<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant / /
Filed by a Party other than the Registrant /X/
Check the appropriate box:
<TABLE>
<S> <C>
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only
/ / Definitive Proxy Statement as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Krugman, Chapnick & Grimshaw
(attorneys for the Registrant)
- --------------------------------------------------------------------------------
(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)(1) 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:
- --------------------------------------------------------------------------------
<PAGE> 2
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 5, 1996
------------------------
Wilton, Connecticut
November 5, 1996
TO THE HOLDERS OF COMMON STOCK
OF ELECTRONIC RETAILING SYSTEMS
INTERNATIONAL, INC.:
The Annual Meeting of the Stockholders of ELECTRONIC RETAILING SYSTEMS
INTERNATIONAL, INC., will be held at the offices of Zilkha & Company, 767 Fifth
Avenue-46th Floor, New York, New York on Thursday, December 5, 1996 at 10:00
A.M., local time, for the following purposes, as more fully described in the
accompanying Proxy Statement:
1. To elect six directors of the Company for the ensuing year.
2. To consider and take action upon a proposal to approve and adopt an
amendment, heretofore approved by the Board of Directors, to the
Certificate of Incorporation of the Company to increase the number of
authorized shares of the Common Stock of the Company from 25,000,000
shares to 35,000,000 shares.
3. To consider and take action upon a proposal to approve and adopt an
amendment, heretofore approved by the Board of Directors, to the
Company's 1993 Employee Stock Option Plan in order to increase the
number of shares issuable pursuant to the exercise of options granted
under said plan from 1,225,000 to 1,775,000 shares of the Common Stock
of the Company.
4. To consider and take action upon a proposal to approve and adopt an
amendment, heretofore approved by the Board of Directors, to the
Company's 1993 Director Stock Option Plan in order to increase the
number of shares issuable pursuant to the exercise of options granted
under said plan from 50,000 to 125,000 shares of the Common Stock of the
Company.
5. To transact such other business as may properly come before the Meeting
or any adjournment or adjournments thereof.
The close of business on October 28, 1996 has been fixed by the Board of
Directors as the record date for the determination of stockholders entitled to
notice of, and to vote at, the Meeting.
By Order of the Board of Directors
NORTON GARFINKLE,
Chairman of the Board and Secretary
You are cordially invited to attend the Meeting in person. If you do not
expect to be present, please mark, sign and date the enclosed form of Proxy and
mail it in the enclosed return envelope which requires no postage if mailed in
the United States, so that your vote can be recorded.
<PAGE> 3
PROXY STATEMENT
GENERAL
This Proxy Statement, which will be mailed commencing on or about November
5, 1996 to the persons entitled to receive the accompanying Notice of Annual
Meeting of Stockholders, is provided in connection with the solicitation of
proxies on behalf of the Board of Directors of Electronic Retailing Systems
International, Inc. for use at the Annual Meeting of Stockholders (the
"Meeting") to be held on December 5, 1996 and at any adjournment or adjournments
thereof, for the purposes set forth in such Notice. The Company's executive
office is located at 372 Danbury Road, Wilton, Connecticut 06897.
VOTING
At the close of business on October 28, 1996, the record date stated in the
accompanying Notice, the Company had outstanding shares of common
stock, $.01 par value (the "Common Stock"), each of which is entitled to one
vote with respect to each matter to be voted on at the Meeting. The Company has
no class or series of voting stock outstanding other than the Common Stock.
A majority of the issued and outstanding shares of Common Stock present in
person or by proxy will constitute a quorum for the transaction of business at
the Meeting. Directors are elected by a plurality vote. The affirmative vote of
holders of a majority of the issued and outstanding shares of Common Stock is
required to approve the proposal to approve and adopt the amendment to the
Certificate of Incorporation of the Company to increase the number of authorized
shares of Common Stock. Neither the proposed amendment to the Company's employee
stock option plan, nor the proposed amendment to the Company's director stock
option plan, will be made effective until it is approved and adopted by the
holders of a majority of shares of Common Stock present in person or represented
by proxy and entitled to vote at the Meeting.
Abstentions and broker non-votes (as hereinafter defined) are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. For the purpose of determining the vote required for approval of
matters to be voted on at the Meeting, shares held by stockholders who abstain
from voting will be treated as being "present" and "entitled to vote" on the
matter and, thus, an abstention has the same legal effect as a vote against the
matter. In the case of a broker non-vote, such shares will not be treated as
"present" and "entitled to vote" on the matter. Accordingly, a broker non-vote
will also have the same effect as a vote at the Meeting against approval of the
proposal to approve and adopt the amendment to the Certificate of Incorporation
of the Company to increase the number of authorized shares of Common Stock. In
the election of directors, and in the determination of whether to approve and
adopt the amendments to the Company's employee stock option plan and its
director stock option plan, respectively, a broker non-vote will have no effect
on the outcome of the vote on the matter. A "broker non-vote" refers to shares
represented at the Meeting in person or by proxy by a broker or nominee where
such broker or nominee (i) has not received voting instructions on a particular
matter from the beneficial owner or persons entitled to vote; and (ii) the
broker or nominee does not have the discretionary voting power on such matter.
At October 28, 1996, Norton Garfinkle, Chairman of the Board of the
Company, together with two affiliated limited partnerships, and Bruce F.
Failing, Jr., the Company's President and a director, together with a trust
established for the benefit of his children, beneficially owned approximately
52.5% of the outstanding Common Stock of the Company. Messrs. Garfinkle and
Failing have entered into an agreement relating to the voting and disposition of
such shares. Accordingly, Messrs. Garfinkle and Failing, acting together, will
be in a position to elect all of the Company's directors and to take action
requiring stockholder approval. See "I. Election of Directors -- Information
Concerning Certain Stockholders" below.
REORGANIZATION
The Company was incorporated in Delaware in February 1993 to serve as a
holding company for the business and assets of Electronic Retailing Systems
International, Inc. (the "Predecessor Corporation"), which was incorporated in
Connecticut in 1990, and ERS Associates Limited Partnership (the "Partnership"),
which was organized in Connecticut in 1992 in order to continue the business and
hold the principal
1
<PAGE> 4
assets of the Predecessor Corporation. The combination of the Company, the
Predecessor Corporation and the Partnership effected immediately prior to the
closing of the Company's initial public offering (the "Initial Public Offering")
of Common Stock, in May 1993, is referred to in this Proxy Statement as the
"Reorganization." Unless the context otherwise requires, references in this
Proxy Statement to the "Company" refer to Electronic Retailing Systems
International, Inc., a Delaware corporation, and its subsidiaries and, with
respect to operations prior to the Reorganization, its predecessors. References
to historical financial information of the Company prior to the date of the
Reorganization refer to the historical financial information of the Predecessor
Corporation.
I. ELECTION OF DIRECTORS
Six directors will be elected at the Meeting, each to serve for one year
and until a successor shall have been chosen and qualified. It is the intention
of each of the persons named in the accompanying form of Proxy to vote the
shares represented thereby in favor of the six nominees listed in the following
table, unless otherwise instructed in such Proxy. Each such nominee is presently
serving as a director. The Board of Directors has no reason to believe that any
person named will be unable or will decline to serve. In case any of the
nominees is unable or declines to serve, such persons reserve the right to vote
the shares represented by such Proxy for another person duly nominated by the
Board of Directors in such nominee's stead, or, if no other person is so
nominated, to vote such shares only for the remaining nominees. Certain
information concerning the nominees for election as directors is set forth
below. Such information was furnished by them to the Company.
<TABLE>
<CAPTION>
SHARES OF COMMON
STOCK OWNED BENE-
FICIALLY AS OF
NAME OF NOMINEE AND CERTAIN OCTOBER 1, PERCENT
BIOGRAPHICAL INFORMATION 1996(1) OF CLASS
- ---------------------------------------------------------------- ----------------- --------
<S> <C> <C>
PAUL A. BIDDELMAN, age 50; Treasurer, Hanseatic Corporation
(private investment company) since 1992; Managing Director,
Clements Taee Biddelman Incorporated (financial advisors) from
1991 to 1992; Director: Insituform Technologies, Inc., Celadon
Group, Inc., Premier Parks Inc., Petroleum Heat & Power
Company, Inc., Star Gas Corporation (general partner of Star
Gas Partners, L.P.), Oppenheimer Group, Inc.; Director of the
Company since 1993. 1,000,300(2)(3) 4.8%
DAVID DIAMOND, age 37; consultant (suppliers of products and
services to the supermarket industry) since 1994; President of
Lamaze Publishing Company, Inc. (publisher of material on
neonatal care) from 1992 to 1994; Senior Vice President of
Strategic Planning and New Development, Actmedia, Inc.
(provider of supermarket in-store advertising) from prior to
1991 until 1992; Director of the Company since 1996. 1,000(4) (5)
BRUCE F. FAILING, JR., age 48; founder of the Company in 1990,
and its President and chief executive officer; Director of the
Company since 1990. 3,145,637(6)(7) 15.0
NORTON GARFINKLE, age 65; founder of the Company in 1990, and
its Chairman of the Board; Chairman of Cambridge Management
Corporation (manufacturer and marketer of DAP series of
massively parallel processing computers) since prior to 1991,
and Chairman of its affiliates (engaged in the research and
development of new technologies), including Oxford Management
Corporation, during such period; Director of the Company since
1990.(8) 7,890,758(6)(9) 37.5%
GEORGE B. WEATHERSBY, age 51; Vice Chairman of Cambridge
Management Corporation (manufacturer and marketer of DAP
series of massively parallel processing computers) and its
affiliates, including Oxford Management Corporation, since
1993; general partner of Founder's Court (investment
management firm) from 1991; Director: Holnam, Inc.; Director
of the Company since 1996. --(3) --
DONALD E. ZILKHA, age 45; President, Zilkha & Company (private
investment advisor) since prior to 1991; Director of the
Company since 1993. 97,472(3) (5)
</TABLE>
2
<PAGE> 5
- ---------------
(1) Such persons have sole voting and investment power with respect to all
outstanding shares of Common Stock shown as being beneficially owned by
them, subject to the information contained in the footnotes to this table.
(2) Includes 969,300 shares held by Hanseatic Americas LDC, a Bahamian limited
duration company in which the sole managing member is Hansabel Partners,
L.L.C., a Delaware limited liability company in which the sole managing
member is Hanseatic Corporation ("Hanseatic"), of which Mr. Biddelman is an
officer.
(3) Excludes 5,000 shares issuable upon exercise of stock options granted by the
Company and exercisable within 60 days of October 1, 1996 subject to
stockholder approval.
(4) Includes 1,000 shares beneficially owned jointly by Mr. Diamond and his
wife. Excludes 3,125 shares issuable upon exercise of stock options granted
by the Company and exercisable within 60 days of October 1, 1996 subject to
stockholder approval.
(5) Less than 1%
(6) Such stockholders are party to a stockholders agreement among Norton
Garfinkle, Bruce F. Failing, Jr., certain family trusts and partnerships,
and Elizabeth Z. Failing, as described under "Information Concerning Certain
Stockholders" below.
(7) Includes 1,318,489 shares held by a trust established for the benefit of Mr.
Failing's children, 168,318 shares beneficially owned by Elizabeth Z.
Failing, Mr. Failing's sister, and 20,000 shares beneficially owned jointly
by Mr. Failing and his wife, Leigh Q. Failing.
(8) In December 1995, pursuant to an agreement with New York State authorities,
Mr. Garfinkle admitted to a misdemeanor relating to his 1989 New York State
return and paid all taxes required by the agreement.
(9) Includes 600,000 shares held by Garfinkle Limited Partnership I and
6,489,970.5 shares held by Garfinkle Limited Partnership II, both Delaware
limited partnerships with respect to each of which G.F. Management Corp.
(all of the shares of which are held by Norton Garfinkle) acts as sole
general partner.
No family relationship exists between any of the directors or executive
officers of the Company.
During the year ended December 31, 1995, the Board of Directors of the
Company met eight times and took action by unanimous written consent on five
occasions. Each of the persons named in the table above attended at least 75% of
the meetings of the Board of Directors and meetings of any committees of the
Board on which such person served which were held during the time that person
served.
The members of the Audit Committee of the Board of Directors are Norton
Garfinkle, Paul A. Biddelman and Donald E. Zilkha. The Audit Committee is
responsible for overseeing that management fulfills its responsibilities in
connection with the preparation of the consolidated financial statements of the
Company and its subsidiaries. The Committee's functions include making
recommendations to the Board regarding the engaging and discharging of the
Company's independent accountants, reviewing with the
3
<PAGE> 6
independent accountants the plan and the results of the auditing engagement,
approving the professional services provided by the independent accountants,
reviewing the independence of the independent accountants, and reviewing the
adequacy of the Company's system of internal accounting controls. The Audit
Committee met once during the year ended December 31, 1995.
The members of the Compensation Committee of the Board of Directors are
Norton Garfinkle, Paul A. Biddelman and Donald E. Zilkha. The functions of the
Compensation Committee include making recommendations to the Board of Directors
regarding the salaries, bonuses, fringe benefits or compensation of any kind for
the officers of the Company. The Compensation Committee is also responsible for
the administration of the Company's 1993 Employee Stock Option Plan and
determines the persons who are eligible to receive options thereunder, the
number of shares to be subject to each option and the other terms and conditions
upon which options under such plans are granted and made exercisable. The
Compensation Committee held two meetings, and took action by unanimous written
consent on two occasions, during the year ended December 31, 1995.
The members of the Director Stock Option Committee of the Board of
Directors are Norton Garfinkle and Bruce F. Failing, Jr. The Director Stock
Option Committee administers the Company's 1993 Director Stock Option Plan and
determines the persons who are eligible to receive options thereunder, the
number of shares to be subject to each option and the other terms and conditions
upon which options under such plans are granted and made exercisable. The
Director Stock Option Committee did not meet during the year ended December 31,
1995.
The Company has not appointed a nominating committee of the Board of
Directors.
DIRECTOR COMPENSATION
In April 1993, the stockholders of the Predecessor Corporation approved the
Electronic Retailing Systems International, Inc. 1993 Director Stock Option Plan
(the "Director Option Plan") previously adopted by its Board of Directors and,
as part of the Reorganization, the Company assumed such plan. For a description
of the Director Stock Option Plan, see "III. Amendment to the 1993 Director
Stock Option Plan" below.
Paul A. Biddelman, David Diamond, George B. Weathersby and Donald E. Zilkha
hold options granted under the Director Option Plan in June 1996, subject to
stockholder approval of the plan expansion described below, covering,
respectively, 20,000 shares, 12,500 shares, 20,000 shares and 20,000 shares of
Common Stock, exercisable at a price per share equal to $1.875, the closing
price per share of Common Stock on The Nasdaq Stock Market on the date of grant.
All such options expire five years from the date of grant and are exercisable on
the date of grant with respect to one-quarter of the shares covered thereby, and
an additional one-quarter of such shares annually thereafter. Jerry E. Morton, a
current director of the Company who is not standing for re-election at the
Meeting, holds an option granted under the Director Option Plan in 1993 covering
12,500 shares of Common Stock, which expires five years from the date of grant.
Such option was exercisable on the date of grant with respect to one-quarter of
the shares covered thereby, and provides for an additional one-quarter of such
shares to be subject to exercise annually thereafter, in each case at an
exercise price per share equal to $6.75, the closing price per share of the
Common Stock on The Nasdaq Stock Market on the date of grant.
The Company has not adopted any director fee arrangement, but reimburses
all of its directors for their out-of-pocket expenses incurred in the
performance of their duties as directors of the Company.
Mr. Morton is the principal of Store Systems Consulting & Marketing
("SSC"), which provides consulting services to the Company. SSC currently
receives a monthly retainer of $2,700 from the Company. During the year ended
December 31, 1995, the Company made payments to SSC for consulting fees
(including reimbursable expenses) of $34,000.
4
<PAGE> 7
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth information
concerning the annual compensation for each of the Company's last three
completed fiscal years of: (i) the Company's chief executive officer, (ii) each
of the four other most highly-compensated executive officers during the most
recent fiscal year, and (iii) two additional individuals who would have been
among the four such other most highly-compensated executive officers during the
most recent fiscal year, but were not executive officers at the end of such
year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------ ALL
ANNUAL COMPENSATION SECURITIES OTHER
NAME AND ---------------------- UNDERLYING COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS (#) SATION($)
- ---------------------------------------- ---- --------- -------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Bruce F. Failing, Jr. .................. 1995 327,269 -- -- --
President 1994 346,500 -- -- --
1993 340,154 -- -- --
Wayne Benoit............................ 1995 200,000 10,000 200,000(2) --
Executive Vice President, 1994 136,463 -- 200,000 26,926(3)
Chief Operating Officer(1) 1993 -- -- -- --
James M. Nolan, Jr. .................... 1995 130,000 -- 10,000 15,000(3)
Vice President, 1994 130,000 -- 12,500 15,000(3)
New Product Development(4) 1993 16,731 -- 17,500 --
Michael R. Valiton...................... 1995 108,000 -- 30,000 --
Vice President, Delivery(5) 1994 -- -- -- --
1993 -- -- -- --
William B. Fischer(6)................... 1995 102,305 -- 10,000 --
Vice President, Finance 1994 -- -- -- --
1993 -- -- -- --
Stephen M. Diamond...................... 1995 141,346 5,000 50,000 21,639(3)
Vice President, Marketing and 1994 -- -- -- --
Account Management(7) 1993 -- -- -- --
Paul M. Patrick......................... 1995 150,000 -- -- --
Vice President Sales, North America(8) 1994 150,000 -- -- --
1993 150,000 -- 93,500 --
</TABLE>
- ---------------
(1) Mr. Benoit became an executive officer upon joining the Company in April
1994 and served in such capacity through his assumption of other duties in
the Company in March 1996 prior to his resignation from the Company.
(2) Such options replaced options previously granted in 1994 and surrendered by
Mr. Benoit contemporaneously with such replacement.
(3) Represents relocation expense.
(4) Mr. Nolan became an executive officer upon joining the Company in November
1993.
(5) Mr. Valiton became an executive officer in January 1995 after joining the
Company in the prior year.
(6) Mr. Fischer became an executive officer in April 1995 after joining the
Company in the prior year.
(7) Mr. Diamond became an executive officer after joining the Company in January
1995 and served in such capacity until his resignation in December 1995.
(8) Mr. Patrick served as an executive officer through his assumption of other
duties in the company in March 1995. Mr. Patrick resumed the duties of
executive officer in March 1996.
5
<PAGE> 8
Option Grant Table. The following table sets forth certain information
regarding options granted by the Company during the year ended December 31,
1995, to the individuals named in the above compensation table:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------------------- VALUE AT ASSUMED
% OF TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS MARKET STOCK PRICE
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE PER SHARE OPTION TERM(1)
OPTIONS IN PRICE ON DATE EXPIRATION --------------------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) OF GRANT($) DATE 0%($) 5%($) 10%($)
- ------------------ ---------- ----------- -------- ----------- ---------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bruce F. Failing,
Jr. ............ -- -- -- -- -- -- -- --
Wayne Benoit...... 200,000(2) 41.65% $ 5.63 $5.63 04/25/04 -- 708,000 1,795,000
James M. Nolan,
Jr. ............ 7,500(3) 1.56 .01 5.00 02/13/05 37,000 61,000 97,000
2,500(3) .52 5.00 5.00 02/13/05 -- 8,000 20,000
Michael R.
Valiton......... 30,000(4) 6.25 5.00 5.00 02/13/05 -- 94,000 239,000
William B.
Fischer......... 10,000(4) 2.08 5.00 5.00 02/13/05 -- 31,000 80,000
Stephen M.
Diamond......... 50,000(4) 10.41 5.75 5.75 03/27/05 -- 181,000 458,000
Paul M. Patrick... -- -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on arbitrarily assumed rates of stock price appreciation of 0%, 5%
and 10% compounded annually from the date the respective options are granted
to their expiration date.
(2) In March 1995, Mr. Benoit surrendered options previously granted and was
granted such options in replacement thereof, exercisable at a price per
share of $5.63, that became exercisable with respect to one-quarter of such
option on April 25, 1995, with an additional one-sixteenth thereof becoming
exercisable every quarter thereafter.
(3) One-half of such option becomes exercisable at November 15, 1998, with the
remainder becoming exercisable in five equal annual installments thereafter.
(4) One quarter of each such option became exercisable at an initial exercise
date, with an additional one-sixteenth becoming exercisable every quarter
thereafter. At December 31, 1995, the initial exercise date of such options
were, respectively, as follows: Michael R. Valiton -- July 25, 1995; William
B. Fischer -- June 1, 1995; and Stephen M. Diamond -- January 18, 1996.
6
<PAGE> 9
Aggregate Option Exercises and Year-End Option Table. The following table
sets forth certain information regarding exercises of stock options, and stock
options held as of December 31, 1995, by the individuals named in the above
compensation table.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS
YEAR-END(#) AT YEAR-END(1)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce F. Failing, Jr. ... -- -- -- -- -- --
Wayne Benoit............. -- -- 75,000 125,000 -- --
James M. Nolan, Jr. ..... -- -- -- 40,000 -- $ 49,800
Michael R. Valiton....... -- -- 9,375 20,625 -- --
William B. Fischer....... -- -- 3,750 6,250 -- --
Stephen M. Diamond....... -- -- -- 50,000 -- --
Paul M. Patrick.......... -- -- -- 93,500 -- $ 232,815
</TABLE>
- ---------------
(1) Calculated on the basis of the fair market value of the underlying
securities at the exercise date or at year-end, as the case may be, less the
respective exercise prices.
Option Repricings. During the year ended December 31, 1995, the
Compensation Committee authorized the repricing of stock options held by one
executive officer. See the "Report of the Compensation Committee" below for a
discussion of the repricing. The following table sets forth certain information
with respect to the repricing of options held by any executive officer of the
Company since its inception:
TEN-YEAR OPTION REPRICINGS
<TABLE>
<CAPTION>
LENGTH OF
NUMBER OF ORIGINAL
SECURITIES MARKET PRICE EXERCISE OPTION TERM
UNDERLYING OF STOCK AT PRICE AT REMAINING AT
OPTIONS TIME OF TIME OF NEW DATE OF
REPRICED OR REPRICING REPRICING EXERCISE REPRICING
NAME DATE AMENDED(#) OR AMENDMENT OR AMENDMENT PRICE($) OR AMENDMENT
- ------------------------ -------- ------------- ------------ ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Wayne Benoit............ 03/28/95 200,000 $ 5.63 $ 8.50 $5.63 9 years,
Executive Vice 1 month
President, Chief
Operating Officer(1)
</TABLE>
- ---------------
(1) Mr. Benoit ceased to be an executive officer of the Company in March 1996.
1993 EMPLOYEE STOCK OPTION PLAN
In April 1993, the stockholders of the Predecessor Corporation approved the
Electronic Retailing Systems International, Inc. 1993 Employee Stock Option Plan
(the "Employee Option Plan") previously adopted by its Board of Directors and,
as part of the Reorganization, the Company assumed such Plan. For a description
of the Employee Option Plan, see "III. Amendment to the 1993 Employee Stock
Option Plan" below.
7
<PAGE> 10
PERFORMANCE GRAPH
The following performance graph compares the total stockholder return on
the Company's Common Stock to the S&P 500 Index and to the NASDAQ Computer &
Data Processing Index from the commencement of the Initial Public Offering on
April 30, 1993 to December 31, 1995. The graph assumes that $100 was invested in
the Common Stock and each such Index on April 30, 1993 and that all dividends
were reinvested.
COMPARISON OF CUMULATIVE RETURN
<TABLE>
<CAPTION>
ELECTRONIC
RETAILING NASDAQ
SYSTEMS COMPUTER & DATA
MEASUREMENT PERIOD INTERNATIONAL, S&P 500 PROCESSING
(FISCAL YEAR COVERED) INC. INDEX INDEX
<S> <C> <C> <C>
APRIL 30, 1993 100.00 100.00 100.00
DECEMBER 31, 1993 45.00 108.00 108.00
DECEMBER 31, 1994 42.00 110.00 132.00
DECEMBER 31, 1995 19.00 151.00 201.00
</TABLE>
Notwithstanding anything set forth in any of the Company's previous filings
under the Securities Act of 1933 or the Securities Exchange Act of 1934 which
might incorporate future filings, including this Proxy Statement, in whole or in
part, the preceding performance graph and the report that follows shall not be
deemed incorporated by reference into any such filings.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors makes recommendations
to the Board of Directors regarding the compensation arrangements for executive
officers of the Company, and administers the Company's stock-based employee
compensation plans. The Compensation Committee's objectives in formulating the
Company's executive compensation program are: (i) to offer levels of
compensation which are competitive with those offered by other companies in
similar businesses; (ii) to compensate executives based on each executive's
level of responsibility and contribution to the Company's business goals; (iii)
to link compensation with the Company's financial performance; and (iv) to align
the interests of the Company's executives with the interests of the Company's
stockholders.
In the case of executive officers other than the Company's President and
chief executive officer, who is a founder and principal stockholder of the
Company, the Compensation Committee acts upon information provided to it by the
Company's President in response to the requirements of the Company's operations.
8
<PAGE> 11
During the fiscal year ended December 31, 1995, a principal objective of the
Compensation Committee remained the construction of arrangements that would be
effective in attracting executive management so as to build an organization
sufficient to support a larger customer base and anticipated sales growth. Over
the past year, the Company has successfully recruited or promoted personnel to
its key executive positions reporting to the President and chief executive
officer and, for example, promoted Michael Valiton, William Fischer and Stephen
Diamond to executive positions during 1995 (the last of whom resigned prior to
year end).
The compensation program for the Company's executives consists of: (i) base
salary; (ii) cash bonuses; and (iii) stock options. The Company's President and
chief executive officer has not been awarded any bonus amounts since the
inception of the Company, and has not participated in the Company's stock option
program.
(i) Base Salary. The Compensation Committee determines executive base
salaries by level of responsibility, individual performance and Company
performance, as well as by the need to provide a competitive package that allows
the Company to retain key executives. After reviewing individual and Company
performance and available information on salaries at other companies of similar
size, the President and chief executive officer makes recommendations to the
Compensation Committee concerning the base salaries of executive officers. The
Compensation Committee reviews and, with any changes it deems appropriate,
approves these recommendations for submission to the Board of Directors. Base
salary of the Company's President and chief executive officer during 1995 was
approximately $327,000 per annum. Base salary for the President (a founder and
principal stockholder of the Company) was established at the inception of the
Company and, through February 1993, modified by annual cost of living
adjustments. During the most recent fiscal year, base salary of the Company's
President was adjusted downwards, from $347,000 in the prior year, consistent
with the Company's cash conservation measures.
(ii) Cash Bonuses. The Company has in the past and may in the future award
cash bonuses to key management personnel based on the achievement of corporate
goals recommended by senior executive management and approved by the Board of
Directors, individual objectives established for executive management by the
Compensation Committee in discussions with the employee, and an evaluation of
executive management by the Compensation Committee. For the fiscal year ended
December 31, 1995, in view of the Company's objective of conserving cash, the
Company did not, generally, implement a cash bonus program, but awarded bonuses
in the amount of $10,000 to Wayne Benoit, former Executive Vice President, Chief
Operating Officer of the Company (in lieu of an adjustment in base salary), and
in the amount of $5,000 to Stephen M. Diamond, former Vice President, Marketing
and Account Management of the Company (in connection with his commencement of
employment with the Company), and relied on its stock option program for
additional discretionary incentives.
(iii) Stock Options. The primary purpose of the Company's stock option
program is to align the interests of the Company's executives officers more
closely with the interests of the Company's stockholders by offering the
executives an opportunity to benefit from increases in the market price of the
Common Stock. The Company's stock option program provides long-term incentives
that have enabled the Company to attract and retain key employees by encouraging
their ownership of Common Stock. In order more effectively to provide incentives
to option recipients, the Compensation Committee, during 1995, modified its
approach to grants so that one-quarter of new grants will typically become
exercisable on the first anniversary of grant with one-sixteenth of the
remainder becoming exercisable each quarter thereafter.
Each of the Company's current executive officers (other than Mr. Failing),
holds options previously granted under the Employee Option Plan. In selecting
individuals for options under the plan and determining the terms thereof, the
Compensation Committee may take into consideration any factors it deems
relevant, including present and potential contributions to the success of the
Company. The Compensation Committee's policy has, generally, been to award
options either in connection with new hires or upon promotion of an employee to
a position of enhanced responsibility.
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<PAGE> 12
During the year ended December 31, 1995, in addition to options covering
200,000 shares of Common Stock awarded to Mr. Benoit in replacement of options
covering the same number of shares surrendered contemporaneously with such
replacement, the Compensation Committee authorized option grants to officers
named in the Summary Compensation Table under "Executive Compensation" above
covering 100,000 shares of Common Stock, representing options with respect to
approximately 21% of the Common Stock covered by options granted that year (or
62% thereof, including Mr. Benoit's replacement options). The Compensation
Committee believes that its stock option program provides opportunities to
executives that are consistent with the returns that are generated on behalf of
the Company's stockholders.
(iv) Fiscal Year 1995 Repricing of Option. In March 1995, the Compensation
Committee determined that the purposes of the stock option program were not
being adequately achieved with respect to Wayne Benoit, then the Company's
Executive Vice President -- Chief Operating Officer. Although, in connection
with the Initial Public Offering in May 1993, the Company granted options, in
replacement of its prior existing performance incentive plan, for 725,104 shares
of Common Stock, at an exercise price of $.01 per share, the Company has since,
typically, granted options with an exercise price equal to the fair market value
at the date of grant. Accordingly, in 1994, Mr. Benoit was granted an option
covering 200,000 shares of Common Stock, in connection with the commencement of
his employment, exercisable at $8.50 per share, the fair market value of the
Common Stock at the date of grant. In March 1995, the Compensation Committee
determined that, since Mr. Benoit's option exercise price was at a level
substantially above the then current market value, it would be in the best
interests of the Company and the Company's stockholders to permit Mr. Benoit to
surrender all such options in exchange for options that were exercisable at
$5.63 per share (the then current market price of the Common Stock), that became
exercisable with respect to one-quarter of such options on April 25, 1995, the
first anniversary of the commencement of his employment, with an additional one-
sixteenth becoming exercisable every quarter thereafter.
------------------------
Section 162(m) ("Section 162") of the Internal Revenue Code of 1986, as
amended (the "Code"), generally limits federal income tax deductions paid after
1993 to the chief executive officer and to the four other most highly
compensated officers of the Company to a total of $1 million per year, but
contains an exception for performance based compensation that satisfies certain
conditions. The Company has not adopted an absolute policy regarding Section 162
and is currently studying the implications of Section 162 on its compensation
programs. In making compensation decisions, the Company will consider the net
cost of compensation to it and whether it is practicable and consistent with
other compensation objectives to qualify the Company's incentive compensation
under the applicable exemption of Section 162. The Company anticipates that
deductibility of compensation payments will be one among a number of factors
used in ascertaining appropriate levels or modes of compensation, and that the
Company will make its compensation decision based upon an overall determination
of what it believes to be in the best interests of its stockholders.
Compensation Committee
Norton Garfinkle
Paul A. Biddelman
Donald E. Zilkha
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1995, the members of the Company's
Compensation Committee were Norton Garfinkle, Paul A. Biddelman and Donald E.
Zilkha. In March 1995, the Company obtained a one-year, unsecured, revolving
credit facility of up to $5,000,000 (the "Revolving Credit Facility"),
$1,960,000 of which was committed by Garfinkle Limited Partnership II
("Garfinkle Partnership"), an affiliate of Mr. Garfinkle, $1,960,000 of which
was committed by Hanseatic (in which Mr. Biddelman is an
10
<PAGE> 13
officer), and $100,000 of which was committed by Mr. Zilkha. Borrowings accrued
interest, payable monthly, at a floating rate equal to 1% over prime. Through
July 1995, the Company accrued interest on the amounts borrowed in the aggregate
amount of $52,000 ($21,000 to the Garfinkle Partnership, $20,000 to Hanseatic
and $1,000 to Mr. Zilkha) and became obligated to pay a facility fee to the
lenders in the amount of $100,000 (allocable to them pro-rata based upon their
respective principal commitments).
In July 1995, the entire outstanding indebtedness under such facility was
surrendered, and the unused portion of the facility terminated, in connection
with the private sale by the Company of an aggregate of 85,000 shares of the
Company's Series A Cumulative, Convertible Preferred Stock, $1.00 par value
("Series A Preferred Stock"), at a per share price of $100. Of the shares of
Series A Preferred Stock issued at closing (the "Preferred Stock Closing"): (i)
42,600 shares were acquired by the Garfinkle Partnership, which surrendered
indebtedness in the outstanding principal amount of $1,176,000 and delivered
cash in the amount of $3,084,000 in payment of its subscription; (ii) 30,000
shares were acquired by Hanseatic, which surrendered indebtedness in the
outstanding principal amount of $1,176,000 and delivered cash in the amount of
$1,824,000 in payment of its subscription; and (iii) 1,400 shares were acquired
by Mr. Zilkha, who surrendered indebtedness in the outstanding principal amount
of $60,000 and delivered cash in the amount of $80,000 in payment of his
subscription. The Company extended to holders of Series A Preferred Stock
certain demand and incidental registration rights with respect to the Common
Stock issuable upon conversion thereof (the "Conversion Shares") which, in the
case of such demand rights, obligate the Company to register such shares, on two
occasions, provided that the holders of at least 500,000 shares notify the
Company that they intend to offer for sale in the aggregate at least 100,000
shares of Common Stock.
The subscription of the Garfinkle Partnership included its commitment in
certain circumstances to acquire up to an additional 35,000 shares of Series A
Preferred Stock, at a per share price of $100, prior to December 31, 1995, and
the Garfinkle Partnership, in turn, was granted the right to acquire such
additional shares, at its election, during such period subject to the terms of
its subscription agreement. As of December 31, 1995, all such additional shares
had been acquired, in exchange for cash in the amount of $3.5 million.
Dividends on each share of Series A Preferred Stock at the rate of $7.50
per annum were payable by the Company, at its election, in cash or in the form
of additional shares of Series A Preferred Stock valued at $100 per share. On
October 1, 1995, January 1, 1996 and April 1, 1996 (the "Dividend Payment
Dates") regular quarterly dividends on the Series A Preferred Stock were paid,
on a pro-rata basis for the period during which such shares were outstanding, to
holders of record of such stock on September 30, 1995, December 31, 1995 and
March 31, 1996, respectively, in the form of an aggregate of 5,556 additional
shares of Series A Preferred Stock (3,336 shares of which were issued to the
Garfinkle Partnership, 1,572 shares to Hanseatic, and 72 shares to Mr. Zilkha).
In July 1996, in connection with completion by the Company of its offshore
public offering of shares of Common Stock, in accordance with Regulation S under
the Securities Act of 1933, and the contemporaneous domestic private placement
(the "Private Placement") of additional shares of Common Stock to subscribers
including certain members of the Company's Board of Directors and their
affiliates, all shares of Series A Preferred Stock held by such parties were
converted into Conversion Shares pursuant to agreements entered into between the
Company and, respectively, the Garfinkle Partnership, Hanseatic and Mr. Zilkha,
upon which such holders became entitled to the amounts of $151,755, $59,197 and
$2,760, respectively, from the Company. Such amounts were applied by Garfinkle
Partnership and Mr. Zilkha, respectively, together with additional amounts paid
by such parties, to subscriptions in the Private Placement covering,
respectively, 200,781 shares and 45,672 shares of Common Stock, upon the same
terms as the other investors therein, which included the extension by the
Company of incidental registration rights covering such shares.
During the year ended December 31, 1995, the Company subleased to a company
owned by Mr. Garfinkle and Bruce F. Failing, Jr., President and a director of
the Company, approximately 3,500 square feet of space adjacent to its premises
in Wilton, Connecticut, at a rent equal to an allocated portion of the Company's
expense pursuant to the underlying lease, based on space occupied. During such
year, the Company was paid approximately $54,000 under such sublease
arrangements.
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<PAGE> 14
Under reorganization agreements entered into by the Company with the
limited partners of the Partnership and the stockholders of the Predecessor
Corporation, effectuating the Reorganization, the partners of the Partnership
agreed to the termination of the partnership agreement of the Partnership and
any ongoing related commitments, except for certain demand and incidental
registration rights and co-sale rights to the limited partners. In addition, the
former stockholders of the Predecessor Corporation, including Messrs. Garfinkle
and Failing and their respective affiliates and related family trusts, became
entitled to certain demand and incidental registration rights with respect to
shares of Common Stock issued to them in the Reorganization, which, in the case
of such demand registration rights operate pursuant to the standards applicable
to Conversion Shares.
INFORMATION CONCERNING CERTAIN STOCKHOLDERS
The stockholders (including any "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934) who, to the knowledge of the
Board of Directors of the Company, owned beneficially more than 5% of any class
of the outstanding voting securities of the Company as of October 1, 1996 and
all directors and executive officers as a group, and their respective
stockholdings as of such date (according to information furnished by them to the
Company), are set forth in the following table:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
- ------------------------------------------------------------------- --------------------- --------
<S> <C> <C>
Norton Garfinkle
133 East 62nd Street
New York, NY 10021(2)............................................ 7,890,758(3) 37.5%
Bruce F. Failing, Jr.
210 Round Hill Road
Greenwich, CT 06831(2)........................................... 3,145,637(4) 15.0
Fidelity International Limited
Pembroke Hall
42 Crow Lane
Hamilton, Bermuda................................................ 2,099,000(5) 10.0
Connecticut Development Authority
845 Brook Street
Rocky Hill, CT 06067............................................. 1,484,653(6) 6.6
Directors and Executive Officers
as a group (12 persons).......................................... 12,147,767(7) 57.8
</TABLE>
- ---------------
(1) Except as otherwise indicated, as of October 1, 1996 all of such shares are
owned with sole voting and investment power.
(2) Such stockholders are party to a stockholders agreement among Norton
Garfinkle, Bruce F. Failing, Jr., certain family trusts and partnerships,
and Elizabeth Z. Failing, as described below.
(3) Includes 600,000 shares held by Garfinkle Limited Partnership I and
6,489,970.5 shares held by Garfinkle Limited Partnership II, both Delaware
limited partnerships with respect to each of which G.F. Management Corp.
(all of the shares are held by Norton Garfinkle) acts as sole general
partner.
(4) Includes 1,318,489 shares beneficially owned by a trust established for the
benefit of Mr. Failing's children, 163,318 shares beneficially owned by
Elizabeth Z. Failing, Mr. Failing's sister, and 20,000 shares beneficially
owned jointly by Mr. Failing and his wife, Leigh Q. Failing.
(5) In a Statement on Schedule 13D filed with the Securities and Exchange
Commission by Fidelity International Limited ("FIL"), FIL has reported that
it beneficially owns such shares as investment adviser or the parent of the
investment adviser to a number of non-U.S. investment companies or
investment trusts.
(6) Represents (i) 699,724 shares issuable upon exercise of the Company's
warrants exercisable at October 1, 1996 and (ii) 784,929 shares issuable at
such date upon conversion of the Company's
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<PAGE> 15
convertible promissory note in the principal amount of $5,000,000. See
"Other Information Concerning Directors, Officers and Stockholders" below.
(7) Includes 12,600 shares beneficially owned by Jerry E. Morton, currently a
director of the Company who will not continue as a director after the
Meeting, 12,500 shares of which are issuable upon exercise of stock options
granted by the Company and exercisable within 60 days of October 1, 1996.
As of October 1, 1996, no executive officer or former executive officer of
the Company named in the Summary Compensation Table (according to information
furnished by them to the Company) owned beneficially any shares of Common Stock,
except for Bruce F. Failing, Jr., the Company's President and a director of the
company, and a nominee for election as director at the Meeting.
Messrs. Garfinkle and Failing, together with certain family trusts and
partnerships, and Mr. Failing's sister (each, together with his related parties,
a "Stockholder Group"), are parties to an agreement dated March 1993 (the
"Restated Stockholder Agreement"), under which: (i) both Stockholder Groups have
agreed that, through the year 2003, they will use their best efforts to provide
that the Board of Directors of the Company will consist of not more than seven
directors, six of whom will be designated by Mr. Garfinkle and Mr. Failing in
proportion to the respective beneficial holdings of shares of Common Stock of
the Garfinkle Stockholder Group and the Failing Stockholder Group, (ii) except
for sales effected pursuant to Rule 144 and transfers to affiliates, family
members or related trusts, no such Stockholder Group may transfer any shares of
Common Stock to any third party without first offering such shares to the other
Stockholder Group at the same price as offered by such third party, (iii)
through the year 2003, in the event a Stockholder Group proposes to transfer
shares of Common Stock to a third party in a transaction pursuant to which
control of the Company would change, the other Stockholder Group will have the
right, on the same terms, to participate in such transaction, and (iv) through
the year 2003, Mr. Garfinkle has the option to acquire at fair market value all
shares held by the Failing Stockholder Group upon the death or incapacity of Mr.
Failing, which option may be assigned to the Company, subject to the Company's
acceptance of such option. Such arrangements terminate in the event either
Stockholder Group owns less than ten percent of the outstanding Common Stock, or
if Messrs. Garfinkle and Failing are unable to elect at least a majority of the
Board of Directors of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of copies of reports received by it pursuant to
Section 16(a) of the Securities Exchange Act of 1934 and the written
representations of its directors and officers, and holders of more than ten
percent of any registered class of the Company's equity securities, the Company
believes that, during 1995 all filing requirements applicable to its directors,
officers and ten percent holders under said section were satisfied, except that
Bruce F. Failing, Jr. and Leigh Q. Failing each reported on Form 5 one joint
open market purchase of 5,000 shares of Common Stock.
OTHER INFORMATION CONCERNING DIRECTORS, OFFICERS AND STOCKHOLDERS
At October 1, 1996, Norton Garfinkle, Chairman of the Board and a director
of the Company, together with two affiliated limited partnerships, beneficially
owned approximately 37.5% of the outstanding Common Stock of the Company, and
Bruce F. Failing, Jr., President and a director of the Company, together with a
trust established for the benefit of his children, beneficially owned
approximately 15.0% of the outstanding Common Stock of the Company. See
"Compensation Committee Interlocks and Insider Participation" above for
information concerning the Revolving Credit Facility extended to the Company
during its most recent fiscal year, and subscription agreements to the Company's
Common Stock and Series A Preferred Stock, by Mr. Garfinkle, and by Paul A.
Biddelman and Donald E. Zilkha, both directors of the Company, or their
affiliates.
During the year ended December 31, 1995, Mr. Failing committed to $980,000
of the aggregate amount of the Revolving Credit Facility, in connection with
which, through July 1995, the Company accrued interest to him in the amount of
$10,000 and became obligated to pay the facility fee described under
"Compensation Committee Interlocks and Insider Participation" above. At the
Preferred Stock Closing, Mr. Failing
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<PAGE> 16
surrendered outstanding indebtedness in the amount of $588,000 and delivered
cash in the amount of $612,000 in payment of his subscription to 11,000 shares
of Series A Preferred Stock (at which time the unused potion of his commitment
under the Revolving Credit Facility was terminated), and became a party to the
demand and incidental registration rights extended by the Company. On the
Dividend Payment Dates, the Company paid an aggregate of 576 additional shares
of Series A Preferred Stock to Mr. Failing as regular quarterly dividends on his
shares of such stock held on such dates, respectively.
In connection with completion of the Private Placement, Mr. Failing
converted all shares of Series A Preferred Stock held by him into Conversion
Shares pursuant to an agreement entered into between the Company and him, upon
which he became entitled to the amount of $21,705 from the Company. Such amount
was applied, together with additional amounts paid by him, to an aggregate of
31,870 shares of Common Stock acquired in the Private Placement, upon the terms
described above. See "Compensation Committee Interlocks and Insider
Participation" above for information concerning amounts paid to the Company
during the year ended December 31, 1995 under a sublease with a company owned by
Messrs. Garfinkle and Failing, and certain demand and incidental registration
rights to which they became entitled with respect to shares of Common Stock
issued to them in the Reorganization.
During the year ended December 31, 1995, as a result of additional advances
by the Connecticut Development Authority (the "CDA") under the Company's
convertible note (the "CDA Note"), and the exercisability of the Company's
warrant (the "CDA Warrant") held by the CDA commencing in August 1995 on the
first anniversary of issue, the CDA became the beneficial owner of in excess of
5% of the outstanding Common Stock. At October 1, 1996, the Company was indebted
under the CDA Note in the aggregate principal amount of $5,000,000, which is
repayable in August 1999, accrues interest, payable monthly, at a rate of 7.4%
per annum ($210,000 paid during the year ended December 31, 1995) and is secured
by the Company's assets.
During 1995, the Company entered into agreements with the CDA, which became
effective upon consummation of the initial sale of the Series A Preferred Stock,
whereby, through August 12, 1997, the conversion price of the CDA Note was
reduced so as to be calculated at $3.00 plus the average market price of the
Common Stock during the 18 months prior to conversion, and thereafter at $3.00
plus the average market price of the Common Stock during the twelve months prior
to conversion. Pursuant to such agreements, and as a result of additional
provisions contained in the CDA Warrant, effective upon consummation of the sale
of the Series A Preferred Stock and issuance of the initial dividend thereon:
(i) through August 12, 1997, the exercise price of the CDA Warrant was reduced
so as to be calculated as $2.58 plus the average market price of the Common
Stock during the 18 months prior to exercise, and thereafter as $2.58 plus the
average market price of the Common Stock during the twelve months prior to
exercise, and (ii) the number of shares subject to purchase upon exercise of the
CDA Warrant was adjusted to 699,724.
The Company believes that the terms of the foregoing transactions between
the Company and its affiliates were no less favorable to the Company than it
could have obtained from unaffiliated third parties. The Company will continue
to sublease certain premises to a company owned by Messrs. Garfinkle and
Failing, and will remain indebted to the CDA in accordance with its existing
arrangements. As a matter of policy, all future transactions between the Company
and its affiliates will be on terms no less favorable to the Company than those
available with unaffiliated third parties.
II. AMENDMENT TO CERTIFICATE OF INCORPORATION
The Board of Directors of the Company, in September 1996, adopted
resolutions setting forth the proposed amendment to the first sentence of the
first paragraph of Article Fourth of the Certificate of Incorporation, declaring
the advisability of the amendment and calling for submission of the amendment
for approval at the Meeting.
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<PAGE> 17
The following is the text of the first sentence of the first paragraph of
Article Fourth of the Certificate of Incorporation of the Company, as proposed
to be amended:
FOURTH: The total number of shares of capital stock which the
corporation shall have authority to issue is 2,000,000 shares of
preferred stock, $1.00 par value per share ("Preferred Stock"), and
35,000,000 shares of common stock, $.01 par value per share ("Common
Stock").
The Company is presently authorized to issue 27,000,000 shares of capital
stock, of which 25,000,000 shares are Common Stock, $.01 par value, and
2,000,000 shares are Preferred Stock, $1.00 par value. At the close of business
on October 1, 1996, there were outstanding 21,034,195 shares of Common Stock. No
shares of Preferred Stock were outstanding at such date. At such date, an
additional 2,529,772 shares of Common Stock were reserved for possible future
issuance upon conversion of the CDA Note and exercise of outstanding stock
options and warrants and options that may be granted under the Company's
existing stock option plans. A further 625,000 shares are proposed to be
reserved under the terms of the amendments to, respectively, the Employee Option
Plan, described below under "III. Amendment to the 1993 Employee Stock Option
Plan", and the amendment to the Director Option Plan, described below under "IV.
Amendment to the 1993 Director Stock Option Plan", leaving 811,033 presently
authorized but unissued shares of Common Stock which will be available for
issuance. Holders of capital stock of the Company do not have any preemptive
rights to subscribe for or purchase any shares of capital stock of the Company.
The proposed amendment to the first sentence of the first paragraph of
Article Fourth of the Certificate of Incorporation will increase the number of
authorized shares of capital stock to 37,000,000 shares, of which 35,000,000
shares will be Common Stock, $.01 par value, and 2,000,000 shares will be
Preferred Stock, $1.00 par value. Thus, the proposed amendment will increase the
authorized number of shares of Common Stock from 25,000,000 to 35,000,000 shares
and the number of authorized shares of Preferred Stock will remain unchanged.
The proposed amendment to the first sentence of the first paragraph of Article
Fourth will not change any other aspect of Article Fourth. Approval of the
amendment to the first sentence of the first paragraph of Article Fourth of the
Certificate of Incorporation will not of itself cause any change in the capital
stock account or surplus account of the Company.
The overall effect of an issuance of additional shares of Common Stock may
be to render more difficult the accomplishment of any attempted takeover or
other change in control affecting the Company and/or the removal of the
Company's incumbent Board of Directors and management. Information with respect
to the ownership of shares of the Company's Common Stock by directors and
officers is discussed under the caption "I. Election of Directors" above. The
proposal to amend the Certificate of Incorporation to increase the number of
authorized shares of Common Stock is not being made as an anti-takeover measure,
nor is the proposal being made in response to any specific efforts known to
management to obtain control or accumulate the securities of the Company. The
Company's management has no knowledge of any such specific efforts.
Although no commitments have been made, and no particular transactions are
pending or intended, with respect to the issuance of any of the additional
shares which will be authorized by the amendment to the first sentence of the
first paragraph of Article Fourth, the Company continues actively to evaluate,
explore and have discussions with respect to alternatives for raising additional
capital, and the Board of Directors of the Company believes it is prudent to
have additional shares of Common Stock available for such purpose. Accordingly,
the additional shares may be used for any issuance in connection with future
financings, and also in connection with employee benefit plans or other
corporate purposes, and on such terms as the Board of Directors of the Company
may determine, unless the issuance is in connection with a transaction for which
stockholder approval is otherwise required under applicable law or the rules of
The Nasdaq Stock Market.
The affirmative vote of the holders of a majority of the issued and
outstanding shares of the Company's Common Stock is necessary for the approval
and adoption of the proposed amendment. In the opinion of the Board of
Directors, the increase in the authorized number of shares of Common Stock will
give the Company desired flexibility to meet possible future developments in the
Company's business. Accordingly, the Board urges stockholders to vote FOR
approval and adoption of the amendment to the Certificate of Incorporation.
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<PAGE> 18
III. AMENDMENT TO THE 1993 EMPLOYEE STOCK OPTION PLAN
At the Meeting, the Company will propose an amendment of the Employee
Option Plan in order to increase the number of shares of Common Stock issuable
pursuant to the exercise of options granted under such plan from 1,225,000 to
1,775,000.
In April 1993, the stockholders of the Predecessor Corporation approved the
Employee Stock Option Plan previously adopted by its Board of Directors and, as
part of the Reorganization, the Company assumed such plan. In June 1994, the
stockholders approved an increase in the number of authorized shares of Common
Stock available for issuance under the Employee Option Plan from 850,005 shares
to 1,225,000 shares, as previously approved by the Board of Directors. In March
and September 1996, respectively, the Board of Directors, subject to stockholder
approval and adoption, approved a further increase in the number of authorized
shares of Common Stock available for issuance under the Employee Option Plan
from 1,225,000 shares to 1,775,000 shares.
SUMMARY OF EMPLOYEE OPTION PLAN
Under the Employee Option Plan, options to purchase shares of Common Stock
may be granted to key employees, including executive officers, of the Company or
any subsidiary thereof, and to consultants and other individuals providing
services to the Company, through March 31, 2003. Options may not be granted
under the Employee Option Plan to any member of the Board of Directors of the
Company (whether or not a key employee or consultant of the Company or any
subsidiary).
The Employee Option Plan is administered by the Compensation Committee of
the Board of Directors. The Compensation Committee determines the persons who
are to receive options under the Employee Option Plan, the number of shares to
be subject to each option and whether such options will be incentive stock
options or non-qualified stock options. In selecting individuals for options and
determining the terms thereof, the Compensation Committee may take into
consideration any factors it deems relevant, including present and potential
contributions to the success of the Company. Options granted under the Employee
Option Plan must be exercised within a period fixed by the Compensation
Committee, which may not exceed ten years from the date of the grant of the
option or, in the case of incentive stock options granted to any holder on the
date of grant of more than ten percent of the total combined voting power of all
classes of stock of the Company, five years from the date of grant of the
option. Options may be made exercisable in whole or in installments, as
determined by the Compensation Committee.
Options under the Employee Option Plan may not be transferred other than by
will or by the laws of descent and distribution, and during the lifetime of an
optionee may be exercised only by the optionee. The exercise price of an option
under the Employee Option Plan may not be less than the par value per share of
the Common Stock, provided that no incentive stock options may be granted at an
option price which is less than the market value per share of the Common Stock
on the date of grant. In the case of incentive stock options granted to any
holder on the date of grant of more than ten per cent of the total combined
voting power of all classes of stock of the Company, the exercise price may not
be less than 110% of the fair market value of the Common Stock on the date of
grant. Unless designated as "incentive stock options" intended to qualify under
Section 422 of the Code, options which are granted under the Employee Option
Plan are intended to be "non-qualified stock options". The exercise price may be
paid in cash, shares of Common Stock owned by the optionee, or a combination of
both.
The Employee Option Plan provides that, in the event of changes in the
corporate structure of the Company or certain events affecting the Common Stock,
the Compensation Committee may, in its discretion, make adjustments with respect
to the number and kind of shares which may be issued under the Employee Option
Plan or which are covered by outstanding options, in the exercise price per
share, or both. The Employee Option Plan further provides that, in connection
with any merger or consolidation in which the Company is not the surviving
corporation or any sale or transfer by the Company of all or substantially all
of its assets or any tender offer or exchange offer for or the acquisition,
directly or indirectly, by any person or group of all or a majority of the then
outstanding voting securities of the Company, all outstanding options under the
Employee Option Plan will, at the election of the Compensation Committee, become
exercisable in
16
<PAGE> 19
full on and after (i) 15 days prior to the effective date of such merger,
consolidation, sale, transfer or acquisition or (ii) the date of commencement of
such tender offer or exchange offer, as the case may be.
The Board of Directors may terminate the Employee Option Plan at any time.
No termination or amendment of the Employee Option Plan may, without the consent
of the optionee, adversely affect the rights of such optionee under any option
held by such optionee.
TAX STATUS OF EMPLOYEE STOCK OPTIONS
For federal income tax purposes, an optionee under the Employee Option Plan
will not recognize any income upon the grant of a non-qualified or incentive
stock option. Upon the exercise of a non-qualified stock option granted under
the Employee Option Plan, the optionee will recognize ordinary income in an
amount equal to the excess, if any, of the fair market value of the option stock
at the time of exercise over the exercise price of the option. In certain
circumstances, where the shares are subject to a substantial risk of forfeiture
when acquired or where the optionee is an officer or 10% stockholder of the
Company, the date of taxation may be deferred unless the optionee files an
election under Section 83(b) of the Code. Subject to the limitations of Section
162(m) of the Code, the Company will be entitled to a tax deduction in the same
amount and at the same time as the optionee realizes such income. Upon the sale
of shares purchased upon such exercise, the optionee will realize capital gain
or loss measured by the difference between the amount realized on the sale and
the fair market value of the option stock at the time of exercise of the option.
Such capital gain or loss may be short-term or long-term, depending upon the
length of time such shares were held by the optionee.
In contrast, an optionee will not be taxed upon exercise of an incentive
stock option granted under the Employee Option Plan, and the Company will not be
entitled to a deduction from income in respect thereof. If the optionee retains
the shares transferred to him upon exercise of an incentive stock option granted
under the Employee Option Plan for more than one year after the date of issuance
of the stock and two years after the date of grant of the option, any gain or
loss realized on a subsequent sale of the shares by the optionee will be treated
as long-term capital gain or loss. If, on the other hand, the optionee sells the
shares within one year after the date of transfer or two years after the date of
grant of the option, the optionee will realize ordinary income, and the Company
will be entitled to a deduction from income, to the extent of the excess of the
value of the shares on the date of exercise or the amount realized on the sale
(whichever is less) over the exercise price. Any excess of the sale price over
the value of the shares on the date of exercise will be treated as capital gain.
The spread between the fair market value of the shares on the date of exercise
and the exercise price constitutes a tax preference item for purposes of the
alternative minimum tax which, under certain circumstances, could cause tax
liability as a result of the exercise.
The foregoing statements are based upon current federal income tax laws and
regulations and are subject to change if the tax laws and regulations, or
interpretations thereof, change.
NEW PLAN BENEFITS
The grant of options pursuant to the additional authorization proposed
under the Employee Option Plan to eligible employees and consultants, including
the individuals named in the Summary Compensation Table, is currently subject to
the discretion of the Compensation Committee. As of the date of this Proxy
Statement, there has been no action taken by the Compensation Committee with
respect to awards under the additional authorization proposed under the Employee
Option Plan, except for the grant, subject to stockholder approval and adoption
of amendments to such plan to be proposed at the Meeting, of options covering
7,500 shares of Common Stock.
The following table sets forth certain information regarding options
granted by the Company under the Employee Stock Option Plan, subject to
stockholder approval and adoption of amendments to such plan to be proposed at
the Meeting, and also regarding options granted by the Company under the
Director Option Plan, subject to stockholder approval and adoption of amendments
to such plan to be proposed at the Meeting (as described under the caption "IV.
Amendment to the 1993 Director Stock Option Plan" below), to: (i) the
17
<PAGE> 20
individuals named in the Summary Compensation Table, (ii) each other individual
who received 5% of the options so granted under such plans, respectively, and
(iii) the other groups specified below:
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
EMPLOYEE OPTION PLAN DIRECTOR OPTION PLAN
----------------------- -----------------------
NUMBER OF NUMBER OF
SECURITIES SECURITIES
DOLLAR UNDERLYING DOLLAR UNDERLYING
VALUE(1) OPTIONS(#) VALUE(1) OPTIONS(#)
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Bruce F. Failing, Jr. ........................... -- -- -- --
President(2)
Wayne Benoit..................................... -- -- -- --
Executive Vice President, Chief Operating
Officer(3)
James M. Nolan, Jr. ............................. -- -- -- --
Vice President, New Product Development
Michael R. Valiton............................... -- -- -- --
Senior Vice President, Technology and
Operations(4)
William B. Fischer............................... -- -- -- --
Vice President, Finance
Stephen M. Diamond............................... -- -- -- --
Vice President, Marketing and Account
Management(5)
Paul M. Patrick.................................. -- -- -- --
Vice President, Sales, North America
Executive Group.................................. -- -- -- --
Non-Executive Director Group..................... -- -- $1.875 72,500
Non-Executive Officer Employees Group............ $ 2.25 7,500 -- --
Additional Nominees for Election as Director(2):
Norton Garfinkle............................... -- -- -- --
Paul A. Biddelman.............................. -- -- 1.875 20,000
David Diamond.................................. -- -- 1.875 12,500
George B. Weathersby........................... -- -- 1.875 20,000
Donald E. Zilkha............................... -- -- 1.875 20,000
Associates of Directors, Executive Officers or
Nominees....................................... -- -- -- --
Others who received 5% or more of total options
granted:
Tracy L. Colson................................ 2.25 1,000 -- --
Customer Service Representative
Robert L. Doyle................................ 2.25 1,000 -- --
Customer Service Representative
Suzanne French................................. 2.25 1,000 -- --
Administrative Assistant
Ronald Levchuck................................ 2.25 1,000 -- --
Customer Service Representative
Kimberly A. Sophia............................. 2.25 3,500 -- --
Staff Accountant
</TABLE>
- ---------------
(1) Represents exercise price per share of Common Stock subject to option, in
each case equal to the fair market value thereof at the date of grant. At
October 15, 1996, the closing price per share of the Common Stock, as quoted
on The Nasdaq Stock Market, was $3.125.
(2) Mr. Failing is also a nominee for election as director.
(3) Mr. Benoit ceased to be an executive officer of the Company in March 1996.
(4) In March 1996, Mr. Valiton assumed the position of Senior Vice President,
Technology and Operations.
(5) Mr. Diamond ceased to be an executive officer of the Corporation in December
1995.
18
<PAGE> 21
AMENDMENT OF THE EMPLOYEE OPTION PLAN
As of October 1, 1996, an aggregate of 942,521 shares of Common Stock
remained subject to options granted and outstanding under the Employee Option
Plan (7,500 shares of which were subject to options granted subject to
stockholder approval and adoption of the amendment to the Employee Option Plan
described herein). As of such date, 279,881 shares of Common Stock had been
issued under the Employee Option Plan from its inception. On October 1, 1996,
the Company had approximately 58 full-time employees and 17 part-time employees.
There will be presented to the stockholders at the Meeting, a proposal to
amend the Employee Option Plan to increase from 1,225,000 to 1,775,000 the
number of shares of Common Stock available for options under the Employee Option
Plan as set forth below.
Section 3 of the Employee Option Plan would be amended so that the first
sentence thereof would provide as follows:
There shall be available for options under the Plan a total
of 1,775,000 shares of Common Stock, subject to any adjustments
which may be made pursuant to Section 5(f) hereof.
The amendment to the Employee Option Plan will not be made effective unless
it is approved and adopted by the holders of a majority of the shares of the
Company's Common Stock present in person or represented by proxy and entitled to
vote at the Meeting. The Board of Directors regards the number of shares
remaining available under the Employee Option Plan for new options as
insufficient for the future requirements of the Company. The Board of Directors
believes that the benefits of stockholder approval and adoption of the amendment
to the Employee Option Plan are desirable for the Company and will assist in
effectuating the objectives of the Employee Option Plan. Accordingly, the Board
urges stockholders to vote FOR approval and adoption of the amendment to the
Employee Option Plan.
IV. AMENDMENT TO THE 1993 DIRECTOR STOCK OPTION PLAN
At the Meeting, the Company will propose an amendment of the Director
Option Plan in order to increase the number of shares of Common Stock issuable
pursuant to the exercise of options granted under such plan from 50,000 to
125,000.
In April 1993, the stockholders of the Predecessor Corporation approved the
Director Option Plan previously adopted by its Board of Directors, and, as part
of the Reorganization, the Company assumed such plan. In June 1996, the Board of
Directors, subject to stockholder approval and adoption, approved an increase in
the number of authorized shares of Common Stock available for issuance under the
Director Option Plan from 50,000 shares to 125,000 shares.
SUMMARY OF DIRECTOR OPTION PLAN
Under the Director Option Plan, options to purchase shares of Common Stock
may be granted to directors of the Company, including officers, key employees
and consultants providing services to the Company, through March 31, 2003.
The Director Option Plan is administered by the Director Stock Option
Committee of the Board of Directors. The Director Stock Option Committee
determines the persons who are to receive options under the Director Option
Plan, the number of shares to be subject to each option and whether such options
will be incentive stock options or non-qualified stock options. In selecting
individuals for options and determining the terms thereof, the Director Stock
Option Committee may take into consideration any factors it deems relevant,
including present and potential contributions to the success of the Company.
Options granted under the Director Option Plan must be exercised within a period
fixed by the Director Option Committee, which may not exceed ten years from the
date of the grant of the option or, in the case of incentive stock options
granted to any holder on the date of grant of more than ten percent of the total
combined voting power of all
19
<PAGE> 22
classes of stock of the Company, five years from the date of grant of the
option. Options may be made exercisable in whole or in installments, as
determined by the Director Stock Option Committee.
Options under the Director Option Plan may not be transferred other than by
will or by the laws of descent and distribution, and during the life of an
optionee may be exercised only by the optionee. The exercise price of an option
under the Director Option Plan may not be less than par value per share of the
Common Stock provided that no incentive stock options may be granted at an
option price which is less than the market value per share of the Common Stock
on the date of grant. In the case of incentive stock options granted to any
holder on the date of grant of more than ten percent of the total combined
voting power of all classes of stock of the Company, the exercise price may not
be less than 110% of the fair market value of the Common Stock on the date of
grant. Unless designated as "incentive stock options" intended to qualify under
Section 422 of the Code, options which are granted under the Director Option
Plan are intended to be "non-qualified stock options". The exercise price may be
paid in cash, shares of Common Stock owned by the optionee, or a combination of
both.
The Director Option Plan provides that, in the event of changes in the
corporate structure of the Company or certain events affecting the Common Stock,
the Director Stock Option Committee may, in its discretion make adjustments with
respect to the number and kind of shares which may be issued under the Director
Option Plan or which are covered by outstanding options, in the exercise price
per share, or both. The Director Option Plan further provides that, in
connection with any merger or consolidation in which the Company is not the
surviving corporation or any sale or transfer by the Company of all or
substantially all of its assets or any tender offer or exchange offer for the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then outstanding voting securities of the Company, all outstanding
options under the Director Option Plan will, at the election of the Director
Stock Option Committee became exercisable in full on and after (i) 15 days prior
to the effective date of such merger, consolidation, sale, transfer or
acquisition or (ii) the date of commencement of such tender offer or exchange
offer, as the case may be.
The Board of Directors may terminate the Director Option Plan at any time.
No termination or amendment of the Director Option Plan may, without the consent
of the optionee, adversely affect the events of such optionee under any option
held by such optionee.
TAX STATUS OF DIRECTOR STOCK OPTIONS
For federal income tax purposes, an optionee under the Director Option Plan
will not recognize any income upon the grant of a non-qualified or incentive
stock option. Upon the exercise of a non-qualified stock option granted under
the Director Option Plan, the optionee will recognize ordinary income in an
amount equal to the excess, if any, of the fair market value of the option stock
at the time of exercise over the exercise price of the option. In certain
circumstances, where the shares are subject to a substantial risk of forfeiture
when acquired or where the optionee is an officer, director or 10% stockholder
of the Company, the date of taxation may be deferred unless the optionee files
an election under Section 83 (b) of the Code. Subject to the limitations of
Section 162 (m) of the Code, the Company will be entitled to a tax deduction in
the same amount and at the same time as the optionee realizes such income. Upon
the sale of shares purchased upon such exercise, the optionee will realize
capital gain or loss measured by the difference between the amount realized on
the sale and the fair market value of the option stock at the time of exercise
of the option. Such capital gain or loss may be short-term or long-term,
depending upon the length of time such shares were held by the optionee.
In contrast, an optionee will not be taxed upon exercise of an incentive
stock option granted under the Director Option Plan, and the Company will not be
entitled to a deduction from income in respect thereof. If the optionee retains
the shares transferred to him upon exercise of an incentive stock option granted
under the Director Option Plan for more than one year after the date of issuance
of the stock and two years after the date of grant of the option, any gain or
loss realized on a subsequent sale of the shares by the optionee will be treated
as long-term capital gain or loss. If, on the other hand, the optionee sells the
shares within one year after the date of transfer or two years after the date of
grant of the option, the optionee will realize ordinary income, and the Company
will be entitled to a deduction from income, to the extent of the excess of the
value
20
<PAGE> 23
of the shares on the date of exercise or the amount realized on the sale
(whichever is less) over the exercise price. Any excess of the sale price over
the value of the shares on the date of exercise will be treated as capital gain.
The spread between the fair market value of the shares on the date of exercise
and the exercise price constitutes a tax preference item for purposes of the
alternative minimum tax which, under certain circumstances, could cause tax
liability as a result of the exercise.
The foregoing statements are based upon current federal income tax laws and
regulations and are subject to change if the tax laws and regulations, or
interpretations thereof, change.
NEW PLAN BENEFITS
Employees (including individuals named in the Summary Compensation Table)
who are not directors are ineligible to participate in the Director Option Plan.
The table set forth under the caption "III. Amendment to the 1993 Employee Stock
Option Plan-New Plan Benefits" above contains certain information regarding
options granted by the Company under the Director Option Plan, subject to
stockholder approval and adoption of the amendments to such plan to be proposed
at the Meeting (and under the Employee Stock Option Plan, subject to stockholder
approval and adoption of the amendments to such plan to be proposed at the
Meeting), to: (i) the individuals named in the Summary Compensation Table, (ii)
each other individual who received 5% of the options so granted under such
plans, respectively, and (iii) the other groups therein specified.
AMENDMENT OF THE DIRECTOR OPTION PLAN
As of October 1, 1996, an aggregate of 85,000 shares of Common Stock were
subject to options granted and outstanding under the Director Option Plan
(72,500 shares of which were subject to options granted subject to stockholders
approval and adoption of the amendment to the Director Stock Option Plan
described herein). As of such date, no shares had been issued under the Director
Option Plan. On October 1, 1996, the Company had seven directors.
There will be presented to the stockholders at the Meeting, a proposal to
amend the Director Option Plan to increase from 50,000 to 125,000 the number of
shares of Common Stock available for options under the Director Option Plan as
set forth below.
Section 3 of the Director Option Plan would be amended so that the first
sentence thereof would provide as follows:
There shall be available for options under the Plan a total of 125,000
shares of Common Stock, subject to any adjustments which may be made pursuant to
Section 5(f) hereof.
The amendment to the Director Option Plan will not be made effective unless
it is approved and adopted by the holders of a majority of the shares of the
Company's Common Stock present in person or represented by proxy and entitled to
vote at the Meeting. The Board of Directors regards the number of shares
remaining available under the Director Option Plan for new options as
insufficient for the future requirements of the Company. The Board of Directors
believes that the benefits of stockholder approval and adoption of the amendment
to the Director Option Plan are desirable for the Company and will assist in
effectuating the objectives of the Director Option Plan. Accordingly, the Board
urges stockholders to vote FOR approval and adoption of the amendment to the
Director Option Plan.
V. RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Price Waterhouse LLP, independent
accountants, as the auditors of the Company for the year ending December 31,
1996. Such firm has examined the consolidated financial statements of the
Company for the year ended December 31, 1995. The Board of Directors considers
Price Waterhouse LLP to be eminently qualified.
One or more representatives of Price Waterhouse LLP will attend the
Meeting, will have an opportunity to make a statement and will respond to
appropriate questions from stockholders.
21
<PAGE> 24
VI. OTHER MATTERS
The Board of Directors of the Company does not know of any other matters
which may be brought before the Meeting. However, if any such other matters are
properly presented for action, it is the intention of the persons named in the
accompanying form of proxy to vote the shares represented thereby in accordance
with their judgment on such matters.
VII. MISCELLANEOUS
If the accompanying form of proxy is executed and returned, the shares
represented thereby will be voted in accordance with the terms of the proxy,
unless the proxy is revoked. If no directions are indicated in such proxy, the
shares represented thereby will be voted FOR approval and adoption of the
amendment to the Company's Certificate of Incorporation to increase the number
of authorized shares of Common Stock, FOR approval and adoption of the amendment
to the Employee Option Plan, FOR approval and adoption of the amendment to the
Director Option Plan and, in the election of the directors, in favor of the
nominees proposed by the Board of Directors. Any proxy may be revoked at any
time before it is exercised by giving written notice to the Secretary of the
Company prior to the actual vote at the Meeting. The casting of a later dated
ballot or proxy at the Meeting by a stockholder who may theretofore have given a
proxy will have the effect of revoking the initial proxy.
All costs relating to the solicitation of proxies will be borne by the
Company. Proxies may be solicited by officers, directors and regular employees
of the Company and its subsidiaries personally, by mail or by telephone or
telegraph, and the Company may pay brokers and other persons holding shares of
stock in their names or those of their nominees for the reasonable expenses in
sending soliciting material to their principals.
It is important that proxies be returned promptly. Stockholders who do not
expect to attend the Meeting in person are urged to mark, sign and date the
accompanying form of proxy and mail it in the enclosed return envelope, which
requires no postage if mailed in the United States, so that their votes can be
recorded.
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1995 (the "Annual Report") accompanies this Proxy Statement. The Annual
Report is not to be deemed part of this Proxy Statement.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1996 Annual Meeting
of Stockholders of the Company must be received by the Company by July 8, 1997
in order to be considered for inclusion in the Company's Proxy Statement
relating to such Meeting.
NORTON GARFINKLE,
Chairman of the Board and Secretary
Wilton, Connecticut
November 5, 1996
22
<PAGE> 25
APPENDIX 1
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
1993 EMPLOYEE STOCK OPTION PLAN
1. Purposes of Plan. The purposes of this Plan, which shall be
known as the Electronic Retailing Systems International, Inc. 1993 Employee
Stock Option Plan, and is hereinafter referred to as the "Plan", are (i) to
provide incentives for key employees of Electronic Retailing Systems
International, Inc. (the "Company") and any parent and subsidiary corporations
(within the respective meanings of Sections 424(e) and 424(f) of the Internal
Revenue Code of 1986, as amended [the "Code"], and referred to herein as
"Parent" and "Subsidiary", respectively), and to consultants and other
individuals providing services to such companies, by encouraging their ownership
of the common stock, $.01 par value (the "Common Stock"), of the Company, and
(ii) to aid the Company in retaining such key employees and other persons, upon
whose efforts the Company's success and future growth depends, and attracting
other such employees and other persons.
2. Administration. The Plan shall be administered by the
Compensation Committee (the "Committee") of the Board of Directors, as
hereinafter provided. Subject to the terms of the Plan, the Committee shall have
plenary authority to determine the key employees, consultants and other
individuals to whom options are to be granted under the Plan, the number of
shares to be subject to each such option, the terms and conditions upon which
the options are granted and are exercisable and whether such options will be
incentive stock options or non-qualified stock options. For purposes of
administration, the Committee, subject to the terms of the Plan, shall have
plenary authority to establish such rules and regulations, make such
determinations and interpretations and take such other administrative actions as
it deems necessary or advisable. All determinations and interpretations made by
the Committee shall be final, conclusive and binding on all persons, including
Optionees (as hereinafter defined) and their legal representatives and
beneficiaries.
The Committee shall be appointed from time to time by the
Board of Directors and shall consist of not less than two of its members. The
Board of Directors shall designate one of the members of the Committee as its
Chairman. The Committee shall hold its meetings at such times and at such places
as it may determine. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members. Any
decision or determination reduced to writing and signed by all members shall be
as effective as if it had been made by a majority vote at a meeting duly called
and held. The Committee may appoint a secretary (who need not be a member of the
Committee). No member of the Committee shall be liable for any act or omission
with respect to his service on the Committee if he acts in good faith and in a
manner he reasonably believes to be in or not opposed to the best interests of
the Company. Service on the
<PAGE> 26
Committee shall constitute service as a director of the Company for all
purposes.
3. Stock Available for Options. There shall be available for
options under the Plan a total of 1,775,000 shares of Common Stock, subject to
any adjustments which may be made pursuant to Section 5(f) hereof. Shares of
Common Stock used for purposes of the Plan may be either authorized and unissued
shares, or previously issued shares held in the treasury of the Company, or
both. Shares of Common Stock covered by options which have terminated or expired
prior to exercise shall be available for further options hereunder.
4. Eligibility. Options under the Plan may be granted to key
employees of the Company or any Parent or Subsidiary thereof, including officers
of the Company or any Parent or Subsidiary thereof, and to consultants and other
individuals providing services to the Company or any Parent or Subsidiary.
Options may not be granted under the Plan to any member of the Board of
Directors of the Company (whether or not a key employee of, or a consultant or
other individual providing services to, the Company or any Parent or
Subsidiary). Options may be granted to eligible individuals whether or not they
hold or have held options previously granted under the Plan or otherwise granted
or assumed by the Company. In selecting individuals for options, the Committee
may take into consideration any factors it may deem relevant, including its
estimate of the individual's present and potential contributions to the success
of the Company and/or any Parent or Subsidiary thereof. Service as a consultant
of or to the Company or any Parent or Subsidiary shall be considered employment
for purposes of the Plan (and the period of such service shall be considered the
period of employment for purposes of Section 5(d) of the Plan); provided,
however, that incentive stock options may be granted under the Plan only to an
individual who is an "employee" (as such term is used in Section 422 of the
Code) of the Company or any Subsidiary or Parent.
5. Terms and Conditions of Options. The Committee shall, in
its discretion, prescribe the terms and conditions of the options to be granted
hereunder which terms and conditions need not be the same in each case, subject
to the following:
(a) Option Price. The price at which each share of
Common Stock covered by an option granted under the Plan may be purchased shall
be determined by the Committee and shall not be less than the par value per
share of Common Stock. The date of the grant of an option shall be the date
specified by the Committee in its grant of the option.
(b) Option Period. The period for exercise of an
option shall in no event be more than ten years from the date of grant. Options
may, in the discretion of the Committee, become
2
<PAGE> 27
vested and be made exercisable in installments during the option period. Any
shares not purchased on any applicable installment date may be purchased
thereafter at any time before the expiration of the option period.
(c) Exercise of Options. In order to exercise an
option, the holder thereof (the "Optionee") shall deliver to the Company written
notice specifying the number of shares of Common Stock to be purchased, together
with cash or a certified or bank cashier's check payable to the order of the
Company in the full amount of the purchase price therefor; provided that, for
the purpose of assisting an Optionee to exercise an option, the Company may make
loans to the Optionee or guarantee loans made by third parties to the Optionee,
on such terms and conditions as the Board of Directors may authorize and
approve; and provided further that such purchase price may be paid in shares of
Common Stock owned by the Optionee having a market value on the date of exercise
equal to the aggregate purchase price, or in a combination of cash and Common
Stock. For purposes of the Plan, the market value per share of Common Stock
shall be the last sale price regular way on the date of reference, or, in case
no sale takes place on such day, the average of the closing bid and asked prices
regular way, in either case on the principal national securities exchange on
which the Common Stock is listed or admitted to trading, or if the Common Stock
is not listed or admitted to trading on any national securities exchange, the
last sale price of the Common Stock as reported on the National Association of
Securities Dealers Automated Quotation ("NASDAQ") National Market System on such
date, or if the Common Stock is not so reported, the average of the closing high
bid and low asked prices of the Common Stock in the over-the-counter market on
such date, as reported on the NASDAQ system, or if there are no such prices
reported on the NASDAQ system on such date, as furnished to the Committee by a
New York Stock Exchange member selected from time to time by the Committee for
such purpose. If there is no bid or asked price reported on any such date, the
market value shall be determined by the Committee in accordance with the
regulations promulgated under Section 2031 of the Code, or by any other
appropriate method selected by the Committee. An Optionee shall have none of the
rights of a stockholder until the shares of Common Stock are issued to him. An
option may not be exercised for less than ten shares of Common Stock, or the
number of shares of Common Stock remaining subject to such option, whichever is
smaller.
(d) Effect of Termination of Employment. An option
may not be exercised after the Optionee has ceased to be in the employ of the
Company or any Parent or Subsidiary, except that:
(i) if, subsequent to any vesting date specified in the
option, the Optionee's employment is terminated by action of his
employer for reasons other than "cause" (as hereinafter defined), or by
the Optionee (unless his employer shall have
3
<PAGE> 28
grounds to terminate his employment for "cause"), the option
may be exercised by the Optionee within the period specified
in the terms of the option;
(ii) In the event of the death of the Optionee after
termination of employment covered by (i) above, the person or persons
to whom his rights are transferred by will or the laws of descent and
distribution shall have a period specified in the terms of the option
to exercise such option;
(iii) in the event of the death of the Optionee while
employed, the person or persons to whom the Optionee's rights are
transferred by will or the laws of descent and distribution shall have
a period specified in the terms of the option to exercise such option.
For purposes hereof "cause" means (i) an Optionee's conviction of a
felony involving moral turpitude with respect to the business of the Company or
any Parent or Subsidiary thereof, (ii) an Optionee's willful violation of
directions of the Board or the Chief Executive Officer of the Company or any
Parent or Subsidiary thereof, (iii) an Optionee's engaging in conduct which
constitutes willful neglect or willful misconduct in connection with the
performance of his duties or (iv) an Optionee's engaging in conduct which
violates the terms or conditions of his option grant. Nothing in the Plan or in
any option granted pursuant to the Plan (in the absence of an express provision
to the contrary) shall confer on any individual any right to continue in the
employ of the Company or any Parent or Subsidiary thereof or interfere in any
way with the right of the Company to terminate his employment at any time.
(e) Nontransferability of Options. During the
lifetime of an Optionee, options held by such Optionee shall be exercisable only
by him. No option shall be transferable other than by will or by the laws of
descent and distribution.
(f) Adjustments for Change in Stock Subject to Plan
and Other Events. In the event of a reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation, rights
offering, or any other change in the corporate structure or shares of the
Company, the Committee shall make such adjustments, if any, as it deems
appropriate in the number and kind of shares subject to the Plan, in the number
and kind of shares covered by outstanding options, or in the option price per
share.
(g) Acceleration of Exercisability of Options Upon
Occurrence of Certain Events. In connection with any merger or consolidation in
which the Company is not the surviving corporation or any sale or transfer by
the Company of all or substantially all its assets or any tender offer or
exchange offer
4
<PAGE> 29
for or the acquisition, directly or indirectly, by any person or group of all or
a majority of the then outstanding voting securities of the Company, all
outstanding options under the Plan shall, at the election of the Committee,
become exercisable in full, notwithstanding any other provision of the Plan or
of any outstanding options granted thereunder, on and after (1) the fifteenth
day prior to the effective date of such merger, consolidation, sale, transfer or
acquisition or (ii) the date of commencement of such tender offer or exchange
offer, as the case may be. The provisions of the foregoing sentence shall apply
to any outstanding options which are incentive stock options to the extent
permitted by Section 422(d) of the Code and such outstanding options in excess
thereof shall, immediately upon the occurrence of the event described in clause
(i) and (ii) of the foregoing sentence, be treated for all purposes of the plan
as nonstatutory stock options and shall be immediately exercisable as such as
provided in the foregoing sentence. Notwithstanding the foregoing, in no event
shall any option be exercisable after the date of termination of the exercise
period of such option specified in Sections 5(b), 5(d) and 6.
(h) Registration, Listing and Qualification Shares of
Stock. Each option shall be subject to the requirement that if at any time the
Board of Directors shall determine that the registration, listing or
qualification of the shares of Common Stock covered thereby upon any securities
exchange or under any federal or state law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the granting of such option or the purchase of shares of Common
Stock thereunder, no such option may be exercised unless and until such
registration, listing, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Board of
Directors. The Company may require that any person exercising an option shall
make such representations and agreements and furnish such information as it
deems appropriate to assure compliance with the foregoing or any other
applicable legal requirement.
(i) Other Terms and Conditions. The Committee may
impose such other terms and conditions, not inconsistent with the terms hereof,
on the grant or exercise of options, as it deems advisable.
6. Provisions Applicable to Incentive Stock Options. The
Committee may, in its discretion, grant "incentive stock options" (within the
meaning of Section 422 of the Code) under the Plan to eligible employees,
provided, however, that: (a) no such incentive stock option shall be granted at
an option price which is less than the market value per share of Common Stock on
the date of the grant; (b) no such incentive stock option shall be issued to any
one Optionee if the aggregate fair market value, determined at the time of the
grant of such incentive stock options, of the
5
<PAGE> 30
shares with respect to which such incentive stock options are exercisable for
the first time by such Optionee during any calendar year, together with all
options under any other incentive stock option plan of the Company exercisable
during such year, exceeds $100,000; (c) no such incentive stock option shall be
granted to any Optionee who at the time such option is granted owns more than 10
percent of the total combined voting stock of the Company unless (i) the option
price is not less than 110 percent of the fair market value per share of stock
on the date of the grant, and (ii) the option is not exercisable after five
years from the date such option is granted; (d) Section 5(d) hereof shall not
(except for the definition of "cause" thereunder) apply to any incentive stock
option; and (e) no such incentive stock option may be exercised after the
Optionee has ceased to be in the employ of the Company or any Parent or
Subsidiary, except (i) if the Optionee's employment is terminated by action of
his employer for reasons other than "cause", or by reason of disability or
retirement under any retirement plan maintained by the Company or any Parent or
Subsidiary thereof, the incentive stock option may be exercised by the Optionee
within 30 days after such termination, but only as to any shares exercisable on
the date the Optionee's employment so terminates, and (ii) in the event of the
death of the Optionee while employed, the person or persons to whom his rights
are transferred by will or the laws of descent and distribution shall have a
period of one year from the date of the Optionee's death to exercise any
incentive stock options which were exercisable by the Optionee at the time of
his death.
7. Withholding Tax. Upon the exercise of an option granted
pursuant to the Plan, or the disposition by any person of shares of Common Stock
acquired pursuant to the exercise of an option granted pursuant to the Plan, the
Company shall have the right to require such person to pay the Company the
amount of any taxes which the Company may be required to withhold with respect
to such shares.
8. Amendment and Termination. Unless the Plan shall
theretofore have been terminated as hereinafter provided, the Plan shall
terminate on, and no option shall be granted thereunder after March 31, 2003;
provided, however, that the Board of Directors may at any time prior to that
date terminate the Plan. The Board of Directors may at any time amend the Plan;
provided, however, that, except as contemplated in Section 5(f) hereof, the
Board of Directors shall not, without approval by a majority of the votes cast
by the stockholders of the Company at a meeting of stockholders at which a
proposal to amend the Plan is voted upon: (i) increase the maximum number of
shares of Common Stock for which options may be granted under the Plan, (ii)
change the formula as to minimum option prices, (iii) extend the period during
which options may be granted or exercised, or (iv) amend the requirements as to
the class of persons eligible to receive options. No termination or amendment of
the Plan may, without the consent of an
6
<PAGE> 31
Optionee, adversely affect the rights of such Optionee under any option held by
such Optionee.
9. Other Actions. Nothing contained in the Plan shall be
construed to limit the authority of the Company to exercise its corporate rights
and powers, including but not by way of limitation, the right of the Company to
grant or assume options for proper corporate purposes other than under the Plan
with respect to any employee or other person, firm, corporation or association.
7
<PAGE> 32
APPENDIX 2
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
1993 DIRECTOR STOCK OPTION PLAN
1. Purposes of Plan. The purposes of this Plan, which shall be
known as the Electronic Retailing Systems International, Inc. 1993 Director
Stock Option Plan, and is hereinafter referred to as the "Plan", are (i) to
provide incentives for members of the Board of Directors of Electronic Retailing
Systems International, Inc. (the "Company") by encouraging their ownership of
the common stock, $.01 par value (the "Common Stock"), of the Company, and (ii)
to aid the Company in retaining such directors, upon whose efforts the Company's
success and future growth depends, and attracting other such directors.
2. Administration. The Plan shall be administered by the
Director Stock Option Committee (the "Committee") of the Board of Directors, as
hereinafter provided. Subject to the terms of the Plan, the Committee shall have
plenary authority to determine the directors to whom options are to be granted,
the number of shares to be subject to each such option, the terms and conditions
upon which the options are granted and are exercisable, and whether such options
will be incentive stock options or non-qualified stock options. For purposes of
administration, the Committee, subject to the terms of the Plan, shall have
plenary authority to establish such rules and regulations, make such
determinations and interpretations, and take such other administrative actions
as it deems necessary or advisable. All determinations and interpretations made
by the Committee shall be final, conclusive and binding on all persons,
including Optionees (as hereinafter defined) and their legal representatives and
beneficiaries.
The Committee shall be appointed from time to time by the
Board of Directors and shall consist of not less than two of its members. The
Board of Directors shall designate one of the members of the Committee as its
Chairman. The Committee shall hold its meetings at such times and at such places
as it may determine. A majority of its members shall constitute a quorum. All
determinations of the Committee shall be made by a majority of its members. Any
decision or determination reduced to writing and signed by all members shall be
as effective as if it had been made by a majority vote at a meeting duly called
and held. The Committee may appoint a secretary (who need not be a member of the
Committee). No member of the Committee shall be liable for any act or omission
with respect to his service on the Committee if he acts in good faith and in a
manner he reasonably believes to be in or not opposed to the best interests of
the Company. Service on Committee shall constitute service as a director of the
Company for all purposes.
3. Stock Available for Options. There shall be available for
options under the Plan a total of 125,000 shares of Common Stock, subject to any
adjustments which may be made pursuant
<PAGE> 33
to Section 5(f) hereof. Shares of Common Stock used for purposes of the Plan may
be either authorized and unissued shares, or previously issued shares held in
the treasury of the Company, or both. Shares of Common Stock covered by options
which have terminated or expired prior to exercise shall be available for
further options hereunder.
4. Eligibility. Options under the Plan may be granted to
directors of the Company (including officers, key employees and consultants of
the Company). Options may be granted to such directors whether or not they hold
or have held options previously granted under the Plan or otherwise granted or
assumed by the Company. In selecting directors for options, the Committee may
take into consideration any factors it may deem relevant, including its estimate
of the director's present and potential contributions to the success of the
Company.
5. Terms and Conditions of Options. The Committee shall, in
its discretion, prescribe the terms and conditions of the options to be granted
hereunder which terms and conditions need not be the same in each case, subject
to the following:
(a) Option Price. The price at which each share of
Common Stock covered by an option granted under the Plan may be purchased shall
be determined by the Committee and shall not be less than the par value per
share of Common Stock. The date of the grant of an option shall be the date
specified by the Committee in its grant of the option.
(b) Option Period. The period for exercise of an
option shall in no event be more than ten years from the date of grant. Options
may, in the discretion of the Committee, become vested and be made exercisable
in installments during the option period. Any shares not purchased on any
applicable installment date may be purchased thereafter at any time before the
expiration of the option period.
(c) Exercise of Options. In order to exercise an
option, the holder thereof (the "Optionee") shall deliver to the Company written
notice specifying the number of shares of Common Stock to be purchased, together
with cash or a certified or bank cashier's check payable to the order of the
Company in the full amount of the purchase price therefor; provided that, for
the purpose of assisting an Optionee to exercise an option, the Company may make
loans to the Optionee or guarantee loans made by third parties to the Optionee,
on such terms and conditions as the Board of Directors may authorize; and
provided further that such purchase price may be paid in shares of Common Stock
owned by the Optionee having a market value on the date of exercise equal to the
aggregate purchase price, or in a combination of cash and Common Stock. For
purposes of the Plan, the market value per share of Common Stock shall be the
last sale price regular way on the date
2
<PAGE> 34
of reference, or, in case no sale takes place on such day, the average of the
closing bid and asked prices regular way, in either case on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading, or if the Common Stock is not listed or admitted to trading on any
national securities exchange, the last sale price of the Common Stock as
reported on the National Association of Securities Dealers Automated Quotation
("NASDAQ") National Market System on such date, or if the Common Stock is not so
reported, the average of the closing high bid and low asked prices of the Common
Stock in the over-the-counter market on such date, as reported on the NASDAQ
system, or if there are no such prices reported on the NASDAQ system on such
date, as furnished to the Committee by a New York Stock Exchange member selected
from time to time by the Committee for such purpose. If there is no bid or asked
price reported on any such date, the market value shall be determined by the
Committee in accordance with the regulations promulgated under Section 2031 of
the Code, or by any other appropriate method selected by the Committee. An
Optionee shall have none of the rights of a stockholder until the shares of
Common Stock are issued to him. An option may not be exercised for less than
1,000 shares of Common Stock, or the number of shares of Common Stock remaining
subject to such option, whichever is smaller.
(d) Effect of Termination of Service. An option may
not be exercised after the Optionee has ceased to be in the service of the
Company or any parent or subsidiary corporations (within the respective meanings
of Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended
[the "Code"], and referred to herein as "Parent" or "Subsidiary", respectively),
whether as a director of the Company or an employee or consultant of the Company
or any Parent or Subsidiary thereof, except in the following circumstances:
(i) if, subsequent to any vesting date specified in the
option: (x) the Optionee's service as a director is terminated for
reasons other than "cause" (as hereinafter defined), or by the Optionee
(unless the Company or any Parent or Subsidiary thereof shall have
grounds to terminate his service for "cause") and (y) the Optionee is
not an employee or consultant of the Company or any Parent or
Subsidiary thereof; or his employment is terminated for reasons other
than "cause", or by the Optionee (unless his employer shall have
grounds to terminate his services for "cause"); the option may be
exercised by the Optionee, within the period specified in the terms of
the option after the last such termination;
(ii) in the event of the death of the Optionee after
termination of service and/or employment covered by (i) above, the
person or persons to whom his rights are transferred by will or the
laws of descent and
3
<PAGE> 35
distribution shall have a period specified in the terms of the option
to exercise such option;
(iii) in the event of the death of the Optionee while serving
as a director or employee, the person or persons to whom the Optionee's
rights are transferred by will or the laws of descent and distribution
shall have a period specified in the terms of the option to exercise
such option.
For purposes of this Section 5(d), service as a consultant of
or to the Company or any Parent or Subsidiary shall be considered employment,
and the period of such service shall be considered the period of employment;
provided, however, that incentive stock options may be granted under the Plan
only to a director who is an "employee" (as such term is used in Section 422 of
the Code) of the Company or any Subsidiary or Parent. For purposes hereof
"cause" means (i) an Optionee's conviction of a felony involving moral turpitude
with respect to the business of the Company or any Parent or Subsidiary thereof,
(ii) an Optionee's engaging in conduct which constitutes willful neglect or
willful misconduct in connection with the performance of his duties, (iii) an
Optionee's engaging in conduct which violates the terms or conditions of his
option grant, or (iv) during any period in which the optionee is not a director
of the Company or any Parent or Subsidiary thereof, his willful violation of
directions of the Board or the Chief Executive Officer of the Company or any
Parent or Subsidiary thereof. Nothing in the Plan or in any option granted
pursuant to the Plan (in the absence of an express provision to the contrary)
shall confer on any individual any right to continue in the service of the
Company or any Parent or Subsidiary thereof or interfere in any way with the
right of the Company to terminate his service.
(e) Nontransferability of Options. During the
lifetime of an Optionee, options held by such Optionee shall be exercisable only
by him. No option shall be transferable other than by will or by the laws of
descent and distribution.
(f) Adjustments for Change in Stock Subject to Plan
and Other Events. In the event of a reorganization, recapitalization, stock
split, stock dividend, combination of shares, merger, consolidation, rights
offering, or any other change in the corporate structure or shares of the
Company, the Committee shall make such adjustments, if any, as it deems
appropriate in the number and kind of shares subject to the Plan, in the number
and kind of shares covered by outstanding options, or in the option price per
share.
4
<PAGE> 36
(g) Acceleration of Exercisability of Options Upon
Occurrence of Certain Events. In connection with any merger or consolidation in
which the Company is not the surviving corporation or any sale or transfer by
the Company of all or substantially all its assets or any tender offer or
exchange offer for or the acquisition, directly or indirectly, by any person or
group of all or a majority of the then outstanding voting securities of the
Company, all outstanding options under the Plan shall, at the election of the
Committee, become exercisable in full, notwithstanding any other provision of
the Plan or of any outstanding options granted thereunder, on and after (1) the
fifteenth day prior to the effective date of such merger, consolidation, sale,
transfer or acquisition or (ii) the date of commencement of such tender offer or
exchange offer, as the case may be. The provisions of the foregoing sentence
shall apply to any outstanding options which are incentive stock options to the
extent permitted by Section 422(d) of the Code and such outstanding options in
excess thereof shall, immediately upon the occurrence of the event described in
clause (i) and (ii) of the foregoing sentence, be treated for all purposes of
the plan as nonstatutory stock options and shall be immediately exercisable as
such as provided in the foregoing sentence. Notwithstanding the foregoing, in no
event shall any option be exercisable after the date of termination of the
exercise period of such option specified in Sections 5(b), 5(d) and 6.
(h) Registration, Listing and Qualification Shares of
Stock. Each option shall be subject to the requirement that if at any time the
Board of Directors shall determine that the registration, listing or
qualification of the shares of Common Stock covered thereby upon any securities
exchange or under any federal or state law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or in
connection with, the granting of such option or the purchase of shares of Common
Stock thereunder, no such option may be exercised unless and until such
registration, listing, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Board of
Directors. The Company may require that any person exercising an option shall
make such representations and agreements and furnish such information as it
deems appropriate to assure compliance with the foregoing or any other
applicable legal requirement.
(i) Other Terms and Conditions. The Committee may
impose such other terms and conditions, not inconsistent with the terms hereof,
on the grant or exercise of options, as it deems advisable.
6. Provisions Applicable to Incentive Stock Options. The
Committee may, in its discretion, grant "incentive stock options" (within the
meaning of Section 422 of the Code), under the Plan to directors provided,
however, that: (a) no such incentive
5
<PAGE> 37
stock option shall be issued to a director of the Company who is not also an
employee or officer of the Company; (b) no such incentive stock option shall be
granted at an option price which is less than the market value per share of
Common Stock on the date of the grant; (c) no such incentive stock option shall
be issued to any one Optionee if the aggregate fair market value, determined at
the time of the grant of such incentive stock options, of the shares with
respect to which such incentive stock options are exercisable for the first time
by such Optionee during any calendar year, together with all options under any
other incentive stock option plan of the Company exercisable during such year,
exceeds $100,000; (d) no such incentive stock option shall be granted to any
Optionee who at the time such option is granted owns more than 10 percent of the
total combined voting stock of the Company unless (i) the option price is not
less than 110 percent of the fair market value per share of stock on the date of
the grant, and (ii) the option is not exercisable after five years from the date
such option is granted; and (e) Section 5(d) hereof shall not (except for the
definition of "cause") apply to any incentive stock option; and (f) no such
incentive stock option may be exercised after the Optionee has ceased to be in
the employ of the Company or any Parent or Subsidiary, except (i) if the
Optionee's employment is terminated by action of his employer for reasons other
than "cause", or by reason of disability or retirement under any retirement plan
maintained by the Company or any Parent or Subsidiary thereof, the incentive
stock option may be exercised by the Optionee within 30 days after such
termination, but only as to any shares exercisable on the date the Optionee's
employment so terminates, and (ii) in the event of the death of the Optionee
while employed, the person or persons to whom his rights are transferred by will
or the laws of descent and distribution shall have a period of one year from the
date of the Optionee's death to exercise any incentive stock options which were
exercisable by the Optionee at the time of his death.
7. Withholding Tax. Upon the exercise of an option granted
pursuant to the Plan, or the disposition by any person of shares of Common Stock
acquired pursuant to the exercise of an option granted pursuant to the Plan, the
Company shall have the right to require such person to pay the Company the
amount of any taxes which the Company may be required to withhold with respect
to such shares.
8. Amendment and Termination. Unless the Plan shall
theretofore have been terminated as hereinafter provided, the Plan shall
terminate on, and no option shall be granted thereunder after March 31, 2003;
provided, however, that the Board of Directors may at any time prior to that
date terminate the Plan. The Board of Directors may at any time amend the Plan;
provided, however, that, except as contemplated in Section 5(f) hereof, the
Board of Directors shall not, without approval by a majority of the votes cast
by the stockholders of the Company at a meeting of stock-
6
<PAGE> 38
holders at which a proposal to amend the Plan is voted upon: (i) increase the
maximum number of shares of Common Stock for which options may be granted under
the Plan, (ii) change the formula as to minimum option prices, (iii) extend the
period during which options may be granted or exercised, or (iv) amend the
requirements as to the class of persons eligible to receive options. No
termination or amendment of the Plan may, without the consent of an Optionee,
adversely affect the rights of such Optionee under any option held by such
Optionee.
9. Other Actions. Nothing contained in the Plan shall be
construed to limit the authority of the Company to exercise its corporate rights
and powers, including but not by way of limitation, the right of the Company to
grant or assume options for proper corporate purposes other than under the Plan
with respect to any employee or other person, firm, corporation or association.
7
<PAGE> 39
PROXY ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC. PROXY
COMMON STOCK
The undersigned hereby (1) acknowledges receipt of the notice of the Annual
Meeting of Stockholders of Electronic Retailing Systems International, Inc. (the
"Company") to be held at the offices of Zilkha & Company, 767 Fifth Avenue-46th
Floor, New York, New York on Thursday, December 5, 1996 at 10:00 A.M., local
time, and the Proxy Statement in connection therewith and (2) appoints Norton
Garfinkle and Bruce F. Failing, Jr., and each of them his proxies with full
power of substitution, for and in the name, place and stead of the undersigned,
to vote and act with respect to all of the shares of Common Stock of the Company
standing in the name of the undersigned or with respect to which the undersigned
is entitled to vote and act, at the meeting and at any adjournment thereof, and
the undersigned directs that this proxy be voted as follows:
(a) Election of Directors:
<TABLE>
<S> <C>
FOR all nominees listed below WITHHOLD AUTHORITY to vote for all
(except as marked to the contrary below). / / nominees listed below. / /
</TABLE>
Paul A. Biddelman, David Diamond, Bruce F. Failing, Jr., Norton Garfinkle,
George B. Weathersby and Donald E. Zilkha.
(Instructions: To withhold authority to vote for any individual nominee as a
Director, write that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
(b) Proposal to approve and adopt an amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares of Common Stock,
$.01 par value, from 25,000,000 to 35,000,000.
FOR / / AGAINST / / ABSTAIN / /
(c) Proposal to approve and adopt an amendment to the Electronic Retailing
Systems International, Inc. 1993 Employee Stock Option Plan to increase the
number of shares of Common Stock issuable pursuant to the exercise of options
from 1,225,000 to 1,775,000.
FOR / / AGAINST / / ABSTAIN / /
(d) Proposal to approve and adopt an amendment to the Electronic Retailing
Systems International, Inc. 1993 Director Stock Option Plan to increase the
number of shares of Common Stock issuable pursuant to the exercise of options
from 50,000 to 125,000.
FOR / / AGAINST / / ABSTAIN / /
(e) In the discretion of the proxies on any other matter that may properly
come before the meeting or any adjournment thereof.
(Continued and to be signed on reverse side)
<PAGE> 40
(Continued from other side)
THIS PROXY WILL BE VOTED AS SPECIFIED ON THE REVERSE SIDE. IF NO
SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED FOR THE MATTERS SPECIFICALLY
REFERRED TO ON THE REVERSE SIDE.
If more than one of the proxies named above shall be present in person or by
substitute at the meeting or any adjournment thereof, all of the proxies so
present and voting, either in person or by substitute, shall exercise all of the
proxies hereby given.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
upon or act with respect to such stock and hereby ratifies and confirms all that
the proxies so present and voting, their substitutes or any of them, may
lawfully do by virtue hereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
Dated:
Please date this proxy and
sign your name exactly as
it appears herein. Where
there is more than one
owner, each should sign.
When signing as an
attorney, administrator,
executor, guardian or
trustee, please add your
title as such. If executed
by a corporation, the proxy
should be signed by a duly
authorized officer.
Please date, sign and mail
this proxy card in the
enclosed envelope. No
postage is required.
