Exhibit 4.2


    Exhibit
      4.2

     

    


    SHAREHOLDERS
      AGREEMENT

    


    


    This
      SHAREHOLDERS AGREEMENT (this “Agreement”)
      is
      made and entered into as of July 11, 2007, by and between Franklin Electric
      Co.,
      Inc., an Indiana corporation (the “Company”),
      and
      Select Equity Group, Inc., a New York corporation, and Select Offshore Advisors,
      LLC, a New York limited liability company (collectively, the “Select
      Entities”).

    


    RECITALS

    


    WHEREAS,
      the Company is a party to that certain Rights Agreement, dated as of October
      15,
      1999 between Franklin Electric Co., Inc. and Illinois Stock Transfer Company,
      as
      amended by that certain First Amendment to Rights Agreement effective as of
      December 1, 2006 between Franklin Electric Co., Inc. and LaSalle Bank National
      Association (collectively, the “Rights
      Agreement”);
      

    


    WHEREAS,
      pursuant to the Rights Agreement, and as defined therein, the Select Entities
      and their “Affiliates”
and
      “Associates”
would
      become “Acquiring
      Persons”
if
      their “Beneficial
      Ownership”
of
      the
      common stock, par value $.10 per share, of the Company (the “Common
      Stock”)
      were
      to exceed 15% of the Common Stock outstanding; 

    


    WHEREAS,
      the Company is willing, under certain circumstances, to permit the Select
      Entities and their Affiliates and Associates to acquire and Beneficially Own
      up
      to 17.5% of the outstanding Common Stock of the Company without becoming
      Acquiring Persons.

    


    NOW,
      THEREFORE, in consideration of the premises, the mutual covenants and agreements
      contained herein and other good and valuable consideration, the receipt and
      sufficiency of which are hereby acknowledged, the parties hereto agree as
      follows:

    


    Section
      1.1 Amendment of Rights Agreement.
      The
      Company agrees that no later than 10 business days after the date hereof, it
      will revise the definition of “Acquiring Person” by amending the Rights
      Agreement to add to Section 1a (x) thereof a new clause (vii) that will read
      as
      follows:

     

    or
      (vii)
      Select Equity Group, Inc., Select Offshore Advisors, LLC and their respective
      Affiliates and Associates (collectively, the “Select Parties”), so long as
      either (A) the Select Parties Beneficially Own no more than 17.5% of the
      outstanding shares of Common Stock and are eligible to report such ownership
      on
      Schedule 13G under the Exchange Act (or any comparable or successor report)
      or
      on Schedule 13D under the Exchange Act (or any comparable or successor report)
      which Schedule 13D does not state any intention to or reserve the right to
      control or influence the management or policies of the Company or engage in
      any
      of the actions specified in Item 4 of such Schedule (other than the acquisition
      or disposition of Common Stock) or (B) if the Select 

     


    
      
         

      

      
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    Parties
      are required to report their Beneficial Ownership of Common Stock on Schedule
      13D under the Exchange Act (or any comparable or successor report) which
      Schedule 13D states any intention to or reserves the right to control or
      influence the management or policies of the Company or engage in any of the
      actions specified in Item 4 of such Schedule (other than the acquisition or
      disposition of Common Stock), then the Select Parties Beneficially Own no more
      than 10% of the outstanding shares of Common Stock; provided, however, that,
      if
      the Select Parties cease to be deemed pursuant to clause (A) of this Section
      1a
      (x) (vii) not to be an Acquiring Person by virtue of being required to file
      a
      Schedule 13D stating an intention or reserving a right inconsistent with such
      clause (A), then the Select Parties shall be deemed pursuant to clause (B)
      of
      this Section 1(a)(x)(vii) not to be Acquiring Persons, but only for a limited
      period following the time the Select Parties ceased to be deemed pursuant to
      such clause (A) not to be Acquiring Persons (such limited period ending on
      the
      earlier of 135 days following the time the Select Parties ceased to be deemed
      pursuant to such clause (A) not to be Acquiring Persons and 90 days following
      delivery by the Company to the Select Parties of a “Purchase Notice” or a
“Non-Purchase Notice” pursuant to that certain Shareholders Agreement made and
      entered into as of July 11, 2007, by and between the Company and the Select
      Parties), without regard to whether the Select Parties Beneficially Own during
      limited period more than 10% of the outstanding Common Stock (so long as the
      Select Parties do not Beneficially Own during such period more than 17.5% of
      the
      outstanding Common Stock); and provided, further, that, for all purposes of
      this
      Section 1 a (x) (vii), the Select Parties shall be deemed not to be Acquiring
      Persons if (W) at any time there is a reduction in the number of shares of
      Common Stock outstanding, (X) prior to the time of such reduction in the number
      of shares of Common Stock outstanding the Select Parties were not, or were
      deemed not to be, Acquiring Persons, (Y) following the time of such reduction
      in
      the number of shares of Common Stock outstanding the Select Parties are, or
      would be deemed to be, Acquiring Persons, and (Z) following the time of such
      reduction in the number of shares of Common Stock outstanding the Select Parties
      do not acquire Beneficial Ownership of any additional shares of Common
      Stock.

     

    Section
      1.2 Certain Sales of Common Stock.

     

    (a) At
      any
      time within 45 days following the time the Select Entities cease to be deemed
      pursuant to clause (A) of Section 1a (x) (vii) of the Rights Agreement (as
      such
      clause (vii) will be added to the Rights Agreement pursuant to Section 1.1
      of
      this Agreement) not to be an Acquiring Person by virtue of being required to
      file a Schedule 13D stating an intention or reserving a right inconsistent
      with
      such clause (A), the Company shall have the right, but not the obligation,
      to
      deliver to the Select Entities a written notice (the “Purchase
      Notice”)
      stating that it intends to purchase from the Select Entities any or all of
      the
      Excess Shares (as defined below). No later than the Closing Date (as defined
      below), the Select Entities shall transfer the Excess Shares to a brokerage
      account maintained by the Company, or shall otherwise deliver the Excess Shares
      to the Company, against payment of the purchase price therefor, which shall
      be
      equal to the Per Share Price (as defined below) multiplied by the number of
      Excess Shares being sold. The Company and the Select Entities shall cooperate
      in
      coordinating the transfer of the Excess Shares to the Company and the payment
      to
      the Select Entities 

     


    
      
         

      

      
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    of
      the
      purchase price therefor such that those actions are taken in an expeditious
      and
      efficient manner.

     

    For
      purposes of this Section 1.2(a), the following terms shall have the following
      meanings:

     

    “Excess
      Shares”
      shall
      mean a number of shares of Common Stock equal to the difference, if any, between
      (i) the number of shares of Common Stock Beneficially Owned by the Select
      Entities, but not including any shares of Common Stock as to which the Select
      Entities, prior to receiving the Purchase Notice, had binding obligations to
      sell or otherwise dispose of, and (ii) that number of shares of Common Stock,
      rounded down to the nearest whole share, constituting 10% of the number of
      shares of Common Stock outstanding on the date the Purchase Notice is received
      by the Select Entities.

     

    “Closing
      Date”
shall
      mean the tenth business day following the date of receipt of the Purchase
      Notice.

     

    “Per
      Share Price”
      shall
      mean the average of the closing prices (or average of the closing bid and asked
      prices if there is no closing price) of the Common Stock on the Nasdaq Global
      Select Market (or such other principal market on which the Common Stock may
      be
      traded or quoted) for the 15 trading days immediately preceding (but not
      including) the date of the Purchase Notice.

     

    (b) The
      Select Entities agree that during the limited period of time referred to in
      the
      first proviso to clause (vii) of Section 1 a (x) of the Rights Agreement (as
      such clause (vii) will be added to the Rights Agreement pursuant to Section
      1.1
      of this Agreement) they will not sell any shares of Common Stock in a privately
      negotiated transaction, other than a sale to the Company or a privately
      negotiated sale to a purchaser approved by the Company in its sole
      discretion.

     

    (c) If
      the
      Company determines not to deliver to the Select Entities a Purchase Notice
      pursuant to Section 1.2(a) of this Agreement, it may, but shall not be required
      to, deliver to the Select Entities a notice (the “Non-Purchase
      Notice”)
      stating that such notice is a Non-Purchase Notice pursuant to this Section
      1.2(c) and that it does not intend to deliver a Purchase Notice to the Select
      Entities. Upon delivery of the Non-Purchase Notice pursuant to this Section
      1.2(c), the right of the Company to deliver a Purchase Notice pursuant to
      Section 1.2(a) of this Agreement shall be terminated and shall
      cease.

     

    Section
      1.3 Certain Notice.
      Promptly following the occurrence of circumstances giving rise to the
      requirement to file a Schedule 13D under the Exchange Act (or any comparable
      or
      successor report) stating an intention or reserving a right inconsistent with
      the provisions of Section 1 a (x) (vii)(A) of the Rights Agreement (as the
      Rights Agreement will be amended pursuant to Section 1.1 of this Agreement),
      the
      Select Entities shall give written notice of such circumstances to the
      Company.

     

    Section
      1.4 Voting Agreement.
      So long
      as the Select Entities Beneficially Own in excess of 15% of the Common Stock
      and
      are required to file a Schedule 13D stating an intention or reserving a right
      inconsistent with the provisions of Section 1 a (x) (vii)(A) of the Rights
      Agreement (as the Rights Agreement will be amended pursuant to Section 1.1
      of
      this Agreement), then upon receipt by the Select Entities of written notice
      from
      the Company so requiring (a “Voting Notice”), the Select Entities shall vote all
      shares of Common Stock 

     


    
      
         

      

      
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    Beneficially
      Owned by them and as to which they have the right to vote (the “Voting Shares”)
      proportionately with all other shares of Common Stock actually voted on each
      proposal or matter presented at any meeting of the Company’s stockholders (a
“Stockholders
      Meeting”).
      The
      Select Entities (i) shall only be required to vote in such manner at any
      Stockholders Meeting if they shall have received a Voting Notice no later than
      15 business days prior to the date of the Stockholders Meeting and (ii) shall
      use commercially reasonable efforts to vote such shares in such manner no later
      than five days in advance of any such Stockholders Meeting. For the avoidance
      of
      doubt, the Voting Shares are held in “street name,” and it is intended by the
      parties that the Select Entities shall, promptly after receiving a Voting
      Notice, seek to obtain one or more “legal proxies” entitling them to vote the
      Voting Shares at such Stockholders Meeting and, based on the voting authority
      conferred by any such legal proxies received, shall deliver to the Company
      a
      proxy or ballot instructing that the Voting Shares be voted proportionately
      with
      all other shares of Common Stock actually voted on each proposal or matter
      presented at any meeting of the Company’s stockholders.

     

    Section
      1.5 Company Expenses.
      The
      Select Entities agree to pay the Company’s out-of-pocket expenses in connection
      with the negotiation, execution and delivery of this Agreement and the amendment
      of the Rights Agreement as contemplated hereby, up to an aggregate amount of
      $25,000.

     

    Section
      1.6 Representations and Warranties. 

     

    (a) Each
      of
      the parties hereto represents and warrants to the other parties
      that:

     

    (i) such
      party has all requisite authority and power to execute and deliver this
      Agreement and to consummate the transactions contemplated hereby, 

     

    (ii) the
      execution and delivery of this Agreement and the consummation of the
      transactions contemplated hereby have been duly and validly authorized by all
      required action on the part of such party and no other proceedings on the part
      of such party are necessary to authorize the execution and delivery of this
      Agreement or to consummate the transactions contemplated hereby,

     

    (iii) this
      Agreement has been duly and validly executed and delivered by such party and
      constitutes the valid and binding obligation of such party enforceable against
      such party in accordance with its terms, and 

     

    (iv) this
      Agreement will not result in a violation of any terms or provisions of any
      agreements to which such person is a party or by which such party may otherwise
      be bound or of any law, rule, license, regulation, judgment, order or decree
      governing or affecting such party.

     

    (b) The
      parties hereto acknowledge, warrant and represent that they have carefully
      read
      this Agreement, understand it, have consulted with and received the advice
      of
      counsel regarding this Agreement, agree with its terms, are duly authorized
      to
      execute it and freely, voluntarily and knowingly execute it.

     


    
      
         

      

      
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    Section
      1.7 General.

     

    (a) This
      Agreement shall be binding upon and inure to the benefit of and be enforceable
      by the parties hereto and the respective successors, personal representatives
      and assigns of the parties hereto. 

     

    (b) This
      Agreement contains the entire agreement between the parties with respect to
      the
      subject matter hereof and thereof and supersedes all prior and contemplated
      arrangements and understandings with respect thereto. 

     

    (c) This
      Agreement may be signed in counterparts, each of which shall constitute an
      original and all of which together shall constitute one and the same
      Agreement.

     

    (d) All
      notices and other communications required or permitted hereunder shall be
      effective upon receipt and shall be in writing and may be delivered in person,
      by telecopy, electronic mail, express delivery service or U.S. mail, in which
      event it may be mailed by first-class, certified or registered, postage prepaid,
      addressed to the party to be notified at the respective addresses set forth
      below, or at such other addresses which may hereinafter be designated in
      writing:

     

    If
      to the
      Company:

     

    Franklin
      Electric Co. Inc.

    400
      East
      Spring Street

    Bluffton,
      Indiana 46714

    Attention:
      Thomas J. Strupp

    Fax
      No.:
      (260) 827-5632

    Email:
      tstrupp@fele.com

     

    with
      a
      copy to:

     

    Schiff
      Hardin LLP

    6600
      Sears Tower

    Chicago,
      Illinois 60606

    Attention:
      Robert J. Regan, Esq.

    Fax
      No.:
      (312) 258-5600

    Email:
      rregan@schiffhardin.com

     


    
      
         

      

      
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    If
      to the
      Select Entities:

     

    Select
      Equity Group, Inc.

    380
      Lafayette Street, 6th Floor

    New
      York,
      NY 10003

    Attention:
      James R. Berman, Esq.

    Fax
      No.:
      (212) 475-1786

    Email:
      jrb@selectequity.com

    


    with
      a
      copy to:

     

    Willkie
      Farr & Gallagher LLP

    787
      Seventh Avenue

    New
      York,
      NY 10019

    Attention:
      Michael A. Schwartz, Esq.

    Fax
      No.:
      (212) 728-9267

    Email:
      mschwartz@willkie.com

     

    (e) This
      Agreement and the legal relations hereunder between the parties hereto shall
      be
      governed by and construed in accordance with the laws of the State of New York
      applicable to contracts made and performed therein, without giving effect to
      the
      principles of conflicts of law thereof.

     

    (f) Whenever
      possible, each provision of this Agreement shall be interpreted in such manner
      as to be effective and valid, but if any provision of this Agreement is held
      to
      be invalid or unenforceable in any respect, such invalidity or unenforceability
      shall not render invalid or unenforceable any other provision of this
      Agreement.

     

    (g) It
      is
      hereby agreed and acknowledged that it will be impossible to measure in money
      the damages that would be suffered if the parties fail to comply with any of
      the
      obligations herein imposed on them and that in the event of any such failure,
      an
      aggrieved person will be irreparably damaged and will not have an adequate
      remedy at law. Any such person, therefore, shall be entitled to injunctive
      relief, including specific performance, to enforce such obligations, without
      the
      posting of any bond, and, if any action should be brought in equity to enforce
      any of the provisions of this Agreement, none of the parties hereto shall raise
      the defense that there is an adequate remedy at law.

     

    (h) Each
      party hereto shall do and perform or cause to be done and performed all such
      further acts and things and shall execute and deliver all such other agreements,
      certificates, instruments and documents as any other party hereto reasonably
      may
      request in order to carry out the intent and accomplish the purposes of this
      Agreement and the consummation of the transactions contemplated
      hereby.

     

    (i) Each
      of
      the parties hereto hereby irrevocably and unconditionally consents to submit
      to
      the exclusive jurisdiction of the courts of the State of New York and of the
      United States of America, in each case located in the County of New York, for
      any action, proceeding or investigation in any court or before any governmental
      authority arising out of or relating to this Agreement and the transactions
      contemplated hereby (and agrees not to commence any action, proceeding or
      investigation relating thereto except in such courts), and further agrees that
      service of any process, summons, notice or document 

     


    
      
         

      

      
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    by
      registered mail to its respective address set forth in this Agreement shall
      be
      effective service of process for any action, proceeding or investigation brought
      against it in any such court. Each of the parties hereto hereby irrevocably
      and
      unconditionally waives any objection to the laying of venue of any action,
      proceeding or investigation arising out of this Agreement or the transactions
      contemplated hereby in the courts of the State of New York or the United States
      of America, in each case located in the County of New York, and hereby further
      irrevocably and unconditionally waives and agrees not to plead or claim in
      any
      such court that any such action, proceeding or investigation brought in any
      such
      court has been brought in an inconvenient forum.

     

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    IN
      WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement
      as of the day and year first written above.

     

    


    FRANKLIN
      ELECTRIC CO. INC.

    


    By:  

    Name:
      Thomas J. Strupp

    Title:
      Vice President, Chief Financial Officer and Secretary

    


    SELECT
      EQUITY GROUP, INC.

    


    By:  

    Name:
      George S. Loening  

    Title:
      President  

    


    SELECT
      OFFSHORE ADVISORS, LLC

    


    By:  

    Name:
      George S. Loening  

    Title:
      Manager   

     

     

    
      
         

      

      
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