FRANKLIN ELECTRONIC PUBLISHERS INC, DEF 14A, 1995-06-30

FRANKLIN ELECTRONIC PUBLISHERS INC
DEF 14A, 1995-06-30
OFFICE MACHINES, NEC

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<PAGE>

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )

Filed by the Registrant [_]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
[X] Definitive Proxy Statement RULE 14A-6(E)(2))

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12

Franklin Electronic Publishers, Incorporated
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.

[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

(2) Aggregate number of securities to which transaction applies:

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

[_] Fee paid previously with preliminary materials.

<PAGE>

FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED

----------------

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

----------------

The annual meeting of shareholders of FRANKLIN ELECTRONIC PUBLISHERS,
INCORPORATED (the "Company"), a Pennsylvania corporation, will be held at the
offices of Rosenman & Colin, 575 Madison Avenue, New York, New York, on
Thursday, July 27, 1995, at 9:30 A.M., for the following purposes:

(1) To elect ten directors of the Company to serve for a term of one
year;

(2) To consider and act upon a proposal to approve an increase in the
number of shares with respect to which options may be granted under the
Company's 1988 Stock Option Plan and certain other amendments thereto;

(3) To ratify the appointment of auditors of the Company to serve until
the next annual meeting of shareholders; and

(4) To consider and act upon such other matters as may properly come
before the meeting.

Only shareholders of record at the close of business on June 16, 1995 are
entitled to vote at the meeting.

You are requested to fill in, date and sign the enclosed proxy, which is
solicited by the Board of Directors of the Company, and to mail it promptly in
the enclosed envelope.

By order of the Board of Directors,

GREGORY J. WINSKY,
Secretary

Burlington, New Jersey
June 29, 1995
<PAGE>

FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED

----------------

PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
JULY 27, 1995

----------------

This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of FRANKLIN ELECTRONIC PUBLISHERS,
INCORPORATED (the "Company") to be used at the annual meeting of shareholders
of the Company which will be held at the offices of Rosenman & Colin, 575
Madison Avenue, New York, New York, on Thursday, July 27, 1995, at 9:30 A.M.,
and at any adjournments thereof.

Shareholders who execute proxies retain the right to revoke them at any time
by notice in writing to the Secretary of the Company, by revocation in person
at the meeting or by presenting a later dated proxy. Unless so revoked, the
shares represented by proxies will be voted at the meeting. The shares
represented by the proxies solicited by the Board of Directors of the Company
will be voted in accordance with the directions given therein. Shareholders
vote at the meeting by casting ballots (in person or by proxy) which are
tabulated by a person who is appointed by the Board of Directors before the
meeting to serve as inspector of election at the meeting and who has executed
and verified an oath of office. Abstentions and broker "non-votes" are included
in the determination of the number of shares present at the meeting for quorum
purposes but broker "non-votes" are not counted in the tabulations of the votes
cast on proposals presented to shareholders. A broker "non-vote" occurs when a
nominee holding shares for a beneficial owner does not vote on a particular
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received instructions from the beneficial
owner.

The principal executive offices of the Company are located at One Franklin
Plaza, Burlington, New Jersey 08016. The approximate date on which this Proxy
Statement and the enclosed form of proxy were first sent or given to
shareholders was June 30, 1995.

Shareholders of record at the close of business on June 16, 1995 will be
entitled to one vote for each share of common stock, no par value (the "Common
Stock"), of the Company then held. There were outstanding on such date
7,749,709 shares of Common Stock.

ELECTION OF DIRECTORS

Ten directors will be elected at the meeting for a term of one year and until
their respective successors shall have been elected and shall qualify. The
election of directors requires the affirmative vote of a plurality of the
shares of Common Stock present in person or by proxy at the meeting. EACH PROXY
RECEIVED WILL BE VOTED FOR THE ELECTION OF THE NOMINEES NAMED BELOW UNLESS
OTHERWISE SPECIFIED IN THE PROXY. At this time, the Board of Directors of the
Company knows of no reason why any nominee might be unable to serve. There are
no arrangements or understandings between any director or nominee and any other
person pursuant to which such person was selected as a director or nominee,
except that the Company has agreed, pursuant to the terms of the employment
agreement between the Company and Morton E. David, to nominate Mr. David for
election to the Board of Directors.
<PAGE>

<TABLE>
<CAPTION>
YEAR
BECAME A
NAME OF NOMINEE PRINCIPAL OCCUPATION AGE DIRECTOR
--------------- -------------------- --- --------
<C> <S> <C> <C>
Edward H. Cohen............. Partner, Rosenman & Colin 56 1987
Morton E. David............. Chairman of the Board and 58 1984
Chief Executive Officer of the
Company
Bernard Goldstein........... Managing Director, Broadview 64 1989
Associates, L.P.
Leonard M. Lodish........... Professor of Marketing, Wharton 51 1987
School of
the University of Pennsylvania
Howard L. Morgan............ President, Arca Group, Inc. 49 1981
Jerry R. Schubel............ President, New England Aquarium 59 1991
James H. Simons............. Chairman of the Board, 57 1981
Renaissance
Technologies Corp.
Richard E. Snyder........... Independent business consultant 62 1995
Michael R. Strange.......... Executive Vice President of the 47 1984
Company
William H. Turner........... Vice Chairman, 55 1994
Chemical Banking Corporation
</TABLE>

No family relationship exists between any director and executive officer of
the Company.

Mr. Cohen is, and for more than the past five years has been, a partner in
the New York City law firm of Rosenman & Colin. Mr. Cohen is a director of
Phillips-Van Heusen Corporation. See "Certain Relationships and Related
Transactions."

Mr. David joined the Company in May 1984 as Chairman of the Board of
Directors and Chief Executive Officer.

Mr. Goldstein is, and for more than the past five years has been, managing
director of Broadview Associates, L.P., an investment banking firm that
provides services to the information technology industry. He is a director of
Apple Computer, Inc., SPSS, Inc., a statistical software firm, and Sungard Data
Systems, Inc., a company that provides disaster recovery and financial
information services. See "Certain Relationships and Related Transactions."

Mr. Lodish is the Samuel R. Harrell Professor of Marketing at the Wharton
School of the University of Pennsylvania. He has been a Professor of Marketing
since 1976, and was Chairman of the Marketing Department of the Wharton School
from 1984 to 1988. He is a director of Information Resources, Inc., a marketing
research and decision support systems firm, and J&J Snack Foods, Inc., a
producer and marketer of specialty foods.

Mr. Morgan is President of Arca Group, Inc., a consulting and investment
management firm. From 1983 to 1990, he was President of Renaissance
Technologies Corp., an investment advisory firm. He is a director of
Quarterdeck Office Systems, Inc., a software company, Integrated Circuit
Systems, Inc., a semiconductor manufacturer, ScanGraphic Inc., a developer of
hardware and software used in image processing, Unitronix Corp., a software
supplier, and HDS Network Systems, Inc., a provider of network terminals. See
"Certain Relationships and Related Transactions."

Mr. Schubel became President and Chief Executive Officer of New England
Aquarium in 1994. From 1974 to 1994, Mr. Schubel was the Director of the Marine
Sciences Research Center of the State University of New York at Stonybrook, New
York.

2
<PAGE>

Mr. Simons has been Chairman of the Board and President of Renaissance
Technologies Corp. since 1982. He is also Chairman of the Board, President and
the sole shareholder of Renaissance Ventures Ltd., an investment advisory firm.
Mr. Simons is a director of Numar Corp., a manufacturer of nuclear magnetic
resonance oil well logging tools. See "Certain Relationships and Related
Transactions."

Mr. Snyder has, since 1994, been an independent business consultant and
investor. He was the Chairman and Chief Executive Officer of Simon & Schuster
from 1975 to 1994. Mr. Snyder is a director of Reliance Group Holdings, Inc.,
an insurance company.

Mr. Strange has been Executive Vice President of the Company since 1985.

Mr. Turner is Vice Chairman of Chemical Banking Corporation. For more than
the past thirty years, Mr. Turner has held a variety of positions at Chemical
Banking Corporation.

The Board of Directors of the Company has two standing committees: an Audit
Committee, consisting of Messrs. Simons, Cohen and Turner; and a Stock Option
and Compensation Committee (the "Compensation Committee"), consisting of
Messrs. Simons, Cohen, Goldstein and Morgan. The Audit Committee is charged
with recommending annually to the Board of Directors the independent auditors
to be retained by the Company, reviewing the audit plan with the auditors and
reviewing the results of the audit with the officers of the Company and its
auditors. The Audit Committee held three meetings during the fiscal year ended
March 31, 1995. The Compensation Committee is charged with administering the
Company's 1988 Employee Stock Option Plan (the "Option Plan") and fixing the
compensation, including salaries and bonuses, of all officers of the Company.
The Compensation Committee held two meetings during the fiscal year ended March
31, 1995.

During the fiscal year ended March 31, 1995, there were four regularly
scheduled meetings of the Board of Directors and one special meeting. Each of
the directors attended at least 75 percent of the aggregate number of meetings
of the Board and of any Committees of the Board on which he serves.

The Company will consider for election to the Board of Directors a nominee
recommended by a shareholder if the recommendation is made in writing and
includes (i) the qualifications of the proposed nominee to serve on the Board
of Directors, (ii) the principal occupations and employment of the proposed
nominee during the past five years, (iii) each directorship currently held by
the proposed nominee and (iv) a statement that the proposed nominee has
consented to the nomination. The recommendation should be addressed to the
Secretary of the Company.

3
<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding the ownership of
the Common Stock as of June 16, 1995 by (i) all those known by the Company to
be the beneficial owners of more than five percent of the Common Stock, (ii)
all directors and nominees for director, (iii) each executive officer of the
Company named in the Summary Compensation Table on page 6 hereof, and (iv) all
executive officers and directors of the Company as a group. Unless otherwise
indicated, each of the shareholders has sole voting and investment power with
respect to the shares listed as beneficially owned by such shareholder.

<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS
- ------------------------------------ ------------ ----------
<S> <C> <C>
Bermuda Trust Company Ltd., Trustee (1)................. 1,400,000 17%
Front Street
Hamilton, Bermuda
Putnam Investments, Inc................................. 814,860 10%
One Post Office Square
Boston, Massachusetts 02109
Morton E. David (2)..................................... 421,885 5%
Franklin Electronic Publishers, Inc.
One Franklin Plaza
Burlington, New Jersey 08016
Michael R. Strange...................................... 49,108 *
Franklin Electronic Publishers, Inc.
One Franklin Plaza
Burlington, New Jersey 08016
Howard L. Morgan (3).................................... 43,850 *
Arca Group, Inc.
764 Mt. Moro Road
Villanova, Pennsylvania 19085
James H. Simons (4)..................................... 41,155 *
Renaissance Technologies Corp.
800 Third Avenue
New York, New York 10022
Leonard M. Lodish....................................... 38,559 *
The Wharton School
University of Pennsylvania
Philadelphia, Pennsylvania 19022
Bernard Goldstein....................................... 27,908 *
Broadview Associates, L.P.
1 Bridge Plaza
Ft. Lee, New Jersey 07024
Edward H. Cohen......................................... 27,103 *
Rosenman & Colin
575 Madison Avenue
New York, New York 10022
Jerry R. Schubel........................................ 25,647 *
New England Aquarium
Central Wharf
Boston, Massachusetts 02110
</TABLE>

4
<PAGE>

<TABLE>
<CAPTION>
AMOUNT
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS
- ------------------------------------ ------------ ----------
<S> <C> <C>
William H. Turner...................................... 6,100 *
Chemical Banking Corporation
270 Park Avenue
New York, New York 10017
Richard E. Snyder...................................... 0 *
350 Park Avenue
New York, New York 10022
Kenneth H. Lind........................................ 51,111 *
Franklin Electronic Publishers, Inc.
One Franklin Plaza
Burlington, New Jersey 08016
Gregory J. Winsky...................................... 45,416 *
Franklin Electronic Publishers, Inc.
One Franklin Plaza
Burlington, New Jersey 08016
Michael Kemp........................................... 28,999 *
Franklin Electronic Publishers (Europe) Ltd.
7 Windmill Business Village
Sunbury-on-Thames
Middlesex, TW16 7DY
United Kingdom
All executive officers and directors as a group (14
persons)............................................... 855,394 10%
</TABLE>
- --------
* less than 1%

(1) Held by Bermuda Trust Company Ltd. as trustee of a trust of which James H.
Simons and members of his immediate family are beneficiaries. Includes
92,305 shares which that trust has a right to acquire within sixty days
upon the exercise of warrants.
(2) Includes 72,000 shares owned by certain trusts for Mr. David's children
over which Mr. David has investment power and 7,692 shares which two of
such trusts have the right to acquire within sixty days upon the exercise
of warrants. Also includes 3,846 shares which a trust for Mr. David's
benefit has the right to acquire within sixty days upon the exercise of
warrants.
(3) Includes 5,250 shares held for the benefit of Mr. Morgan's children.
(4) Includes 11,851 shares held by or for the benefit of members of Mr. Simons'
immediate family and 53 shares held by Renaissance Ventures Ltd., of which
Mr. Simons is the chairman and sole shareholder. Also includes 7,692 shares
which may be acquired upon the exercise of warrants held for the benefit of
members of Mr. Simons' immediate family, which warrants are exercisable
within sixty days.

The foregoing table also includes shares which the following directors have
the right to acquire within sixty days upon the exercise of options: Mr. David,
6,250 shares; Mr. Strange, 35,666 shares; Mr. Morgan, 1,600 shares; Mr. Simons,
21,559 shares; Mr. Lodish, 11,559 shares; Mr. Goldstein, 11,559 shares; Mr.
Cohen, 21,559 shares; Mr. Schubel, 11,559 shares; and Mr. Turner, 3,100 shares.
The foregoing table also includes shares which the following directors have the
right to acquire within sixty days upon the exercise of warrants: Mr. David,
46,152 shares; and Mr. Cohen, 1,538 shares. The foregoing table also includes
124,664 shares which all executive officers who are not directors, as a group,
have the right to acquire within sixty days upon the exercise of options.

Based upon a review of the filings furnished to the Company pursuant to Rule
16a-3(e) promulgated under the Securities Exchange Act of 1934 and on
representations from its executive officers and directors and persons who
beneficially own more than 10 percent of the Common Stock, all filing
requirements of Section 16(a) of the Securities Exchange Act of 1934 were
complied with in a timely manner during the fiscal year ended March 31, 1995.

5
<PAGE>

EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE

The following table summarizes all plan and non-plan compensation awarded to,
earned by, or paid to the Company's chief executive officer and its four most
highly compensated executive officers, other than the chief executive officer
(together, the "Named Executive Officers"), who were serving as executive
officers of the Company or one of its subsidiaries or divisions during and at
the end of the Company's last fiscal year, for services rendered in all
capacities to the Company and its subsidiaries for each of the Company's last
three fiscal years:

<TABLE>
<CAPTION>
ANNUAL LONG- ALL OTHER
COMPENSATION TERM COMPENSATION COMPENSATION
------------------------- ----------------- ------------
AWARDS
-----------------
OTHER
ANNUAL SECURITIES
COMPEN- UNDERLYING
SALARY BONUS SATION OPTIONS
NAME AND PRINCIPAL POSITION YEAR $ $ $ # $
- --------------------------- ---- -------- -------- ------- ----------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Morton E. David(1)....... 1995 $500,000 $284,000 $20,000 0 $68,050
Chairman and 1994 450,000 186,096 20,000 0 10,530
Chief Executive Officer 1993 300,000 163,810 20,000 75,000 8,870
Michael R. Strange....... 1995 162,500 65,000 0 8,000 0
Executive Vice 1994 155,000 60,000 0 12,000 0
President 1993 145,000 40,000 0 0 0
Gregory J. Winsky........ 1995 162,500 65,000 0 8,000 0
Senior Vice President 1994 155,000 60,000 0 12,000 0
1993 145,000 45,000 0 0 0
Kenneth H. Lind.......... 1995 157,500 65,000 0 8,000 0
Vice President, 1994 150,000 60,000 0 12,000 0
Finance, and Treasurer 1993 140,000 45,000 0 0 0
Michael Kemp(2).......... 1995 147,160 75,000 0 19,000 5,600
Managing Director 1994 101,745 75,000 0 10,000 5,418
Franklin Electronic 1993 92,070 20,300 0 15,000 624
Publishers (Europe) Ltd.
</TABLE>
- --------
(1) In May 1993, the Company purchased Mr. David's house for a price of
$925,000. See "Employment Contracts, Termination of Employment and Change-
in-Control Arrangements." The Other Annual Compensation amounts represent
payments made in connection with relocation. The All Other Compensation
amount for the 1995 fiscal year represents a payment of insurance premium
for life insurance and $56,000 accrued by the Company in respect of post-
retirement payments to be made to Mr. David pursuant to the terms of his
employment agreement (such amount represents one-tenth of the $560,000
accrued by the Company in fiscal 1995 in respect of payments to be made for
the ten years of Mr. David's employment by the Company); for the 1994 and
1993 fiscal years, the All Other Compensation amounts represent payments of
insurance premiums for life insurance.
(2) The All Other Compensation amounts represent payment of insurance premiums
for life insurance and payments in connection with retirement benefits.

No stock appreciation rights, long-term restricted stock awards or long-term
incentive plan payouts (as defined in the proxy regulations of the Securities
and Exchange Commission) were awarded to, earned by, or paid to the Named
Executive Officers during any of the Company's last three fiscal years.

6
<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information with respect to grants of stock
options to purchase Common Stock pursuant to the Option Plan granted to the
Named Executive Officers during the fiscal year ended March 31, 1995.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------
POTENTIAL
REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL
NUMBER OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES EXERCISE EXPIRA- -------------------------
GRANTED(1) IN FISCAL PRICE TION 5% 10%
NAME # YEAR $/SH DATE $ $
- ---- ---------- ---------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Morton E. David......... 0 N/A N/A N/A N/A N/A
Michael R. Strange...... 8,000 5% $11.25 5/4/2004 $ 56,600 $ 143,437
Gregory J. Winsky....... 8,000 5 11.25 5/4/2004 56,600 143,437
Kenneth H. Lind......... 8,000 5 11.25 5/4/2004 56,600 143,437
Michael Kemp............ 15,000 9 11.25 5/4/2004 106,126 268,944
4,000 2 13.25 8/8/2004 33,331 84,468
All Shareholders(2)..... 136,374,522 345,599,815
</TABLE>
- --------
(1) Options with respect to one-third of the shares become exercisable on each
of the first, second and third anniversaries of the date of grant.
(2) These figures were calculated assuming that the price of the 7,710,150
shares of Common Stock outstanding on March 31, 1995 increased from $28.125
per share at compound rates of 5% and 10% per year for ten years. The
purpose of including this information is to indicate the potential
realizable value at the assumed annual rates of stock price appreciation
for the option term for all of the Company's shareholders.

AGGREGATE OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES

The following table sets forth information with respect to each exercise of
stock options during the fiscal year ended March 31, 1995 by the Named
Executive Officers and the value at March 31, 1995 of unexercised stock options
held by the Named Executive Officers.

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY
SHARES ACQUIRED VALUE AT FISCAL OPTIONS AT
ON EXERCISE REALIZED(1) YEAR-END(#) FISCAL YEAR-END($)1
NAME # $ EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- --------------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Morton E. David......... 93,750 $1,486,969 0/31,250 $ 0 /$494,531
Michael R. Strange...... 15,000 130,625 29,000/16,000 560,625/230,000
Gregory J. Winsky....... 12,000 174,750 26,000/16,000 500,250/230,000
Kenneth H. Lind......... 13,000 121,875 26,000/16,000 500,250/230,000
Michael Kemp............ 0 0 13,333/30,667 200,829/474,421
</TABLE>
- --------
(1) Fair market value of securities underlying the options minus the exercise
price of the options at exercise or fiscal year end, as the case may be.

7
<PAGE>

COMPENSATION OF DIRECTORS

Each director of the Company who is not an employee of the Company or any of
its subsidiaries receives, for his services as a director of the Company, an
annual grant of options under the Option Plan to purchase the number of shares
of Common Stock derived by dividing $30,000 (adjusted, since January 1, 1992,
by a cost of living index) by the fair market value of a share of Common Stock
on the date of grant. Pursuant to the Option Plan, on January 3, 1995, each
outside director was granted an option to purchase 1,600 shares of Common
Stock.

On May 3, 1995, the Board of Directors unanimously approved certain
amendments to the Option Plan, subject to shareholder approval. See "Amendments
to the Company's Stock Option Plan." Among other things, the amended Option
Plan provides that, if the amendments to the Option Plan are approved by the
shareholders, (i) on July 27, 1995, each non-employee director who received the
January 3, 1995 grant shall be granted an option to purchase 1,400 shares and
(ii) commencing in January 1996, each non-employee director shall be granted an
annual option to purchase 3,000 shares of Common Stock. If the amendments to
the Option Plan are not approved by the shareholders, the Option Plan will
remain in effect in its current form.

No cash payment is made to any non-employee director of the Company for
service as a director nor do directors receive any fees from the Company for
attending meetings of the Board of Directors.

EMPLOYMENT CONTRACTS, TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

The Company has an employment agreement with Morton E. David (the "Employment
Agreement") which provides, among other things, for Mr. David's continued
employment as Chief Executive Officer of the Company until March 1999 at an
annual salary of $550,000 for the fiscal year ending March 31, 1996. The annual
salary for periods beginning April 1, 1996 has not yet been determined;
however, the Employment Agreement provides that Mr. David's annual salary for
such periods shall not be less than $550,000. The Employment Agreement also
provides for payment of an annual cash bonus to Mr. David of two percent of the
Company's consolidated pre-tax earnings. In May 1993, the Company purchased Mr.
David's prior residence in accordance with the terms of Mr. David's then
current employment agreement for a price of $925,000. Upon expiration of the
term (the "Employment Term") of the Employment Agreement, the Company has
agreed to retain Mr. David as a consultant for a twenty-four month period at a
monthly fee of $2,000.

Upon termination of the Employment Agreement due to Mr. David's injury or
illness, the Company is required to pay Mr. David his salary and annual bonus
for the balance of the Employment Term; upon termination of the Employment
Agreement due to Mr. David's death, the Company is required to pay to Mr.
David's estate his salary and annual bonus for the balance of the Employment
Term. If the Employment Agreement is terminated without cause by the Company,
the Company is required to make a lump sum payment to Mr. David in an amount
equal to his then current salary for the balance of the Employment Term or for
two years, whichever is less, and up to two times the average bonus paid to Mr.
David for the two fiscal years immediately preceding the termination of the
Employment Agreement. The Employment Agreement also provides that Mr. David
shall have the right to terminate the agreement if he suffers a diminution in
his authority in connection with his employment by the Company; in such event,
the Company is required to pay Mr. David his salary and annual bonus for the
balance of the Employment Term. However, if such diminution in authority is due
to a change in control of the Company, the Company's obligation to Mr. David is
limited to a payment of 50% of his salary and up to two times the annual bonus
paid to Mr. David for the two years immediately preceding the termination of
the Employment Agreement.

8
<PAGE>

The Employment Agreement includes a retirement plan pursuant to which the
Company will pay Mr. David an annual amount equal to $7,500 times the number of
years actually worked by Mr. David. Such amount would be payable to either Mr.
David or his beneficiaries on a monthly basis after the end of the Employment
Term; such payments are to be made until the later to occur of Mr. David's
death or the date that 120 monthly payments have been made to Mr. David and/or
his beneficiaries.

COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION

The members of the Compensation Committee for the fiscal year ended March 31,
1995 were Edward H. Cohen, Bernard Goldstein, Howard Morgan and James Simons.

The law firm of Rosenman & Colin, of which Mr. Cohen is a partner, was
engaged as the Company's outside general counsel in the fiscal year ended March
31, 1995 and will continue to be so engaged for the fiscal year ending March
31, 1996.

The investment banking firm of Broadview Associates, L.P., of which Mr.
Goldstein is the managing director, provided investment banking services to the
Company in prior years and may continue to provide such services to the Company
in the fiscal year ending March 31, 1996.

Mr. Morgan provided consulting services to the Company in the fiscal year
ended March 31, 1995 and may continue to provide such services to the Company
in the fiscal year ending March 31, 1996.

The investment advisory firm of Renaissance Technologies Inc., of which Mr.
Simons is Chairman of the Board and sole shareholder, provided certain
administrative services to the Company in the fiscal year ended March 31, 1995
and will continue to provide such services to the Company in the fiscal year
ending March 31, 1996.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

The responsibilities of the Compensation Committee include administering the
Option Plan and fixing the compensation, including salaries and bonuses, of all
officers of the Company.

Overall Policy

The Compensation Committee believes that the Company's officers have been
largely responsible for the Company's success. Based on this belief, the
Compensation Committee has structured the Company's compensation program (i) to
compensate its executive officers on an annual basis with a cash salary at a
sufficient level to retain and motivate these officers, (ii) to link a portion
of executive compensation by means of annual bonuses to the Company's
performance and (iii) to link a portion of executive compensation to
appreciation of the Company's stock price by means of stock options. The
objectives of this strategy are to attract and retain effective and highly
qualified executives, to motivate executives to achieve the goals inherent in
the Company's business strategy and to link executive and shareholder interest
through stock options.

Base Salaries

Annual base salaries for the officers are determined by evaluating the
performance of the individuals and their contributions to the performance of
the Company and are based on the recommendation of Mr. David as chief executive
officer. Financial results, as well as non-financial measures such as the
magnitude of responsibility of the position, individual experience, and the
Compensation Committee's knowledge of compensation practices for comparable
positions at other companies are considered.

9
<PAGE>

In establishing Mr. David's annual base salary of $550,000 for the fiscal
year ending March 31, 1996 (which was established in 1994 in conjunction with
the execution of the Employment Agreement), the Compensation Committee took
into account the Company's achievements in fiscal 1991 and 1992, its assessment
of Mr. David's individual performance, as well as base salaries for chief
executive officers at companies of comparable size and complexity, both public
and private, known to members of the Compensation Committee. The Compensation
Committee also took into account Mr. David's contribution to the Company's
growth and diversity and his future anticipated contributions to the Company.

In connection with the execution of the Employment Agreement, the
Compensation Committee also awarded Mr. David a retirement plan pursuant to
which payments will be made to Mr. David upon his retirement. See "Employment
Contracts, Termination of Employment and Change-in-Control Arrangements."

Bonus Plan

The Company's bonus plan is intended to focus the executives' attention on
short-term or annual business results and to award executives each year based
on their contributions to the profits of the Company. Six percent of the
Company's consolidated pre-tax earnings are set aside for distribution under
the bonus plan, in the form of cash bonuses, to employees other than Mr. David
(for whom an additional two percent of such earnings is set aside for cash
bonuses pursuant to the Employment Agreement). The participants in the bonus
plan and their level of participation are determined by the Compensation
Committee in its discretion, based on the recommendation of Mr. David, and are
based on an evaluation of the performance, level of responsibility and
leadership of the individual executives in relation to corporate results.

Long-term Incentives

Under the Option Plan, stock options are granted to executives of the
Company. Stock options are designed to focus the executives' attention on stock
values and to align the interests of executives with those of the shareholders.
Stock options are customarily granted at prices equal to the fair market value
at the date of grant, are not exercisable until the first anniversary of the
date of grant and do not become fully exercisable until the third anniversary
of the date of grant. The options generally remain exercisable during
employment until the tenth anniversary of the date of grant. This approach
provides an incentive to executives to increase shareholder value over the long
term since the full benefit of the options cannot be realized unless stock
price appreciation occurs over a number of years. Options are generally granted
to Mr. David based on the Compensation Committee's assessment of his individual
performance and to executive officers based on the recommendation of Mr. David.

<TABLE>
<CAPTION>
COMPENSATION COMMITTEE
<S> <C>
Edward H. Cohen Howard Morgan
Bernard Goldstein James Simons
</TABLE>

10
<PAGE>

PERFORMANCE GRAPH

The following performance graph is a line graph comparing the yearly change
in the cumulative total shareholder return on the Common Stock against the
cumulative return of the Russell 3000 companies, and a line of business index
comprised of the Russell 3000 Publishing companies for the five fiscal years
ended March 31, 1995. In addition, the graph also compares such return against
the cumulative return of the Russell 3000 Office and Business Equipment
companies, the line of business index utilized by the Company in such graph in
fiscal 1994. The Company believes that, given the shift in focus of the
Company's business and the increasing identification of the Company with the
publishing industry, the Russell 3000 Publishing companies index is a more
appropriate line of business comparative index for the Company than the Russell
3000 Office and Business Equipment companies index.

[CHART: SEE ATTACHED]

[GRAPH APPEARS HERE]

<TABLE>
COMPARISON OF FIVE YEAR CUMULATIVE RETURN
AMONG RUSSELL 3000 ALL COMPANIES, RUSSELL 3000 OFFICE & BUSINESS
EQUIPMENT, RUSSELL 3000 PUBLISHING AND FRANKLIN ELECTRONIC PUBLISHER

<CAPTION>
Russell
Russell 3000
3000 Office & Russell Franklin
Measurement period All Building 3000 Electronic
(Fiscal Year Covered) Companies Equip Publishing Publisher
- --------------------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Measurement PT -
3/31/90 $ 100 $ 100 $ 100 $ 100

FYE 3/31/91 $ 114.071 $ 109.263 $ 112.178 $ 80.556
FYE 3/31/92 $ 129.034 $ 97.294 $ 128.633 $ 250
FYE 3/31/93 $ 149.801 $ 86.274 $ 152.419 $ 411.111
FYE 3/31/94 $ 153.333 $ 96.173 $ 161.453 $ 294.444
FYE 3/31/95 $ 174.116 $ 118.343 $ 168.575 $ 625
</TABLE>

VALUE OF $100.00 INVESTED OVER FIVE YEARS:

<TABLE>
<S> <C>
Franklin Electronic Publishers Incorporated Common Stock......... $625.00
Russell 3000 companies........................................... $174.12
Russell 3000 Office and Business Equipment companies............. $118.34
Russell 3000 Publishing companies................................ $168.58
</TABLE>

AMENDMENTS TO THE COMPANY'S STOCK OPTION PLAN

The Company currently has in effect the Option Plan, which was adopted as of
July 31, 1988. Under the Option Plan, the Company may grant to eligible
individuals incentive stock options, as defined in Section

11
<PAGE>

422(b) of the Internal Revenue Code of 1986 (the "Code"), and non-incentive
stock options. Only employees of the Company and its subsidiary operations are
eligible to receive incentive stock options under the Option Plan. Directors
who are not employees of the Company receive, in lieu of a fee for service as
director, a non-discretionary annual grant of non-incentive stock options to
purchase the number of shares of Common Stock derived by dividing $30,000
(adjusted since January 1, 1992 by a cost of living index) by the fair market
value of a share of Common Stock on the date of grant.

The Option Plan currently authorizes the Company to grant options to purchase
an aggregate of 1,750,000 shares of Common Stock. The Option Plan has only
94,683 shares remaining available for grant. The Board believes that such
number of shares is inadequate for current and future requirements. The
Compensation Committee recommended to the Board which approved, subject to
approval by the holders of a majority of the shares of Common Stock present in
person or by proxy at the meeting, an increase in the number of shares of
Common Stock with respect to which options may be granted under the Option Plan
from 1,750,000 to 2,250,000 shares.

Effective for taxable years of the Company beginning after 1993, the Omnibus
Budget Reconciliation Act of 1993 (the "1993 Act") generally prohibits the
Company from deducting compensation of a "covered employee" to the extent the
compensation exceeds $1 million per year. For this purpose, "covered employee"
means the chief executive officer of the Company and the four most highly
compensated executive officers other than the chief executive officer. Certain
"performance based" compensation including, under certain circumstances, stock
option compensation will not be subject to, and will be disregarded in
applying, the $1 million deduction limitation. The Internal Revenue Service has
only recently issued regulations concerning the $1 million deduction limitation
to which it has already proposed certain amendments and, accordingly,
substantial uncertainty exists as to the scope of the limitation and its
application to grants and awards under the Option Plan. The intent of the
Compensation Committee is that stock options granted under the Option Plan will
qualify as performance based compensation under the 1993 Act.

Accordingly, at the recommendation of the Compensation Committee, the Board
of Directors unanimously adopted and recommends that the shareholders approve
certain amendments to the Option Plan to (i) provide for the administration of
the Option Plan by the Compensation Committee, the members of which are
"outside directors" within the contemplation of Section 162(m)(4) of the Code,
(ii) prohibit the grant of non-incentive options to persons who are or may
reasonably become "covered employees" under Section 162(m) of the Code at a
price below fair market value of the Common Stock on the date of grant and
(iii) provide that no participant be granted, in any fiscal year, options to
purchase more than 100,000 shares of Common Stock.

In addition, the Board unanimously approved and recommends that the
shareholders approve amendments to the Option Plan to (i) change the number of
shares subject to options granted to the Company's non-employee directors from
the formula-based number described above to a non-discretionary annual grant of
non-incentive stock options to purchase 3,000 shares of Common Stock commencing
on January 1, 1996, (ii) provide for the grant, on July 12, 1995, to each non-
employee director of an option to purchase shares equal to 3,000 minus the
number of shares of Common Stock with respect to which such director was
granted options on January 3, 1995, (iii) prohibit any participant who makes a
"hardship withdrawal" within the meaning of Section 401(k) of the Code from
exercising any option for a period of one year from the date of such withdrawal
and (iv) require that any share of Common Stock tendered in payment of the
exercise price of an option have been owned by the participant for a period of
not less than six months prior thereto.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOREGOING AMENDMENTS TO THE
OPTION PLAN.

If the proposed amendments to the Option Plan are not approved, the Option
Plan will continue to remain in effect in its present form.

12
<PAGE>

NATURE AND PURPOSE OF THE OPTION PLAN

The purpose of the Option Plan is to induce key employees and directors of
and consultants to the Company and its subsidiaries to remain in the employ or
service of the Company and its subsidiaries, to attract new employees,
directors and consultants and to encourage such individuals to secure or
increase on reasonable terms their stock ownership in the Company. The Board
believes that the Option Plan will promote continuity of management and
increased incentive and personal interest in the welfare of the Company by
those who are or may become primarily responsible for shaping and carrying out
the long range plans of the Company and securing its continued growth and
financial success. The approximate number of persons eligible to participate in
the Option Plan is 100.

The Option Plan also provides that the Compensation Committee appointed by
the Board of Directors to administer the Option Plan may grant options to
employees and other personnel of another corporation which is acquired by the
Company in exchange for any outstanding options to purchase securities of the
acquired corporation. The price at which such options are granted and the time
at which such options may be exercised are to be determined by the Compensation
Committee based upon the terms of the assumed options and of the acquisition.

DURATION AND MODIFICATIONS

The Option Plan will terminate not later than April 25, 1998. The Board may
at any earlier time terminate the Option Plan or make such modifications to the
Option Plan as it may deem advisable. However, except in certain limited
circumstances, the Board may not, without further approval by the shareholders,
increase the number of shares of Common Stock as to which options may be
granted under the Option Plan, change the class of persons eligible to
participate in the Option Plan, change the manner of determining option prices
which would result in a decrease in the option prices, or extend the period
during which an option may be granted or exercised.

ADMINISTRATION OF THE OPTION PLAN

The Option Plan is administered by the Compensation Committee. The
Compensation Committee consists of two or more persons appointed by the Board
of Directors, all of whom must be "disinterested persons" within the meaning of
Rule 16b-3(c)(2)(i) promulgated under the Securities Exchange Act of 1934. If
the proposed amendments to the Option Plan are adopted, the members of the
Compensation Committee must also be "outside directors" within the
contemplation of Section 162(m)(4) of the Code. The members of the Compensation
Committee are appointed annually by, and serve at the pleasure of, the Board.
The present members of the Compensation Committee are Messrs. Cohen, Simons,
Morgan and Goldstein. The Compensation Committee has discretion to determine
the participants under the Option Plan, the time and price at which options
will be granted, the period during which options will be exercisable, the
number of shares subject to each option and whether an option shall be an
incentive stock option, a non-incentive stock option or a combination thereof,
but does not have the discretion to determine any of the foregoing with respect
to options granted to non-employee directors, which are non-discretionary in
nature. The members of the Compensation Committee do not receive additional
compensation for service in connection with the administration of the Option
Plan.

DESCRIPTION OF OPTIONS

Under the Option Plan, the per share exercise price of any option which is an
incentive stock option shall not be less than the fair market value of a share
of Common Stock on the date of grant, and the per share exercise price of any
option which is a non-incentive stock option shall not be less than 75% of such
fair market value. If the proposed amendments to the Option Plan are adopted,
no non-incentive option may be granted to any persons who are or may reasonably
become "covered employees" under Section 162(m) of the Code at a price below
fair market value on the date of grant. Options granted to non-employee
directors

13
<PAGE>

are granted at a per share exercise price equal to the fair market value of a
share of Common Stock on the date of grant. The aggregate fair market value of
the shares of Common Stock for which a participant may be granted incentive
stock options which are exercisable for the first time in any calendar year may
not exceed $100,000.

An option granted under the Option Plan is generally exercisable to the
extent of one-third of the shares of Common Stock covered thereby after the
first anniversary of the date of grant, two-thirds after the second anniversary
of the date of grant, and in full after the third anniversary of the date of
grant. An option granted to a non-employee director is generally exercisable
six months after the date of grant. However, the Compensation Committee at the
time of grant may provide that an option may be exercised in whole or in part
prior to the time that it would otherwise be exercisable under the Option Plan,
provided, however, that no option may be exercisable until six months after the
date of grant. Upon the exercise of an option, the option price must be paid in
cash or, if the Compensation Committee so determines at the time of the grant
of the option, in shares of Common Stock. If the proposed amendments to the
Option Plan are adopted, any such shares tendered in payment of the exercise
price of an option must have been held by the optionee for a period of not less
than six months. An option may not be granted for a period in excess of ten
years from the date of grant. The Compensation Committee also has the authority
to implement procedures to allow a broker-dealer selected by an optionee to
make payment of all or any portion of the option price upon exercise of an
option and receive on behalf of such optionee all or a portion of the shares of
Common Stock issuable upon exercise.

In the event of the death, permanent disability or retirement of an optionee
after his or her sixty-fifth birthday, all options theretofore granted shall
become immediately exercisable and, if not exercised, shall terminate,
generally within six months of such optionee's death, permanent disability or
retirement. In all other cases, in the event an optionee leaves the employ or
services of the Company or any of its subsidiaries, any options previously
granted to but not exercised by such optionee shall terminate, generally within
90 days after the termination of such optionee's service to, or employment
with, the Company. Options are not transferable except upon the death of the
optionee.

If the fair market value of the Common Stock declines below the option price
of any option (other than options granted to non-employee directors), the
Compensation Committee (with the prior approval of the Board) may cancel and
regrant such option or take any similar action it deems to be for the benefit
of the optionee in light of such declining value.

The number of shares reserved for issuance under the Option Plan and the
number of shares covered by each option granted under the Option Plan will be
adjusted in the event of a stock dividend, reorganization, recapitalization,
stock split-up, combination of shares, sale of assets, merger or consolidation
in which the Company is the surviving corporation. In the event of the
dissolution or liquidation of the Company, or a merger, reorganization or
consolidation in which the Company is not the surviving corporation, all
outstanding options shall terminate.

SECURITIES SUBJECT TO THE OPTION PLAN

Upon approval by the shareholders of the Company of the proposed increase in
the number of shares of Common Stock with respect to which options may be
granted under the Option Plan, an additional 500,000 authorized but unissued
shares of the Common Stock will be reserved for issuance upon the exercise of
options granted under the Option Plan (in addition to the 1,750,000 previously
reserved). The number of authorized but unissued shares so reserved under the
Option Plan would be reduced from time to time to the extent that a
corresponding amount of issued and outstanding shares are purchased by the
Company and set aside for issue upon the exercise of options granted under the
Option Plan. If any such options were to expire or terminate for any reason
without having been exercised in full, the unpurchased shares subject thereto
would again become available for the purposes of the Option Plan.

The market value of the Common Stock, as of June 27, 1995, was $26.50 per
share.

14
<PAGE>

FEDERAL INCOME TAX CONSEQUENCES OF ISSUANCE AND EXERCISE OF OPTIONS

The following discussion of the federal income tax consequences of the
granting and exercise of options under the Option Plan, and the sale of Common
Stock acquired as a result thereof, is based on an analysis of the Code, as
currently in effect, existing laws, judicial decisions and administrative
rulings and regulations, all of which are subject to change. In addition to
being subject to the federal income tax consequences described below, an
optionee may also be subject to state and/or local income tax consequences in
the jurisdiction in which he or she works and/or resides.

Non-Incentive Stock Options

No income will be recognized by an optionee at the time a non-incentive stock
option is granted. Ordinary income will be recognized by an optionee at the
time a non-incentive stock option is exercised, and the amount of such income
will be equal to the excess of the fair market value on the exercise date of
the shares issued to the optionee over the option price. In the case of an
employee of the Company, this ordinary income will also constitute wages
subject to the withholding of income tax and the Company will be required to
make whatever arrangements are necessary to ensure that the amount of the tax
required to be withheld is available for payment in money.

The Company will be entitled to a deduction for federal income tax purposes
in the same amount as the amount included in ordinary income by the optionee
with respect to his or her non-incentive stock option.

If an optionee makes payment of the option price by delivering shares of
Common Stock, the optionee generally will not recognize any gain as a result of
such delivery, but the amount of gain, if any, which is not so recognized will
be excluded from his or her basis in the new shares received.

Capital gain or loss on a subsequent sale or other disposition of the shares
acquired upon the exercise of a non-incentive stock option will be measured by
the difference between the amount realized on the disposition and the tax basis
of such shares. The tax basis of the shares acquired upon the exercise of any
non-incentive stock option will be equal to the sum of the exercise price of
such non-incentive stock option and the amount included in income with respect
to such option.

Incentive Stock Options

In general, neither the grant nor the exercise of an incentive stock option
will result in taxable income to an optionee or a deduction to the Company.

The sale of Common Stock received pursuant to the exercise of an incentive
stock option which satisfies the holding period rules will result in capital
gain to an optionee and will not result in a tax deduction to the Company. To
receive incentive stock option treatment as to the shares acquired upon
exercise of an incentive stock option, an optionee must neither dispose of such
shares within two years after such incentive stock option is granted nor within
one year after the exercise of such incentive stock option. In addition, an
optionee generally must be an employee of the Company (or of a subsidiary of
the Company) at all times between the date of grant and the date three months
before exercise of such incentive stock option.

If the holding period rules are not satisfied, the portion of any gain
recognized on the disposition of the shares acquired upon the exercise of an
incentive stock option that is equal to the lesser of (a) the fair market value
of the shares on the date of exercise minus the option price or (b) the amount
realized on the disposition minus the option price, will be treated as ordinary
income, with any remaining gain being treated as capital gain. The Company will
be entitled to a deduction equal to the amount of such ordinary income.

15
<PAGE>

optionee of shares previously acquired pursuant to the exercise of an incentive
stock option to exercise an incentive stock option will be treated as a taxable
disposition if the transferred shares are not held by the optionee for the
requisite holding period.

An incentive stock option is treated as if it were a non-incentive stock
option for purposes of the alternative minimum tax.

CERTAIN INFORMATION WITH RESPECT TO OPTIONS GRANTED

The following table sets forth, with respect to the Named Executive Officers,
all executive officers as a group, all non-employee directors as a group, and
all employees as a group, the number of shares of Common Stock subject to
options granted during the year ended March 31, 1995 and certain related
information.

<TABLE>
<CAPTION>
NAME OF INDIVIDUAL CAPACITIES NUMBER OF SHARES
INDIVIDUAL OR IN WHICH SUBJECT TO AVERAGE PER SHARE
IDENTITY OF GROUP SERVED OPTION EXERCISE PRICE
------------------ ------------------------ ---------------- -----------------
<S> <C> <C> <C>
Morton E. David(1)...... Chairman and Chief
Executive Officer -0- N/A
Michael R. Strange...... Executive Vice President 8,000 $11.25
Gregory J. Winsky....... Senior Vice President 8,000 11.25
Kenneth H. Lind......... Vice President, Finance,
and Treasurer 8,000 11.25
Michael Kemp............ Managing Director,
Franklin Electronic
Publishers (Europe)
Ltd. 19,000 11.67
All executive officers
as a group
(6 persons)............ 53,000 11.40
All non-employee
directors as a group
(7 persons)............ 12,700 19.63
All employees (except
executive officers)
as a group (51
persons)............... 121,500 15.95
</TABLE>
- --------
(1) Options to purchase 100,000 shares of Common Stock at an exercise price of
$27.75 per share were granted to Mr. David on April 10, 1995. Options with
respect to up to 11,111, 33,333, 66,666, 88,888 and 100,000 shares may be
exercised on the first, second, third, fourth and fifth anniversaries,
respectively, of the date of grant. The grant of such shares is subject to
shareholder approval of the amendments to the Option Plan described herein.
If such amendments are not approved by the shareholders, such grant will be
null and void. See "Compensation Committee Report on Executive
Compensation."

Approval of the increase in the number of shares of Common Stock with respect
to which options may be granted under the Option Plan and the other amendments
thereto discussed above requires the affirmative vote of the holders of a
majority of the shares of Common Stock present in person or by proxy at the
meeting. PROXIES RECEIVED IN RESPONSE TO THIS SOLICITATION WILL BE VOTED FOR
SUCH INCREASE AND THE OTHER AMENDMENTS DISCUSSED ABOVE UNLESS OTHERWISE
SPECIFIED IN THE PROXY.

16
<PAGE>

SELECTION OF AUDITORS

The Audit Committee has recommended to the Board of Directors, and the Board
of Directors has selected, Feldman Radin & Co., P.C., independent auditors, as
auditors of the Company for the fiscal year ending March 31, 1996. Although
shareholder ratification of the Board of Directors' action in this respect is
not required, the Board considers it desirable for shareholders to pass upon
the selection of auditors and, if the shareholders disapprove of the selection,
intends to select other auditors for the fiscal year ending March 31, 1996.

It is expected that representatives of Feldman Radin & Co., P.C. will be
present at the meeting, will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions from
shareholders.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE APPOINTMENT
OF THE AUDITORS. PROXIES RECEIVED IN RESPONSE TO THIS SOLICITATION WILL BE
VOTED FOR THE APPOINTMENT OF THE AUDITORS UNLESS OTHERWISE SPECIFIED IN THE
PROXY.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The law firm of Rosenman & Colin, of which Mr. Cohen is a senior partner, was
engaged as the Company's general outside counsel in the fiscal year ended March
31, 1995 and will continue to be so engaged for the fiscal year ending March
31, 1996. Payment for such services amounted to approximately $34,480 for the
fiscal year ended March 31, 1995.

Mr. Morgan provided consulting services to the Company in the fiscal year
ended March 31, 1995 and will continue to provide such services to the Company
in the fiscal year ending March 31, 1996. Payments for such services amounted
to approximately $30,100 for the fiscal year ended March 31, 1995.

The firm of Renaissance Technologies Inc., of which Mr. Simons is Chairman of
the Board and sole shareholder, provided certain administrative services to the
Company in the fiscal year ended March 31, 1995 and will continue to provide
such services to the Company in the fiscal year ending March 31, 1996. Payments
made for such services amounted to approximately $39,000 for the fiscal year
ended March 31, 1995.

17
<PAGE>

MISCELLANEOUS

Any proposal of an eligible shareholder intended to be presented at the next
annual meeting of shareholders must be received by the Company for inclusion in
its proxy statement and form of proxy relating to that meeting no later than
March 1, 1996.

The Board of Directors of the Company does not intend to present, and does
not have any reason to believe that others intend to present, any matter of
business at the meeting other than those set forth in the accompanying Notice
of Annual Meeting of Shareholders. However, if other matters properly come
before the meeting, it is the intention of the persons named in the enclosed
form of proxy to vote any proxies in accordance with their judgment.

The Company will bear the cost of preparing, assembling and mailing the
enclosed form of proxy, this Proxy Statement and other material which may be
sent to shareholders in connection with this solicitation. Solicitation may be
made by mail, telephone, telegraph and personal interview. The Company may
reimburse persons holding shares in their names or in the names of nominees for
their expense in sending proxies and proxy material to their principals.

Copies of the 1995 Annual Report to Shareholders, which includes the
Company's Annual Report to the Securities and Exchange Commission (Form 10-K),
are being mailed to shareholders simultaneously with this Proxy Statement.

By order of the Board of Directors,

GREGORY J. WINSKY
Secretary

Burlington, New Jersey
June 29, 1995

18
<PAGE>

FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED

PROXY FOR ANNUAL MEETING OF SHAREHOLDERS JULY 27, 1995

This Proxy is Solicited On Behalf of the Board of Directors

The undersigned hereby appoints MORTON E. DAVID and GREGORY J. WINSKY, or
either of them, attorneys and proxies, with power of substitution and
revocation, to vote, as designated below, all shares of stock which the
undersigned is entitled to vote, with all powers which the undersigned would
possess if personally present, at the Annual Meeting of Shareholders (including
all adjournments thereof) of FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED to be
held on Thursday, July 27, 1995 at 9:30 A.M. at the offices of Rosenman & Colin,
575 Madison Avenue, New York, New York. The Board of Directors recommends a
vote FOR proposals 1, 2 and 3.

1. ELECTION OF DIRECTORS

____ FOR all nominees ____ WITHHOLD AUTHORITY
to vote for all nominees

Edward H. Cohen, Morton E. David, Bernard Goldstein, Leonard M. Lodish,
Howard L. Morgan, Jerry R. Schubel, James H. Simons, Richard E. Snyder, Michael
R. Strange and William H. Turner.

Shareholders may withhold authority to vote for any nominee(s) by writing
the name of that nominee in the space provided below.

- -------------------------------------------------------------------------------

2. APPROVAL of the increase in the number of shares with respect to which
options may be granted under the Company's 1988 Stock Option Plan and certain
other amendments thereto as set forth in the accompanying Proxy Statement.

___ FOR ___ AGAINST ___ ABSTAIN

3. APPROVAL of the appointment of auditors as set forth in the accompanying
Proxy Statement.

___ FOR ___ AGAINST ___ ABSTAIN
<PAGE>

4. The proxy is authorized to transact such other business as may properly come
before the meeting.

This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder. If no direction is given, this proxy
will be voted FOR items 1, 2 and 3 and in the discretion of said proxy on any
other matter which may come before the meeting or any adjournments thereof.

Dated: ________________, 1995

_____________________________
Print Name

_______________________________
Signature

NOTE: When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, custodian, guardian or corporate
officer, please give your full title as such. If a corporation, please sign
full corporate name by authorized officer. If a partnership, please sign in
partnership name by authorized person.

PLEASE MARK, DATE, SIGN AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE>

FRANKLIN ELECTRONIC PUBLISHERS, INC.
STOCK OPTION PLAN
(As Amended and Restated Effective as of July 27, 1995)

1. Purpose.
-------

The purpose of this Stock Option Plan (the "Plan") is to induce key
personnel, including employees, officers, directors and independent contractors,
to remain in the employ or service of Franklin Electronic Publishers, Inc. (the
"Company") and its present and future subsidiary corporations ("Subsidiaries"),
to attract new key personnel and to encourage such key personnel to secure or
increase on reasonable terms their stock ownership in the Company. The Board of
Directors of the Company (the "Board") believes that the granting of stock
options ("Options") under the Plan will promote continuity of management and
increased incentive and personal interest in the welfare of the Company and aid
in securing its continued growth and financial success by those who are or may
become primarily responsible for shaping and carrying out the long range plans
of the Company. Options granted hereunder are intended to be either (a)
"incentive stock options" (which term, when used herein, shall have the meaning
ascribed thereto by the provisions of Section 422(b) of the Internal Revenue
Code of 1986, as amended (the "Code"), or (b) options which are not "incentive
stock options" ("non-incentive stock options") or (c) a combination thereof, as
determined by the Committee (the "Committee") referred to in Section 4 hereof at
the time of the grant thereof.
<PAGE>

2. Effective Date of the Plan.
--------------------------

The Plan, as amended and restated by resolution of the Board on July 12,
1995, shall become effective on July 12, 1995, subject to ratification by the
stockholders at the 1995 Annual Meeting of the Stockholders of the Company.

3. Stock Subject to Plan.
---------------------

2,250,000 of the authorized but unissued shares of the common stock, no par
value, of the Company (the "Common Stock") are hereby reserved for issue upon
the exercise of Options; provided, however, that the number of shares so
-------- -------
reserved may from time to time be reduced to the extent that a corresponding
number of issued and outstanding shares of the Common Stock are purchased by the
Company and set aside for issue upon the exercise of Options. If any Option
expires or terminates for any reason without having been exercised in full, the
unpurchased shares subject thereto shall again be available for the purposes of
the Plan.

4. Committee.
---------

The committee shall consist of two or more members of the Board, both or
all of whom shall be "disinterested persons" within the meaning of Rule 16b-
3(c)(2)(i) promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and "outside directors" within the contemplation of
Section 162(m)(4)(C) of the Code. The Committee shall be appointed annually by
the Board, which may at any time and from time to

2
<PAGE>

time remove any members of the Committee, with or without cause, appoint
additional members to the Committee and fill vacancies, however caused, in the
Committee. A majority of the members of the Committee shall constitute a
quorum. All determinations of the Committee shall be made by a majority of its
members present at a duly called meeting of the Committee at which a quorum is
present. Any decision or determination of the Committee reduced to writing and
signed by all of the members of the Committee shall be fully as effective as if
it had been made at a meeting duly called and held.

5. Administration.
--------------

The Plan shall be administered by the Committee. The Committee shall have
complete authority, in its discretion, to interpret the Plan, to prescribe,
amend and rescind rules and regulations relating to it, to determine the terms
and provisions of the option agreements or certificates which evidence Options,
to determine the individuals (the "Participants") to whom and the times and the
prices at which Options shall be granted, the periods during which Options shall
be exercisable, the number of shares of the Common Stock to be subject to
Options and whether Options shall be incentive stock options or non-incentive
stock options and to make all other determinations necessary or advisable for
the administration of the Plan. In making such determinations, the Committee
may take into account the nature of the services rendered by the respective
Participants, their present and potential contributions to the success of the
Company

3
<PAGE>

and the Subsidiaries and such other factors as the Committee in its discretion
shall deem relevant. The Committee's determination on the matters referred to
in this Section 4 shall be conclusive. Any dispute or disagreement which may
arise under or as a result of or with respect to any Option shall be determined
by the Committee, in its sole discretion, and any interpretations by the
Committee of the terms of any Option shall be final, binding and conclusive.

6. Eligibility.
-----------

An Option may be granted only to (a) key employees of the Company or a
Subsidiary (including officers and/or directors), (b) directors of the Company
who are not employees or officers of the Company or a Subsidiary, (c)
independent contractors hired by the Company or a Subsidiary to provide, on a
regular basis, consulting services for the Company or a Subsidiary and (4)
employees of a corporation which has been acquired by the Company or a
Subsidiary, whether by way of exchange or purchase of stock, purchase of assets,
merger or reverse merger, or otherwise, who hold options with respect to the
stock of such corporation which the Company has agreed to assume.

7. Option Prices.
-------------

A. Except as otherwise provided in Section 21 hereof, the initial per
share option price of any Option which is an incentive stock option shall not be
less than the fair market value of a share of the Common Stock on the date such
Option is

4
<PAGE>

granted; provided, however, that, in the case of a Participant who owns more
-------- -------
than 10% of the Common Stock at the time an Option which is an incentive stock
option is granted to him, the initial per share option price shall not be less
than 110% of the fair market value of a share of the Common Stock on the date
such Option is granted.

B. Except as otherwise provided in Section 21 hereof, the initial per
share option price of any Option which is a non-incentive stock option shall not
be less than 75% of the fair market value of a share of the Common Stock on the
date such Option is granted; provided, however, that the initial per share
-------- -------
option price of any non-incentive option which is granted to a person who is or
who in the opinion of the Committee may become a "covered employee" within the
contemplation of Section 162(m)(3) of the Code shall not be less than 100% of
the fair market of a share of the Common Stock on the date such Option is
granted.

C. For all purposes of the Plan, the fair market value of a share of the
Common Stock on any date shall be determined in good faith by the Committee.

8. Option Term.
-----------

Participants shall be granted Options for such term as the Committee shall
determine, not in excess of ten years from the date of the granting thereof;
provided, however, that, except as otherwise provided in Section 21 hereof, in
- -------- -------
the case of a Participant who owns more than 10% of the Common Stock at the

5
<PAGE>

time an Option which is an incentive stock option is granted to him, the term
with respect to such Option shall not be in excess of five years from the date
of the granting thereof.

9. Limitations on Amount of Stock Options Granted.
----------------------------------------------

A. Except as otherwise provided in Section 21 hereof, the aggregate fair
market value of the shares of the Common Stock for which any Participant may be
granted incentive stock options which are exercisable for the first time in any
calendar year (whether under the terms of the Plan or any other stock option
plan of the Company) shall not exceed $100,000.

B. No Participant shall, during any fiscal year of the Company, be granted
Options to purchase more than 100,000 shares of the Common Stock.

10. Exercise of Options.
-------------------

A. Except as otherwise provided in Section 9A hereof, a Participant may
exercise each Option granted to him in such installments as the Committee shall
determine at the time of the grant thereof; provided, however, that, unless the
-------- -------
Committee shall otherwise determine, a Participant may not exercise an Option
prior to the first anniversary of the date of the granting of such Option to him
and a Participant may (i) during the period commencing on the first anniversary
of the date of the granting of an Option to him and ending on the day preceding
the second anniversary of such date, exercise such Option with respect to one-
third of the shares granted thereby, (ii) during the period

6
<PAGE>

commencing on such second anniversary and ending on the day preceding the third
anniversary of the date of the granting of such Option, exercise such Option
with respect to two-thirds of the shares granted thereby and (iii) during the
period commencing on such third anniversary, exercise such Option with respect
to all of the shares granted thereby; provided, further, however, that, except
-------- ------- -------
as otherwise provided in Section 21 hereof, notwithstanding any other provisions
of the Plan to the contrary, no Option shall be exercisable until the date which
is six months after the date on which such Option is granted.

B. Except as hereinbefore otherwise set forth, an Option may be exercised
either in whole at any time or in part from time to time.

C. The Committee may, in its discretion, permit any Option to be
exercised, in whole or in part, prior to the time when it would otherwise be
exercisable in accordance with the provisions of Section 10A.

D. An Option may be exercised only by a written notice of intent to
exercise such Option with respect to a specific number of shares of the Common
Stock and payment to the Company of the Common Stock so specified; provided,
--------
however, that all or any portion of such payment may be made in kind by the
- -------
delivery of shares of the Common Stock which have been owned by the Participant
for a minimum period of six months having a fair market value on the date of
delivery equal to the portion of the

7
<PAGE>

option price so paid; provided, further, however, that, subject to the
-------- ------- -------
requirements of Regulation T (as in effect from time to tim) promulgated under
the Exchange Act, the Committee may implement procedures to allow a broker
chosen by a Participant to make payment of all or any portion of the option
price payable upon the exercise of an Option and to receive, on behalf of such
Participant, all or any portion of the shares of the Common Stock issuable upon
such exercise.

E. If the Company and/or one or more of its Subsidiaries shall maintain a
"cash or deferred arrangement" within the meaning of Section 401(k)(2) of the
Code, and if any Participant shall effect a withdrawal therefrom by reason of a
"hardship" within the contemplation of section 401(k)(2)(B)(iv) of the Code,
then, notwithstanding any other provision of the Plan or of any stock option
agreement or certificate entered into or issued in accordance with the
provisions of the Plan, no Option may be exercised by such Participant during
the period of one year commencing on the date of such withdrawal.

11. Transferability.
---------------

No Option shall be assignable or transferable except by will and/or by the
laws of descent and distribution and, during the life of any Participant, each
Option granted to him may be exercised only by him.

8
<PAGE>

12. Termination of Service.
----------------------

In the event a Participant leaves the employ or service of the Company and
the Subsidiaries for any reason other than death, retirement on or subsequent to
his 65th birthday or permanent disability, whether voluntarily or otherwise,
each Option granted to him shall, to the extent it is exercisable on the date of
such termination of employment or service, terminate upon the earlier to occur
of (i) the expiration of 90 days after such termination of employment or service
or (ii) the expiration date specified in such Option. In the event a
Participant's employment or service with the Company and the Subsidiaries
terminates by reason of his death or permanent disability or by reason of his
retirement on or subsequent to his 65th birthday, each Option granted to him
shall become immediately exercisable in full and shall terminate upon the
earlier to occur of (i) the expiration of six months after the date of such
death or permanent disability or such retirement or (ii) the expiration date
specified in such Option.

13. Adjustment of Number of Shares.
------------------------------

In the event that a dividend shall be declared upon the Common Stock
payable in shares of the Common Stock, the number of shares of the Common Stock
then subject to any Option, the number of shares of the Common Stock reserved
for issuance in accordance with the provisions of the Plan but not yet covered
by Options and the number of shares set forth in Sections 9B and 22B hereof
shall be adjusted by adding to each share the number of shares which would be
distributable thereon if such shares had been

9
<PAGE>

outstanding on the date fixed for determining the stockholders entitled to
receive such stock dividend. In the event that the outstanding shares of the
Common Stock shall be changed into or exchanged for a different number or kind
of shares of stock or other securities of the Company or of another corporation,
whether through reorganization, recapitalization, stock split-up, combination of
shares, sale of assets, merger or consolidation in which the Company is the
surviving corporation, then, there shall be substituted for each share of the
Common Stock then subject to any Option, for each share of the Common Stock
reserved for issuance in accordance with the provisions of the Plan but not yet
covered by Options and for each share of the Common Stock referred to in
Sections 9B and 22B hereof the number and kind of shares of stock or other
securities into which each outstanding share of the Common Stock shall be so
changed or for which each such share shall be exchanged. In the event that
there shall be any change, other than as specified in this Section 13, in the
number or kind of outstanding shares of the Common Stock, or of any stock or
other securities into which the Common Stock shall have been changed, or for
which it shall have been exchanged, then, if the Committee shall, in its sole
discretion, determine that such change equitable requires an adjustment in the
number or kind of shares then subject to any Option, the number or kind of
shares reserved for issuance in accordance with the provisions of the Plan but
not yet covered by Options and the number of shares set forth in Sections 9B and
22B hereof, such adjustment

10
<PAGE>

shall be made by the Committee and shall be effective and binding for all
purposes of the Plan and of each outstanding Option. In the case of any
substitution or adjustment in accordance with the provisions of this Section 13,
the option price in each Option for each share covered thereby prior to such
substitution or adjustment shall be the option price for all shares of stock or
other securities which shall have been substituted for such share or to which
such share shall have been adjusted in accordance with the provisions of this
Section 13. No adjustment or substitution provided for in this Section 13 shall
require the Company to sell a fractional share under any Option. In the event
of the dissolution or liquidation of the Company, or a merger or consolidation
in which the Company is not the surviving corporation, all outstanding Options
shall terminate.

14. Purchase for Investment, Withholding and Waivers.
------------------------------------------------

A. Unless the shares to be issued upon the exercise of an Option by a
Participant shall be registered prior to the issuance thereof under the
Securities Act of 1933, as amended, such Participant will be required, as a
condition of the Company's obligation to issue such shares, to give a
representation in writing that he is acquiring such shares for his own account
as an investment and not with a view to, or for sale in connection with, the
distribution of any thereof.

B. In the event of the death of a Participant, a condition of exercising
any Option shall be the delivery to the Company of

11
<PAGE>

such tax waivers and other documents as the Committee shall determine.

C. Each Participant shall be required, as a condition of exercising any
non-incentive stock option, to make such arrangements with the Company with
respect to withholding as the Committee may determine.

15. No Stockholder Status.
---------------------

Neither any Participant nor his legal representatives, legatees or
distributees shall be or be deemed to be the holder of any share of the Common
Stock covered by an Option unless and until a certificate for such share has
been issued. Upon payment of the purchase price thereof, a share issued upon
exercise of an Option shall be fully paid and non-assessable.

16. No Restrictions on Corporate Acts.
---------------------------------

Neither the existence of the Plan nor any Option shall in any way affect
the right or power of the Company or its stockholders to make or authorize any
or all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business or any merger or consolidation of
the Company, or any issue of bonds, debentures, preferred or prior preference
stock ahead of or affecting the Common Stock or the rights thereof, or
dissolution or liquidation of the Company, or any sale or transfer of all or any
part of its assets or business, or any other corporate act or proceeding whether
of a similar character or otherwise.

12
<PAGE>

17. Decline in Market Price.
-----------------------

In the event that the fair market value of the Common Stock declines below
the option price set forth in any Option, the Committee may, at any time,
adjust, reduce, cancel and regrant any unexercised Option or take any similar
action it deems to be for the benefit of the Participant in light of the
declining fair market value of the Common Stock; provided, however, that none of
-------- -------
the foregoing actions may be taken without the prior approval of the Board.

18. No Employment Right.
-------------------

Neither the existence of the Plan nor the grant of any Option shall require
the Company or any Subsidiary to continue any Participant in the employ or other
service of the Company or such Subsidiary.

19. Amendment of the Plan.
---------------------

The Board may at any time make such modifications of the Plan as it shall
deem advisable; provided, however, that the Board may not without further
-------- -------
approval of stockholders representing a majority of the outstanding shares of
the Common Stock present in person or by proxy at any special or annual meeting
of the stockholders increase the number of shares of the Common Stock as to
which Options may be granted under the Plan (as adjusted in accordance with the
provisions of section 13 hereof), or change the class of persons eligible to
participate in the Plan or change the manner of determining the option prices

13
<PAGE>

which would result in a decrease in the option price, or extend the period
during which an Option may be granted or exercised. No termination or amendment
of the Plan may, without the consent of the Participant to whom any Option shall
theretofore have been granted, adversely affect the rights of such Participant
under such Option.

20. Expiration and Termination of the Plan.
--------------------------------------

The Plan shall terminate on April 25, 1998, or at such earlier time as the
Board may determine. Options may be granted under the Plan at any time and from
time to time prior to its termination. Any Option outstanding under the Plan at
the time of the termination of the Plan shall remain in effect until such Option
shall have been exercised or shall have expired in accordance with its terms.

21. Options Granted in Connection with Acquisitions.
-----------------------------------------------

In connection with the acquisition by the Company or a Subsidiary of
another corporation which will become a Subsidiary or division of the Company
(such corporation being hereafter referred to as an "Acquired Subsidiary"),
Options may be granted to employees and other personnel of an Acquired
Subsidiary in exchange or substitution for then outstanding options to purchase
securities of the Acquired Subsidiary, such Options may be granted at such
option prices, may be exercisable immediately or at any time or times either in
whole or in part, and may contain such other provisions not inconsistent with
the Plan, as the

14
<PAGE>

Committee, in its discretion, shall deem appropriate at the time of the granting
of such Options.

22. Options for Outside Directors.
-----------------------------

A. Notwithstanding any other provision of the Plan, a director of the
Company who is not an employee of the Company or a Subsidiary (an "Outside
Director") shall be eligible to receive an Option only in accordance with the
terms and conditions of this Section 22. Except as otherwise provided in this
Section 22, each such Option shall be subject to all of the provisions of the
Plan.

B. I. On July 27, 1995, each Outside Director shall be granted an
Option to purchase 1,600 shares of the Common Stock; provided, however, that, in
-------- -------
the case of any Outside Director who shall have become such after the first
regularly scheduled meeting of the Board during calendar year 1995, the number
"1,600" shall be deemed to be the number equal to the excess of the product of
------ --
3,000 and the fraction the numerator of which shall be the number of regularly
scheduled meetings of the Board remaining in such calendar year and the
denominator of which shall be four over the number of Options previously granted
----
to such Outside Director during such calendar year.

II. On the first business day of January 1996 and on the first
business day of January of each year thereafter, each Outside Director shall be
granted an Option to purchase 3,000

15
<PAGE>

shares of the Common Stock; provided, however, that, if an Outside Director
-------- -------
shall become an Outside Director after the first regularly scheduled meeting of
the Board during any calendar year, on the first business day on which he shall
be an Outside Director, he shall be granted an Option to purchase the number of
shares of the Common Stock equal to the product of 3,000 and the fraction the
numerator of which shall be the number of regularly scheduled meetings of the
Board remaining in such calendar year and the denominator of which shall be
four.

III. The per share option price of each Option granted to an Outside
Director pursuant to the provisions of this Section 22B shall be equal to the
fair market value of a share of the Common Stock on the date such Option is
granted.

IV. The term of each Option granted to an Outside Director shall be
ten years.

C. Any Option granted to any Outside Director shall be exercisable as to
all shares of the Common Stock covered thereby commencing on the date six months
after the date on which such Option is granted.

D. The provisions of this Section 22 may not be amended except by the
vote of a majority of the members of the Board and by the vote of a majority of
the members of the Board who are not Outside Directors, and the provisions of
this Section 22 shall

16
<PAGE>

not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974 or the
regulations or rules thereunder.