entity) outstanding immediately after such merger
or consolidation.
However, in no event shall a Change in Control be deemed to have occurred,
with respect to a Participant, if that Participant is part of a purchasing
group which consummates the Change-in-Control transaction. A Participant
shall be deemed "part of a purchasing group" for purposes of the preceding
sentence if the Participant is an equity participant or has agreed to become
an equity participant in the purchasing company or group (except for (i)
passive ownership of less than 3% of the Shares of the purchasing company; or
(ii) ownership of equity participation in the purchasing company or group
which is otherwise not deemed to be significant, as determined prior to the
Change in Control by a majority of the disinterested Directors).
"Code" means the Internal Revenue Code of 1986, as amended, in effect at the
time of reference, or any successor Code that may hereafter be adopted in lieu
thereof, and references to any specific provisions of the Code shall refer to
the corresponding provisions of the Code as it may hereinafter be amended or
replaced.
"Committee" means a committee of the Board consisting of two or more members
of the Board who are "outside directors," as defined under section 162(m) of
the Code and the regulations thereunder.
"Disability" means a permanent and total disability, within the meaning of
Code Section 22(e)(3), as determined by the Board in good faith.
"Employee" means any person (including officers who are directors of the
Company) employed by the Company on a full-time salaried basis.
"Nonemployee Director" means any individual who is a member of the Board of
Directors of the Company but not an Employee of the Company.
"Normal Retirement" means termination of employment or service on the Board on
or after a Participant's sixty-fifth birthday under the Company's Basic
Retirement Plan as amended from time to time.
"Participant" means any Employee or Nonemployee Director designated by the
Committee to participate in the Plan.
"Performance Objectives" means the performance goals set by the Committee
based on one or more of the following: (i) net income growth; (ii) average
return on equity; (iii) net income as a percentage of sales; (iv) sales
growth; (v) return on assets; (vi) earnings per share; and (vii) Common Stock
price.
"Restriction Period" means that period of time determined by the Committee
during which the transfer of Shares of Restricted Stock are restricted and are
subject to forfeiture.
"Restricted Stock" means Stock granted to a Participant pursuant to Section 7
of the Plan.
"Stock", "Shares", and "Restricted Stock" mean the common shares of the
Company.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
words in the masculine gender when used in this Plan also shall include the
feminine and neuter genders, the singular shall include the plural, and the
plural shall include the singular.
SECTION 3.
ELIGIBILITY AND PARTICIPATION
3.1 ELIGIBLE EMPLOYEES AND NONEMPLOYEE DIRECTORS. The following individuals
shall be eligible to be granted Shares of Restricted Stock under the Plan:
(i) the officers and other Employees of the Company who, in the opinion of the
Committee, are from time to time materially responsible for the management,
growth and protection of a material part or all of the business or major
product lines or major functions of the Company; and (ii) the Nonemployee
Directors who, in the opinion of the Committee, have performed services on the
Board warranting the grant of Shares of Restricted Stock under the Plan.
SECTION 4.
ADMINISTRATION
4.1 ADMINISTRATION. The Committee shall be responsible for the
administration and interpretation of the Plan. Without limiting other rights
or powers delegated to the Committee elsewhere under the Plan, the Committee,
in administering and interpreting the Plan, and consistent with the express
provisions of the Plan, is hereby authorized and empowered as follows:
(a) The Committee shall determine the identity of the Participants in the
Plan and the number of Shares of Restricted Stock to be granted to
Participants.
(b) The Committee shall determine the Restriction Period, the Performance
Objectives, and any other restrictions, terms or conditions with respect to
the granting of any Restricted Stock.
(c) The Committee may prescribe, award, and rescind rules or regulations
relating to the Plan.
(d) The Committee may make all other determinations necessary or advisable
for the administration or interpretations of the Plan.
(e) The Committee shall prescribe the terms and conditions of the Restricted
Stock Agreements.
(f) The Committee may require that all Stock certificates issued in
connection with Shares of Restricted Stock be held by the Company or in escrow
or otherwise pursuant to such terms and conditions that the Committee may
require until all the restrictions have lapsed and the Restricted Stock is
freely transferable.
SECTION 5.
STOCK SUBJECT TO PLAN
5.1 NUMBER. The total number of Shares of Restricted Stock that may be
granted under the Plan may not exceed two hundred thousand (200,000), subject
to adjustment as provided in Section 5.3. Those Shares of Restricted Stock
granted may consist, in whole or in part, of authorized but unissued Stock or
Shares of Stock reacquired by the Company, including Shares purchased in the
open market and not reserved for any other purpose. The maximum aggregate
number of Shares that may be granted to any participant under the Plan during
the term of the Plan is two hundred thousand (200,000) Shares, subject to
adjustment as provided in Section 5.3.
5.2 UNUSED STOCK. In the event any Shares of Restricted Stock granted under
the Plan are forfeited and reacquired by the Company, such reacquired Shares
again shall become available for issuance under the Plan.
5.3 ADJUSTMENT IN AVAILABLE SHARES. Any increase in the number of
outstanding Shares of the Company occurring through Stock splits or Stock
dividends after the adoption of the Plan shall be reflected proportionately in
an increase in the aggregate number of Shares then available for issuance
grant under the Plan. Any fractional share of Restricted Stock resulting from
such adjustments shall be eliminated. If changes in capitalization other than
those considered above shall occur, the Board shall make such adjustment in
the number and class of Restricted Stock which may thereafter be issued, as
the Board in its discretion may consider appropriate, and all such adjustments
shall be conclusive upon all persons.
SECTION 6.
TERMINATION OF THE PLAN
6.1 TERMINATION OF THE PLAN. Subject to the Board's right to earlier
terminate the Plan pursuant to Section 10.1 hereof, the Plan shall terminate
not later than December 13, 2010 and no Restricted Stock shall be granted
after termination of the Plan; provided, however, that termination of the Plan
will not adversely affect Shares of Restricted Stock granted prior to
termination of the Plan.
SECTION 7.
RESTRICTED STOCK
7.1 SELECTION OF PARTICIPANTS AND GRANT OF RESTRICTED STOCK. Subject to the
terms of the Plan, from time to time the Committee may select eligible
Employees and Nonemployee Directors to be Participants under the Plan and to
receive the opportunity to earn grants of Restricted Stock. Grants will
generally be made at the beginning of a Restriction Period, but may, in the
Committee's discretion, be made during the term of a Restriction Period. The
Committee shall determine the number of Shares of Restricted Stock which will
be granted to a Participant.
7.2 RESTRICTION PERIOD. At the time of the grant of Shares of Restricted
Stock, the Committee shall select the Restriction Period to apply to the
Shares of Restricted Stock.
7.3 PERFORMANCE OBJECTIVES. At the time of the grant of the Restricted
Stock (which generally will be prior to the beginning of the Restriction
Period), Performance Objectives designed to enhance shareholder value shall be
established by the Committee. Subject to the provisions of the Plan, the
degree of achievement of the Performance Objectives may determine the number
of Shares (if any) of Restricted Stock that ultimately shall be free of any
restrictions at the end of the Restriction Period.
7.4 NONTRANSFERABILITY OF RESTRICTED STOCK. Prior to the lapse of
restrictions as provided in Section 7.6, Shares of Restricted Stock may not be
sold, exchanged, transferred, pledged, assigned, or otherwise alienated or
hypothecated, whether voluntarily or involuntarily. Notwithstanding the
preceding provisions of this Section, a Participant, at any time prior to his
or her death, may assign all or any Shares of Restricted Stock granted to him
or her to (i) his or her spouse or lineal descendant, (ii) the trustee of a
trust established for the primary benefit of his or her spouse or lineal
descendant, (iii) a partnership of which his or her spouse and lineal
descendants are the only partners, or (iv) a tax-exempt organization as
described in Section 501(c) (3) of the Code. In such event, the spouse,
lineal descendants, trustee, partnership or tax-exempt organization, will be
entitled to all the rights of the Participant with respect to the assigned
Shares of such Restricted Stock, and such portion of the grant will continue
to be subject to all of the terms, conditions and restrictions applicable to
the Restricted Stock as set forth herein immediately prior to the effective
date of the assignment. Any such assignment will be permitted only if (i) the
Participant does not receive any consideration therefor, and (ii) the
assignment is expressly approved by the Board. Any such assignment shall be
evidenced by an appropriate written document executed by the Participant and a
copy thereof shall be delivered to the Board on or prior to the effective date
of the assignment.
7.5 FORFEITURE AND RETURN OF RESTRICTED STOCK TO THE COMPANY.
(a) FAILURE TO ACHIEVE PERFORMANCE OBJECTIVE OR OTHER CONDITIONS. If at
the end of the Restriction Period the Committee determines that the Company
failed to achieve the Performance Objectives or otherwise failed to satisfy
any other restrictions, terms or conditions set by the Committee, then to the
extent provided in the Restricted Stock Agreement or otherwise by the
Committee, the Shares of Restricted Stock shall be forfeited by the
Participant and returned to the Company, and all rights of the Participant in
such Shares shall terminate without any further obligation on the part of the
Company. Pursuant to the Plan, the Restricted Stock Agreement or otherwise,
the Committee may determine that some but not all of a Participant's Shares of
Restricted Stock shall be forfeited. The Committee shall have the exclusive
authority to determine whether the Company has achieved its Performance
Objectives and the level or extent of achievement, whether any other terms,
conditions or restrictions have been satisfied, and the number of Shares of
Restricted Stock which shall be forfeited.
(b) TERMINATION OF EMPLOYMENT OR SERVICE ON THE BOARD FOR REASONS OTHER THAN
DEATH, DISABILITY, OR NORMAL RETIREMENT PRIOR TO END OF RESTRICTED PERIOD. If
during the Restricted Period a Participant's employment with the Company, or
service on the Board, is terminated for any reason other than death,
Disability, or Normal Retirement, including without limitation termination by
the Company, then all Shares of Restricted Stock of the Participant (excluding
any Shares for which any restrictions have previously lapsed under Section
7.6) shall be forfeited by the Participant and returned to the Company and all
rights of the Participant in such Shares shall terminate without any further
obligation on the part of the Company.
7.6 LAPSE OF RESTRICTIONS.
(a) ACHIEVEMENT OF PERFORMANCE OBJECTIVES AND OTHER CONDITIONS. At the end
of a Restriction Period, the Committee, in its discretion, shall determine (i)
whether and to what extent the Company has achieved the Performance Objectives
and satisfied any other terms, conditions or restrictions established for the
Restriction Period, and (ii) the number of Shares of Restricted Stock with
respect to which the restrictions imposed should lapse. If the Committee
determines that the restrictions imposed pursuant to the Plan should lapse,
then the restrictions with respect to those Shares shall lapse, and the
Committee shall so notify the Participant. A lapse of restrictions shall
occur on the date the Committee notifies the Participant in writing of the
lapse.
(b) TERMINATION OF EMPLOYMENT OR SERVICE ON THE BOARD AS A RESULT OF DEATH,
DISABILITY, OR NORMAL RETIREMENT PRIOR TO THE END OF THE RESTRICTION PERIOD.
If a Participant terminates his or her employment or service on the Board
because of death, Disability, or Normal Retirement during the Restriction
Period, the restrictions applicable to the Shares of Restricted Stock shall
lapse and terminate (regardless of whether Performance Objectives or any other
terms, conditions or restrictions have been satisfied) with respect to that
number of Shares (rounded to the nearest whole number) equal to the total
number of Shares of Restricted Stock granted to such Participant multiplied by
a fraction, the numerator of which is equal to the number of full months which
have elapsed since the date of grant to the date of termination of employment
or service on the Board, and the denominator is the maximum number of full
months of the Restriction Period. The Committee shall so notify the
Participant or his or her representative of the number of Shares with respect
to which the restrictions have lapsed. All remaining Shares shall be
forfeited and returned to the Company, and all rights of the Participant in
such Shares shall terminate without any further obligations on the part of the
Company; provided, however, that the Committee may, in its sole discretion,
waive the restrictions remaining on any or all such remaining Shares.
7.7 CERTIFICATE LEGEND. In addition to any legends placed on certificates
pursuant to Subsection 7.8 hereof, each certificate representing Shares of
Restricted Stock granted pursuant to the Plan shall bear the following legend:
"The sale or other transfer of the Shares of stock represented by this
certificate, whether voluntary, involuntary, or by operation of law, is
subject to certain restrictions on transfer set forth in The Franklin Electric
Co., Inc. Performance Incentive Stock Plan, rules of administration adopted
pursuant to such Plan, and a Restricted Stock Agreement dated _________. A
copy of the Plan, such rules, and the Restricted Stock Agreement may be
obtained from the Secretary of Franklin Electric Co., Inc."
7.8 OTHER RESTRICTIONS. The Committee may impose such other restrictions on
any Shares granted pursuant to the Plan as it may deem advisable including,
without limitation, restrictions under applicable Federal or state securities
laws, and may legend the certificates representing Restricted Stock to give
appropriate notice of such restrictions.
7.9 VOTING RIGHTS AND DIVIDENDS WITH RESPECT TO RESTRICTED STOCK. With
respect to Shares of Restricted Stock, prior to the lapse of restrictions
under Section 7.6, each Participant shall generally have the rights and
privileges of a shareholder, including the right to vote the Shares and to
receive dividends or other distributions made with respect to the Shares;
provided, however, that the Shares of Restricted Stock shall be subject to all
the terms, conditions and restrictions of the Plan and the Restricted Stock
Agreement, including without limitation the provisions of Section 7.4
(restrictions on transfer), Section 7.5 (forfeiture), and Section 4.1(f)
(escrow of certificates). If any dividends are paid on Restricted Stock in
the form of Shares of Stock, the Stock dividends shall be treated as
Restricted Stock and subject to the same restrictions, terms and conditions as
the Shares of Restricted Stock with respect to which they were paid.
SECTION 8.
RIGHTS OF EMPLOYEES AND NONEMPLOYEE DIRECTORS
8.1 EMPLOYMENT AND SERVICE ON THE BOARD. Nothing in the Plan or in any
Restricted Stock Agreement shall in any manner be construed to limit or
restrict in any way the right of the Company to terminate any Participant's
employment or service on the Board at any time and without regard to the
effect of such termination to the Participant under the Plan, nor confer upon
any Participant any right to continue in the employ of the Company or to
continue to serve on the Board.
8.2 PARTICIPATION. No Employee or Nonemployee Director shall have a right
to be selected as a Participant, or, having been so selected, to be selected
again as a Participant.
SECTION 9.
MERGER, CONSOLIDATION, OR ACQUISITION
9.1 TREATMENT OF RESTRICTED STOCK SHARES. Without limiting the authority of
the Committee as provided in Section 9.2, in the event of a dissolution or a
liquidation of the Company or a merger or consolidation in which the Company
is not the surviving corporation, at the time of the grant of the Restricted
Stock, the Committee may provide in the Restricted Stock Agreement or
otherwise that all the restrictions with respect to some or all of the
outstanding Shares of Restricted Stock shall lapse in a manner similar to the
provisions of Section 7.6.
9.2 CHANGE IN CONTROL. The Committee, at the time of the grant of
Restricted Stock, may provide in the Restricted Stock Agreement or otherwise
that upon a Change in Control of the Company, all the restrictions with
respect to some or all of the outstanding Shares of Restricted Stock shall
lapse in a manner similar to the provisions of Section 7.6.
9.3 LIMITATION ON PAYMENTS. The Committee may provide that if the receipt
of any payment (or lapse of restrictions) under this Section by any
Participant shall, in the opinion of independent tax counsel of recognized
standing selected by the Company, result in the loss of a tax deduction to the
Company or the payment by such Participant of any excise tax, provided for in
Section 280G and Section 4999 of the Code, then the amount of such payment (or
lapse of restrictions) shall be reduced or modified to the extent required, in
the opinion of independent tax counsel selected as aforesaid, to prevent such
loss of deduction and the imposition of such excise tax.
SECTION 10.
AMENDMENT AND TERMINATION
10.1 AMENDMENT AND TERMINATION. The Board, without further action on the
part of the Company's shareholders, may at any time terminate, suspend or
modify the Plan to the extent permitted by law, regulation or stock exchange
requirements. No termination or amendment of the Plan, or amendment of any
grant, shall adversely affect any right acquired by any Participant under a
grant before the date of such termination or amendment, unless such
Participant shall consent; but it shall be conclusively presumed that any
adjustment for changes in capitalization as provided in Section 5.3 above does
not adversely affect any such right.
SECTION 11.
TAX WITHHOLDING
11.1 TAX WITHHOLDING. The Company, as appropriate, shall have the right to
deduct from all payments any Federal, state, or local taxes required by law to
be withheld with respect to such payments and, in the case of awards paid in
Stock, the Participant or other person receiving such Stock may be required to
pay to the Company, as appropriate, the amount of any such taxes which the
Company is required to withhold with respect to such Stock.
SECTION 12.
GOVERNING LAW
12.1 GOVERNING LAW. The Plan, and all grants and other documents delivered
hereunder, shall be construed in accordance with and governed by the laws of
Indiana.
SECTION 13.
EXPENSE OF PLAN
13.1 EXPENSE OF PLAN. The expenses of administering the Plan shall be borne
by the Company.
SECTION 14.
RESTRICTED STOCK AGREEMENT
14.1 RESTRICTED STOCK AGREEMENT. Each grant of Shares of Restricted Stock
shall be evidenced by a written agreement ("Restricted Stock Agreement"),
executed by the Participant and the Company, which shall contain such
restrictions, terms or conditions as the Committee may require.