<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended June 30, 1996 Commission File No. 0-14841
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 22-2476703
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE FRANKLIN PLAZA, BURLINGTON, NEW JERSEY 08016-4907
(Address of principal executive office) (Zip Code)
Registrant's telephone number (609) 386-2500
Indicate by check mark whether Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
COMMON STOCK OUTSTANDING AS OF
JUNE 30, 1996 - 8,026,046 SHARES
<PAGE>
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
-------- ---------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents $ 7,904 $10,827
Accounts receivable, less allowance for doubtful
accounts of $878 and $867 10,895 12,114
Inventories 41,278 34,890
Deferred income tax asset 2,183 1,723
Prepaids and other assets 3,475 2,948
------- -------
Total Current Assets 65,735 62,502
------- -------
Property and Equipment 10,880 11,012
Goodwill, less accumulated amortization of $670
and $649 2,065 1,789
Other Assets 8,006 7,566
------- -------
Total Assets $86,686 $82,869
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable and accrued expenses $15,476 $16,678
Current portion of mortgage note payable 284 --
------- -------
Total Current Liabilities 15,760 16,678
------- -------
Long-Term Liabilities:
Mortgage note payable 3,976 --
Other liabilities 678 653
------- -------
Total Long-Term Liabilities 4,654 653
------- -------
Shareholders' Equity:
Preferred stock, $2.50 par value, authorized
10,000,000 shares, none issued or outstanding -- --
Common stock, no par value, authorized 50,000,000
shares, issued and outstanding 8,026,046 and
7,861,715 shares 48,883 48,599
Retained earnings 17,805 17,165
Foreign currency translation adjustment (416) (226)
------- -------
Total Shareholders' Equity 66,272 65,538
------- -------
Total Liabilities and Shareholders' Equity $86,686 $82,869
======= =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Sales $ 15,071 $ 18,619
Cost of Sales 7,936 10,358
--------- ---------
Gross Profit 7,135 8,261
--------- ---------
Expenses:
Sales and marketing 2,810 3,117
Research and development 1,379 1,273
General and administrative 1,949 1,800
Interest expense 10 2
Interest and investment income (46) (202)
--------- ---------
Total expenses 6,102 5,990
--------- ---------
Income Before Income Taxes 1,033 2,271
Income Tax Provision 393 863
--------- ---------
Net Income $ 640 $ 1,408
========= =========
Net Income Per Share:
Primary $ .08 $ .17
========= =========
Fully diluted $ .08 $ .17
========= =========
Weighted Average Common Shares and
Common Equivalents:
Primary 8,214 8,222
========= =========
Fully diluted 8,215 8,222
========= =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock Total
------------------ Retained Shareholders'
Shares Amount Earnings Other Equity
--------- ------- -------- ----- -------------
<S> <C> <C> <C> <C> <C>
Balance--March 31, 1996 7,861,715 $48,599 $17,165 $(226) $65,538
Issuance of common shares
under employee stock
option plan 36,834 467 -- -- 467
Issuance of shares and
amortization of deferred
compensation expense for
shares issued for services
net of forfeitures
(unearned portion $93) (650) 12 -- -- 12
Issuance of common shares
for warrants exercised 189,993 1,235 -- -- 1,235
Issuance of common shares
related to acquisition of
Systech GmbH 6,748 152 -- -- 152
Purchase and retirement of
treasury shares received
under employee stock
option plan and warrants
exercised (68,594) (1,582) -- -- (1,582)
Income for the period -- -- 640 -- 640
Foreign currency translation
adjustment -- -- -- (190) (190)
--------- ------- ------- ----- -------
Balance--June 30, 1996 8,026,046 $48,883 $17,805 $(416) $66,272
========= ======= ======= ===== =======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
-------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 640 $ 1,408
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and amortization 1,058 796
Provision for losses on accounts receivable 10 26
Loss on disposal of property and equipment 7 --
Deferred income tax benefit (460) 575
Source (use) of cash from change in operating assets
and liabilities excluding the effects of acquisition:
Accounts receivable 1,241 (2,322)
Inventories (6,318) (6,927)
Prepaids and other assets (527) 232
Accounts payable and accrued expenses (1,303) 1,962
Other liabilities 25 --
-------- ---------
Net Cash Used in Operating Activities (5,627) (4,250)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (548) (2,198)
Proceeds from sale of property and equipment 52 --
Change in other assets (819) (644)
Cash paid for Systech GmbH, net of cash acquired (171) --
-------- ---------
Net Cash Used in Investing Activities (1,486) (2,842)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from mortgage 4,260 --
Proceeds from issuance of common shares 120 296
-------- ---------
Net Cash Provided by Financing Activities 4,380 296
Effect of Exchange Rate Changes on Cash (190) 88
-------- ---------
Decrease in Cash and Cash Equivalents (2,923) (6,708)
Cash and Cash Equivalents at March 31 10,827 21,018
-------- ---------
Cash and Cash Equivalents at June 30 $ 7,904 $ 14,310
======== =========
Schedule of Non-Cash Financing Activities:
Purchase and retirement of treasury shares received
under employee stock option plan and warrants
exercised $ 1,582 $ --
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reference is made to the financial statements included in the Company's Annual
Report (Form 10-K) filed with the Securities and Exchange Commission for the
year ended March 31, 1996.
The financial statements for the periods ended June 30, 1996 and 1995 are
unaudited and include all adjustments which, in the opinion of management, are
necessary to a fair statement of the results of operations for the periods then
ended. All such adjustments are of a normal recurring nature. The results of
the Company's operations for any interim period are not necessarily indicative
of the results of the Company's operations for a full fiscal year.
1. MORTGAGE
During the quarter ended June 30, 1996, the Company obtained a mortgage on its
new facility in Burlington, New Jersey. The mortgage totaling $4,260,000 has
monthly principal payments of $23,667, plus interest, and matures on June 28,
2006. Interest on the mortgage is currently payable at 1% over LIBOR. The
Company has the option to convert the mortgage to a fixed interest rate.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AS COMPARED WITH JUNE 30, 1995:
Net Sales
Sales of $15,071,000 for the quarter ended June 30, 1996 were 19% lower than
sales of $18,619,000 for the same quarter one year earlier. The sales decrease
is attributed to lower sales of electronic books in the domestic consumer
market caused by retailer caution in issuing restocking orders as the 1995
program year wound down in the June quarter. Royalties from technology
licenses decreased as a percentage of sales from 4% to 3%.
Gross Profits
The Company reported net income of $640,000 or $.08 per share for the first
quarter ending June 30, 1996, compared with earnings of $1,408,000 or $.17 per
share last year. Decreased sales primarily contributed to the decrease in
gross profits from $8,261,000 to $7,135,000. Gross profit margins increased to
47% as compared with 44% last year due to favorable product mix.
Operating Expenses
Total operating expenses increased by $112,000 to $6,102,000 in the current
1996 quarter as compared with $5,990,000 in the same quarter last year. Sales
and marketing expenses were down by $307,000 from last year's level of
$3,117,000 to $2,810,000. Research and development expenses increased to
$1,379,000 (9% of sales) as compared with $1,273,000 (7% of sales) in the
period one year earlier as the Company continued its development efforts for
new products in the BOOKMAN(R) series and other new electronic books. General
and administrative expenses increased $149,000 to $1,949,000 (13% of sales)
from $1,800,000 (10% of sales). Interest and investment income decreased from
$202,000 to $46,000 due to lower level of cash caused by the use of working
capital for inventories.
CHANGES IN FINANCIAL CONDITION
Inventories increased from $34,890,000 at March 31, 1996 to $41,278,000 at the
end of the June quarter due primarily to lower than expected sales in the
first quarter and production in anticipation of higher sales in the seasonally
active second and third quarters. The inventory increase in part was required
in order to bring new products to market and to build inventory to support
international sales in new markets. Cash and cash equivalents decreased from
$10,827,000 at March 31 to $7,904,000 as working capital was employed to
support inventory build-up. Accounts receivable decreased from $12,114,000 to
$10,895,000 at June 30 as a result of lower than expected sales in the first
quarter. Accounts payable and accrued expenses decreased from $16,678,000 at
March 31 to $15,476,000 at June 30. Having expended approximately $6.5 million
from available cash flow from operations for the construction and outfitting
of its new corporate headquarters during fiscal 1995 and 1996, the Company
placed a mortgage in the principal amount of $4,260,000 on the property in the
June quarter.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity during the last three fiscal years
was cash flow from operations. Management believes that cash flow from
operations and its bank line of credit will be adequate to provide for the
Company's liquidity and capital needs for the foreseeable future.
In order to accommodate seasonal inventory and accounts receivable buildup, the
Company may finance its day to day operations by drawing down advances, on an
as needed basis, against a $35 million revolving line of credit facility which
runs through October 1998. At June 30, 1996, there were no borrowings under the
bank line of credit. The Company believes that it has sufficient borrowing
availability for seasonal cash requirements. Borrowings against the line of
credit bear interest at the bank's prime rate or 1 1/2% over LIBOR. The Company
pays a commitment fee of 1/4 of 1% per annum on the unused portion of the line
of credit. The Company has no material commitments for capital expenditures in
the next twenty-four months.
The Company's ability to generate revenues and profits is subject to certain
risks and uncertainties in its business, including, among other things, the
timely availability and acceptance of new electronic books, changes in
technology, the impact of competitive electronic products, the management of
inventories and growth, the Company's dependence on third party component
suppliers and manufacturers, including those that provide Franklin-specific
parts, and the ability of the Company to forecast customer demand for its
electronic books.
PART II
ITEM 1. LEGAL PROCEEDINGS
In April 1995 Berkeley Speech Technologies ("Berkeley") filed a declaratory
judgment action in the United States District Court for the Northern District
of California to invalidate one of Franklin's registered copyrights, which
action also demands monetary damages. Franklin filed a counterclaim against
Berkeley for infringing Franklin's registered copyright and for breach of
contract. The Company believes that Berkeley's action is without merit and
intends vigorously to defend this action and to prosecute its counterclaims;
therefore, the Company believes that the resolution of this matter will not
have a material adverse effect on its financial condition and results of
operations.
The Company is subject to litigation from time to time arising in the ordinary
course of its business. The Company does not believe that any such litigation
is likely, individually or in the aggregate, to have a material adverse effect
on the financial condition or results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES--NONE
ITEM 3. DEFAULT UPON SENIOR SECURITIES--NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS--NONE
ITEM 5. OTHER INFORMATION--NONE
8
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter ended June
30, 1996.
Exhibit No.
10.01 Amended and Restated Employment Agreement, effective as of May 1,
1996, between Franklin Electronic Publishers, Inc. and Morton E.
David.
10.02 Amendment No. 1 to Third Amended and Restated Credit Agreement, and
Second Amendment to the Trademark, Patent and Copyright Security
Agreement, being dated August 11, 1995, among Franklin Electronic
Publishers, Inc. and certain of its subsidiaries and Chemical Bank.
10.03 Franklin Electronic Publishers, Inc. Stock Option Plan as Amended and
Restated effective as of July 24, 1996.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
REGISTRANT
AUGUST 9, 1996 /s/ Gregory J. Winsky
Date ________________________________________________
Gregory J. Winsky,
Senior Vice President,
General Counsel
(Duly Authorized Officer)
AUGUST 9, 1996 /s/ Kenneth H. Lind
Date ________________________________________________
Kenneth H. Lind,
Vice President, Finance and
Treasurer
(Principal Financial Officer)
9
<PAGE>
AMENDMENT NO. 1 TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------------------------
AMENDMENT NO. 1, dated as of August __, 1995, to the Third Amended and
Restated Credit Agreement dated as of September 26, 1994, (the "Credit
Agreement") among FRANKLIN ELECTRONIC PUBLISHERS, INC., (formerly known as
Franklin Computer Corporation), a Pennsylvania corporation (the "Company"),
FRANKLIN ELECTRONIC PUBLISHERS (HK) LTD. (formerly known as Franklin Computer
(HK) Ltd.), a Hong Kong Corporation ("Franklin HK"), and CHEMICAL BANK, a New
York banking corporation (the "Bank").
W I T N E S S E T H :
WHEREAS, the parties hereto desire to amend the Credit Agreement to
increase the Revolving Credit Commitment (as defined in the Credit Agreement)
from $15,000,000 to $35,000,000, and as otherwise provided herein.
NOW, THEREFORE, the parties hereto agree as follows:
SECTION 1. Definitions. Unless otherwise specifically defined herein,
-----------
each term used herein which is defined in the Credit Agreement shall have the
meaning assigned to such term in the Credit Agreement.
SECTION 2. Amendments to the Credit Agreement. The Credit Agreement is
----------------------------------
amended as follow:
SECTION 2.1. Section 1.01 of the Credit Agreement is amended as follows:
2.1.1 The definition of "Commitment Termination Date" is amended by
changing the date "October 31,1996" appearing therein to "October 31, 1998".
2.1.2 The definition of "Revolving Credit Commitment" is amended by
changing the number "$15,000,000" appearing therein to "$35,000,000".
2.1.3 The definition of "Current Liabilities" is amended by deleting the
phrase "and for purposes of this Agreement including the outstanding principal
amount of the Revolving Credit Note and the Unused Commitment, all computed"
appearing therein.
1
<PAGE>
SECTION 2.2. Section 4.01(f) of the Credit Agreement is amended by
changing the date "March 31, 1994" appearing therein to "March 31, 1995".
SECTION 2.3. Section 6.03 of the Credit Agreement is amended by deleting
the word "and" at the end of subparagraph (c) thereof, replacing the period at
the end of subparagraph (d) thereof with "; and", and adding a new subparagraph
(e) to read as follows:
(e) Indebtedness in an amount equal to a maximum of eighty percent of the
appraised value of the Company's headquarters building in Burlington, New
Jersey, such Indebtedness to be secured solely by a mortgage on such
building.
SECTION 2.4. Section 6.04 of the Credit Agreement is amended by deleting
the word "and" at the end of subparagraph (b) thereof, replacing the period at
the end of subparagraph (c) thereof with "; and" and adding a new subparagraph
(d) to read as follows:
(d) the Guaranty by the Company of a loan to Farbell Electronics, Inc., the
Company's manufacturer in Hong Kong, such loan, and the Company's
obligations under any such Guaranty, not to exceed $600,000, and to have a
maximum term of 24 months.
SECTION 2.5. Section 6.09 of the Credit Agreement is amended by deleting
everything following "less than:", and substituting therefore the following:
$37,000,000 through March 30, 1996;
$38,000,000 from March 31, 1996 through March 30, 1997; and
$39,000,000 at March 31, 1997 and thereafter.
SECTION 2.6. Section 6.11 of the Credit Agreement is amended to read in
its entirety as follows:
Section 6.11. Interest Coverage Ratio. Permit the ratio of (i) (A) EBITDA
-----------------------
minus (B) capital expenditures, to (ii) Interest Expense, to be less than
2.0 to 1.0 for each twelve month period ending on the last day of each
fiscal quarter of the Company.
SECTION 2.7. Section 6.12 of the Credit Agreement is amended by replacing
the word "quick" with "current", and replacing the number ".5" with "2.0".
2
<PAGE>
SECTION 2.8. Section 6.17 of the Credit Agreement is amended by adding the
following at the end thereof:
Notwithstanding the foregoing, the Company may repurchase up to 125,000 of
its shares of common stock each fiscal year of the Company for the purpose
of neutralizing the dilative effect of stock options granted to key
employees, consultants, or outside directors of the Company.
SECTION 2.9. Section 8.01(n) of the Credit Agreement is amended by
changing the date "March 31, 1994" appearing therein to "March 31, 1995".
SECTION 2.10. Section 10.01 of the Credit Agreement is amended by (i)
changing the address of the Company to "One Franklin Plaza, Burlington, New
Jersey 08016", and (ii) by deleting the words "Credit Deputy" appearing therein
and replacing them with "Eric Groberg".
SECTION 3. Conditions Precedent to Effectiveness of this Amendment No. 1.
-------------------------------------------------------------
The Amendments contained in this Amendment No. 1 shall not become effective
until the following conditions have been satisfied in full or waived by the Bank
in writing:
SECTION 3.1. The Bank shall have received an originally executed
counterpart of this Amendment No. 1 duly executed by the Company, Franklin HK
and any Corporate Guarantors.
SECTION 3.2. The Company shall have executed and delivered to the Bank a
New Revolving Credit Note dated the date hereof in the form of Exhibit 2.02
hereto (the "New Revolving Credit Note") which shall be in replacement of and
substitution for, and shall be an amendment and restatement of, the Revolving
Credit Note dated June 18, 1992 (the "Old Revolving Credit Note"). Said
execution and delivery of the New Revolving Credit Note shall be in replacement
of and substitution for the Old Revolving Credit Note and the execution and
delivery of the New Revolving Credit Note in replacement of and substitution for
the Old Revolving Credit Note shall not be deemed a novation of the obligations
of the Company under the Old Revolving Credit Note. The New Revolving Credit
Note shall constitute the Revolving Credit Note under the Credit Agreement as
herein amended.
SECTION 3.3. There shall have occurred no material adverse change since
March 31, 1995 in the business, condition (financial or otherwise), operations,
performance, properties or prospects of any of the Company, Franklin HK, any
Corporate Guarantor or any of their Subsidiaries.
3
<PAGE>
SECTION 3.4. No event has occurred and is continuing which constitutes an
Event of Default under the Credit Agreement or any of the other Loan Documents
or which would, with or without the giving of notice, passage of time, or both,
constitute an Event of Default under the Credit Agreement or any of the other
Loan Documents after giving effect to the consummation of this Amendment No. 1.
SECTION 3.5. The Bank shall have received the opinion of Gregory Winsky,
General Counsel to the Company and such opinions shall be in form, scope and
substance satisfactory to the Bank and its counsel.
SECTION 3.6. The Bank shall have received confirmation of all collateral
arrangements in form, scope and substance acceptable to the Bank and its
counsel.
SECTION 3.7. The Company shall pay all accrued fees and expenses under the
Credit Agreement in connection with the transactions contemplated herein,
including the reasonable fees and disbursements of counsel for the Bank.
SECTION 3.8. The Bank and its counsel shall have received all information
and documents, including without limitation records of requisite corporate
actions and proceedings in connection with this Amendment No. 1, as the Bank or
its counsel reasonably request in connection with the transactions contemplated
under this Amendment No. 1, such documents where so requested by the Bank or its
counsel to be certified by appropriate corporate persons or governmental
authorities, and such information and documents shall be in form, scope and
substance satisfactory to the Bank and its counsel.
SECTION 3.9 . The Company shall have paid to the Bank a Closing Fee of
$35,000.
SECTION 4. Representations and Warranties. In order to induce the Bank to
------------------------------
enter into this Amendment No. 1, the Company, Franklin HK and the Corporate
Guarantors represent and warrant to the Bank that:
Section 4.1. After giving effect to the amendments contained herein, the
representations and warranties contained in the Credit Agreement and the other
Loan Documents are true, correct and complete in all material respects on and as
of the date hereof to the same extent as though made on and as of the date
hereof.
Section 4.2. No event has occurred and is continuing or would result from
the execution of this Amendment No. 1, which constitutes an Event of Default or,
with or without the giving of
4
<PAGE>
notice of passage of time or both, would constitute an Event of Default under
the Credit Agreement or any other Loan Document;
Section 4.3. The Borrower, Franklin HK and any Corporate Guarantors have
performed in all material respects all agreements and satisfied all conditions
which the Credit Agreement and this Amendment No. 1 provide shall be performed
by it on or before the date hereof; and
Section 4.4. The execution, delivery and performance by the Borrower,
Franklin HK and each Corporate Guarantor of this Amendment No. 1 and by the
Borrower of the New Revolving Credit Note and each other Loan Document are
within the corporate power of the Borrower, Franklin HK and each Corporate
Guarantor, have been duly authorized by all necessary corporate action on the
part of the Borrower, Franklin HK and each Corporate Guarantor, are not in
contravention of (i) any provision of law or any governmental rule or regulation
applicable to the Borrower, Franklin HK or any Corporate Guarantor which, if
violated, might reasonably be expected to have a material adverse effect on the
Company, Franklin HK or any Corporate Guarantor, or (ii) the terms of the
Borrower's, Franklin HK's or any Corporate Guarantor's Articles of Incorporation
or by-laws or (iii) of any undertaking to which the Borrower, Franklin HK or any
Corporate Guarantor is a party or by which any of them is bound and this
Amendment No. 1, as of the date it becomes effective, and the New Revolving
Credit Note will constitute valid and binding agreements of the Borrower,
Franklin HK and each Corporate Guarantor, as appropriate. The Credit Agreement
and the other Loan Documents constitute and, as of the date of this Amendment
No. 1 will constitute, a valid and binding agreement of the Borrower, Franklin
HK and each Corporate Guarantor enforceable against the Borrower, Franklin HK
and each Corporate Guarantor in accordance with its terms.
SECTION 5. Reaffirmation. Except as amended and supplemented hereby, all
-------------
of the terms of each of the Credit Agreement and the other Loan Documents shall
remain and continue in full force and effect and are hereby confirmed in all
respects. Each of the Borrower, Franklin HK and each Corporate Guarantor, as
applicable, hereby ratifies and reaffirms the provisions of each of the Credit
Agreement and the other Loan Documents (including without limitation the Pledge
Agreement and the other Security Agreements) in their entirety as of the date
hereof (except as amended by this Amendment No. 1), and hereby re-makes all of
the representations, warranties, covenants and agreements contained in each of
the Loan Documents and in the other documents executed in connection therewith
heretofore made by each of them, which representations, warranties, covenants
and agreements shall be true and correct as of the date hereof as if made on and
as of such date.
5
<PAGE>
SECTION 6. Counterparts. This Amendment No. 1 may be signed in any number
------------
of counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
SECTION 7. Section Headings. The Section headings in this Amendment No. 1
----------------
are inserted for convenience only and shall not be part of this instrument.
SECTION 8. Governing Law. This Amendment No. 1 shall be governed by and
-------------
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 1 to be duly executed as of the date first above written.
FRANKLIN ELECTRONIC PUBLISHERS, INC.,
By:______________________________
Title:
FRANKLIN ELECTRONIC PUBLISHERS, (HK) LTD.
By:_______________________________
Title:
CHEMICAL BANK
By:______________________________
Title: Vice President
6
<PAGE>
AMENDED AND RESTATED EMPLOYMENT AGREEMENT, effective as of May 1, 1996, by
and between FRANKLIN ELECTRONIC PUBLISHERS, INC. ("Franklin"), a Pennsylvania
corporation with its office at One Franklin Plaza, Burlington, New Jersey 08016,
and MORTON E. DAVID ("Employee"), an individual residing at 33 Stonebridge Road,
Montclair, New Jersey 07042.
BACKGROUND
----------
Franklin wishes to assure itself of the continued services of Employee for
the period provided in this Employment Agreement, and Employee is willing to
serve in the employ of Franklin for said period, subject to and upon the terms
hereinafter provided.
TERMS OF EMPLOYMENT
-------------------
The parties agree as follows:
1. Employment.
----------
A. Franklin hereby employs Employee as its Chief Executive Officer for the
period (the "Employment Period") commencing on April 1, 1996 and ending on March
31, 2001, unless sooner terminated in accordance with this Employment Agreement.
Employee hereby accepts such employment, agrees to be responsible for the
overall management and supervision of all of the operations and activities of
Franklin and its subsidiaries, agrees to perform such other services of a senior
executive nature concomitant with his positions and offices as shall from time
to time be assigned to him by or pursuant to
<PAGE>
authorization of the Board of Directors of Franklin and agrees, subject to
paragraph B of this section 1, diligently and competently to devote all of his
business time, efforts, skill and attention to such services.
B. Franklin acknowledges that Employee has and may in the future acquire
other business interests and that, subject to the restrictions set forth in
section 10 hereof, Employee may devote a portion of his business time and
attention to such interests. In addition, Franklin acknowledges that Employee
may devote a portion of his business time and attention to activities having a
charitable, educational or other public interest purpose. Employee agrees that
the portion of his business time and attention devoted to such interests and
activities will not exceed 20% of his business time and attention.
C. As Chief Executive Officer of Franklin, Employee shall report to and be
responsible to only the Board of Directors of Franklin.
D. During the Employment Period, Employee shall be nominated by the Board
of Directors of Franklin for election as a director at each meeting of its
stockholders at which the class of directors to which Employee is assigned is to
be elected and, so long as Employee shall be a director of Franklin, Employee
shall be elected to and shall serve on such committees of the Board of Directors
of Franklin as Employee shall so determine and on such other committees thereof
as the Board of Directors of Franklin shall determine; provided, however, that
-------- -------
Employee shall not be elected to and shall not serve on the Audit Committee
and/or the Compensation and Stock Option Committee of the Board of Directors of
Franklin.
E. If Franklin shall so request, Employee shall become and shall, during
such portion of the Employment Period as Franklin shall request, act as a
director and/or officer
2
<PAGE>
of any subsidiaries of Franklin without any compensation other than that
provided for in section 2 hereof.
F. Franklin will provide Employee during the Employment Period with an
office, an executive secretary reasonably acceptable to him and other support
reasonably appropriate to his duties hereunder. Employee shall not be required
to be absent from his office on business more than thirty (30) working days in
any year or more than ten (10) consecutive working days at any one time.
G. Employee shall be entitled to five (5) weeks vacation in each year
during the Employment Period.
2. Compensation.
------------
A. Franklin shall pay to Employee, and Employee shall accept from Franklin,
for his services hereunder, a base salary ("Salary"), payable in accordance with
Franklin's executive payroll policy as in effect from time to time, for each of
the one year periods beginning on April 1, 1996, of no less than $550,000 per
annum.
B. Franklin shall pay to Employee, as additional compensation for
Employee's services hereunder, an amount ("Bonus") equal to two percent (2%) of
Franklin's "Net Income Before Taxes" with respect to each fiscal year which
shall end during the Employment Period. For the purposes hereof, Franklin's "Net
Income Before Taxes" with respect to a fiscal year shall mean the consolidated
net income of Franklin and its subsidiaries before income, franchise and similar
taxes of any jurisdiction, whether federal, state, municipal or foreign, for
such fiscal year as included in the financial statements examined and reported
upon by Franklin's independent certified public
3
<PAGE>
accountants and determined in accordance with generally accepted accounting
principles applied on a basis consistent with prior years; provided, however,
-------- -------
that (a) all acquisitions of subsidiaries or divisions during such fiscal year
shall be accounted for on a so-called "purchase" basis regardless of the
accounting method used in Franklin's financial statements, (b) any income (or
loss) due to a change in the accounting treatment of an item shall not be taken
into account in arriving at "Net Income Before Taxes" if in the sole discretion
of the Compensation and Stock Option Committee of the Board of Directors of
Franklin it so determines, and (c) sales, use and similar taxes shall not be
considered as franchise taxes. In connection with each fiscal year of Franklin
for which Employee was employed by Franklin on the last day of such fiscal year,
Franklin shall pay Bonus to Employee, or on his earlier death, to his estate,
within ninety (90) days after the end of such fiscal year notwithstanding any
termination of the employment of Employee subsequent to the end of such fiscal
year for any reason.
C. Franklin shall make available to Employee, to the extent he satisfies
the eligibility requirements thereof and to the extent permitted by law, any
fringe benefit program in which senior corporate officers are eligible to
participate. Fringe benefit programs include, but are not limited to, pension,
stock purchase, savings, life insurance, health insurance, hospitalization and
other plans and policies authorized now or in the future. Notwithstanding the
foregoing, Employee shall not participate in any profit sharing or bonus plan,
except for any so-called 401K Plan that may be provided by the Company and
except as otherwise provided in this Employment Agreement.
D. In addition to any other benefits provided to Employee hereunder,
Franklin shall provide Employee with the following:
4
<PAGE>
(i) a current model of a luxury automobile (such as Mercedes Benz, or a
similar vehicle) and all related insurance, operating and maintenance expenses;
(ii) all reasonable club dues for clubs and other similar organizations
which he uses for business purposes;
(iii) an annual physical examination;
(iv) reasonable consultations with financial and tax advisors or
counselors;
(v) reimbursement for reasonable legal fees in connection with the
execution of this Employment Agreement; and
(vi) such other benefits and perquisites as are currently being provided to
Employee by Franklin.
E. Franklin shall reimburse Employee for all reasonable out-of-pocket
expenses incurred by him in connection with the performance of his duties
hereunder upon the presentation of appropriate documentation therefor in
accordance with Franklin's regular procedures.
F. During the Employment Period, Franklin shall cause to be maintained for
the benefit of Employee insurance coverage having an aggregate of $1 million
face amount on the life of Employee, exclusive of any coverage provided under
any group program instituted by Franklin or any of its subsidiaries. Such
insurance policy or policies shall be purchased from a life insurance company
which shall be acceptable to Employee, which insurance company shall have
received a Best rating of A+ for its most recent rating period prior to the date
of Franklin's purchase of such insurance policy or policies. Such insurance
policy or policies shall be in the form of guaranteed renewable term life
insurance requiring annual premium payments fixed for a term of not more than
five
5
<PAGE>
years, as determined by Franklin in its sole and absolute discretion. Employee
shall be the owner of such policy or policies and shall have the right to
designate and change beneficiaries, which right shall be unrestricted except as
provided by law.
G. On February 1, 1997 and on each February 1 thereafter through and
including the February 1 occurring in the calendar year following the calendar
year in which the Employment Period shall terminate, Franklin shall pay to
Employee, in addition to all other compensation payable to him hereunder, an
additional amount equal to the product of (i) the amount reported as income by
Franklin on Employee's Form W-2 for the preceding calendar year which is
attributable to Franklin's purchase of the life insurance policy or policies
pursuant to the provisions of paragraph F of this section 2, (ii) the combined
effective federal, state and local tax rate of Employee for such preceding
calendar year, and (iii) a fraction the numerator of which shall be one and the
denominator of which shall be one minus the combined effective federal, state
and local tax rate of Employee for such preceding calendar year.
3. Supplemental Executive Retirement Plan.
--------------------------------------
A. If Employee's employment by Franklin shall terminate other than by
reason of his death, then, Franklin shall pay to Employee, as additional
compensation for his services to Franklin, on the first day of the calendar
month following the calendar month in which his employment by Franklin shall
terminate and on the first day of each calendar month thereafter, through and
including the calendar month in which his death shall occur, an amount ("Monthly
Payment") equal to the product of $52.08 and the number of full months of
Employee's employment by Franklin which for purposes hereof commenced as
6
<PAGE>
of May 1, 1984. For these purposes, employment does not include months, if any,
during which Employee receives from Franklin Continuation Pay, as defined in
section 6 hereof, or any consulting fees under section 4 hereof; provided,
--------
however, that for purposes of calculation of the Monthly Payment, in the case in
- -------
which Franklin is merged or acquired and Termination Pay is paid to Employee
under paragraph C of section 7 hereof, or in the case in which Employee is
terminated without cause and Termination Pay is paid to Employee under paragraph
B of section 7 hereof, the number of full months of Employee's employment by
Franklin shall be increased by the number of months in the remaining term of the
Employment Period that are included in the calculation of such Termination Pay,
but in no case shall Employee's employment be so increased by more than twenty-
four months.
B. If Employee has become entitled under the provisions of paragraph A
of this section 3 to payments, then, in the event of Employee's death, Franklin
shall pay to Employee's beneficiaries named in a writing provided to Franklin,
or, if none, to his surviving spouse, or, if none, to his surviving children,
per capita, or, if none, to his estate ("Beneficiaries"), as additional
compensation for Employee's services to Franklin, on the first day of the
calendar month following the calendar month in which his death shall occur, and
on the first day of each calendar month thereafter, the Monthly Payment.
C. If Employee's employment by Franklin shall terminate by reason of
Employee's death, then Franklin shall pay to Beneficiaries, as additional
compensation for Employee's services to Franklin, on the first day of the
calendar month following the calendar month in which his death shall occur, and
on the first day of each calendar month thereafter, the Monthly Payment.
7
<PAGE>
D. Notwithstanding the provisions of paragraphs B and C of this
section 3, no Monthly Payment under said paragraphs B or C of this section 3
shall be made by Franklin after the later to occur of the date of Employee's
death or the date on which one hundred and twenty (120) Monthly Payments have
been made pursuant to paragraphs A, B, and/or C of this section 3 to Employee
and/or Beneficiaries.
E. During the period for which Monthly Payments are paid by Franklin
to Employee under this section 3, Franklin shall provide to Employee and/or
beneficiaries without charge all family health care benefits then generally
being provided to its executives.
F. The sole interest of Employee (or, in the event of his death,
Beneficiaries) under this section 3 shall be to secure the payments provided for
hereunder as and when the same shall become due and payable in accordance with
the terms hereof, and neither Employee nor any persons claiming under or through
him shall have any right, title or interest in or to any of the assets of
Franklin. All amounts payable hereunder shall be paid solely from the general
assets of Franklin and Franklin shall not maintain any separate fund or account
to provide any payments hereunder. Nothing contained in this Employment
Agreement shall be construed to prohibit or to restrict Franklin from paying
both the Monthly Payment and any other payment hereunder, including, but not
limited to, consulting fees, Continuation Pay, or the Bonus, to Employee or
Beneficiaries in connection with any given month during the Employment Period or
thereafter.
4. Consulting Period.
-----------------
Upon expiration of the Employment Period for any reason other than
death, disability or for cause, Franklin agrees to retain Employee as a
consultant to Franklin for
8
<PAGE>
a sixty (60) month period (the "Consulting Period"), during which Franklin shall
pay to Employee $2,000 per month and provide to Employee all fringe benefits,
including, but not limited to, all health care benefits, that were provided to
Employee under this Employment Agreement except those set forth in subparagraphs
(i) through (v) of paragraph D of section 2 hereof. Employee hereby accepts such
retention, subject to Employee's right to terminate immediately the Consulting
Period at any time on written notice to Franklin. Franklin agrees that any
employee stock options theretofore granted to Employee which have not expired on
the date that the Consulting Period begins shall remain exercisable through the
earlier to occur of the normal expiration date of such options or the end of the
Consulting Period.
5. Notice of Breach.
----------------
Franklin and Employee agree that, prior to the termination of the
employment of Employee hereunder by reason of the material and continued breach
of his obligations under this Employment Agreement, or the material and
continued misconduct or gross negligence with respect to his obligations
hereunder, or in the case of a claim by Employee of diminution of authority
under paragraph C of section 7 hereof, the injured party will give the other
party written notice specifying such breach or misconduct or gross negligence or
diminution and permitting the party to cure such breach or misconduct or gross
negligence or diminution within a period of thirty (30) days after receipt of
such notice.
9
<PAGE>
6. Disability or Death.
-------------------
(a) If Employee shall be unable substantially to perform the duties
required of him pursuant to his office and the provisions of this Employment
Agreement due to any injury, illness or disease, as determined by an independent
physician mutually acceptable to Franklin and Employee, and such inability shall
continue for a period of six (6) consecutive months, either party shall have the
right to terminate Employee's employment pursuant to this Employment Agreement
on thirty (30) days written notice. On any such termination, Franklin shall (i)
continue to pay to Employee the Salary during the remaining term of the
Employment Period and a monthly payment related to Bonus (which monthly payment
shall be calculated as one-twelfth of the average of the two Bonus payments
accrued for the benefit of or paid to Employee for Franklin's two fiscal years
preceding the date of such termination ("the Monthly Bonus")) (hereinafter such
Salary and the Monthly Bonus shall be collectively referred to as the
"Continuation Pay"); provided, however, that any amounts payable under any
-------- -------
disability insurance policy or policies maintained by Franklin shall be credited
toward such Continuation Pay; and (ii) pay to Employee, within ninety (90) days
of the end of the fiscal year of Franklin in which such termination occurs, a
payment related to Bonus equal to two percent (2%) of Franklin's "Net Income
Before Taxes" for such fiscal year multiplied by the fraction whose numerator is
the number of full or partial months in such fiscal year prior to the date of
such termination and whose denominator is twelve (12) (which payment related to
Bonus shall be referred to herein as the "Partial Year Bonus Payment").
10
<PAGE>
(b) Upon the termination of the employment of Employee hereunder due
to his death prior to the end of the Employment Period, Franklin shall pay
Continuation Pay to the estate of Employee during the remaining term of the
Employment Period and, within ninety (90) days of the end of the fiscal year of
Franklin in which such death occurs, the Partial Year Bonus Payment.
7. Termination.
-----------
A. Franklin shall have just and legal cause to terminate the
employment of Employee under this Employment Agreement only upon a good faith
determination by a majority vote of the members of the Board of Directors of
Franklin that the termination of such employment is necessary and in the best
interests of Franklin by reason of:
(i) the conviction of Employee of a felony under state or federal
law, or the equivalent under foreign law;
(ii) the material and continued breach by Employee of his
obligations under this Employment Agreement, after compliance with the notice
provisions of section 5 hereof; or
(iii) the material and continued misconduct or gross negligence
of Employee with respect to his obligations under this Employment Agreement,
after compliance with the notice provisions of section 5 hereof.
Notwithstanding the foregoing, no termination of Employee's
employment under this Employment Agreement shall diminish or affect in any way
Employee's rights to the payments provided for in section 2 and section 3 hereof
which have accrued or are accruable to and including the date of such
termination, except that
11
<PAGE>
no Bonus (or Partial Year Bonus Payment) shall be payable in connection with any
fiscal year during which the employment of Employee is terminated by Franklin
under this paragraph A of this section 7.
B. Franklin shall have the right to terminate the employment of
Employee under this Employment Agreement in its sole and absolute discretion and
without cause, in which case Franklin shall pay to Employee, with no mitigation
duty in Employee and no offset with regard to any amounts that the Employee may
otherwise earn thereafter, (i) the Salary for the number of months in the
remaining term of the Employment Period and a payment related to Bonus, which
payment, for purposes of this section 7, shall be calculated as the product of
the Monthly Bonus and the number of months in the remaining term of the
Employment Period on the date of such termination (hereinafter such Salary
component and such Bonus component are collectively referred to as the
"Termination Pay"); provided, however, that the number of months remaining in
-------- -------
the term of the Employment Period shall be limited to twenty-four (24) months
for purposes of this paragraph B of this section 7; and (ii) within ninety (90)
days of the end of the fiscal year of Franklin in which such termination occurs,
the Partial Year Bonus Payment. Franklin shall pay the Termination Pay to
Employee in a lump sum payment within thirty (30) days of such termination
except in the case in which Franklin's pro forma current ratio (defined as the
ratio of its then current assets to current liabilities after giving effect to
the lump sum payment by reducing current assets by such amount) is less than
1:1, in which case the Termination Pay shall be paid on a monthly basis to
Employee with monthly payments calculated by dividing the Termination Pay by the
number of full months remaining in the Employment Period on the date of such
Termination, but not in excess of twenty-four (24)
12
<PAGE>
months; provided, however, that should Franklin's pro forma current ratio at any
-------- -------
time thereafter equal or exceed 1:1, Franklin shall immediately pay the
remainder of the Termination Pay to Employee in a lump sum.
C. Employee shall have the right to terminate his employment under
this Employment Agreement, after compliance with the notice provisions of
section 5 hereof, on the condition that Employee suffers a diminution in his
authority in connection with his employment hereunder (which diminution in
authority shall be deemed to occur, without Franklin's ability to cure, should
Franklin be acquired by or merged into any other entity), in which case Franklin
shall pay to Employee, with no mitigation duty in Employee and no offset with
regard to any amounts that Employee may otherwise earn thereafter, (i) an amount
equal to the Termination Pay, payable in a lump sum within thirty (30) days of
such termination; provided, however, that in no case shall the Termination Pay
-------- -------
be based on a remaining term of the Employment Period of less than one year, and
(ii) within ninety (90) days of the end of the fiscal year of Franklin in which
such termination occurs, the Partial Year Bonus Payment.
D. In the case of any termination under the provisions of paragraphs B
or C of this section 7, all unexercised employee stock options granted to
Employee by Franklin shall immediately become exercisable in full and shall
remain exercisable until the earlier to occur of (i) the expiration of six (6)
months after such termination or (ii) the date specified in the applicable
option agreement or option certificate.
E. (i) In the event that, as a result of any of the payments or other
consideration provided for in paragraphs B and C of this section 7 or otherwise,
a tax (an "Excise Tax") shall be imposed upon or threatened to be imposed upon
Employee by
13
<PAGE>
virtue of the application of section 4999(a) of the Internal Revenue Code of
1986 as now in effect or as the same may at any time or from time to time be
amended (the "Code") or any similar provisions of state or local tax law,
Franklin shall indemnify and hold Employee harmless from and against any and all
such taxes (including additions to tax, penalties and interest and additional
Excise Taxes, whether applicable to payments made pursuant to paragraph B or C
of this section 7 or otherwise) incurred by, or imposed upon, Employee and all
expenses arising therefrom. Each indemnity payment to be made by Franklin
hereunder shall be increased by the amount of all federal, state and local tax
liabilities (including additions to tax, penalties and interest and Excise
Taxes) incurred by, or imposed upon, Employee so that (a) the effect of
receiving all such payments will be such that Employee shall be held harmless on
an after-tax basis from the amount of all Excise Taxes imposed upon payments
made pursuant to paragraph B or C of this section 7 or otherwise and all taxes,
penalties and interest and Excise Taxes with respect to payments under this
paragraph E under the laws of all federal, state and local taxing authorities
and (b) Employee shall not incur any out-of-pocket cost or expenses of any kind
or nature on account of the Excise Tax and the receipt of the indemnity payments
to be made by Franklin.
(ii) Each indemnity payment to be made pursuant to this paragraph E
shall be payable within fifteen (15) business days of delivery by Employee of a
written request (a "Request") for such payment to Franklin (which Request may be
made prior to the time Employee is required to file a tax return showing a
liability for an Excise Tax or other tax). A request shall set forth the amount
of the indemnity payment due to Employee and the manner in which such amount was
calculated and Employee shall
14
<PAGE>
thereafter submit such other evidence of the indemnity to which Employee is
entitled as Franklin shall reasonably request. All such information shall, if
Franklin shall so request, be set forth in a statement signed by a prominent
accounting firm or a partner thereof and Franklin shall pay all fees and
expenses of such accounting firm incurred in the preparation thereof.
(iii) Employee agrees to notify Franklin (a) within fifteen (15)
business days of being informed by a representative of the Internal Revenue
Service (the "Service") or any state or local taxing authority that the Service
or such authority intends to assert that an Excise Tax is or may be payable, (b)
within fifteen (15) business days of Employee's receipt of a Revenue Agent's
report (or similar document) notifying him that an Excise Tax may be imposed and
(c) within fifteen (15) business days of Employee's receipt of a Notice of
Deficiency under Section 6212 of the Code or similar provision under state or
local law which is based in whole or in part upon an Excise Tax and/or a payment
made to Employee hereunder.
(iv) After receiving any of the aforementioned notices, and subject to
Employee's right to control any and all administrative and judicial proceedings
with respect to, or arising out of, the examination of Employee's tax returns,
except as such proceedings relate to an Excise Tax, Franklin shall have the
right (a) to examine all records, files and other information and documentation
in Employee's possession or under his control, (b) to be present and to
participate, to the extent desired, in all administrative and judicial
proceedings with respect to an Excise Tax, including the right to appear and act
for Employee at such proceedings in resisting any contentions made by the
Service or a state or local taxing authority with respect to an Excise Tax and
to file
15
<PAGE>
any and all written responses in connection therewith, (c) to forego any and all
administrative appeals, proceedings, hearings and conferences with the Service
or a state or local taxing authority with respect to an Excise Tax, (d) to
compromise or settle any tax examination, audit, contest or litigation in
respect to an Excise Tax on Employee's behalf, and (e) to pay any tax increase
on Employee's behalf and to control all administrative and judicial proceedings
with respect to a claim for refund from the Service or a state or local taxing
authority with respect to such tax increase.
(v) Franklin shall be solely responsible for all reasonable legal and
accounting or other expenses (whether of Employee's representative or of
Franklin's representative) incurred in connection with any such administrative
or judicial proceedings insofar as they relate to an Excise Tax or other tax
increases resulting therefrom and Employee agrees to execute and file, or cause
to be executed and filed, such instruments and documents, including, without
limitation, waivers, consents and Powers of Attorneys, as Franklin shall
reasonably deem necessary or desirable in order to enable it to exercise the
rights granted to it hereunder.
(vi) Franklin's liability shall not be affected by Employee's failure
to give any notice provided for hereunder unless such failure materially
prejudices its ability to defend itself as provided for hereunder. Employee may
not compromise or settle a claim which is indemnified against hereunder without
Franklin's consent, unless Employee can establish by a preponderance of the
evidence that Franklin's decision was not made in the good faith belief that a
materially more favorable result could be obtained by continuing to defend
against the claim (or prosecute a claim for refund).
16
<PAGE>
8. Confidentiality.
---------------
Employee agrees, during and after the Employment Period, to keep
secret and confidential all information heretofore or hereafter acquired by him
concerning Franklin's business and affairs and/or the business and affairs of
any of its subsidiaries, and further agrees that he will at no time during the
Employment Period or thereafter disclose any such information to any person,
firm or corporation, other than to Franklin's directors, officers, employees,
auditors and legal advisors, or use the same in any manner other than in
connection with Franklin's business and affairs or the business and affairs of
any subsidiaries, except (i) as may be required by law, (ii) in connection with
Employee's enforcement of his rights under this Employment Agreement, (iii) as
to such information as may already have become publicly known other than through
Employee in violation of this section 8, and (iv) with Franklin's consent.
9. Inventions.
----------
Employee agrees for no additional consideration to assign to Franklin,
immediately upon making or acquiring them, and whether or not conceived or
developed during Employee's working hours, any and all inventions, processes,
patent rights, letters patent, copyrights, trademarks, trade names, other
intangibles and applications therefore, in the United States and all other
countries, and any and all rights and interests in, to and under the same which
he may legally transfer, now possessed by him or acquired by him prior to or
during the Employment Period or during the Consulting Period, relating in any
way to the business and activities of, or the equipment, devices, processes and
formula connected with, Franklin's business (including businesses and products
in the
17
<PAGE>
development or research stage) or any other business conducted by Franklin and
any subsidiaries and agrees that, upon request, Employee will promptly make all
disclosures, execute all instruments and papers and perform all acts reasonably
necessary or desired by Franklin to vest and confirm in it, its successors,
assigns and nominees, fully and completely, all rights created or contemplated
by this section 9 and which may be necessary to enable Franklin, its successors,
assigns and nominees to secure and enjoy the full benefits and advantages
thereof, it being understood that all such rights are the sole property of
Franklin.
10. Noncompete.
----------
A. Employee agrees that, to the extent permitted by law, he shall not,
during the Employment Period and for a period of three (3) years commencing on
the latter of the date of termination of the Employment Period or the end of the
Consulting Period (the "Noncompete Period"), directly or indirectly, own,
manage, operate, join or control, or participate in the ownership, management,
operation or control of, or be an officer, director or employee of, or a
consultant to, or authorize the use of his name by, or be connected in any
manner with, any business, firm or corporation, in any town, city, county or
state of the United States of America or of any country in the world, which at
the time or at any time during the Noncompete Period manufactures, sells, leases
or distributes products competitive with any products of Franklin or any
subsidiaries, including any products in the research and development stage at
Franklin, on the date of the termination of such employment; provided, however,
-------- -------
that the Noncompete Period shall be reduced by one month for each month of the
Consulting Period, but in no case shall the
18
<PAGE>
Noncompete Period be reduced by more than twelve (12) months.
B. In the event that any court finds that the territory set forth in
paragraph A of this section 10 is too broad in which to enforce this covenant,
the territory will be limited to the United States of America.
C. In the event that any court finds that the territory set forth in
paragraph B of this section 10 is too broad in which to enforce this covenant,
the territory will be limited to the portion of the United States of America
east of the Mississippi River.
D. In the event that any court finds that the territory set forth in
paragraph C of this section 10 is too broad in which to enforce this covenant,
the territory will be limited to the State of New Jersey.
E. The provisions of this section 10 shall not apply to investments by
Employee in shares of stock traded on a national securities exchange or on the
national over- the-counter market which shall constitute less than three percent
(3%) of the outstanding shares of such stock.
11. Equitable Relief.
----------------
Employee acknowledges and agrees that, because of the unique and
extraordinary nature of his services, any breach or threatened breach of the
provisions of sections 8, 9, or 10 hereof will cause irreparable injury and
incalculable harm to Franklin and that Franklin shall, accordingly, be entitled
to injunctive or other equitable relief. The foregoing, however, shall not be
deemed to waive or to limit in any respect any other right or remedy which
Franklin may have with respect to such breach.
19
<PAGE>
12. Indemnification.
---------------
Franklin will indemnify Employee (and his legal representatives or
other successors) to the fullest extent permitted by the laws of the
Commonwealth of Pennsylvania and Franklin's existing certificate of
incorporation and by-laws, as the same may be amended from time to time, and
Employee shall be entitled to the protection of any insurance policies or self-
insurance reserves Franklin may elect to maintain generally for the benefit of
its directors and officers, against all costs, charges and expenses whatsoever
incurred or sustained by him or his legal representatives in connection with any
action, suit or proceeding to which he (or his legal representatives or other
successors) may be made a party by reason of his being or having been a director
or officer of Franklin and any subsidiaries; provided, however, that Employee
-------- -------
shall not be entitled to indemnification hereunder in the event of his fraud or
the reckless disregard of his duties hereunder.
13. Jurisdiction and Venue.
----------------------
The parties hereby irrevocably consent to the personal jurisdiction of
and the propriety of venue in the courts of the State of New Jersey and of any
federal court located in such state in connection with any action or proceeding
arising out of or relating to this Employment Agreement, any document or
instrument delivered pursuant to, in connection with, or simultaneously with
this Employment Agreement, or a breach of this Employment Agreement or any such
document or instrument.
20
<PAGE>
14. Notices.
-------
All notices hereunder shall be in writing and shall be sent by
registered or certified mail, return receipt requested, if intended for
Franklin, shall be addressed to it, attention of its General Counsel, at the
address above, and if intended for Employee, shall be addressed to him at the
address above, or at such other address of which Franklin or Employee shall have
given notice to the other in the manner herein provided.
15. Entire Agreement.
----------------
The Employment Agreement constitutes the entire understanding between
the parties with respect to the matters referred to herein and no waiver or
modification to the terms hereof shall be valid unless in writing signed by the
party to be charged and only to the extent therein set forth. All prior and
contemporaneous agreements and understandings between the parties with respect
to the subject matter of this Employment Agreement are superseded by this
Employment.
16. Severability.
------------
If any provision in this Employment Agreement is invalid, illegal or
unenforceable, the balance of this Employment Agreement shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
17. Non-Assignability.
-----------------
This Employment Agreement shall be binding upon and inure to the
benefit of the parties hereto, their respective heirs, administrators,
executors, personal representatives, successors and assigns; provided, however,
-------- -------
that this Employment Agreement may not be
21
<PAGE>
assigned by any of the parties hereto other than by and among Franklin and any
subsidiaries and/or affiliates.
18. Law.
---
This Employment Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey.
19. Withholding.
-----------
All payments hereunder shall be subject to withholding and to such
other deductions as shall at the time of such payment be required pursuant to
any income tax or other law, whether of the United States or any other
jurisdiction, and, in the case of payments to the executors or administrators of
the Employee's estate, the delivery to Franklin of all necessary tax waivers and
other documents.
IN WITNESS WHEREOF, the parties hereto have executed this
Employment Agreement as of the dates below.
FRANKLIN ELECTRONIC PUBLISHERS, INC.
By: /s/ Gregory J. Winsky
------------------------------------
Gregory J. Winsky,
Senior Vice President
Date: June 6, 1996
/s/ Morton E. David
------------------------------------
Morton E. David
Date: June 6, 1996
22
<PAGE>
FRANKLIN ELECTRONIC PUBLISHERS, INC.
STOCK OPTION PLAN
(As Amended and Restated Effective as of July 24, 1996)
1. Purpose.
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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
<PAGE>
the Committee (the "Committee") referred to in Section 4 hereof at the time of
the grant thereof.
2. Effective Date of the Plan.
--------------------------
The Plan, as amended and restated by resolution of the Board on January 30,
1996, shall become effective on January 30, 1996, subject to ratification by the
stockholders at the 1996 Annual Meeting of the Stockholders of the Company.
3. Stock Subject to Plan.
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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
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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.
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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
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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 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
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the services rendered by the respective Participants, their present and
potential contributions to the success of the Company 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.
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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
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value of a share of the Common Stock on the date such Option is granted;
provided, however, that, in the case of a Participant who owns more than 10% of
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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
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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
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the case of a
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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 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
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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
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one-third of the shares granted thereby, (ii) during the period 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
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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,
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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
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<PAGE>
market value on the date of delivery equal to the portion of the option price so
paid; provided, further, however, that, subject to the requirements of
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Regulation T (as in effect from time to time) 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.
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<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
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<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 shall be made by the Committee and shall be
effective and binding
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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 such tax waivers and other
documents as the Committee shall determine.
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<PAGE>
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.
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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
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the foregoing actions may be taken without the prior approval of the Board.
18. No Employment Right.
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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
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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
which would result in a decrease in the option price, or extend
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<PAGE>
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 Committee, in its discretion, shall deem appropriate at the
time of the granting of such Options.
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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 the first business day of January of each year, each Outside
Director shall be granted an Option to purchase 3,000 shares of the Common
Stock; provided, however, that, if an Outside Director shall become an Outside
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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.
II. The Committee may, with the approval of a majority of the members
of the Board, grant additional Options, in such amounts and at such times as the
Committee may determine, to Outside Directors who perform services for the
Company and who are not members of the Committee at the time of such grant.
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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 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.
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED AND
SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,904
<SECURITIES> 0
<RECEIVABLES> 11,773
<ALLOWANCES> 878
<INVENTORY> 41,278
<CURRENT-ASSETS> 65,735
<PP&E> 10,880
<DEPRECIATION> 0
<TOTAL-ASSETS> 86,686
<CURRENT-LIABILITIES> 15,760
<BONDS> 0
0
0
<COMMON> 48,883
<OTHER-SE> 17,389
<TOTAL-LIABILITY-AND-EQUITY> 86,686
<SALES> 15,071
<TOTAL-REVENUES> 15,071
<CGS> 7,936
<TOTAL-COSTS> 7,936
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10
<INCOME-PRETAX> 1,033
<INCOME-TAX> 393
<INCOME-CONTINUING> 640
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 640
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
