SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file
December 31, 1996 number 0-21456
- -------------------------- ----------------
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1361276
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
372 Danbury Road
Wilton, Connecticut 06897
- ---------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 203-761-7900
------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
----------------------------
(Title of class)
Indicate by a check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period as the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -----
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (Section 229.405 of
this chapter) is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock
held by non-affiliates of the registrant. The aggregate market
value shall be computed by reference to the price at which the
stock was sold, as of a specified date within 60 days prior to
the date of filing.<PAGE>
<PAGE>
Aggregate market value as of March 15, 1997.....$41,315,305
Indicate the number of shares outstanding of each of
the registrant's classes of common stock as of the latest
practicable date.
Common Stock, $.01 par value,
as of March 15, 1997. . . . . . . . . . . . . . . .21,068,206 shares
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents, all or portions of which are
incorporated by reference herein, and the part of the Form 10-K
into which the document is incorporated: Proxy Statement to be
filed with respect to the 1997 Annual Meeting of Stockholders-
Part III.
<PAGE>
<PAGE>
AMENDMENT NO. 1
The undersigned hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 (the
"Annual Report"), as set forth in the pages attached hereto:
Item 10. Directors and Executive Officers of the
Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial
Owners and Management
Item 13. Certain Relationships and Related
Transactions
As more fully described under "Item 1. Business", Electronic
Retailing Systems International, Inc. (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 "Principal Subsidiary"), 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 assets of the Principal Subsidiary. The combination
of the Company, the Principal Subsidiary and the Partnership
effected immediately prior to the closing of the Company's
initial public offering of common stock, $.01 par value ("Common
Stock"), in May 1993, is referred to in the Annual Report, as
hereby amended, as the "Combination." Unless the context
otherwise requires, references in the Annual Report, as hereby
amended, to the "Company" refer to Electronic Retailing Systems
International, Inc., a Delaware corporation, and its subsidiaries
and, with respect to operations prior to the Combination, its
predecessors. References to historical financial information of
the Company prior to the date of the Combination refer to the
historical financial information of the Principal Subsidiary.
<PAGE>
<PAGE>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Certain biographical information concerning the directors of
the Company is set forth below. Such information was furnished by
them to the Company.
<TABLE>
<CAPTION>
Name of Director Age Biographical Information
- ---------------- --- ------------------------
<S> <C> <C>
Paul A. Biddelman 51 Treasurer, Hanseatic Cor-
poration (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.), and
Oppenheimer Group, Inc.;
Director of the Company since
1993.
David Diamond 38 Executive Vice President of
Marketing and New Applications,
Catalina Marketing Corp., since
January 1997; consultant to
suppliers of products and
services to the supermarket
industry since 1994; President
of Lamaze Publishing Company,
Inc. from 1992 until 1994;
Director of the Company since
1996.
Bruce F. Failing, Jr. 48 Founder of the Company in 1990,
and its Vice Chairman of the
Board and Chief Executive
Officer; President of the
Company through February 1997;
Director of the Company since
1990.
Norton Garfinkle 66 Founder of the Company in 1990,
and its Chairman of the Board;
Chairman of Cambridge Manage-
ment Corporation (manufacturer
and marketer of DAP series of
massively parallel processing
computers) since prior to 1992,
and Chairman of its affiliates<PAGE>
Name of Director Age Biographical Information
- ---------------- ___ ------------------------
(engaged in the research and
development of new tech-
nologies), including Oxford
Management Corporation, during
same period; Director of the
Company since 1990.*
George B. Weathersby 52 President of the Company since
1997 and Chairman of the
Executive Committee of its
Board of Directors; Vice
Chairman of Cambridge
Management Corporation and
affiliates, including Oxford
Management Corporation, since
1993; general partner,
Founder's Court (investment
management firm) from prior to
1992 to 1993; Director of the
Company since 1996.
Donald E. Zilkha 46 President, Zilkha & Company
(private investment advisor)
since prior to 1992; Director
of the Company since 1993.
_________________
* 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.
</TABLE>
See "Item 12. Security Ownership of Certain Beneficial
Owners and Management" for information concerning arrangements
between the controlling stockholders of the Company concerning
the election of directors, which information is incorporated
herein by reference.
For information concerning the executive officers of the
Company, see pages 19 to 21 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 as originally
filed, under the caption "Item 1. Business-Executive Officers",
which information is incorporated herein by reference.
There are no family relationships among any of the executive
officers or 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 (the "Exchange Act"), and the written representations of its
incumbent directors and officers, and holders of more than ten<PAGE>
<PAGE>
percent of any registered class of the Company's equity
securities, the Company believes that during 1996 all filing
requirements applicable to its directors, officers and ten
percent holders under said section were satisfied, except that
the Form 3 of each of Messrs. Diamond and Weathersby was filed
after the due date thereof in connection with their board
appointments.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
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 Combination, the Company assumed
such plan. Under the Director Option Plan, pursuant to amendments
approved by the stockholders of the Company in January 1997,
options to purchase up to 150,000 shares of the Company's Common
Stock may be granted to directors of the Company. The Company has
the ability to grant options under the Director Option Plan to
executive officers who are directors, which are intended to be
"incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended (the "Code"),
provided that the option exercise price is equal to the fair
market value of the Common Stock on the date of grant. Other
options granted under the Director Option Plan will be
nonqualified options.
The Director Option Plan is administered by the Director
Stock Option Committee of the Board of Directors of the Company,
which determines the persons who are to receive options and the
number of shares subject to each option. Paul A. Biddelman, David
Diamond, George B. Weathersby and Donald Zilkha hold options
granted under the Director Option Plan in June 1996 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, and Mr. Weathersby
holds an additional option granted under the Director Option Plan
in December 1996 covering 50,000 shares of Common Stock,
exercisable at a price per share equal to $3.38, the closing
price per share of the Common Stock on the Nasdaq Stock Market on
the date of grant. All such options expire five years from the
date of grant and are exercisable on the date of grant with
respect to one-quarter of the shares covered thereby, with an
additional one-quarter of such shares becoming exercisable
annually thereafter.
The Company has not adopted any director fee arrangement,
but reimburses all of its directors for their out-of-pocket
expenses incurred in the performance of their duties as directors
of the Company.
<PAGE>
<PAGE>
Executive Compensation
Summary Compensation Table. The following table sets forth
information concerning the annual compensation for each of the
Company's last three completed fiscal years of: (i) the Company's
chief executive officer, (ii) each of the four other most highly-
compensated executive officers during the most recent fiscal
year, and (iii) an additional individual who would have been
among the four such other most highly-compensated executive
officers during the most recent fiscal year, but was not an
executive officer at the end of such year:
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation All
Annual Compensation Securities Other
Name and ---------------------- Underlying Compen-
Principal Position Year Salary($) Bonus($) Options (#) sation($)
- ------------------ ---- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Bruce F. Failing, Jr... 1996 246,567 -- -- --
President 1995 327,269 -- -- --
1994 346,500 -- -- --
Wayne Benoit........... 1996 138,462 -- -- 15,000(2)
Executive Vice 1995 200,000 10,000 200,000(3) --
President, Chief 1994 136,463 -- 200,000 26,926(2)
Operating Officer(1)
Michael R. Valiton..... 1996 140,942 -- 100,000(3) --
Senior Vice 1995 108,000 -- 30,000
President, Technology 1994 -- -- -- --
and Operations(4)
James M. Nolan, Jr..... 1996 130,952 -- 30,000(3) 11,538(2)
Vice President, 1995 130,000 -- 10,000 15,000(2)
New Product 1994 130,000 -- 12,500 15,000(2)
Development(2)
Paul M. Patrick........ 1996 147,404 -- -- --
Vice President Sales, 1995 150,000 -- -- --
North America(5) 1994 150,000 -- -- --
William D. Ames........ 1996 127,750 -- 30,000 31,292(2)
Vice President, 1995 90,000 -- -- 6,389(2)
Manufacturing(6) 1994 -- -- -- --
- -------------------------
(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 in May 1996.
(2) Represents relocation expense.
(3) Such options replaced options previously granted and surrendered
contemporaneously with such replacement.
(4) Mr. Valiton became an executive officer in January 1995 after joining the
Company in the prior year.
<PAGE>
(5) 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.
(6) Mr. Ames became an executive officer in April 1995.
</TABLE>
Option Grant Table. The following table sets forth certain
information regarding options granted by the Company during the
year ended December 31, 1996, to the individuals named in the
above compensation table:
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Potential Realizable
Individual Grants Value at Assumed
-------------------------------- Annual Rates of
Number of % of Total Market Stock Price
Securities Options Price Appreciation for
Underlying Granted to Exercise Per Share Option Term(1)
Options Employees in Price on Date Expiration ----------------------
Name Granted(#) Fiscal Year ($/sh) of Grant($) Date 5%($) 10%($)
- ---- ----------- ------------ -------- ----------- ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce F. Failing, Jr... -- -- -- -- -- -- --
Wayne Benoit........... -- -- -- -- --
Michael R. Valiton..... 100,000(2) 26.3 2.25 2.25 07/25/06 142,000 359,000
James M. Nolan, Jr..... 30,000(3) 7.9 2.25 2.25 07/25/06 42,000 108,000
Paul M. Patrick........ -- -- -- -- -- -- --
William D. Ames........ 30,000(4) 7.9 2.25 2.25 07/25/06 42,000 108,000
(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 5% and 10% compounded
annually from the date the respective options are granted to their expiration date.
(2) In July 1996, Mr. Valiton surrendered options with respect to 30,000 shares of Common Stock previously granted and was
granted a portion of such options in replacement thereof exercisable at a price per share of $2.25, that become exercisable
with respect to one-quarter of such options on July 25, 1997, with an additional one-sixteenth thereof becoming exercisable
every quarter thereafter.
(3) In July 1996, Mr. Nolan surrendered options with respect to 20,000 shares of Common Stock previously granted and was
granted a portion of such options in replacement thereof exercisable at a price per share of $2.25, that become exercisable
with respect to one-quarter of such options on July 25, 1997, with an additional one-sixteenth thereof becoming exercisable
every quarter thereafter.
(4) One-quarter of such option becomes exercisable at July 25, 1997, with an additional one-sixteenth thereof becoming
exercisable every quarter thereafter.
</TABLE>
Aggregate Option Exercises and Year-End Option Table. The
following table sets forth certain information regarding
exercises of stock options, and stock options held as of December
31, 1996, by the individuals named in the above compensation
table.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at Fiscal Year-End(#) at Year-End(1)
Shares Acquired Value ----------------------------- --------------------------
Name on Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce F. Failing, Jr... -- -- -- -- -- --
Wayne Benoit........... -- -- -- -- -- --
Michael R. Valiton.... -- -- 100,000 -- 188,000
James M. Nolan, Jr..... -- -- -- 50,000 -- 139,000
Paul M. Patrick....... -- -- -- 93,500 -- 385,000
William D. Ames....... 30,000 56,000
________________________
(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.
</TABLE>
1993 Employee Stock Option Plan
In April 1993, the stockholders of the Principal Subsidiary
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
Combination, the Company assumed such plan. Under the Employee
Option Plan, pursuant to amendments approved by the stockholders
of the Company in June 1994 and December 1996, options to
purchase up to 1,775,000 shares of the Company's Common Stock may
be granted to key employees of the Company and its subsidiaries,
including executive officers who are not directors. The Company
is able to grant options under the Employee Option Plan which are
intended to be "incentive stock options" within the meaning of
Section 422 of the Code, provided that the option exercise price
is equal to the fair market value of the Common Stock on the date
of grant. Other options granted under the Employee Option Plan
are nonqualified options.
The Employee Option Plan is administered by the Compensation
Committee of the Board of Directors, which determines the persons
who are to receive options and the number of shares subject to
each option. As of April 1, 1997, options covering an aggregate
of 820,888 shares of Common Stock were outstanding pursuant to
the Employee Option Plan, and options covering an aggregate of
323,892 shares had been exercised.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1996, the members of the
Company's Compensation Committee were Norton Garfinkle, Paul
Biddelman and Donald Zilkha. <PAGE>
<PAGE>
In July 1996, in connection with completion by the Company
of its offshore public offering, and contemporaneous domestic
private placement (the "1996 Private Placement"), of Common
Stock, all shares of Series A Cumulative, Convertible Preferred
Stock, $1.00 par value (the "Series A Preferred Stock"), of the
Company held by Garfinkle Limited Partnership II (the "Garfinkle
Partnership"), an affiliate of Mr. Garfinkle, by Hanseatic
Corporation ("Hanseatic"), in which Mr. Biddelman is an officer,
and by Mr. Zilkha, were converted, in accordance with their
terms, into shares of Common Stock (the "Conversion Shares"),
pursuant to agreements entered into between the Company and such
holders, respectively. Upon conversion, such holders became
entitled to the amounts of $151,755, $59,197 and $2,760,
respectively, from the Company. Such amounts were applied by the
Garfinkle Partnership and Mr. Zilkha, together with additional
amounts paid by such parties, to subscriptions in the 1996
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.
Prior to conversion, dividends on each share of Series A
Preferred Stock 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 January 1,
1996 and April 1, 1996 (the "1996 Dividend Payment Dates"),
regular quarterly dividends on the Series A Preferred Stock were
paid in the form of an aggregate of 3,937 additional shares of
Series A Preferred Stock (2,733 shares of which were issued to
the Garfinkle Partnership, 1,151 shares to Hanseatic, and 53
shares to Mr. Zilkha). Holders of Conversion Shares remain
entitled to certain demand and incidental registration rights
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.
During the year ended December 31, 1996, the Company
subleased to a company owned by Mr. Garfinkle and Bruce F.
Failing, Jr., Vice Chairman of the Board and Chief Executive
Officer of the Company, up to approximately 5,000 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, and was paid
approximately $63,000 under such sublease arrangements.
Under agreements (collectively, the "Combination
Agreements") entered into by the Company with the limited
partners of the Partnership (including Mr. Zilkha and Hanseatic's
predecessor-in-interest) and the stockholders of the Principal
Subsidiary effectuating the Combination, 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<PAGE>
<PAGE>
stockholders of the Principal Subsidiary, 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 Combination, which, in the case of such demand
registration rights, operate pursuant to the standards applicable
to Conversion Shares.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------
The following table sets forth certain information as of
April 1, 1997 with respect to the number of shares of Common
Stock owned by (i) each person known by the Company to own
beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each director of the Company, (iii) each executive
officer and former executive officer of the Company named in the
summary compensation table under "Item 11. Executive
Compensation," and (iv) all directors and executive officers of
the Company as a group:
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Percent
Beneficially Owned(1) of Class
--------------------- --------
<S> <C> <C>
Norton Garfinkle
133 East 62nd Street
New York, NY 10021(2)......... 7,890,758(3) 37.4%
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......... 1,502,291(6) 6.7
Wayne Benoit.................. -- --
Michael Valiton............... -- --
James M. Nolan, Jr............ -- --
Paul M. Patrick............... 46,750(7) (8)
William D. Ames............... -- --
<PAGE>
Paul A. Biddelman............. 1,005,300(9)(10) 4.8
David Diamond................. 4,125(11) (8)
George B. Weathersby.......... 17,500(7) (8)
Donald E. Zilkha.............. 102,472(10) (8)
All executive officers and
directors as a group
(11 persons)................. 12,212,542(12) 57.8
________________
(1) Except as otherwise indicated, as of April 1, 1997 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 and 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.
(4) Includes 1,318,489 shares beneficially owned 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.
(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 April 1, 1997 and (ii)
802,568 shares issuable at such date upon conversion of the
Company's convertible promissory note in the principal amount
of $5,000,000. See "Item 13. Certain Relationships and Related
Transactions."
(7) Represents shares issuable upon exercise of stock options
granted by the Company exercisable within 60 days of April 1,
1997.
(8) Less than one percent.
<PAGE>
<PAGE>
(9) 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, of which Mr. Biddelman is an officer.
(10) Includes 5,000 shares issuable upon exercise of stock options
granted by the Company exercisable within 60 days of April 1,
1997.
(11) Includes (i) 1,000 shares beneficially owned jointly by Mr.
Diamond and his wife, and (ii) 3,125 shares issuable upon
exercise of stock options granted by the Company exercisable
within 60 days of April 1, 1997.
(12) Includes 77,375 shares issuable upon exercise of stock options
granted by the Company exercisable within 60 days of April 1,
1997.
</TABLE>
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.
<PAGE>
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
-------------------------
At April 1, 1997, Norton Garfinkle, Chairman of the Board
and a director of the Company, together with two affiliated
limited partnerships, beneficially owned approximately 37.4% of
the outstanding Common Stock of the Company, and Bruce F.
Failing, Jr., Vice Chairman of the Board and Chief Executive
Officer 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 "Item 11. Executive Compensation-Compensation
Committee Interlocks and Insider Participation" above for
information concerning agreements relating to the Company's
Common Stock and Series A Preferred Stock, entered into by Mr.
Garfinkle and by Paul A. Biddelman and Donald E. Zilkha, both
directors of the Company, or their affiliates, which information
is incorporated herein by reference.
In connection with completion of the 1996 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 acquire
31,870 shares of Common Stock in the 1996 Private Placement, upon
the terms described above. On the 1996 Dividend Payment Dates,
the Company paid an aggregate of 422 shares of Series A Preferred
Stock to Mr. Failing as regular quarterly dividends on his shares
of such stock held on such dates.
See "Item 11. Executive Compensation-Compensation Committee
Interlocks and Insider Participation" above for information
concerning amounts paid to the Company during the year ended
December 31, 1996 under a sublease with a company owned by
Messrs. Garfinkle and Failing, and certain demand and incidental
registration rights to which Messrs. Garfinkle and Failing became
entitled with respect to shares of Common Stock issued to them in
the Combination and attendant to the Conversion Shares, which
information is incorporated herein by reference.
During the year ended December 31, 1996, as a result of the
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, the CDA was the beneficial owner of in excess of 5%
of the outstanding Common Stock. At April 1, 1997, the Company
was indebted under the CDA Note in the aggregate principal amount
of $5,000,000 ($1,650,000 of which was borrowed during the most
recent fiscal year). All such amounts are repayable in August
1999, accrue interest, payable monthly, at a rate of 7.4% per
annum (of which $380,000 was paid during the year ended December
31, 1996) and are secured by the assets of the Company and the
Principal Subsidiary. Such amounts are convertible into shares of
Common Stock, through August 12, 1997 at an adjusted conversion<PAGE>
<PAGE>
price 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. The CDA
Warrant is exercisable through August 1999 with respect to
699,724 shares of Common Stock (as adjusted through December 31,
1996), at an adjusted price, through August 12, 1997 calculated
at $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.
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.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: April 22, 1997 ELECTRONIC RETAILING SYSTEMS
INTERNATIONAL, INC.
By s/William B. Fischer
----------------------------
William B. Fischer
Vice President, Finance
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
Vice Chairman of the April 22, 1997
BRUCE F. FAILING, JR.* Board and Principal
- ---------------------- Executive Officer
Bruce F. Failing, Jr.
Vice President, April 22, 1997
s/William B. Fischer Finance and
- ---------------------- Principal
William B. Fischer Financial and
Accounting
Officer
Director April 22, 1997
PAUL A. BIDDELMAN*
- ----------------------
Paul A. Biddelman
DAVID DIAMOND* Director April 22, 1997
- ----------------------
David Diamond
NORTON GARFINKLE* Director April 22, 1997
- ----------------------
Norton Garfinkle
GEORGE WEATHERSBY* Director April 22, 1997
- ----------------------
George Weathersby
DONALD E. ZILKHA* Director April 22, 1997
- ----------------------
Donald E. Zilkha
*By s/William B. Fischer
- ------------------------
William B. Fischer
Attorney-in-Fact
</TABLE>
