<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
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
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] 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] No fee required.
[_] 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.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
Reg. (S) 240.14a-101.
SEC 1913 (3-99)
<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 in the
11th Floor Conference Center in the offices of Rosenman & Colin LLP, 575
Madison Avenue, New York, New York, on Wednesday, July 19, 2000, at 10:00
A.M., for the following purposes:
(1) To elect eight 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 1998 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 14, 2000 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 23, 2000
<PAGE>
FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
----------------
PROXY STATEMENT FOR ANNUAL MEETING OF SHAREHOLDERS
July 19, 2000
----------------
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 in the 11th Floor Conference Center in the
offices of Rosenman & Colin LLP, 575 Madison Avenue, New York, New York, on
Wednesday, July 19, 2000 at 10:00 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 proposal to amend the Company's 1998 Stock Option Plan
is the only proposal at this meeting which involves a broker "non-vote."
The principal executive offices of the Company are located at One Franklin
Plaza, Burlington, New Jersey 08016-4907. The approximate date on which this
Proxy Statement and the enclosed form of proxy were first sent or given to
shareholders is June 23, 2000.
Shareholders of record at the close of business on June 14, 2000 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
7,913,940 shares of Common Stock.
<PAGE>
ELECTION OF DIRECTORS
Eight 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.
<TABLE>
<CAPTION>
Year
Became a
Name of Nominee Principal Occupation Age Director
--------------- ------------------------------------------------ --- --------
<S> <C> <C> <C>
Edward H. Cohen......... Partner, Rosenman & Colin LLP 61 1987
Barry J. Lipsky......... President and Chief Executive Officer of the 49 1997
Company
Leonard M. Lodish....... Professor of Marketing, Wharton School of the 56 1987
University of Pennsylvania
James Meister........... Retired Executive, formerly President and Chief 58 1996
Executive Officer, Kings Super Markets, Inc.
Howard L. Morgan........ Vice Chairman, idealab! Corporation 54 1981
Jerry R. Schubel........ President, New England Aquarium 64 1991
James H. Simons......... Chairman of the Board, Renaissance Technologies 62 1981
Corp.
William H. Turner....... Chairman of PNC Bank, New Jersey 60 1994
</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 LLP. Mr. Cohen is a director of
Phillips-Van Heusen Corporation, a manufacturer and marketer of apparel and
footwear, Levcor International, Inc., a converter of textiles for sale to
domestic apparel manufacturers, Merrimac Industries, Inc., a manufacturer of
passive R.F. and microwave components for industry, government and science,
and Voice Powered Technology International, Inc., an approximately 82% owned
subsidiary of the Company.
Mr. Lipsky joined the Company as Vice President in February, 1985. He was
elected Executive Vice President of the Company in 1997 and President and
Chief Executive Officer of the Company in May 1999. Mr. Lipsky is a director
of Voice Powered Technology International, Inc.
Dr. 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 and 1992 to 1994. 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. Meister retired in July 1998 from his position as President and Chief
Executive Officer of Kings Super Markets, Inc., a food retailer owned by Marks
& Spencer p.l.c., a position which he had held for more than the prior five
years. He is a director of PIC International Group, Inc., a life sciences
company in the United Kingdom.
Dr. Morgan is, and for more than the past five years has been, President of
Arca Group, Inc., a consulting and investment management firm, and since
January 1999 has been the Vice Chairman of idealab! Corporation, which creates
and operates internet companies. Dr. Morgan was Professor of Decision Sciences
at the Wharton School of the University of Pennsylvania from 1972 through
1986. He is a director of Unitronix Corp., a software supplier, Cylink Corp.,
a developer of software for secure communications, Segue Software, Inc., a
developer of automated software systems, Infonautics Corp., a provider of
online information, MyPoints.com, Inc., a provider of web direct mail, and
Tickets.com, Inc., an online reseller of event tickets.
2
<PAGE>
Dr. Schubel became President and Chief Executive Officer of New England
Aquarium in 1994. From 1974 to 1994, Dr. Schubel was the Director of the
Marine Sciences Research Center of the State University of New York at
Stonybrook, New York.
Dr. Simons has been Chairman of the Board and President of Renaissance
Technologies Corp. since 1982. He became Chairman of the Board of the Company
in 1997. Dr. Simons is a director of Cylink Corp. and Segue Software, Inc.
Mr. Turner became Chairman of PNC Bank, New Jersey in September, 1999,
having served as President since August 1997. Prior to that, he had served as
President and Co-Chief Executive Officer of the Company from October 1, 1996.
Prior to joining the Company, he was Vice Chairman of Chase Manhattan Bank.
For more than the prior thirty years, Mr. Turner held a variety of positions
at Chemical Banking Corporation prior to its merger with Chase Manhattan Bank.
Mr. Turner is a director of Standard Motor Products, Inc., a manufacturer of
automotive replacement products, Volt Information Services, Inc., a provider
of varied equipment and services to the telecommunications and print media
industries, and New Jersey Resources Corporation, a provider of energy
services.
The Board of Directors of the Company has two standing committees: an Audit
Committee, consisting of Dr. Simons and Messrs. Turner and Cohen, and a Stock
Option and Compensation Committee (the "Compensation Committee"), consisting
of Drs. Simons 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,
2000. The Compensation Committee is charged with administering the Company's
1998 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 meeting during the fiscal year ended March 31,
2000.
During the fiscal year ended March 31, 2000, 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, except Dr.
Schubel, who attended 40 percent of such meetings.
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 occupation 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 May 31, 2000 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 5 hereof (other
than Mr. Cross for whom such information is unavailable) 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 of Beneficial Owner Owned Class
------------------------ ------------ ----------
<S> <C> <C>
Bermuda Trust Company Ltd., Trustee(1)................ 1,684,640 21.6%
Dimensional Fund Advisors(2) ......................... 491,200 5.4%
Barry J. Lipsky....................................... 134,478 1.5%
Gregory J. Winsky(3).................................. 112,536 1.2%
Howard L. Morgan(4)................................... 72,250 *
James H. Simons(5).................................... 64,164 *
Edward H. Cohen....................................... 43,045 *
Jerry R. Schubel...................................... 42,772 *
William H. Turner..................................... 39,500 *
Toni M. Tracy......................................... 34,922 *
Robert L. Garthwaite.................................. 33,120 *
Leonard M. Lodish..................................... 33,000 *
James Meister......................................... 18,000 *
Arnold D. Levitt...................................... 12,500 *
All executive officers and directors as a group (12
persons)............................................. 6.9%
</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. The address
of Bermuda Trust Company Ltd. is Front Street, Hamilton, Bermuda.
(2) Information as to shares of Common Stock owned by Dimensional Fund
Advisors is as of December 31, 1999 as set forth in a Schedule 13G dated
February 4, 2000 and filed with the Securities and Exchange Commission.
(3) Includes 1,600 shares in trust for the benefit of Mr. Winsky's children.
(4) Includes 5,250 shares held for the benefit of Dr. Morgan's children.
(5) Includes 16,954 shares held by or for the benefit of members of Dr.
Simons' immediate family, 9,198 shares held by a fund in which Dr. Simons
has indirect shared power to vote and dispose of the shares, and 53 shares
held by Renaissance Ventures Ltd., of which Dr. Simons is the chairman and
sole shareholder.
The foregoing table also includes shares which the following directors have
the right to acquire within sixty days upon the exercise of options: Dr.
Simons, 37,959 shares; Mr. Lipsky, 105,156 shares; Dr. Morgan, 33,000 shares;
Mr. Cohen, 37,959 shares; Dr. Schubel, 27,959 shares; Mr. Turner, 16,500
shares; Dr. Lodish, 23,000 shares; and Mr. Meister, 12,000 shares. The
foregoing table also includes 276,382 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, 2000.
4
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table summarizes all plan and non-plan compensation awarded
to, earned by, or paid to each person who served as the Company's chief
executive officer during the last fiscal year and its four most highly
compensated executive officers, other than the chief executive officers
(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>
Long-Term
Compensation
Annual Compensation Awards
---------------------------- Securities
Other Annual Underlying All Other
Name and Principal Salary Bonus Compensation Options Compensation
Position Year $ $ $ # $
------------------ ---- ------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Barry J. Lipsky(1)...... 2000 320,173 0 0 150,000 83,630(4)
President and Chief 1999 204,327 0 0 25,000 0
Executive Officer 1998 180,000 74,225 0 35,000 0
H. Andrew Cross(2)...... 2000 36,961 0 0 0 200,000
President and Chief 1999 288,000 225,000 0 305,000 0
Executive Officer
Gregory J. Winsky....... 2000 210,385 0 0 75,000 37,948(4)
Executive Vice 1999 185,000 0 0 12,500 0
President 1998 177,000 72,513 0 35,000 0
Arnold D. Levitt(3)..... 2000 131,846 0 78,000 50,000 0
Senior Vice President
Toni M. Tracy........... 2000 182,650 0 0 15,000 26,254(4)
Senior Vice President 1999 179,904 34,800 0 13,000 0
1998 131,500 45,328 0 9,000 0
Robert L. Garthwaite.... 2000 153,000 0 0 10,000 4,533(4)
Vice President 1999 126,169 14,700 0 7,000 0
1998 105,000 8,798 0 8,000 0
</TABLE>
--------
(1) Mr. Lipsky was named Interim President and Chief Operating Officer of the
Company in April 1999 and was named President and Chief Executive Officer
in July 1999.
(2) Mr. Cross served as the Company's President and Chief Executive Officer
from April 1998 until he left the Company on April 19, 1999. Severance
payments made to Mr. Cross during the 2000 fiscal year are set forth under
"All Other Compensation."
(3) Mr. Levitt served as Interim Chief Financial Officer of the Company and
was paid as a consultant by the Company from May 5, 1999 until August 31,
1999. Consulting fees paid to Mr. Levitt are set forth under "Other Annual
Compensation." Mr. Levitt was elected Senior Vice President and Chief
Financial Officer on September 1, 1999 and was paid as an employee
thereafter.
(4) During the fiscal year ended March 31, 2000, the Company modified its
employee vacation policy to discontinue the practice of rolling forward
previously unused, accrued vacation time from year to year. In December
1999, the Company offered all employees an option to be compensated for
such vacation pay in cash over four quarters and/or in shares of Common
Stock. The amounts shown under "All Other Compensation" represent the
dollar value of Common Stock or cash received by each Named Executive
Officer in connection with such unused, accrued vacation time.
5
<PAGE>
No other annual compensation, other compensation, 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.
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, 2000. Options
with respect to one-fourth of the shares become exercisable on each of the
first, second, third and fourth anniversaries of the date of grant.
<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 -------------------
Granted in Fiscal Price Expiration 5% 10%
Name # Year $/sh Date $ $
---- ---------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Barry J. Lipsky......... 150,000 19.6% 5.75 5/5/09 542,422 1,374,603
H. Andrew Cross......... 0 -- -- -- -- --
Gregory J. Winsky....... 75,000 9.8% 4.00 7/28/09 66,501 283,592
Arnold D. Levitt........ 50,000 6.5% 4.00 7/28/09 44,334 189,061
Toni M. Tracy........... 15,000 2.0% 4.00 7/28/09 13,300 56,718
Robert L. Garthwaite.... 10,000 1.3% 4.00 7/28/09 8,867 37,812
</TABLE>
AGGREGATED OPTION EXERCISES IN THE
LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding unexercised stock
options held by the Named Executive Officers as of March 31, 2000 and
regarding stock options that were exercised by the Named Executive Officers
during the fiscal year ended March 31, 2000.
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired On at Fiscal Year End at Fiscal Year End
Exercise Value Realized (#) Exercisable/ ($)(1) Exercisable/
Name (#) ($) Unexercisable Unexercisable
---- ----------- -------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Barry J. Lipsky......... 0 0 59,574/236,240 0/187,500
H. Andrew Cross......... 35,000 59,063 68,500/68,500 0/0
Gregory J. Winsky....... 0 0 69,174/163,340 0/225,000
Arnold D. Levitt........ 0 0 0/50,000 0/150,000
Toni M. Tracy........... 0 0 25,600/48,100 0/45,000
Robert L. Garthwaite.... 0 0 27,450/52,953 0/30,000
</TABLE>
--------
(1) Fair market value of securities underlying the option minus the exercise
of the options at fiscal year end.
6
<PAGE>
COMPENSATION OF DIRECTORS
Currently, 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 (in January) of options under the Option Plan to
purchase 3,000 shares of Common Stock. If the amendments to the Option Plan
referred to herein are approved by the Company's shareholders, each director
of the Company who is not an employee of the Company or any of its
subsidiaries, will receive, for his services as a director of the Company, (i)
a non-discretionary annual grant of options under the Option Plan to purchase
the number of shares of Common Stock equal to the greater of (x) 3,000 or (y)
the number derived by dividing $30,000 by the fair market value of a share of
Common Stock on the date of grant and (ii) a non-discretionary grant on July
19, 2000 of an option to purchase shares of Common Stock equal to the
difference, if positive, between (A) the number derived by dividing $30,000 by
the fair market value of a share of Common Stock on July 19, 2000 and (B)
3,000 (the number of shares of Common Stock with respect to which such
director was granted options on January 3, 2000). 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 instituted a severance policy for each of its executive
officers who has served as such for at least one year, which includes Ms.
Tracy and Messrs. Lipsky and Winsky, that provides for, inter alia, salary
continuation payments based on the number of years of service performed by
each executive officer on termination of employment by the Company without
cause and the acceleration of the vesting of stock options in certain
instances on termination of employment or in connection with certain changes
in control of the Company. The Company has an agreement with Mr. Levitt that
provides for the payment of salary, rent reimbursement and continuation of
medical coverage upon the termination of Mr. Levitt's employment.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The members of the Compensation Committee for the fiscal year ended March
31, 2000 were Howard Morgan and James Simons.
Dr. Morgan provided consulting services to the Company during the entire
fiscal year ended March 31, 2000 and may continue to provide such services to
the Company in the current fiscal year.
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 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 to the Company's performance by means of
annual bonuses, 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.
7
<PAGE>
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 the 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.
In establishing Mr. Lipsky's annual base salary of $330,000 for the fiscal
year ending March 31, 2001, the Compensation Committee took into account the
base salaries for presidents at companies of comparable size and complexity,
both public and private, known to members of the Compensation Committee and
Mr. Lipsky's future anticipated contributions to the Company.
Bonus Plan
The Company's bonus plan has been used to provide incentives for the
Company's executives and employees by tying profitability to an annual cash
bonus distribution. The Company's bonus plan is intended to focus the
executives' attention on short-term or annual business results and to award a
bonus to certain employees each year based on their contributions to the
profits of the Company. Prior to the 1999 fiscal year, participants in the
bonus plan and their level of participation were determined by the
Compensation Committee. For the 1999 fiscal year, the Compensation Committee
approved a new bonus plan that provided for bonuses to be paid to certain
employees at the end of the fiscal year that were based upon a percentage of
the respective salaries of the employees and the achievement of certain
revenue, profitability, and other goals by the Company and the achievement of
certain goals by the respective employees. Given the Company's results of
operations in the 1999 fiscal year, the Company did not establish a formal
bonus plan for the 2000 fiscal year.
For the 2001 fiscal year, the Company will reward performance by executives,
including the Named Executive Officers, by payment of an annual cash bonus.
The Company will pay bonuses from one of two incentive pools, one of which
will fund bonuses for the Named Executive Officers and the other of which will
fund bonuses for other executives. The Compensation Committee will approve
performance targets for the Company's profitability for the year. The size of
each incentive pool will be determined by a formula that will take into
account the degree to which the Company meets or exceeds those performance
targets. For the Named Executive Officers, the Compensation Committee will
specify, at the same time as it sets the performance targets for the year, the
percentage of the incentive pool that may be paid to each individual. At the
end of the fiscal year, the Compensation Committee will review the Company's
recommendations as to bonuses for all other executives and determine the
amount of bonuses payable to the executives, taking into account the Company's
and the individuals' performances during the fiscal year.
Long-Term Incentives
Under the Option Plan, stock options are granted to executives and key
employees 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 fourth 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.
Compensation Committee
Howard L. Morgan
James H. Simons
8
<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, 2000.
[PROXY PERFORMANCE GRAPH]
FRANKLIN ELECTRONIC PUBLISHERS
PROXY PERFORMANCE GRAPH INDICATORS
RUSSELL 3000 ALL COMPANIES
FOR THE
FOR THE FISCAL YEARS ENDED FISCAL YEAR
-------------------------- ENDING
3/31/95 3/31/96 3/31/97 3/31/98 3/31/99 2000
------- ------- ------- ------- ------- -----------
RUSSELL 3000
ALL COMPANIES 100.000 132.231 154.106 227.579 255.930 240.539
RUSSELL 3000
PUBLISHING - MISC. 100.000 112.094 119.919 166.950 198.248 226.708
FRANKLIN ELECTRONIC
PUBLISHERS 100.000 87.556 41.778 40.444 21.333 24.889
RAW CODES 28.125 24.625 11.750 11.375 6.00 7.00
NET INCREASE
(DECREASE) (12.444) (58.222) (59.556) (78.667) (75.111)
100.000 100.000 100.000 100.000 100.000
Value of $100.00 Invested over five years:
<TABLE>
<S> <C>
Franklin Electronic Publishers Incorporated Common Stock.......... $ 24.88
Russell 3000 companies............................................ $240.54
Russell 3000 Publishing companies................................. $226.71
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AMENDMENTS TO THE COMPANY'S STOCK OPTION PLAN
The Company currently has in effect the Option Plan, which was adopted as of
May 1, 1998. The Option Plan currently authorizes the Company to grant options
to purchase an aggregate of 750,000 shares of Common
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Stock. The Option Plan has no shares remaining available for grant. The
Compensation Committee recommended to the Board, which approved, subject to
approval by the holders of a majority of the shares of Common Stock 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 750,000 to 1,500,000
shares.
Currently, 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
3,000 shares of Common Stock. The Board unanimously approved and recommended
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 non-discretionary annual grant of options for 3,000 shares
to a formula-based number equal to the greater of (x) 3,000 or (y) the number
derived by dividing $30,000 by the fair market value of a share of Common
Stock on the date of grant, commencing on January 1, 2001, and (ii) provide
for the grant, on July 19, 2000, to each non-employee director of an option to
purchase shares of Common Stock equal to the difference, if positive, between
(A) the number derived by dividing $30,000 by the fair market value of a share
of Common Stock on July 19, 2000 and (B) 3,000 (the number of shares of Common
Stock with respect to which such director was granted options on January 3,
2000).
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 but because no
shares remain available for grant, new options cannot be granted under the
Option Plan unless options are forfeited or otherwise expire prior to
exercise.
Nature and Purpose of the 1998 Option Plan
The purpose of the 1998 Option Plan is to induce certain individuals to
remain in the employ or service of the Company and its subsidiaries, to
attract new employees, consultants and directors and to encourage such
individuals to secure or increase on reasonable terms their stock ownership in
the Company. The Board of Directors 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.
Duration and Modification
The Option Plan will terminate not later than April 30, 2008. The Board of
Directors may at any time terminate the Option Plan or make such modifications
to the Option Plan as it may deem advisable. However, the Board may not,
without approval by the shareholders of the Company, increase the number of
shares of Common Stock as to which options which are intended to be incentive
stock options may be granted under the Option Plan, or change the class of
persons eligible to receive options which are intended to be incentive stock
options in the Option Plan.
Administration
The Option Plan is administered by the Compensation Committee. The
Compensation Committee consists of two members of the Board of Directors. 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 Drs. Simons and Morgan. 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 will be an
incentive stock option, a non-incentive stock option or a combination thereof.
The members of the Compensation Committee do not receive additional
compensation for serving on the Compensation Committee.
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Eligibility and Extent of Participation
The Option Plan provides for discretionary grants of options to
participants. As of March 31, 2000, approximately 75 persons were eligible to
receive options pursuant to the Option Plan. No single participant may receive
options under the Option Plan in any one fiscal year of the Company to
purchase more than 100,000 shares of Common Stock. Currently, directors who
are not also employees of the Company or any of its subsidiaries receive an
annual grant (in January) of options to purchase 3,000 shares under the Option
Plan at the fair market value of a share of Common Stock on the date of grant.
If the amendments to the Option Plan referred to herein are approved by the
Company's shareholders, each director of the Company who is not an employee of
the Company or any of its subsidiaries, will receive, for his services as a
director of the Company, (i) a non-discretionary annual grant of options under
the Option Plan to purchase the number of shares of Common Stock equal to the
greater of (x) 3,000 or (y) the number derived by dividing $30,000 by the fair
market value of a share of Common Stock on the date of grant and (ii) a non-
discretionary grant on July 19, 2000 of an option to purchase shares of Common
Stock equal to the difference, if positive, between (A) the number derived by
dividing $30,000 by the fair market value of a share of Common Stock on July
19, 2000 and (B) 3,000 (the number of shares of Common Stock with respect to
which such director was granted options on January 3, 2000). Directors who are
not also employees of the Company and who are not members of the Compensation
Committee also may receive discretionary grants of options under the Option
Plan.
Exercise of Options
Unless otherwise provided by the Compensation Committee at the time an
option is granted, and other than in the case of the grants of options to non-
employee directors, an option will be exercisable one-fourth on the first
anniversary of the date of grant, one-half on the second anniversary of the
date of grant, three-quarters on the third anniversary of the date of grant
and in full on the fourth anniversary of the date of grant. An option granted
to a non-employee director will be exercisable in full six months after the
date of grant.
An option may be exercised by a written notice with respect to a specified
number of shares and payment of the exercise price for the number of shares
specified. The exercise price of an option may be paid in cash or in shares of
Common Stock. The initial per share exercise price for an incentive stock
option may not be less than the fair market value thereof on the date of
grant, or 110% of such fair market value with respect to a participant who, at
such time, owns stock representing more than 10% of the total combined voting
power of all classes of stock of the Company. The initial per share exercise
price for a non-incentive stock option may not be less than 75% of the fair
market value thereof on the date of grant. No non-incentive stock option may
be granted to any person who is or may reasonably become a "covered employee"
under Section 162(m) of the Code, at a price below fair market value on the
date of grant. The initial per share exercise price for the options granted to
non-employee directors is the fair market value of the Common Stock on the
date of grant.
No option granted pursuant to the Option Plan may be exercised more than 10
years after the date of grant, except that incentive stock options granted to
participants who own more than 10% of the total combined voting power of all
classes of stock of the Company at such time may not be exercised more than
five years after the date of grant. No participant may be granted incentive
stock options which are exercisable for the first time in any one calendar
year with respect to Common Stock having an aggregate fair market value in
excess of $100,000 on the date of grant. Except as permitted by the Committee,
no option granted under the Plan is transferable by the optionee other than by
death. With the prior approval of the Committee, and subject to such limits as
may be set by the Committee, an option which is a non-incentive stock option
may be transferred for no consideration to or for the benefit of the
optionee's immediate family (as defined in the Plan), a trust for the
exclusive benefit of the optionee and his or her immediate family or to a
partnership or limited partnership company for one or more members of the
optionee and his or her immediate family.
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In the event that an optionee leaves the employ or service or ceases to
serve as a director of the Company or its subsidiaries by reason of death,
retirement on or after his or her 65th birthday or permanent disability, each
option granted to him or her shall become immediately exercisable in full,
provided such option is exercised before the earlier of six months from the
date of such death, retirement or permanent disability or the date of
termination specified in such option.
In the event that an optionee leaves the employ or service or ceases to
serve as a director of the Company or its subsidiaries for any reason other
than death, retirement on or after is or her 65th birthday or permanent
disability, each option granted to him or her shall, to the extent exercisable
on the date of his or her termination, terminate on the earlier to occur of 90
days of such optionee's termination and the date of termination specified in
such option.
The number of shares available for grant under the Option Plan and covered
by each option granted thereunder 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 or, as may be determined by the Committee, in the event
of any other change affecting the number or kind of the Company's outstanding
Common Stock. 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, each outstanding but unexercised option will terminate.
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 (compensation) 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 exercise price. In the case of an
optionee who is an employee of the Company or its subsidiaries, 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.
Capital gain or loss on a subsequent sale or other disposition of the shares
of Common Stock acquired upon 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 the option will be equal to the sum of the exercise price of an
option and the amount included in income with respect to the option. The
holding period will be measured from the date of exercise.
If an optionee makes payment of the exercise price by delivering shares of
Common Stock, he or she generally will not recognize any gain with respect to
such shares 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.
The Company will be entitled to a deduction for Federal income tax purposes
at such time and in the same amount as the amount included in ordinary income
by the optionee upon exercise of his or her non-incentive stock option,
subject to the usual rules as to reasonableness of compensation and provided
that the Company timely complies with the applicable information reporting
requirements.
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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.
However, for purposes of the alternative minimum tax, the excess of the fair
market value on the exercise date of the shares issued to the optionee over
the exercise price will be considered as part of the optionee's income.
The sale of the shares 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 the option is granted nor within one
year after the exercise of the option. In addition, an optionee generally must
be an employee of the Company (or a subsidiary of the Company) at all times
between the date of grant and the date three months before exercise of the
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 excess of the
fair market value on the exercise date of the shares issued to the optionee
over the exercise price or (b) the amount realized on the disposition minus
the exercise price, will be treated as ordinary (compensation) income, with
any remaining gain being treated as capital gain. The Company will be entitled
to a deduction equal to the amount of this ordinary income.
If an optionee makes payment of the exercise price by delivering shares of
Common Stock, he or she generally will not recognize any gain with respect to
such shares 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. However, the use by an 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 were not held by the participant for the requisite holding period.
SELECTION OF AUDITORS
The Audit Committee has recommended to the Board of Directors, and the Board
of Directors has selected, Radin, Glass & Co., LLP, independent auditors, as
auditors of the Company for the fiscal year ending March 31, 2001. 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, 2001.
It is expected that representatives of Radin, Glass & Co., LLP 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 LLP, of which Mr. Cohen is a partner, was
engaged as the Company's general outside counsel in the fiscal year ended
March 31, 2000 and will continue to be so engaged for the fiscal year ending
March 31, 2001.
Dr. Morgan provided consulting services to the Company during the entire
fiscal year ended March 31, 2000 and may continue to provide such services to
the Company in the current fiscal year.
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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 April 1, 2001. The proxy or proxies designated by the Company will have
discretionary authority to vote on any matter properly presented by a
shareholder for consideration at the next Annual Meeting of Shareholders but
not submitted for inclusion in the proxy materials for such Meeting unless
notice of the matter is received by the Company on or prior to May 30, 2001
and certain other conditions of the applicable rules of the Securities and
Exchange Commission are satisfied. Shareholder proposals should be directed to
the Secretary of the Company at the address set forth below.
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 2000 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
One Franklin Plaza
Burlington, New Jersey 08016-4907
June 23, 2000
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FRANKLIN ELECTRONIC PUBLISHERS, INCORPORATED
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
JULY 19, 2000
This Proxy Is Solicited On Behalf of the Board of Directors
The undersigned hereby appoints JAMES H. SIMONS 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 Wednesday, July 19, 2000 at 10:00 A.M. at the offices of Rosenman &
Colin LLP, 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, Barry J. Lipsky, Leonard M. Lodish, James Meister,
Howard L. Morgan, Jerry R. Schubel, James H. Simons 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 an increase in the number of shares with respect to which
options may be granted under the Company's 1998 Stock Option Plan and certain
other amendments thereto.
___ FOR ___ AGAINST ___ ABSTAIN
3. APPROVAL of the appointment of auditors as set forth in the accompanying
Proxy Statement.
___ FOR ___ AGAINST ___ ABSTAIN
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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 in the discretion of said proxy on any
other matter which may come before the meeting or any adjournments thereof.
Dated: _______________, 2000
___________________________
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.
