SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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, 1997 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.)
488 Main Avenue
Norwalk, Connecticut 06851
- ---------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 203-849-2500
------------
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. [ X ]
<PAGE>
<PAGE>
State the aggregate market value of the voting and non-
voting common equity held by non-affiliates of the registrant. The
aggregate market value shall be computed by reference to the price
at which the common equity was sold, or the average bid and asked
prices of such common equity, as of a specified date within 60
days prior to the date of filing.
Aggregate market value as of March 15, 1998.....$34,053,746
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, 1998 . . . . . . . 21,216,166 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 1998 Annual Meeting of Stockholders-Part
III.<PAGE>
<PAGE>
PART I
ITEM 1. BUSINESS
General
Electronic Retailing Systems International, Inc. (the
"Company" or "ERS") develops and provides electronic shelf label
("ESL") systems designed to allow supermarket chains and other
retailers to increase productivity, reduce labor costs and improve
management information systems. The ERS ShelfNet(R) system (the
"ERS ShelfNet System") has been designed as a productivity
enhancing center store automation system, which replaces paper
price tags on retail shelves with electronic liquid crystal
display units and provides a suite of applications to enhance a
retailer's pricing, inventory, shelf management, merchandising and
promotional activities. The ERS ShelfNet System is comprised of
proprietary hardware and software that electronically link a
store's shelves to its point-of-sale ("POS") systems and central
computer.
The ERS ShelfNet System functions as a local area network,
utilizing open systems networking architecture driven by the
Company's software and communications hardware, which are designed
to interface with other store and vendor applications. Each ESL is
a miniature data transceiver that is capable of storing, receiving
and returning alphanumeric messages. An ERS store-based local area
network has up to 20,000 individual ESLs connected to a central
server. The ERS ShelfNet System is designed to allow retailers to:
o Implement price changes almost instantaneously from the
store's central computer or directly from corporate or
regional headquarters;
o Ensure pricing integrity by accurately displaying and
monitoring product prices;
o Streamline stock monitoring activities to reduce lost
sales resulting from the failure to properly stock
items;
o Increase the speed and accuracy of placing product
displays and promotional material by reducing and
simplifying the tasks required of store employees; and
o Audit inventory more efficiently and improve
computerized inventory ordering systems.
ERS believes these features enable retailers to reduce labor
costs, increase productivity and pricing accuracy, and improve
inventory management, thereby raising such retailers' gross
margins and lowering their operating costs in the highly
competitive U.S. retailing market.
<PAGE>
<PAGE>
As of December 31, 1997, the ERS ShelfNet System was
installed in 53 U.S. retail stores, including stores owned by such
leading supermarket chains as Stop & Shop Supermarket Company
("Stop & Shop"), H.E. Butt Grocery Co. ("HEB"), Big Y Foods, Inc.
("Big Y"), Shaw's Supermarkets, Inc. ("Shaw's), The Great Atlantic
& Pacific Tea Company, Inc. ("A&P") and K Mart Corporation ("K
Mart"), and one supermarket owned by the Overwaitea Food Group
Division of Great Pacific Industries, Ltd. (the "Overwaitea Food
Group"). The Company estimates that, as of December 31, 1997, of
the approximately 29,900 supermarkets in the United States,
approximately 120 stores were operating ESL systems.
As described under "Marketing and Product Plans" below, the
Company has announced its transition to a new marketing and
pricing program, and a new generation ERS ShelfNet System.
Although the Company has commenced solicitation of orders for its
new generation system while it completes field testing of the
system, the Company has not begun installation of the system in
significant quantities (see "Customers" below) and there can be no
assurance that the new generation ERS ShelfNet System will
function successfully over time in actual retail usage or will
result in lower costs of manufacturing, installing and maintaining
the system that management anticipates. During the year ended
December 31, 1997, the Company experienced decreased revenues
compared to the prior year, resulting, among other matters, from
the decreased demand for the Company's previous generation product
attendant to plans to introduce the new generation product and the
Company's transition to its new marketing and pricing program.
The Company was incorporated 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 (the "Initial Public Offering")
of common stock, $.01 par value ("Common Stock"), in May 1993, is
herein referred to as the "Reorganization". Unless the context
otherwise requires, references herein 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 Principal Subsidiary.
In October 1997, the Company and Telepanel Systems Inc., a
company incorporated under the Canada Business Corporation Act
("Telepanel"), executed a combination agreement dated such date
(the "Combination Agreement"), which provides for the combination
of the Company and Telepanel pursuant to a plan of arrangement
under Canadian law (the "Arrangement"). In March 1998, the Company<PAGE>
<PAGE>
announced that the condition to closing contained in the
Combination Agreement requiring confirmation that the Arrangement
would qualify for pooling-of-interests accounting treatment has
failed to be satisfied, following successive discussions by
Telepanel with the U.S. Securities and Exchange Commission
addressing the effects of a debenture financing undertaken by
Telepanel in October 1997. The Company's Board of Directors has
determined that it does not intend to waive the condition to
combine regarding qualification for pooling-of-interests
accounting treatment. The Company and Telepanel are engaged in
discussions regarding a mutually acceptable termination of the
Combination Agreement. See "Proposed Combination with Telepanel"
below.
This Annual Report on Form 10-K contains various forward-
looking statements and information that are based on information
currently available to management and management's beliefs and
assumptions. When used in this document, the words "anticipate",
"designed to", "estimate", "believes", "plans", and similar
expressions are intended to identify forward-looking statements,
but are not the exclusive means of identifying such statements.
Such statements are subject to risks and uncertainties, and the
Company's actual results may vary materially from those
anticipated, estimated or projected due to a number of factors,
including, without limitation, the timely availability and
acceptance of new products, the rate of development of the
emerging market for ESL systems, the impact of competitive
products and pricing, the management of growth, and other factors
set forth in reports and other documents filed by the Company with
the Securities and Exchange Commission from time to time.
New Marketing and Product Plans
The Company has announced that (i) it will launch a new
marketing and pricing program designed to facilitate rapid market
acceptance and installation of the ERS ShelfNet System and (ii) it
planned to introduce a new generation ERS ShelfNet System that
provides spread spectrum microwave transmission of data directly
to wireless ESLs. The Company expects that implementation of these
initiatives will reduce the cost of installing and maintaining the
ERS ShelfNet System. As described under "Customers" below, the
Company has completed installation of four new generation systems,
has commenced installation of two additional new generation
systems and has received purchase orders covering five additional
new generation systems. The Company has obtained its first non-
binding letter of intent providing for installation of the new
generation ERS ShelfNet System under its new marketing and pricing
program in approximately 60 supermarkets, and is continuing its
efforts to procure additional letters of intent. The initial
letter of intent is, and all such additional arrangements will be,
subject to numerous conditions, including the negotiation and
execution of definitive contract terms.
<PAGE>
<PAGE>
New Marketing and Pricing Program
The Company historically has marketed the ERS ShelfNet System
for sale, at prices generally in excess of $100,000 per store. The
purchase of an ESL system from the Company has therefore
represented a significant capital expenditure for retailers. The
Company now intends also to offer the ERS ShelfNet System on a fee
based arrangement called "Save-As-You-Go" (the "SayGo Plan")
whereby the Company will own the system and, with no upfront cash
cost to the retailer, furnish the system to retailers (generally
for a period of up to five years), who will pay monthly fees to
the Company based primarily on their actual usage of the system.
The Company believes that the SayGo Plan will accelerate market
acceptance of the ERS ShelfNet System.
Management estimates that, under the SayGo Plan, the annual
cost savings and benefits realized by its anticipated supermarket
customers using the ERS ShelfNet System could substantially exceed
the anticipated annual cost to the customer for the new generation
system proposed by ERS. For example, management estimates, based
on studies conducted in collaboration with the Company's current
customers, that cost savings and benefits to a supermarket with
15,000 ESLs that changes 2,500 to 4,500 prices per week could,
under the Company's proposed SayGo Plan, provide an annual net
contribution per store ranging from approximately $40,000 to
approximately $240,000 through the anticipated level of usage of
the applications afforded by the ERS ShelfNet System. However,
there can be no assurance that any such cost savings or benefits
will be realized by any customer.
Enhancement of the ERS ShelfNet System
The Company has announced its plan to introduce the new
generation ERS ShelfNet System, providing spread spectrum
microwave transmission of data directly to wireless ESLs. The
enhanced ERS ShelfNet System is designed to provide additional
flexibility and convenience to customers by expanding potential
coverage by the Company's ESLs to the entire store and allowing
the retailer to change store placement of the ESLs more easily.
The Company believes that the cost of installing and maintaining
its wireless ESLs will be lower than that of its current ESL
system, which requires the wiring of store aisles. As described
under "Customers" below, the Company has completed installation of
four new generation systems, has commenced installation of two
additional new generation systems and has received purchase orders
covering five additional new generation systems.
Letters of Intent
The Company has obtained its first non-binding letter of
intent providing for installation of the new generation ERS
ShelfNet System under the SayGo Plan in approximately 60
supermarkets, and is continuing its efforts to procure additional
letters of intent. The initial letter of intent is, and all such
additional arrangements will be, subject to numerous conditions,
including negotiation and execution of definitive contract terms.<PAGE>
<PAGE>
See "Marketing and Sales" below for a description of the terms to
be proposed initially by the Company.
Financing
In January 1997, the Company raised approximately $95 million
in net proceeds as a result of the private sale (the "Private
Placement") of 147,312 units (the "Units"), each consisting of 13-
1/4% Senior Discount Notes due 2004 with a principal amount at
maturity of $1,000 (the "Senior Discount Notes") and one warrant
(collectively, the "1997 Warrants") to purchase 17.23 shares of
Common Stock at $5.23 per share.
Business Strategy
The Company's strategy is to achieve increasing recurring
revenue through greater market penetration of the ERS ShelfNet
System. The Company intends: (i) to focus its initial marketing
efforts under the SayGo Plan on the supermarket sector of the
retail industry; (ii) to continue to reduce the manufacturing
costs of the system to increase the Company's profitability; and
(iii) to continue to enhance, develop and support value-added
applications of the ERS ShelfNet System.
o SayGo Plan. The Company believes that its SayGo Plan
will facilitate more rapid market acceptance of the ERS
ShelfNet System because it does not require an initial
cash investment by the customer. The Company intends to
use the proceeds from the Private Placement to install
the ERS ShelfNet System in supermarkets under the SayGo
Plan.
o Initial Focus on Supermarket Sector. The Company
intends initially to focus its marketing efforts on the
supermarket sector because of the Company's established
relationships with supermarket chains and because of the
Company's belief that supermarket operators generally
are more receptive than other retailers to utilizing
technology to reduce operating costs and improve
productivity. The Company estimates that, as of December
31, 1997, of the approximately 29,900 supermarkets in
the United States, approximately 120 stores were
operating ESL systems.
o Reduce Manufacturing Costs. The Company intends to
continue its efforts to reduce the cost of manufacturing
its wireless ESLs through the application of established
chip manufacturing techniques to the ESL's integrated
circuit, the integration of various components in the
ESL and the achievement of significant economies of
scale expected as a result of the higher manufacturing
volumes the Company believes will arise from the
implementation of the SayGo Plan.
<PAGE>
<PAGE>
o Value-Added Applications. In order to increase the
appeal of the Company's system to prospective customers
(by increasing the level of potential cost savings) and
to encourage existing customers to adopt the new
generation system and to install additional systems, the
Company intends to develop additional productivity
enhancing applications for the ERS ShelfNet System.
Although the Company has commenced solicitation of orders for
the new generation system while it completes field testing of the
system, the Company has not begun installation of the system in
significant quantities (see "Customers" below) and there can be no
assurance that the new generation ERS ShelfNet System will
function successfully over time in actual retail usage or will
result in lower costs of manufacturing, installing and maintaining
the system that management anticipates. During the year ended
December 31, 1997 the Company experienced decreased revenues
compared to the prior year, resulting, among other factors, from
the decreased demand for the Company's previous generation product
attendant to plans to introduce the new generation product,
unanticipated delays in the implementation of the new generation
product and the Company's transition to its new marketing and
pricing program.
Retail Industry Overview
The Company's target market consists of retailers that stock
a large number of stockkeeping units ("SKUs"), operate in highly
competitive environments, have relatively low margins and change
prices frequently. Such retailers include supermarkets, discount
mass merchandisers, chain drug stores and convenience stores. The
Company believes that such retailers generally seek automated
solutions to reduce labor costs and improve efficiencies in
operations. The approximate number of supermarkets, discount mass
merchandisers, chain drug stores and convenience stores in the
United States is set forth in the table below. The table does not
include the European market, where the aggregate number of
comparable stores is greater than in the United States.
Type of Store Number of Stores
Supermarkets. . . . . . . . . 29,870
Discount mass merchandisers . 10,075
Chain drug stores . . . . . . 19,995
Convenience stores. . . . . . 56,000
------
Total . . . . . . . . . . . 115,940
=======
Source: Progressive Grocer Annual Report, April 1997; MMR Annual
Report, April 21, 1997.
The Company believes that many of its target retailers are
capital constrained and have compared potential investments in the
ERS ShelfNet System to alternative capital expenditures. Such<PAGE>
<PAGE>
alternative uses of capital include purchasing additional stores,
remodeling and refurbishing existing stores, making acquisitions
and investing in technology, including ESL systems. The Company's
SayGo Plan is designed to eliminate a retailer's upfront cash cost
to install the ERS ShelfNet System, instead assessing charges
largely for services the retailer actually uses. Thus, the ERS
ShelfNet System will constitute an operating expense (that the
Company estimates to be more than offset by cost savings and
benefits) rather than a capital expenditure for retailers,
allowing retailers to conserve capital for other projects while
also choosing to install the ERS ShelfNet System.
Supermarket Sector
The supermarket sector is mature, intensely competitive and
tends to have margins that are among the lowest in the retailing
industry. The Company estimates that an average supermarket stocks
approximately 19,500 SKUs, most of which are available at
competitive stores, and runs frequent promotions with respect to
many of these items. As a result, a supermarket's success depends
in large part on the efficiency of its operations, which in turn
affects its ability to offer competitive prices and maintain
acceptable operating margins. Supermarkets are under constant
pressure to reduce costs, manage inventory more effectively and
offer competitive prices.
Historically, supermarkets have been among the first
retailers to adopt technologies designed to reduce labor and other
costs, improve operations and enhance customer service. For
example, POS scanners were first introduced in the supermarket
sector and have achieved the greatest level of market penetration
there. While fewer than 15 supermarkets in the United States had
POS scanners in 1974, by 1995 approximately 95% of all chain
supermarket stores and approximately 80% of independent
supermarket stores had installed POS scanners. POS systems have
enabled retailers to reduce labor costs, improve pricing integrity
and increase efficiency while also providing additional
applications such as electronic funds transfer and computerized
inventory management. The Company believes that supermarkets and
other retailers will more quickly adopt other technological
innovations as a result of their experience with POS scanners. As
a result, and because of the Company's established relationships
with supermarket chains and its installed base of ERS ShelfNet
Systems in supermarkets, the Company intends to continue to focus
its marketing efforts in the supermarket sector.
Challenges Facing Retailers That Affect the Company
The Company has designed the ERS ShelfNet System to address
retailer productivity, labor costs, merchandising and competitive
market share issues, as summarized below:
<PAGE>
<PAGE>
Manual Price Changes
Although POS systems have enabled supermarkets to achieve
efficiencies at the "front end" of the store, the center of the
typical store has not been automated and remains labor intensive.
The Company estimates that an average supermarket carries
approximately 19,500 SKUs and changes approximately 2,500 prices
per week at the shelf with newly printed paper labels. These price
changes require numerous manual steps resulting in (i) significant
labor costs and (ii) delays in implementing price changes
following special promotions or increases in wholesale costs, both
of which adversely affect supermarket profitability.
Pricing Integrity
In addition to being labor intensive and time-consuming,
manual implementation of price changes also is more susceptible to
pricing inaccuracy. Stores with inaccurate prices risk customer
dissatisfaction as well as fines and penalties levied by
governmental agencies. According to Supermarket News, February 5,
1996, over 90% of supermarket executives surveyed rate the issue
of pricing verification as extremely or highly important. As a
result, supermarket operators incur significant expense in
auditing pricing integrity and correcting pricing inaccuracies.
Merchandising Management
Supermarkets actively promote products at the shelf with a
variety of merchandising materials such as "hangers" or "bibs",
which are affixed to the shelf or a product's price label and
alert consumers to pricing or promotional activities. Supermarkets
install and remove bibs manually, with employees generally walking
the aisle and checking promotional items against a printed list
arranged according to the shelfset schematics (called
"planograms"). The Company believes using such a printed list is
an unnecessarily time-consuming, inaccurate and costly process.
Replenishment/Inventory Management
Supermarkets lose sales (and their corresponding margins)
when products are inadvertently missing from designated
planogrammed shelves, often due to lost or damaged paper labels.
In addition, damaged and handwritten paper labels result in
increased order entry errors, which increases both out-of-stocks
(resulting in lost sales) and labor costs associated with the
product ordering process.
Shelfset Management
Typically, supermarkets carefully develop planograms for the
management of products and product categories in the stores, on
the belief that products perform best in the aggregate when
arranged on shelves in the quantities and with the facings
prescribed by the planogram. When paper labels are lost, damaged
or moved, deviations from the planogram occur, resulting in a
higher incidence of out-of-stock items, loss of sales of<PAGE>
<PAGE>
potentially high margin items, continued stocking of discontinued
or unauthorized products, and increased time and labor associated
with new cut-ins to a shelfset that differ from the planogram.
ERS ShelfNet Applications
The ERS ShelfNet System has been designed (i) to replace
paper price tags on retail shelves with electronic liquid crystal
display units, and (ii) to provide a suite of applications to
address the challenges to retailers of manual price changes,
pricing integrity, merchandising management, replenishment/
inventory management and shelfset management. The ERS ShelfNet
System's applications are designed to include Instant Response
Pricing to eliminate manual price changes, Integrated Electronic
Pricing to ensure pricing integrity, Quick Point of Purchase
(QuickPop(R)) Merchandising to reduce the cost of changing
merchandising materials, AccuStock(TM) to facilitate inventory
replenishment and ShelfSet Audit to provide for efficient shelf
set management.
Retail Challenge ERS Solution
Manual Price Instant Response Pricing. The ERS
Changes. . . . . . . . ShelfNet System allows retailers to
implement price changes almost
instantaneously from the store's central
computer or directly from corporate or
regional headquarters, which the Company
believes facilitates significant labor
savings from manual implementation of
price changes. In addition, electronic
price changes are significantly faster
to implement, which the Company believes
leads to increased margins as prices may
be increased promptly following special
promotions or increases in wholesale
prices.
Pricing Integrity . . . Integrated Electronic Pricing. The ERS
ShelfNet System electronically links a
store's POS systems and its ESLs,
virtually eliminating discrepancies
between prices displayed on the store
shelves and prices charged at checkout.
This assurance of pricing integrity
permits retailers to reduce or eliminate
manual pricing audits and fines paid to
governmental entities for pricing
inaccuracies. In addition, such pricing
accuracy can result in fewer price
checks and errors at checkout, can
result in faster checkout times,
improved cashier productivity and
increased customer satisfaction.
<PAGE>
<PAGE>
Merchandising QuickP.O.P. The ERS ShelfNet System's
Management . . . . . . QuickP.O.P application is designed to
increase the speed and accuracy of
placing product displays and promotional
material by displaying a signal on the
ESLs of products that require the
addition or removal of merchandising
bibs or hangers. This is intended to
eliminate the time-consuming and
potentially inaccurate manual process of
checking promotional items against a
printed list arranged according to the
planogram.
Replenishment/ AccuStock. The ERS ShelfNet System's
Inventory AccuStock application is designed to
Management . . . . . . allow authorized store personnel to
change ESLs from a price display to an
out-of-stock message. This procedure
replaces the current system of noting
out-of-stocks manually, with the use of
a label scanner, which requires follow-
up by the store employee. AccuStock
facilitates simple notation of out-of-
stocks during normal stocking
procedures, with the system
automatically generating an out-of-stock
report that can be resolved quickly by
store management. In addition, the
display of an out-of-stock message,
rather than removal of a paper label,
holds the shelf placement for the
missing product, increasing planogram
integrity.
Shelfset Management . . ShelfSet Audit. The ERS ShelfNet System
is designed to maintain shelfsets more
easily, because the ESLs stay locked in
place and cannot be moved back and forth
as can paper tags. In addition, the ESL
is designed to display product facing
information and section, shelf, and bay
locations for simple, more accurate and
less paper-intensive planogram
implementations or changes. These
features are intended to reduce labor
associated with shelfset management and
stocking and increase planogram
compliance and monitoring.
Management estimates that, under the SayGo Plan, the cost savings
and benefits to its anticipated supermarket customers using the
ERS ShelfNet System (including the full suite of its applications
at the anticipated level of usage) could provide an annual net
contribution per store ranging from approximately $40,000 to<PAGE>
<PAGE>
approximately $240,000. See "New Marketing and Product Plans-New
Marketing and Pricing Program" above.
The ERS ShelfNet System
The Company's ESL system replaces paper price tags on retail
shelves with liquid crystal display labels and transmits pricing
and other information to and from the shelf edge. The Company's
new generation system permits the transmission of data directly to
wireless ESLs.
Each ERS ShelfNet System generally consists of 10,000 to
20,000 ESLs and the necessary communication and support
infrastructure to link the ESLs with the store's central computer
and POS systems. The Company's new generation system consists of
the following components:
Electronic Shelf Label
Each ESL is a mini data transceiver contained in a plastic
case, which displays price and other information by means of a
wide-angle view liquid crystal display window. The ESL is also
able to display pricing and other promotional information for the
consumer and inventory and reorder information for store
employees, and is equipped with two buttons designed to allow
store staff to interact with the store computers from the ESL on
the shelf. The Company offers five different sizes and types of
ESLs for use in different applications, such as SKUs for coolers
and freezers. The Company's currently installed ESLs are powered
through the rails to which they are connected, whereas the
wireless ESLs are powered by long-life batteries.
Spread Spectrum Wireless Network
Communication to the ESLs is managed by a high frequency,
real-time communication system that uses spread spectrum
technology. Active cell antennae in the store ceiling send and
receive signals to and from wireless ESLs in their respective
coverage areas. The cells form a radio frequency infrastructure in
which multiple, non-overlapping cells may be active
simultaneously, while overlapping cells synchronize their
transmissions, permitting spectrum re-use. The redundancy of
transmission provided by ERS' spread spectrum network helps to
eliminate interference problems and to ensure that complete
information is clearly communicated.
Communication Hub
The local area network's communication hub, located in the
store's back office area, has two functions: (i) the hub
distributes signals to the ESLs through computerized information
processors which relay information to active cell antennae in the
store ceiling and from the antennae to the individual product ESLs
located on the shelf and (ii) the hub receives information from
the information processors which has been relayed by the antennae
in the ceiling after receipt from the ESLs located on the shelf.<PAGE>
<PAGE>
System Controller
The system controller is a personal computer or the existing
in-store processor, also located in the store's back office area,
which is linked directly to the store's electronic POS system. The
system software resides in the system controller, and allows the
same pricing data that is incorporated into the POS system to be
used with the ERS ShelfNet System simultaneously. The system
controller communicates the pricing or other data directly to and
from the communication hub. The system controller is designed to
receive information from the store's corporate or regional
headquarters (such as product price or promotional information)
and to communicate data to such headquarters (such as product
order information).
Software System
The Company's ESL system is designed to be compatible with
electronic POS scanning systems and is compatible with systems
provided by the three major, worldwide suppliers of POS systems,
IBM, NCR, and Fujitsu-ICL. The Company's system may also be
interfaced with major store operating systems, such as OS/2,
Windows NT and Unix. Because the "intelligence" of the ERS
ShelfNet System is located in the system controller and not the
individual ESLs, the Company is able to incorporate new functions
into its system by upgrading software without replacing any
hardware.
The Company's system can be linked to an in-store laser
printer capable of printing paper overlays for ESLs, paper labels
for non-electronic shelves and other promotional items. The
Company furnishes its customers with specific procedures and
guidelines for each application which show store managers how to
utilize the ERS system and software tools, and a data collection
and analysis format to document productivity increases and to
monitor ongoing improvements in store operations.
Marketing and Sales
General
The Company historically has marketed its ERS ShelfNet System
for sale, at prices generally in excess of $100,000 per store, a
significant capital expenditure for retailers. The Company now
intends also to market the ERS ShelfNet System under its SayGo
Plan, whereby the Company will own the system and, with no upfront
cash cost to the retailer, furnish the system to retailers who
will pay monthly fees to the Company based largely on their actual
usage of the system.
The Company will continue to focus its marketing efforts on
major national and regional supermarket chains. The Company
believes that each supermarket chain will typically choose a
single supplier of ESL systems to maximize chainwide efficiency.
Therefore, the Company's marketing strategy is to make
installations in a small number of stores in each of the largest<PAGE>
<PAGE>
supermarket chains in North America and then to build upon such
installations by installing systems through the rest of the
chain's stores. In response to retailing trends, the Company has
also increased its marketing efforts to mass merchandisers.
Based upon its experience to date, the Company expects that
the adoption process for the ERS ShelfNet System will occur in
four successive phases, as follows:
o Detailed review of store procedures and systems and
documentation of expected cost savings and benefits;
o Agreement for multi-store adoption of the ERS ShelfNet
System subject to design, installation and
implementation of a single store evaluation system and
concurrent design of integration plans, operating
procedures and training programs for broader use by the
retailer;
o Installation of the first group of stores within a
chain, defined by a geographic or merchandising region,
to establish final chain-wide operating procedures; and
o Chain-wide commercial rollout.
SayGo Agreements
The Company has obtained its first non-binding letter of
intent providing for installation of the ERS ShelfNet System under
the SayGo Plan, and is continuing its efforts to procure
additional letters of intent. The initial letter of intent is, and
all such additional arrangements will be, subject to numerous
conditions, including negotiation and execution of definitive
contract terms.
Under the terms proposed by the Company, the Company will own
the ERS ShelfNet System and furnish the system to qualified
customers, identified by the Company as those retailers who meet
minimum requirements with respect to price change potential per
store and number of ESLs ordered. The Company intends that its
contract with such customers will provide for: (i) a fixed rate
charge per ESL per month, (ii) a base rate charge per ESL
transaction, and (iii) a base charge for optional items included
in the installation, less volume discounts. Charges will be billed
to the customer on a monthly basis.
The Company's proposals will allow the customer to terminate
the program and return the Company's system at any time after the
first twelve months. The customer's fees will cease upon
termination, except for agreed upon amounts in certain
circumstances.
Under the SayGo Plan, the Company will recognize revenues as
monthly usage and other fees are billed to customers, and will
depreciate the cost of hardware components of its systems over the
shorter of their estimated useful lives or five years. In<PAGE>
<PAGE>
connection with introduction of the SayGo Plan, the Company will
have substantial cash requirements for manufacturing and carrying
costs which will not initially be covered by revenues.
Organization
The Company currently markets its products directly to major
retail chains through a marketing and sales force. The Company's
marketing and sales personnel have significant retail experience,
including experience in the POS system and local area network
industries. The Company's marketing staff works with existing and
potential customers to define their needs for ESL systems and to
coordinate their implementation of the ERS ShelfNet System. The
Company exhibits its system at major trade shows worldwide and
produces and distributes promotional materials to increase market
awareness of the Company's system.
In addition, the Company will continue to investigate the
feasibility of marketing its system through indirect channels such
as value added resellers and distributors. The Company has
obtained letters of intent, subject to definitive contract terms,
to enter into reseller arrangements from Data Systems, Inc., to
market the Company's products throughout North America, from
Stores Automated Systems, Inc., with respect to the United States,
from Sweda Canada, Inc., with respect to Canada, from Seal
Electronica Ltda., with respect to Brazil, and, in another
situation, with respect to Finland. In June 1997, the Company
entered into a five-year agreement with Symbol Technologies, Inc.
("Symbol"), granting Symbol the right, subject to specified
exceptions and exclusion of certain markets in the United States,
to resell the Company's products worldwide and, subject to
achievement of specified market penetration objectives, the
exclusive right to resell the Company's products in Europe.
Pursuant to such arrangements and subject to meeting certain
minimum sales criteria, Symbol would also have the right to
manufacture the Company's ESL system. The Company has not yet
generated revenues under its arrangements with Symbol.
Collaborative Development
The Company has collaborated with supermarket retailers and
suppliers of in-store wireless networks, printing services,
merchandise planning systems and other retail systems providers in
order to develop a better understanding of customer needs and to
offer comprehensive customer solutions. The Company will continue
to pursue such efforts and will seek additional strategic partners
to assist the Company in the broad market adoption and roll-out of
the Company's new generation system.
Customers
As of December 31, 1997, the ERS ShelfNet System was
installed in 53 U.S. retail stores, including those owned by such
leading supermarket chains as Stop & Shop, HEB, Big Y, Shaw's,
A&P, and K Mart, and one supermarket owned by the Overwaitea Food
Group in Canada. Installations at December 31, 1997 reflect a<PAGE>
<PAGE>
reduced customer base compared to the prior year-end, resulting
principally from the deinstallation of the Company's previous
generation product from stores operated by The Vons Companies,
Inc. ("Vons"), following the acquisition of Vons.
In June 1996, the Company obtained a sub-contract from NCR
under NCR's prime contract to upgrade POS systems at U.S. military
commissaries, subject to receipt of purchase orders by the Company
from NCR. Pursuant to such arrangements, the Company has filled an
order by NCR for a software license covering the installation of
the ERS ShelfNet System.
The Company has installed its new generation system in four
Shaw's stores, is currently installing its new generation system
in one additional Shaw's store and has received purchase orders
covering four new generation systems from Stop & Shop and one from
Shaw's. The Company has also received a purchase order from J.H.
Harvey Company under which it has commenced installation of its
first store with a new generation system.
During the year ended December 31, 1997 Stop & Shop, Shaw's,
and HEB accounted for 41%, 22% and 11%, respectively, of the
Company's consolidated revenues; during the year ended December
31, 1996, Stop & Shop, Big Y and Shaw's accounted for 46%, 20% and
13%, respectively, of the Company's consolidated revenues; and
during the year ended December 31, 1995 HEB, Vons and Shaw's
accounted for 30%, 27% and 26%, respectively, of the Company's
consolidated revenues.
Installation and Customer Service
The ERS ShelfNet System is designed to be installed in a
store without disrupting normal store operations. In connection
with the introduction of its new generation system, the Company
intends to use a team comprised of one Company employee and two
sub-contracted installers to install communications infrastructure
and software and, if rail strips are also ordered by the customer,
up to an additional five sub-contracted installers to install such
hardware. The ESLs generally will be programmed by the customer or
at the Company's facilities and shipped to the site where they
will be installed by the customer.
The Company's customer service group is staffed with
employees experienced in POS and other retail systems. The
Company's SayGo Plan will commit the Company to a standard
maintenance contract, at no additional charge, with extended
maintenance services available at additional charges to the
customer.
Manufacturing
The Company utilizes third parties to manufacture and
assemble the components comprising the ERS ShelfNet System. The
Company's ESLs currently incorporate a microprocessor which is
supplied solely by Sanyo. However, the Company believes that other<PAGE>
<PAGE>
suppliers could produce equivalent microprocessors within
approximately four months. The Company's policy is to maintain an
inventory of microprocessors sufficient to meet substantially all
of its requirements during any such period. The Company intends to
evaluate, from time to time, establishing relationships with other
manufacturers of microprocessors to provide a second source of
supply for its ESLs.
The Company intends to maintain its practice of utilizing
manufacturing subcontractors, and has a supply arrangement with
Surface Mount Technology Ltd., of Hong Kong, for the assembly of
ESLs. The Company also continues to utilize Modulus, Inc. as a
domestic source for the assembly of its ESLs. The Company has not
experienced interruptions or delays in the manufacture or assembly
of its systems, and believes that alternative sources of system
components are readily available.
Engineering and Development
The Company's principal engineering and development efforts
have been conducted through software and hardware development
groups located at its facilities in Connecticut and Massachusetts.
These groups focus on improvements to current technology and also
on new applications of existing technology. The Company's
engineering staff also generates the functional specifications and
development schedules for each of the Company's customers. The
Company has also from time to time engaged third parties to design
hardware components based upon requirements or specifications
developed by the Company, and entered into arrangements with
hardware and software developers to augment the Company's internal
activities in the area of long-term product development. The
Company's arrangements with such developers are typically subject
to termination by the Company without penalty, and continuation of
such arrangements will in each case depend upon the satisfactory
achievement by such developers of specified milestones or other
satisfactory performance by them.
During the years ended December 31, 1997, 1996 and 1995, the
Company incurred expenses for research and development activities
of, respectively, $2,425,000, $1,117,000 and $2,491,000. During
the years ended December 31, 1997, 1996 and 1995, the Company
capitalized an aggregate of $375,000, $592,000, and $475,000,
respectively, in costs of internal labor and outside services
associated with product development.
Intellectual Property
The Company has aggressively pursued an intellectual property
rights strategy to protect its product developments. The Company's
policy is to file patent applications to protect its technology,
inventions and improvements that are important to the development
of its business, and to seek copyright protection with respect to
its software. The Company also relies upon trade secrets, know-
how, continuing technological innovation and licensing
opportunities to develop and maintain its competitive position.
<PAGE>
<PAGE>
The Company holds fourteen United States patents and has nine
additional United States patent applications pending, and eighteen
foreign patent applications pending. The Company also has other
applications under preparation and intends to continue to file
patent applications on its novel products and systems. Certain of
these patents and patent applications are directed to salient
features of the Company's ESL system, in particular relating to
the ESL and associated hardware, and the communications network
linking the components of the system.
The Company's wholly-owned subsidiary, Amacrine
International, Inc. ("Amacrine"), is entitled to use, and to grant
sublicenses with respect to, certain patents directed to an
alphanumeric display module and radio frequency communications
system, which Amacrine designed and developed for Telepanel under
a technical services agreement which existed between such
companies. The Company has become aware of certain statements made
by Telepanel, which the Company believes are without merit,
regarding whether Telepanel is entitled to a sublicense fee in
respect of such patents.
The Company attempts to protect certain computer software and
service applications through the use of copyright and trade secret
law. The Company relies on non-disclosure agreements with its
employees, customers, consultants, and strategic partners.
Although the Company believes that patents and other
intellectual property rights are important to its business, there
can be no assurance that patents will issue from any applications
therefor, or if patents issue, that the claims allowed will be of
adequate scope to protect the Company's technology or that issued
patents or other technology rights will not be challenged or
invalidated. The Company's business could be adversely affected by
increased competition in the event that any patent granted to it
is adjudicated to be invalid or is inadequate in scope to protect
the Company's operations, or if any of the Company's other
arrangements related to technology are breached or violated.
In 1993 in connection with the settlement of certain
litigation, the Company was granted a limited non-exclusive
license in the United States, Canada, the United Kingdom,
Australia, Japan and Germany covering certain United States and
foreign patents, of which Telepanel is the exclusive licensee.
During 1994, the United States patent underlying Telepanel's
patent rights applicable to such license expired.
Although the Company believes that its products and
technology do not infringe intellectual property rights of others,
there can be no assurance that third parties will not assert
infringement claims in the future or that such claims will not be
successful. Furthermore, the Company could incur substantial costs
in defending itself in patent infringement suits brought by others
and in prosecuting suits against patent infringers.
<PAGE>
<PAGE>
Competition
The Company believes that the only ESL system suppliers
offering a product currently competing with the Company's system
in the United States are Telepanel, Pricer and, recently, NCR.
Telepanel has publicly reported the existence of an arrangement
with IBM whereby IBM may market the Telepanel system. The Company
believes NCR also has developed and is testing an ESL system in
the United States. Outside of the United States, in addition to
Pricer, the Company expects to compete with a number of companies
with ESL systems under development.
The emerging ESL system market is characterized by rapid
technological advances and evolving industry standards, and the
Company may be subject to a high degree of potential competition
with additional companies which may attempt to develop or market
competing ESL systems. In the future, the Company may face
competition from vendors of POS systems, or scanner manufacturers
which offer products related to POS systems, who may elect to
enter the market for ESL systems. The ERS ShelfNet System is also
subject to competition from vendors selling traditional paper
labeling methods, as well as providers of hand-held portable data
terminals.
The principal competitive factors in the Company's business
are product functionality, price/performance and reliability. The
Company believes that it competes favorably on each of these
factors.
Proposed Combination With Telepanel
In October 1997, the Company and Telepanel entered into the
Combination Agreement. Under the terms of the Combination
Agreement, the obligations of the Company and Telepanel to
consummate the Arrangement are subject to the satisfaction or
waiver, where permissible, prior to May 31, 1998, of certain
conditions set forth in the Combination Agreement, including the
receipt of certain accountants' letters relating to the
qualification of the transaction (the "Transaction") for pooling-
of-interests accounting treatment, obtaining approval of the
stockholders of the Company and of Telepanel, the approval
(without material condition or costs) of the plan of arrangement
contemplated by the Combination Agreement by the Ontario Court of
Justice (General Division), and the receipt of certain consents
from the holders of debt of the Company and Telepanel.
In March 1998, the Company announced that the condition to
closing contained in the Combination Agreement requiring
confirmation that the Arrangement would qualify for pooling-of-
interests accounting treatment has failed to be satisfied,
following successive discussions by Telepanel with the U.S.
Securities and Exchange Commission addressing the effects of a
debenture financing undertaken by Telepanel in October 1997. The
Company's Board of Directors has determined that it does not
intend to waive the condition to combine regarding qualification
for pooling-of-interests accounting treatment.<PAGE>
<PAGE>
The Combination Agreement provides for Telepanel to be
recapitalized and for each common share, without par value
(collectively, the "Telepanel Common Shares"), of Telepanel to be
exchanged for .5566 of an exchangeable share of Telepanel
(collectively, the "Exchangeable Shares"), each share of which
would entitle the holder (i) to dividend and other rights
economically equivalent to those of one share of Common Stock,
(ii) through a voting trust, to vote at meetings of stockholders
of the Company, and (iii) at the option of the holder, to exchange
such share for one share of Common Stock. As a result of the
Transaction, ERS would have become the sole beneficial owner of
the outstanding Telepanel Common Shares. Under the Combination
Agreement, the Board of Directors of the Company would also have
been expanded at the effective time of the Arrangement, to consist
of nine members, five of whom are currently directors of the
Company, three of whom are currently directors of Telepanel and
the remaining one of whom would be designated by both the Company
and Telepanel.
In February 1998, as an interim arrangement pursuant to the
Combination Agreement, the Company and Telepanel entered into a
joint distribution agreement (the "Joint Distribution Agreement")
providing for creation of a joint venture (the "Joint Venture") to
hold specified distribution rights granted by each party until
consummation of the Arrangement or termination of the Combination
Agreement, or until specified defaults under the Joint
Distribution Agreement. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations-
Liquidity and Capital Resources" for a description of working
capital facilities extended by the Company under the joint venture
arrangements, which the Company has notified the Joint Venture and
Telepanel are in default.
Telepanel has stated that it views the Company's position on
the accounting treatment of the Transaction as a termination of
the Combination Agreement, which Telepanel accepts, although
alleging that the lack of pooling-of-interests accounting
treatment is not available to ERS as a basis for termination. The
Company has communicated to Telepanel its rejection of Telepanel's
position in view of the terms of the Combination Agreement and
recent developments. The Company and Telepanel are engaged in
discussions regarding a mutually acceptable termination of the
Combination Agreement.
Employees
As of December 31, 1997, the Company had 109 full-time
employees, consisting of 48 engaged in engineering and development
and manufacturing support, 22 in marketing and sales activities,
19 in customer services and 20 in general administrative and
executive functions. At such date, the Company had an additional
13 part-time employees, engaged primarily in customer service
functions. The Company does not have a collective bargaining
agreement with any of its employees and considers its relationship
with its employees to be excellent.
<PAGE>
<PAGE>
Government Regulation
Accuracy in pricing on the part of supermarkets has been an
objective of state and local regulation. At least 22 states
currently have laws or regulations requiring some form of "unit
pricing" (which require prices and price per measure to be
displayed either on the package or the shelf), and at least seven
states (and other local jurisdictions) have laws requiring "item
pricing" (which require the marking of prices on individual
consumer packages for some or all products in the retail store).
The existence of item pricing laws applicable to any of the
Company's intended customers increases such customers' costs of
providing price information to consumers and may decrease or
eliminate some of the potential benefits of implementation of the
ERS ShelfNet System. In the State of Minnesota, item pricing is
not required if the price is clearly presented on the shelf and
consumers are offered the means by which to mark individual items.
In the State of Connecticut, the item pricing law allows the
State's Commissioner of Consumer Protection to exempt from item
pricing requirements stores employing an approved ESL system.
The United States Federal Communications Commission has
established standards for radio frequency emissions from computer
products, and certain components utilized in the Company's ESL
system must comply with such criteria. All components currently
incorporated into the ERS ShelfNet System comply with such
standards, and the Company does not anticipate any material delays
in securing any required certification for components under
development by the Company. Certain foreign countries also
regulate radio frequency emissions.
Executive Officers
The executive officers of the Company, and their respective
ages and positions with the Company, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Norton Garfinkle 67 Chairman of the Board
Bruce F. Failing, Jr. 49 Vice Chairman of the Board
and Chief Executive Officer
Michael Luetkemeyer 48 Vice President, Chief
Financial Officer
Lester Briney 54 Vice President, Chief
Technical Officer
Michael Persky 34 Vice President, Marketing
Michael R. Valiton 36 Senior Vice President,
Operations
</TABLE>
Mr. Garfinkle, the Company's Chairman of the Board, is a
founder of the Company. Since 1970, Mr. Garfinkle has also been
the Chairman of Cambridge Management Corporation, which
manufactures and markets the DAP series of massively parallel<PAGE>
<PAGE>
processing computers, and has also served during this period as
Chairman of its affiliates, including Oxford Management
Corporation, which specialize in the research and development of
new technologies. From 1985 to 1988, Mr. Garfinkle was Chairman of
Oral Research Laboratories, Inc., a manufacturer of dental hygiene
products founded by Mr. Garfinkle. Mr. Garfinkle also served as a
director of Actmedia, Inc. from 1975 to 1978 and from 1983 to
1988. 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.
Mr. Failing, the Company's Vice Chairman of the Board and
Chief Executive Officer, is a founder of the Company, and served
as President through February 1997. In 1973, Mr. Failing
co-founded Actmedia, Inc., a provider of in-store advertising for
the supermarket industry, and was President and Chief Executive
Officer of Actmedia, Inc. until its sale in 1989.
Mr. Luetkemeyer has been Vice President-Chief Financial
Officer of the Company since July 1997. Prior to joining the
Company, Mr. Luetkemeyer was Manager-Finance, GE Plastics Americas
at General Electric Company from 1996 to 1997. From 1994 to 1996,
Mr. Luetkemeyer was Vice President-Finance, Ocean, Radar and
Sensor Systems at Lockheed Martin, and from 1993 to 1994, was Vice
President-Controller at Harris Semiconductor. Mr. Luetkemeyer was
Manager-Finance, Defense Systems Department at General Electric
Company from prior to 1992 to 1993.
Mr. Briney has been Vice President-Chief Technical Officer of
the Company since May 1997. Prior to joining the Company, Mr.
Briney was Assistant Vice President-Advanced Technology at
SystemSoft Corp., a software development company from 1995 to
1997, and held various positions at Prodigy Services Corp., the
last of which was as Executive Director, Technology and
Architecture from prior to 1992 to 1995.
Mr. Persky has been Vice President-Marketing since December
1997, having joined the Company in October 1997. Prior to joining
the Company, Mr. Persky was Vice President-Marketing for
Executone, Inc., a manufacturer of telephone systems, since 1996.
From prior to 1992 to 1996, Mr. Persky held various marketing
positions with Octel Communications (formerly VMX, Inc.), a voice
mail supplier, the last of which was as Marketing Director,
Europe, Middle East and Africa.
Mr. Valiton has been Senior Vice President of the Company
since March 1996, having joined the Company in July 1994 and
became Vice President, Delivery in January 1995. From prior to
1992 until joining the Company, Mr. Valiton held various positions
with Ungermann-Bass, Inc., the last of which was as Director of
Customer Administration.
<PAGE>
<PAGE>
ITEM 2. PROPERTIES
The Company's executive offices are located at 488 Main
Avenue, Norwalk, Connecticut, where the Company leases
approximately 29,400 square feet of space under a lease requiring
payment of annual rent (in addition to utility charges and
increases in operating expenses and real estate taxes) in an
amount, currently, at approximately $454,000 increasing to
approximately $688,000 in the final year, subject to the Company's
right to terminate the lease after five years upon payment of
specified sums. Of the Company's currently leased space in
Norwalk, approximately 6,100 square feet is devoted to office and
administrative uses, approximately 11,000 square feet to
engineering and development activities, approximately 6,100 square
feet to marketing, sales and customer service functions, and
approximately 6,200 square feet, which the Company began leasing
on January 1, 1998, is currently not being used.
The Company has obtained an option to lease the remaining
portion of all space (up to approximately 35,000 square feet in
aggregate) as it becomes available in the building, which houses
its executive offices. The lease term and cost per square foot for
all additional space will be on terms comparable to those of the
original lease.
The Company has entered into a lease arrangement in
Boxborough, Massachusetts, with respect to approximately 22,500
square feet, which expires in September 2002 and requires annual
rent (in addition to increases in operating expenses and real
estate taxes) in an amount currently of approximately $268,000,
increasing to approximately $290,000 in the final year of the
lease. The space is used for engineering and development
activities. The Company leases additional space at other smaller
locations where required to support operations. The foregoing
facilities are regarded by management as adequate in all material
respects for the current requirements of the Company's business.
As described under Note 6 of the Notes to the Company's
Consolidated Financial Statements included in response to "Item
14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K", the Company's indebtedness to the Connecticut Development
Authority (the "CDA") is secured by the assets of the Company and
the Principal Subsidiary.
ITEM 3. LEGAL PROCEEDINGS
In 1992, in proceedings commenced by the Company in the High
Court of Justice, Chancery Division, England against defendants
John Baxter and Epsi'lanne (UK) Limited, the defendants served
counterclaims seeking, among other things, to enjoin the Company
from selling its system in the United Kingdom. The Company does
not believe that these counterclaims have any merit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
(a) The Company's Common Stock is currently traded on the
over-the-counter market, with price quotations reported on the
Nasdaq Stock Market under the symbol "ERSI." The following table
sets forth, for the calendar periods indicated, the range of
quarterly high and low sales prices for the Common Stock, as
reported on the Nasdaq National Market System. Quotations
represent prices between dealers and do not include retail mark-
ups, mark-downs or commissions.
<TABLE>
<CAPTION>
1996 High Low
---- ----
<S> <C> <C>
First Quarter. . . . . $3.25 $1.63
Second Quarter . . . . 2.38 1.63
Third Quarter. . . . . 4.13 1.63
Fourth Quarter . . . . 4.25 2.63
1997 High Low
---- ----
First Quarter. . . . . $7.38 $3.38
Second Quarter . . . . 7.50 4.63
Third Quarter. . . . . 7.44 5.13
Fourth Quarter . . . . 7.13 3.31
</TABLE>
Since July 11, 1996, the Common Stock has also been admitted
to trading on the Alternative Investment Market of the London
Stock Exchange.
As of March 15, 1998, the number of record holders of the
Company's Common Stock was 630.
The Company has never paid or declared any cash dividends on
its Common Stock and does not intend to pay cash dividends on its
Common Stock in the foreseeable future. The Company intends to
retain its earnings, if any, for the future operation and
expansion of its business. The payment of dividends in the future
will depend upon the restrictions imposed by the indenture
pursuant to which the Senior Discount Notes were issued, the
Company's available earnings, the capital requirements of the
Company, its general financial condition and other factors deemed
pertinent by the Board of Directors. See Note 6 of the Notes to
the Company's Consolidated Financial Statements included in
response to "Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations-
Liquidity", which information is incorporated herein by reference.
(b) Not applicable.
<PAGE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following tables reflect summary historical consolidated
financial data with respect to the Company for the periods
indicated and should be read in conjunction with the Company's
Consolidated Financial Statements included in response to "Item
14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K" and "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations".
The following selected consolidated statement of operations
and balance sheet data, insofar as it relates to each of the five
years in the period ended December 31, 1997, has been derived from
audited consolidated financial statements, including the
consolidated balance sheet as of December 31, 1997 and 1996 and
the related consolidated statement of operations for each of the
three years in the period ended December 31, 1997 and the notes
thereto, included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1997 1996 1995 1994 1993(1)
---- ---- ---- ---- ----
(Amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues.................... $ 1,972 $ 5,002 $ 2,973 $2,376 $ 1,122
Cost of goods sold.......... 3,699 6,204 4,113 3,822 1,718
------- ------- -------- -------- --------
Gross profit (loss)........ (1,727) (1,202) ( 1,140) (1,446) ( 596)
------- ------- -------- -------- --------
Operating expenses:
Selling, general and
administrative............ 13,378 6,807 6,952 6,039 5,966
Research and development... 2,425 1,117 2,491 2,571 2,325
Depreciation and amorti-
zation.................... 301 162 107 149 177
Stock option compensation(2) -- 44 27 1,119 7,454
------- ------- -------- -------- --------
Total operating expenses.. 16,104 8,130 9,577 9,878 15,922
------- ------- -------- -------- --------
Loss from operations...... (17,831) (9,332) (10,717)(11,324) (16,518)
------- ------- -------- -------- --------
Other income (expenses):
Interest income............ 4,982 302 134 288 438
Interest expense........... (14,024) (382) (291) (65) (340)
Gain (loss) on short-term
investments............... -- -- 6 (177) --
------- ------- -------- -------- --------
Total other income
(expense)................ (9,042) (80) (151) 46 98
------- ------- -------- -------- --------
Loss before minority
interest in consolidated
affiliate.................. (26,873) (9,412) (10,868)(11,278) (16,420)
Minority interest in loss
of consolidated affiliate.. -- -- -- -- 423
-------- ------- -------- -------- --------
Net loss................... $(26,873) $(9,412) $(10,868)$(11,278) $(15,997)
======== ======= ======== ======== ========
Earnings per share:
Weighted average number
of common shares out-
standing.................. 21,096 16,169 11,743 11,682 10,736
======== ======= ======== ======== ========
Basic loss per common
share(3) $ (1.27) $ (.60) $ (0.95) $ (0.97) $ (1.49)
======== ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Net working capital....... $ 88,372 $ 8,764 $ 5,283 $ 3,452 $11,642
Total assets.............. 100,208 12,260 8,316 5,195 13,241
Long-term debt............ 113,102 4,989 3,335 1,981 --
Common stock purchase
warrants................. 5,100 -- -- -- --
Stockholders' (deficit)
equity................... (20,476) 5,723 3,215 2,268 12,405
______________________
(1) Reflects the consummation of the Reorganization immediately
prior to the closing of the Initial Public Offering.
(2) Compensation expense recognized in 1996, 1995 and 1994 related
to services provided by employees during those periods. The non-cash
compensation expense recognized for 1993 included compensation earned for
services prior to the Reorganization and compensation earned for the period
subsequent to the Reorganization through December 31, 1993.
(3) In 1997, the Company adopted Statement of Financial Accounting
Standards No.128 "Earnings Per Share". Due to the Company's loss position,
the Company has reported "basic" loss per common share. The presentation
of "dilutive" loss per common share is not required as common stock
equivalents are anti-dilutive.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The market for ESL systems is in the development stage, and
the Company estimates that, as of December 31, 1997, approximately
120 stores in the United States were operating such systems, out
of a potential market in excess of 100,000 supermarkets and other
stores. Large supermarket chains have tested the productivity<PAGE>
<PAGE>
benefits as well as the technical functionality of ESL systems in
pilot stores, as a result of which the Company believes they are
in a position to consider rolling out the systems. The Company's
objective is to be the worldwide leader in the emerging ESL system
market as product adoption and penetration increases.
Because the market for ESL systems is in the development
stage, market acceptance of and demand for these systems are
subject to a high level of uncertainty. The Company's success will
depend upon the rate at and extent to which retailers choose to
install ESL systems throughout their stores. The initial
acceptance and rate of installation by retailers may be affected
by numerous factors beyond the Company's control, including the
customer's assessment of the benefits of and the need for ESL
systems and the customer's available capital resources.
Since its inception in April 1990, the Company has been
engaged primarily in the development, design, market testing and,
more recently, sale of the ERS ShelfNet System. The Company
subcontracts to third parties the manufacture and assembly of the
components comprising the ERS ShelfNet System. In addition, the
Company engages unaffiliated parties to augment its internal
development resources and to assist it in the continued
development of the ERS ShelfNet System. Since inception and
through December 31, 1997, the Company has generated cumulative
revenues of $14.6 million, and has incurred a cumulative net loss
of approximately $92.6 million.
The Company historically has marketed the ERS ShelfNet System
for sale at prices generally in excess of $100,000 per store. The
purchase of an ESL system from the Company has therefore
represented a significant capital expenditure for capital-
constrained retailers. The Company now intends also to market its
ERS ShelfNet System on a fee based arrangement whereby the Company
will own the system and, with no upfront cash cost to the
retailer, furnish the system to retailers (generally for a period
of up to five years), who will pay monthly fees to the Company
based largely on their actual usage of the system. The Company
believes the SayGo Plan will increase market acceptance of the ERS
ShelfNet System. However, there can be no assurance that the
pricing strategy will be accepted by customers or will be
successful in helping the Company to attain profitability.
Under the SayGo Plan, the Company will recognize revenues as
monthly usage and other fees are billed to customers. Also, under
the SayGo Plan the Company will retain ownership of the systems,
which will be reflected as long-term assets on the Company's
consolidated balance sheet and which will be depreciated on a
straight-line basis over the shorter of their economic lives or
five years. Such assets will be subject to periodic impairment
testing as prescribed by Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of.
<PAGE>
<PAGE>
Results of Operations
Year ended December 31, 1997 compared to year ended December
31, 1996
Revenues. The Company's revenues were $1,972,000 in 1997,
compared to $5,002,000 in 1996. The Company believes that the
decrease of $3,030,000 in revenues in 1997 compared to 1996
reflects the decreased demand for ERS' previous generation product
attendant to plans to introduce a new generation product.
In 1997, revenues were concentrated among three significant
customers within the supermarket industry comprising 74% of total
revenues, with one customer accounting for 41% thereof.
Approximately 46% of revenues in 1996 was attributable to a single
customer, with three customers accounting for 79% of total
revenues. For the years ended December 31, 1997 and 1996 software
license fees were $122,000 and $243,000, respectively, or 11% and
6% of product sales. For the year ended December 31, 1997,
maintenance revenues decreased to $825,000 from $896,000 in the
prior year, due primarily to a reduced customer base of the
previous generation product.
The Company anticipates that past patterns in revenues may
not be indicative of future results of operations as the Company
introduces its SayGo Plan, under which the Company will recognize
revenues as monthly usage and other fees are billed to customers.
Cost of Goods Sold. Cost of goods sold consists of the cost
of hardware components of the ERS ShelfNet System, system
installation costs, depreciation of tools and dies owned by the
Company and utilized in the manufacturing of hardware components,
amortization of capitalized product development costs, warranty
and maintenance costs, freight and inventory obsolescence.
In connection with introduction of the SayGo Plan, the
Company will depreciate the cost of hardware components of its
system over the shorter of their estimated useful lives or five
years.
Cost of goods sold decreased to $3,699,000 in 1997, from
$6,204,000 in 1996. Warranty and maintenance expenses included in
the cost of goods sold decreased to $758,000 in 1997 from $966,000
in 1996, which included reductions in warranty costs. The gross
loss (cost of goods sold in excess of revenues) in 1997 increased
to 88% of total revenues from 24% in the 1996 corresponding
period, reflecting reduced installation volumes.
The increase in gross loss is primarily the result of ERS'
transition to a new generation of wireless products. During this
transition, ERS has experienced high initial material costs and
installation inefficiencies. Additionally, because of a reduction
in product sales in 1997, depreciation of manufacturing equipment
and amortization of product development costs comprised a
significant share of the cost of sales.
<PAGE>
<PAGE>
ERS anticipates that system enhancements to be implemented in
1998 will decrease future warranty and maintenance expenses per
installation and, in the future, that the cost of goods sold will
decrease as a percentage of revenues as a result of higher
manufacturing volumes of its components and as the installation
process is improved.
Cost of goods sold in 1996 also includes a special provision
for excess inventory of $750,000 recorded in the fourth quarter of
1996, in connection with the introduction of the new generation
electronic shelf labeling system.
Selling, General and Administrative. Selling, general and
administrative costs consist of costs associated with selling and
administrative staff, overhead, market research and development,
and customer service personnel. Selling, general and
administrative costs increased $6,571,000, to $13,378,000 in 1997,
compared to $6,807,000 in 1996. This reflects increased salary,
recruiting and rental expense related to efforts to expand ERS'
organization in anticipation of sales growth. In addition, results
include direct transaction costs associated with the proposed
Telepanel arrangement of approximately $585,000 and the effect of a
special non-cash charge of $510,000 for the issuance of common
stock purchase warrants.
Research and Development. Research and development expenses
were $2,425,000 in 1997 compared to $1,117,000 in 1996. Such
increases reflect expanded hardware and software engineering
activities and the development of training programs. During the
years ended December 31, 1997 and 1996, the Company also
capitalized product development costs of $375,000 and $592,000,
respectively. These product development costs are amortized over
the shorter of the estimated useful life of the related software
product or process or three years.
Interest Income. Interest income increased to $4,982,000 in
1997 compared to $302,000 in 1996, due to increased cash and cash
equivalents available for investment, including the proceeds of
the Private Placement, of 147,312 Units consisting of $147,312,000
principal amount at maturity of Senior Discount Notes together
with the 1997 Warrants to purchase an aggregate of 2,538,258
shares of Common Stock consummated on January 24, 1997.
Interest Expense. Interest expense increased to $14,024,000
in 1997 compared to $382,000 in 1996. Interest expense represents
interest on amounts borrowed from the CDA and additionally, in
1997, non-cash interest on the Senior Discount Notes. With the
consummation of the Private Placement in January 1997, the Company
commenced recording interest on an amount equal to the gross
proceeds from the Private Placement plus prior recorded and unpaid
interest at an annual rate of 13.25%. Additional expense is being
recorded as a result of the amortization of the discount recorded
on the Senior Discount Notes (for value attributed to the 1997
Warrants) and the amortization of costs of issuance.
<PAGE>
<PAGE>
Income Taxes. The Company has incurred net losses since
inception which have generated net operating loss carry forwards
for federal income tax purposes of approximately $70 million,
which are available to offset future taxable income and expire
through the year 2012 for federal income tax purposes. In
consideration of the Company's accumulated losses and the
uncertainty of its ability to utilize any future tax benefits
resulting from these losses, the impact of this potential tax
benefit has been eliminated in the Company's consolidated
financial statements as of December 31, 1997 and 1996 (see Note 11
of the Notes to Consolidated Financial Statements included in
response to "Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K").
Year ended December 31, 1996 compared to year ended December
31, 1995
Revenues. The Company's revenues were $5,002,000 in 1996,
compared to $2,973,000 in 1995. The increase of $2,029,000 in 1996
is primarily attributable to greater product sales in 1996,
including software license fees in the amount of $243,000 (6% of
product sales for 1996) recorded in the second quarter of 1996.
The increase in revenue also reflects a $586,000 increase in
maintenance revenue associated with a larger installed customer
base. All revenues are attributable to sales to customers in the
supermarket industry. In 1996, a single customer was responsible
for 46% of revenues and 79% of revenues was attributable to three
customers. Approximately 30% of revenues in 1995 was attributable
to a single customer, with three customers accounting for 83% of
total revenues.
Cost of Goods Sold. Cost of goods sold was $6,204,000 in 1996
compared to $4,113,000 in 1995, reflecting increased product sales
in 1996. The Company realized lower hardware component costs on
installations during 1996 as compared to 1995, reflecting an
increase in the use of high volume low cost suppliers. Cost of
goods sold in 1996 includes warranty and maintenance expenses of
$966,000, compared to $561,000 for such expenses in 1995. The
increase in warranty and maintenance costs reflects the growing
installation base for the ERS ShelfNet System.
Cost of goods sold in 1996 also includes a special provision
for excess inventory of $750,000 recorded in the fourth quarter of
1996, in connection with the introduction of the new generation
electronic shelf labeling system.
Selling, General and Administrative. Selling, general and
administrative costs decreased $145,000, to $6,807,000 in 1996,
compared to $6,952,000 in 1995, reflecting reduced discretionary
spending in 1996.
Research and Development. Research and development expenses
were $1,117,000 in 1996 compared to $2,491,000 in 1995, reflecting
the winding down or completion in 1996 of several hardware and
software development projects commenced in prior years. During the
years ended December 31, 1996 and 1995, the Company also<PAGE>
<PAGE>
capitalized product development costs of $592,000 and $475,000,
respectively, that will be amortized over the shorter of the
estimated useful life of the related software product or process
or three years.
Interest Income. Interest income increased to $302,000 in
1996 compared to $134,000 in 1995, due to increased cash and cash
equivalents available for investment.
Interest Expense. Interest expense increased to $382,000 in
1996 compared to $291,000 in 1995. Interest expense represents
interest on amounts borrowed from the CDA and, through July 24,
1995, a revolving credit facility with the principal stockholders
of the Company and members of the Board of Directors and their
affiliates.
Income Taxes. In consideration of the Company's accumulated
losses and the uncertainty of its ability to utilize any future
tax benefits resulting from these losses, the impact of this
potential tax benefit has been eliminated in the Company's
consolidated financial statements as of December 31, 1996 and 1995
(see Note 11 of the Notes to Consolidated Financial Statements
included in response to "Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K").
Liquidity and Capital Resources
As of December 31, 1997, the Company had net working capital
of $88,372,000 reflecting cash and cash equivalents of $82,400,000
compared to net working capital of $8,764,000, reflecting cash and
cash equivalents of $8,198,000 at December 31, 1996. The increase
in net working capital and in cash and cash equivalents during
1997 resulted primarily from approximately $95 million in net
proceeds raised in the Private Placement.
Net cash used in operations was $16,831,000 in 1997, compared
to net cash of $7,549,000 used for operating activities in 1996,
resulting primarily from the net losses of $26,873,000 and
$9,412,000, respectively, for such periods. See "Results of
Operations-Year Ended December 31, 1997 Compared to Year Ended
December 31, 1996" for a description of decreased revenue in 1997
compared to 1996 resulting, among other factors, from the
Company's transition to its new marketing and product plans. In
1997, the net loss of $26,873,000 included $12,798,000 of non-cash
interest expense. The 1997 net cash used in operations also
reflected a decrease in trade accounts receivable (net of
allowance for doubtful accounts) of $842,000 and an increase in
inventory (net of reserves) of $6,452,000, compared to decreases
of $283,000 and $1,053,000, respectively, for such items during
the prior year. During the fourth quarter of 1997, the Company
increased inventory in anticipation of sales growth in the ensuing
year. During 1997, current liabilities increased $934,000
reflecting an increase in outstanding trade payables, compared to
a reduction of $217,000 in the prior year.
<PAGE>
<PAGE>
Cash used in investing activities totaled $3,709,000 in 1997
compared to $989,000 of cash used by investing activities in 1996.
Investing activities included capital expenditures of $3,334,000
and $397,000 in 1997 and 1996, respectively. The Company also
incurred $375,000 and $592,000 in 1997 and 1996, respectively, in
product development costs.
In addition to selling the ERS ShelfNet System to customers
at a price generally in excess of $100,000 per store, under the
Company's proposed SayGo Plan the Company will offer the system on
a fee based arrangement whereby the Company retains ownership of
the system. See "Item 1. Business-Marketing and Sales-SayGo
Agreements" above, for a description of fixed and variable charges
proposed by the Company under the SayGo Plan. As a result, the
Company will have substantial cash requirements for manufacturing
and carrying costs attendant to introduction of the SayGo Plan,
which will not initially be covered by revenues calculated on the
basis of usage fees paid by customers. Accordingly, the Company
will require substantial funds in order to support the
introduction of the SayGo Plan.
To date, the Company has not generated positive cash flow
from operations, and has historically funded its operations
primarily through loans from its stockholders, the sale of
interests in an affiliated partnership, the Initial Public
Offering consummated in 1993, its arrangements with the CDA, the
sale of Series A Preferred Stock, $1.00 par value ("Series A
Preferred Stock"), to the Company's principal stockholders and
members of the Company's Board of Directors and their affiliates,
an offshore public offering and contemporaneous private placement
of Common Stock in 1996 and the Private Placement.
Cash from financing activities provided $94,742,000 in 1997,
as a result of the Private Placement, compared to $13,526,000 in
1996, during which the Company completed the offshore public
offering of an aggregate of 4,963,500 shares of Common Stock, in
accordance with Regulation S under the Securities Act of 1933, and
the contemporaneous private placement of an aggregate of 911,657
shares of Common Stock to subscribers, including certain members
of the Board of Directors and their affiliates, for aggregate
proceeds of approximately $12 million.
In January 1997, the Company completed the private sale of
147,312 Units, consisting of $147,312,000 principal amount at
maturity of its Senior Discount Notes and the 1997 Warrants, which
were sold to investors at a price aggregating $100 million ($95
million net proceeds to the Company). The Senior Discount Notes
mature on February 1, 2004, with accrual of cash interest at the
rate of 13-1/4% per annum commencing February 1, 2000, such
interest payable thereafter on February 1 and August 1 of each
year commencing August 1, 2000. The Senior Discount Notes may be
called, at the Company's option, in whole or in part, at any time
after February 1, 2001, and, upon specified change in control
events, each holder has the right to require the Company to
purchase its Senior Discount Notes at specified prices.
<PAGE>
<PAGE>
The indenture under which the Senior Discount Notes were
issued places limitations on operations and sales of assets by the
Company or its subsidiaries, requires maintenance of certain
financial ratios in order for the Company to incur additional
indebtedness (subject to specified exceptions), requires the
delivery by the Company's subsidiaries of guaranties if specified
debt is subsequently incurred by such subsidiaries, and limits the
Company's ability to pay cash dividends or make other
distributions to the holders of its capital stock or to redeem
such stock. The 1997 Warrants are, since January 24, 1998,
exercisable through February 1, 2004 with respect to an aggregate
of 2,538,258 shares of Common Stock, at a per share price of
$5.23.
The Company remains obligated to the CDA for an aggregate of
$5,000,000 principal amount of indebtedness (the "CDA Note"),
repayable five years after the August 1994 closing and convertible
to shares of Common Stock at an adjusted conversion price
calculated at $3.00 plus the average market price of the Common
Stock during the twelve months prior to conversion. At closing,
the CDA acquired five-year warrants to purchase 699,724 shares (as
adjusted through December 31, 1997) of Common Stock, exercisable
at an adjusted price calculated at $2.58 plus the average market
price of the Common Stock during the twelve months prior to
exercise. Under its arrangements with the CDA, the Company will be
obligated to comply with certain covenants (some of which remain
in effect for up to ten years from closing), whether or not the
CDA Note has been paid in full, or be subject to certain penalties
including immediate repayment of the CDA Note in full. In the
event of specified changes in control of the Company coupled with
prepayment of its note, the Company has rights to repurchase such
warrants and shares at the fair market value thereof (calculated
pursuant to such arrangements), and thereby, subject to the
foregoing, extinguish such covenants. In all events (and
notwithstanding any such repurchase), if the Company relocates
outside of Connecticut before August 2004, all advances made by
the CDA are subject to acceleration, together with a penalty of
$250,000.
The Company will utilize the net proceeds from the Private
Placement in connection with the anticipated expansion of its
operations, including for manufacturing and carrying costs
attendant to the SayGo Plan, and for general corporate purposes,
including the funding of the Company's ongoing engineering and
development efforts. The Company believes the proceeds of the
Private Placement, together with its other cash and cash
equivalents, will be sufficient to meet the Company's currently
anticipated operating and capital expenditure requirements for the
foreseeable future.
On October 29, 1997, the Company and Telepanel executed the
Combination Agreement, which provides for the Arrangement, as a
result of which the Company would have become the sole beneficial
owner of the outstanding Telepanel Common Shares. In March 1998,
the Company announced that the condition to closing contained in<PAGE>
<PAGE>
the Combination Agreement requiring confirmation that the
Arrangement would qualify for pooling-of-interests accounting
treatment has failed to be satisfied, and that the Company's Board
of Directors has determined that it does not intend to waive the
condition to combine regarding qualification for pooling-of-
interests accounting treatment. The Company and Telepanel are
engaged in discussions regarding a mutually acceptable termination
of the Combination Agreement. See "Item 1. Business-Proposed
Combination with Telepanel" for information concerning the
Arrangement, which information is incorporated by reference
herein.
Pursuant to the Combination Agreement, in February 1998 the
Company and Telepanel entered into the Joint Distribution
Agreement providing for the creation of the Joint Venture. Under
the Joint Distribution Agreement, the Company has advanced the
amount of $2,000,000 to the Joint Venture, on a revolving basis,
which accrues interest, payable monthly, at the prime rate plus
2.5% per annum, is guaranteed by Telepanel and its subsidiaries
and is secured by all of the assets of Telepanel and its
subsidiaries (such collateral subordinated in right to specified
bank indebtedness but prior in right to any other interest). All
amounts advanced by the Company to the Joint Venture, if not
earlier repaid from specified receivables of Telepanel and its
subsidiaries, were to have been due within 180 days of termination
of the Combination Agreement (or earlier, in the event of
specified defaults). The Company has delivered notice to the Joint
Venture and Telepanel accelerating repayment of all outstanding
amounts under such facility, as a result of the failure of the
Joint Venture to make payment of interest when due and
notwithstanding attempts to make payment of interest alone after
the due date therefor.
The Company continues actively to explore, evaluate and have
discussions with respect to collaborative development projects and
related arrangements, and the Company may consider additional
transactions, consistent with the provisions of the Senior
Discount Notes. The Company has not reached any determination with
respect to the size or nature of any such transaction, or whether
any such transaction will be undertaken, and there can be no
assurance that any such transaction will be effected.
The Company has considered the impact of year 2000 issues on
its current hardware and software offerings in the ordinary course
of its product development efforts. Management believes that the
Company's systems and applications are or will be year 2000
compliant in sufficient time and without significant impact on the
financial results of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable.
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For information concerning this item, see "Item 14. Exhibits,
Financial Statement Schedules, and Reports on Form 8-K", which
information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning this item, see "Item 1. Business-
Executive Officers" and the Proxy Statement to be filed with
respect to the 1998 Annual Meeting of Stockholders (the "Proxy
Statement"), which information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
For information concerning this item, see the Proxy
Statement, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
For information concerning this item, see the Proxy
Statement, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning this item, see the Proxy Statement
which information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The consolidated financial statements filed in this
Annual Report on Form 10-K are listed in the attached Index to
Consolidated Financial Statements and Schedules.
2. Financial Statement Schedules:
No consolidated financial statement schedules are
filed in this Annual Report on Form 10-K because they are not
required or are inapplicable or the required information is
otherwise shown in the consolidated financial statements or notes
thereto.
<PAGE>
<PAGE>
3. Exhibits:
The exhibits required to be filed as part of this
Annual Report on Form 10-K are listed in the attached Index to
Exhibits.
(b) Current Reports on Form 8-K:
During the quarter ended December 31, 1997, the
Company filed a Current Report on Form 8-K dated October 29, 1997
reporting, under "Item 5. Other Events" thereunder, the execution
of the Combination Agreement with Telepanel. No financial
statements were included with such report.
<PAGE>
<PAGE>
POWER OF ATTORNEY
The issuer and each person whose signature appears below
hereby appoint Norton Garfinkle, Bruce F. Failing, Jr. and Michael
Luetkemeyer as attorneys-in-fact with full power of substitution,
severally, to execute in the name and on behalf of the registrant
and each such person, individually and in each capacity stated
below, one or more amendments to the annual report which
amendments may make such changes in the report as the
attorney-in-fact acting deems appropriate and to file any such
amendment to the report with the Securities and Exchange
Commission.
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: March 30, 1998 ELECTRONIC RETAILING SYSTEMS
INTERNATIONAL, INC.
By s/Bruce F. Failing, Jr.
-------------------------
Bruce F. Failing, Jr.
Vice Chairman of the
Board and Principal
Executive Officer
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:
Signature Title Date
s/Bruce F. Failing, Jr. Vice Chairman of the March 30, 1998
- ----------------------- Board and Principal
Bruce F. Failing, Jr. Executive Officer
s/Michael Luetkemeyer Vice President, March 30, 1998
- ---------------------- Chief Financial
Michael Luetkemeyer Officer
s/Paul A. Biddelman Director March 30, 1998
- ----------------------
Paul A. Biddelman
<PAGE>
<PAGE>
s/David Diamond Director March 30, 1998
- ----------------------
David Diamond
s/Norton Garfinkle Director March 30, 1998
- ----------------------
Norton Garfinkle
s/George Weathersby Director March 30, 1998
- ----------------------
George Weathersby
s/Donald E. Zilkha Director March 30, 1998
- ----------------------
Donald E. Zilkha
<PAGE>
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Financial Statements:
Report of Independent Accountants............... F-2
Consolidated Balance Sheet, December 31,
1997 and 1996.................................. F-3
Consolidated Statement of Operations for
the years ended December 31, 1997, 1996
and 1995....................................... F-4
Consolidated Statement of Cash Flows
for the years ended December 31, 1997, 1996
and 1995....................................... F-5
Consolidated Statement of Changes in
Stockholders' (Deficit) Equity for the years
ended December 31, 1997, 1996 and 1995......... F-6
Notes to Consolidated Financial Statements....... F-7
Financial Statement Schedules:
No Financial Statement Schedules are included herein because they
are not required, are inapplicable, or the information is
otherwise shown in the consolidated financial statements or the
notes thereto.
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Electronic Retailing Systems International, Inc.
In our opinion, the consolidated financial statements listed in
the index on page F-1 present fairly, in all material respects,
the financial position of Electronic Retailing Systems
International, Inc. and its subsidiaries at December 31, 1997 and
1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits
of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Stamford, Connecticut
March 6, 1998, except for
Note 13, which is as of
March 30, 1998
F-2
<PAGE>
<PAGE>
<TABLE> Electronic Retailing Systems International, Inc.
Consolidated Balance Sheet
(in thousands, except per share and share amounts)
<CAPTION>
December 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents (Note 2) $ 82,400 $8,198
Accounts receivable - net of allowance
for doubtful accounts of $229 in 1997
and $90 in 1996 203 1,061
Receivables from affiliates (Note 3) 36 20
Installations in progress 202 87
Inventories - net of reserves of $1,021 in
1997 and $838 in 1996 (Note 2) 7,273 821
Prepayments and other current assets 740 125
--------- --------
Total current assets 90,854 10,312
--------- --------
Furniture and Equipment (Note 2) 5,055 2,444
Accumulated depreciation (1,753) (1,798)
--------- --------
Furniture and equipment, net 3,302 646
--------- --------
Debt issuance costs (Note 2) 5,038 403
Other non-current assets 1,014 899
--------- --------
Total assets $ 100,208 $ 12,260
========= ========
Liabilities and Stockholders' (Deficit)
Equity
Current liabilities
Accounts payable and accrued expenses $ 2,128 $ 1,286
Accrued salaries and benefits 354 262
-------- -------
Total current liabilities 2,482 1,548
-------- -------
Long-term debt (Note 6) 113,102 4,989
-------- -------
Common stock purchase warrants (Note 6) 5,100 -
Commitments (Note 8) - -
Stockholders' equity
Preferred stock, undesignated (par
value $1.00 per share; 2,000,000
shares authorized, none issued
and outstanding)
Common stock (par value $0.01 per share;
35,000,000 and 25,000,000 authorized;
21,187,035 and 21,047,106 shares issued and
outstanding in 1997 and 1996, respectively) 211 210
Additional paid-in capital 51,328 50,655
Accumulated deficit (72,015) (45,142)
------- -------
Total stockholders' (deficit) equity (20,476) 5,723
------- -------
Total liabilities and stockholders'
(deficit) equity $100,208 $12,260
======== =======
See accompanying notes to consolidated financial statements
F-3
</TABLE>
<PAGE>
<TABLE>
Electronic Retailing Systems International, Inc.
Consolidated Statement of Operations
(in thousands, except per share amounts)
<CAPTION>
Year Ended December 31,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues
Product sales $ 1,147 $ 4,106 $ 2,663
Maintenance 825 896 310
-------- -------- ---------
Total revenues 1,972 5,002 2,973
-------- -------- ---------
Cost of goods sold
Product sales 2,941 4,488 3,552
Maintenance 758 966 561
Special inventory provision (Note 2) - 750 -
------- ------- ---------
Total cost of goods sold 3,699 6,204 4,113
-------- -------- ---------
Gross profit (loss) (1,727) (1,202) (1,140)
-------- ------- ---------
Operating expenses
Selling, general and administrative
(including amounts to related parties
of $125 in 1997, $34 in 1996 and $91
in 1995) (Note 3) 13,378 6,807 6,952
Research and development (Note 9) 2,425 1,117 2,491
Depreciation and amortization 301 162 107
Stock option compensation (Note 10) - 44 27
-------- -------- ---------
Total operating expenses 16,104 8,130 9,577
-------- -------- ---------
Loss from operations (17,831) (9,332) (10,717)
-------- -------- ---------
Other income (expenses)
Interest income 4,982 302 134
Interest expense (including amounts
to related parties of $52 in 1995)
(Notes 3 and 6) (14,024) (382) (291)
Gain (loss) on short-term investments
(Note 2) - - 6
-------- -------- ---------
Total other income (expenses) (9,042) (80) (151)
-------- -------- ---------
Net loss $(26,873) $(9,412) $(10,868)
======== ======== =========
Earnings per Share
Weighted average common shares
outstanding 21,096 16,169 11,743
======== ======== =========
Basic loss per common share (Note 2) $ (1.27) $ (0.60) $ (0.95)
======== ======== =========
See accompanying notes to consolidated financial statements
</TABLE>
F-4
<PAGE>
<TABLE>
Electronic Retailing Systems International, Inc.
Consolidated Statement of Cash Flows
(in thousands)
<CAPTION>
Year Ended December 31,
----------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net Cash Flows from Operating Activities:
Net loss $ (26,873) $(9,412) $ (10,868)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 1,799 660 463
Common stock purchase warrants 510 - -
Provision for inventory obsolescence 392 843 94
Provision for doubtful accounts 252 168 82
Stock option compensation - 44 27
Accrued interest 12,798 - -
Accounts receivable 606 126 (935)
Inventories (6,844) 209 (591)
Other current and non-current assets (405) 30 (252)
Current liabilities 934 (217) 820
--------- --------- ---------
Net cash used in operating activities (16,831) (7,549) (11,160)
--------- --------- ----------
Cash Flows from Investing Activities:
Capital expenditures (3,334) (397) (452)
Capitalized product development costs (375) (592) (475)
Proceeds from sales or maturities of
short-term investments - - 1,027
--------- --------- ----------
Cash (used in) provided by investing
activities (3,709) (989) 100
--------- --------- ----------
Cash Flows from Financing Activities:
Net proceeds from the issuance of long-
term debt 89,478 - -
Net proceeds from the issuance of common stock 164 12,111 -
Net proceeds from the issuance of long-term
note - 1,650 1,350
Net proceeds from the issuance of common stock
purchase warrants 5,100 - -
Cash payments to preferred stockholders
upon conversion - (235) -
Net proceeds from the issuance of preferred
stock - - 8,789
Borrowings under line of credit - - 3,000
--------- --------- ----------
Cash provided by financing activities 94,742 13,526 13,139
--------- --------- ----------
Net increase in cash and cash
equivalents 74,202 4,988 2,079
--------- --------- ----------
Cash and cash equivalents at beginning of period 8,198 3,210 1,131
--------- --------- ----------
Cash and cash equivalents at end of period $ 82,400 $ 8,198 $ 3,210
========= ========= ==========
There were no cash payments for income taxes in the years 1997,
1996 and 1995. Cash payments for interest expense were $339, $380 and $262
in 1997, 1996 and 1995, respectively, including payments of $52 made to
related parties in 1995. In 1995, preferred stock was issued in a non cash
exchange for surrender of $3 million of debt held by preferred stock
subscribers. In 1996, preferred stock was converted to 3,138,900 shares of
common stock in a non cash transaction.
See accompanying notes to consolidated financial statements
</TABLE> F-5<PAGE>
<PAGE>
<TABLE>
Electronic Retailing Systems International, Inc.
Consolidated Statement of Changes in Stockholders'
(Deficit) Equity
(in thousands, except share amounts)
<CAPTION>
Additional
Preferred Common Paid-in Accumulated
Stock Stock Capital Deficit Total
--------- ------ --------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994 $ - $ 117 $ 26,457 $ (24,306) $ 2,268
--------- --------- --------- ---------- --------
Vesting of previously issued
stock options 27 27
Issuance and sale of 120,000
shares of preferred stock 120 11,668 11,788
Issuance of 3,246 shares of
preferred stock as dividends 3 322 (325) -
Net loss for year
(10,868) (10,868)
--------- --------- --------- ---------- ---------
Balances at December 31, 1995 $ 123 $ 117 $ 38,474 $ (35,499) $ 3,215
--------- --------- --------- ---------- ---------
Vesting of previously issued
stock options 44 44
Issuance of 65,860 common shares
with exercise of stock options 1 1
Issuance of 2,310 shares of
preferred stock as dividends 2 229 (231) -
Issuance and sale of 4,963,500
common shares in offshore
offering, and issuance of
218,957 common shares to
placement agent 52 10,087 10,139
Issuance and sale of 911,657
common shares in private
placement 9 1,982 1,991
Conversion of Series A preferred
stock and issuance of 3,138,900
common shares (125) 31 (161) (255)
Net loss for year (9,412) (9,412)
--------- --------- --------- ---------- ---------
Balances at December 31, 1996 $ - $ 210 $ 50,655 $ (45,142) $ 5,723
--------- --------- --------- ---------- ---------
Issuance of common stock
purchase warrants 510 510
Issuance of 139,929 common
shares with exercise of stock
options 1 163 164
Net loss for year
(26,873) (26,873)
--------- --------- --------- ---------- ---------
Balances at December 31, 1997 $ - $ 211 $ 51,328 $ (72,015) $(20,476)
========= ========= ========= ========== =========
See accompanying notes to consolidated financial statements
</TABLE> F-6<PAGE>
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Consolidated Financial Statements
Note 1 -Organization:
Electronic Retailing Systems International, Inc. ("ERS" or
the "Company"), was incorporated in 1993 under the laws of
the State of Delaware as a holding company for the business
and assets of Electronic Retailing Systems International,
Inc., incorporated in 1990 under the laws of Connecticut, and
an affiliated partnership. The Company develops and supplies
electronic shelf labeling systems. Electronic shelf labeling
systems replace paper price tags on retail shelves with
liquid crystal display labels and transmit pricing and other
information to and from the aisle. The Company's system is
designed to address retailers' needs for improved pricing
accuracy and labor efficiencies by electronically linking a
store's shelves to its POS scanners and central computer. The
Company currently operates in North America.
Note 2 -Summary of Significant Accounting Policies:
Basis of Consolidation
The consolidated financial statements include the accounts of
the Company and all of its subsidiaries. All significant
intercompany balances and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions covering a broad spectrum
of the Company's financial activities, and while the Company
believes these estimates to be prudent, there exists a
possibility that unexpected events might affect these
estimates. While actual results could differ from those
estimates, management believes that it is unlikely that any
one event would have a material effect on the Company's
future operating results.
Cash Equivalents
Cash equivalents consist of short-term, highly-liquid U.S.
Treasury Bills and certificates of deposit with original
maturities of less than three months and are stated at cost,
which approximates market. Interest income is accrued as
earned.
Cash and cash equivalents at December 31, 1997 included
deposits of $2,969,000 held as interest bearing collateral
for irrevocable letters of credit of the same amount relating
to future inventory purchases in 1998. There were no letters
of credit outstanding at December 31, 1996.
F-7<PAGE>
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Consolidated Financial Statements
Financial Instruments
Financial instruments include cash, cash equivalents, letters
of credit fully collateralized by cash and cash equivalents,
accrued salaries and expenses, a convertible long-term note,
long-term debt and common stock purchase warrants. Financial
instruments are carried at cost or accrued carrying value
which approximates fair market value.
Inventories
Inventories are stated at the lower of cost (determined on a
first in, first out basis) or market value. Inventories at
December 31, 1997 consist of approximately $3,286,000 of
materials and supplies and $3,987,000 of finished goods.
Inventories at December 31, 1996 consisted of approximately
$188,000 of materials and supplies and $633,000 of finished
goods. Inventories in excess of expected requirements due to
new product introductions are expensed currently.
In December 1996, the Company announced its new generation
wireless electronic shelf labeling system. As such, the
Company assessed the expected market demand for the new
product and the inventory on hand needed to support its
forecasted installations and the maintenance requirements of
its existing installed base. Based on this assessment the
Company recorded a special provision for excess inventory of
$750,000 in the fourth quarter of 1996. Charges for excess,
slow moving and obsolete inventory for the years 1997, 1996
and 1995 were $392,000, $843,000, which includes the 1996
special provision, and $94,000, respectively.
Furniture and Equipment
Furniture and equipment is stated at cost. Depreciation is
provided on the straight-line method over the estimated
useful lives of the respective assets, none of which exceeds
five years.
Furniture and equipment as of December 31, 1997 and 1996, was
comprised of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Furniture $1,723 $ 191
Equipment 3,332 2,253
------ ------
Furniture and equipment,
at cost 5,055 2,444
Accumulated depreciation (1,753) (1,798)
------ ------
Furniture and equipment, net $3,302 $ 646
====== ======
</TABLE> F-8<PAGE>
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Consolidated Financial Statements
Fully depreciated furniture and equipment no longer in use of
$722 was written-off during 1997.
Product Development Costs
The Company capitalizes product development costs,
principally wages and contractor fees, after establishing
commercial and technical viability. Product development costs
are stated at the lower of cost or net realizable value.
These costs are amortized using the straight-line method over
the shorter of the estimated useful life of the product or
three years. Amortization commences when the product is
available for general release to customers. As of December
31, 1997 and 1996, unamortized capitalized costs of $969,000
and $857,000, respectively, are included as other non-current
assets in the accompanying consolidated balance sheet.
Amortization expense totaled $262,000, $203,000 and $7,000
for 1997, 1996 and 1995, respectively.
Debt Issuance Costs
The Company has capitalized costs incurred in connection with
the issuance of debt. Such costs are principally investment
banking, legal, accounting, financial printing, and other
related fees and costs. These costs are amortized using the
effective interest method over the lives of the respective
debt arrangements. As of December 31, 1997 and 1996,
unamortized debt issuance costs of $5,038,000 and $403,000,
respectively, respectively, are included as other non-current
assets in the accompanying consolidated balance sheet.
Amortization expense totaled $440,000, $19,000 and $17,000
for 1997, 1996 and 1995.
Revenue Recognition
Revenue is recognized when the product is shipped or upon
completion of installation of a trial electronic shelf label
system, provided that no significant obligations remain and
collection of the resulting receivable is deemed probable.
Revenue from providing installation services to customers is
recognized upon the completion of an installation.
Maintenance revenue for services provided under maintenance
contracts is recognized over the service contract period.
Other revenue for parts and services is recognized when
provided.
Income Taxes
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" which requires an asset and
liability approach to the recognition of deferred tax assets
and liabilities for the expected future tax consequences of
events that have been recognized in the Company's financial
F-9<PAGE>
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Consolidated Financial Statements
statements or tax returns. Deferred income taxes relate to
timing differences between financial and income tax reporting
for stock option compensation, product development costs,
depreciation and other items.
Adoption of New Accounting Standards
In 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings per Share" ("FAS
128"), which is effective for financial statements for
periods ending after December 15, 1997.
The changes required by FAS 128 adjust the calculation of
earnings per share ("EPS") under generally accepted
accounting principles in the U.S. to be more consistent with
international standards. Under the new standard, companies
replace the reporting of "primary" EPS with "basic" EPS.
Basic EPS is calculated by dividing the income or loss
available to common stockholders by the weighted average
number of common shares outstanding for the period, without
consideration for common stock equivalents. "Fully diluted"
EPS is replaced by "diluted" EPS, which is similar to fully
diluted EPS as previously computed.
Due to the Company's loss position, the Company has reported
only "basic" EPS. The presentation of "dilutive" EPS is not
required as common stock equivalents are anti-dilutive. The
number of securities at December 31, 1997 that could
potentially dilute basic EPS in the future is 5,969,004. Such
securities, which have been excluded from the calculation of
basic EPS as they are anti-dilutive, include employee and
director stock options, convertible debt, and common stock
purchase warrants.
The Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation"
("FAS 123"), effective January 1, 1996. FAS 123 indicates a
preference for a fair value based method of accounting for
employee stock options, but allows for continuation of the
intrinsic value based method under Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB Opinion 25"). The Company has chosen to
continue its use of the intrinsic value based method of
accounting. (See Note 10).
Note 3 -Related Party Transactions:
The Company incurs certain common costs on behalf of
affiliates, which are reimbursed by the affiliates. The
Company subleases a portion of its headquarters facility to
an affiliate. Such common costs, including sublease payments,
amounted to $55,000, $63,000 and $112,000 in 1997, 1996 and
1995, respectively (see Note 8). Unpaid amounts are included
in receivables from affiliates at December 31, 1997, 1996 and
1995.
F-10
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Consolidated Financial Statements
The Company has received consulting services and paid a
member of its Board of Directors, both directly and through
an affiliate of the Company, fees of $125,000 in 1997. The
Company also has received consulting services and paid a
former member of its Board of Directors fees of $34,000 in
1996 and 1995 and also received consulting services and paid
fees to another former member of the Board of Directors of
$20,000 in 1995.
On March 30, 1995, the Company entered into a revolving
credit facility with its principal stockholders and certain
members of its Board of Directors and their affiliates. On
July 24, 1995, in connection with the sale of preferred stock
(see Note 4), $3 million in debt borrowed under such
revolving credit facility was surrendered, and the unused
portion of the facility in the amount of $2 million was
terminated. Interest expense in 1995 on amounts borrowed
under the line of credit totaled $52,000, at an average rate
of prime plus 1%. Additionally, a facility fee of $100,000
was paid to the lenders pursuant to the terms of the credit
facility.
Note 4 -Preferred Stock:
On July 24, 1995, the Company completed a private sale of
85,000 shares of its newly-created Series A Cumulative,
Convertible Preferred Stock, $1.00 par value ("Series A
Preferred Stock"), for an aggregate purchase price of $8.5
million. The purchase price was delivered by surrender of $3
million of the Company's debt held by the subscribers, which
consisted of certain members of the Company's Board of
Directors and their affiliates, and cash in the amount of
$5.5 million. Subsequently in 1995, an affiliate of the
Company's Chairman of the Board, and one of the subscribers,
acquired 35,000 additional shares of Series A Preferred Stock
at a purchase price per share of $100.
On July 11, 1996 in connection with the Company's offshore
public offering (see Note 5) and contemporaneous private
placement, holders of the Company's Series A Preferred Stock
converted their shares, in accordance with their terms, into
an aggregate of 3,138,900 shares of Common Stock, $.01 par
value ("Common Stock"). In connection with the conversion,
payments aggregating $235,000 were made to the Series A
Preferred Stock holders.
Each share of Series A Preferred Stock entitled the holder to
a dividend of $7.50 per annum, payable quarterly, which would
cumulate if not paid. Dividends were payable by the Company,
at its election, either in cash or in the form of additional
shares of Series A Preferred Stock valued at $100 per share.
Dividends paid to holders of record of such stock in 1996 and
1995 were paid in the form of additional shares of Series A
Preferred Stock (aggregating 5,556 shares).
F-11 <PAGE>
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Consolidated Financial Statements
Each share of Series A Preferred Stock, valued at $100, was
convertible into shares of the Company's Common Stock at a
conversion price of $4.00 (subject to certain adjustments),
and was subject to redemption, at the option of the Company,
at a price of $100 under certain conditions. Holders of
Series A Preferred Stock voted together with holders of
Common Stock, each share carrying one vote, and were entitled
to a liquidation preference of $100 per share.
Note 5 -Common Stock Offering:
On July 11, 1996, the Company completed the offshore public
offering of an aggregate of 4,963,500 shares of its Common
Stock, in accordance with Regulation S under the Securities
Act of 1933, and the contemporaneous private placement to
subscribers, including certain members of the Company's Board
of Directors and their affiliates, of an aggregate of 911,657
shares of Common Stock. Net proceeds from these transactions
were approximately $12 million (exclusive of non-cash
expenses represented by the issuance of 218,957 shares of
Common Stock as commissions).
On January 13, 1997, the Company's stockholders voted to
approve an increase in the number of authorized shares of
Common Stock from 25,000,000 to 35,000,000 shares.
Note 6 -Long-Term Debt and Common Stock Purchase Warrants:
On August 12, 1994, the Company completed a financing
arrangement with the Connecticut Development Authority
("CDA"), under which the CDA loaned $2 million to the Company
at closing and agreed to loan the Company up to an additional
$3 million through August 12, 1997. At December 31, 1995,
$3.35 million was outstanding under such facility, with the
remainder of the $5 million credit limit advanced in February
1996. Such indebtedness is repayable five years after
closing, accrues interest, payable monthly, at a rate of 7.4%
per annum, is subject to prepayment without premium at the
option of the Company, and is convertible into shares of the
Common Stock of the Company. Such indebtedness is secured by
the Company's assets. The Company also issued to the CDA
warrants to purchase 600,000 shares of Common Stock. At
issuance, the initial conversion price of the debt and
exercise price of the warrants was $13.00 per share which was
in excess of the then market price of the Company's Common
Stock of $7.00. Due to the excess, nominal value was assigned
to the warrants.
During 1995, the Company also entered into agreements with
the CDA, which became effective upon consummation of the
initial sale of the Company's Series A Preferred Stock (see
Note 4), whereby the conversion price of the debt held by the
CDA and the exercise price of its warrants were reduced so as
to be calculated as $3.00 plus the average market price of
Common Stock during the twelve months prior to conversion.
F-12<PAGE>
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Consolidated Financial Statements
Pursuant to such agreements, and as a result of additional
provisions contained in the CDA's warrants, effective upon
consummation of the sale of the Preferred Stock, and issuance
of the initial dividend thereon: (i) the exercise price of
the CDA's warrants was reduced so as to be calculated 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's warrants was adjusted to 699,724.
On January 24, 1997, the Company completed the sale, in a
private offering (the "Private Placement"), of 147,312 Units
("Units") consisting of $147,312,000 principal amount at
maturity of 13-1/4% Senior Discount Notes due February 1,
2004 (the "Notes") together with warrants to purchase an
aggregate of 2,538,258 shares of Common Stock, at an exercise
price of $5.23 per share, exercisable from the period
commencing on the first anniversary of closing through
February 1, 2004.
The Units were sold to investors at a price aggregating $100
million, representing a yield to maturity on the Notes of 13-
1/4%. No cash interest will accrue on the Notes prior to
February 1, 2000. Interest will be payable thereafter on
February 1 and August 1 of each year commencing August 1,
2000. The Notes are non-callable prior to February 1, 2001.
Upon specified change in control events, each holder has the
right to require the Company to purchase its Note at a
specified price. The net proceeds to the Company from the
Private Placement approximated $95 million.
The indenture under which the Notes were issued places
limitations on operations and sales of assets by the Company
or its subsidiaries, requires maintenance of certain
financial ratios in order for the Company to incur additional
indebtedness (subject to specified exceptions), requires the
delivery by the Company's subsidiaries of guaranties if
specified debt is subsequently incurred by such subsidiaries,
and limits the Company's ability to pay cash dividends or
make other distributions to the holders of its capital stock
or to redeem such stock.
With the consummation of the Private Placement in January
1997, the Company commenced recording interest on an amount
equal to the gross proceeds from the Private Placement plus
prior recorded and unpaid interest at the annual rate of
13.25%. Additional interest expense is being recorded as a
result of the amortization of the discount recorded on the
Notes (for value attributed to the warrants) and the
amortization of the costs of issuance.
Long-term debt as of December 31, 1997 and 1996 was comprised
of the following:
F-13<PAGE>
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
7.4% CDA Note due August 12, 1999 $ 4,993 $4,989
13.25% Senior Discount Notes
due February 1, 2004 (in-
cluding interest accrued
of $12,798) 108,109 --
-------- ------
Total long-term debt $113,102 $4,989
======== ======
</TABLE>
The Company engaged Patricof & Co. in connection with
certain corporate finance services and, in addition to three-
year warrants issued in the second quarter of 1997
exercisable with respect to 250,000 shares of Common Stock at
a price of $5.24 per share, Patricof & Co. may receive fees
that become due if certain transactions are consummated. The
estimated fair value of warrants issued to Patricof & Co.
approximated $510,000, and has been recorded as an increase
to Additional Paid-in Capital.
Note 7 -Customer Information:
All of the Company's sales are to customers in the retail
food market industry. Significant customer sales for the
years ended December 31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Customer 1997 1996 1995
-------- ---- ---- ----
<S> <C> <C> <C>
The Stop & Shop Supermarket Company 41% 46% --
Big Y Foods, Inc. -- 20% --
Shaw's Supermarkets, Inc. 22% 13% 26%
H.E. Butt Grocery Co. 11% -- 30%
The Vons Companies, Inc. -- -- 27%
</TABLE>
Accounts receivable at December 31, 1997 and 1996 are
unsecured and concentrated among major supermarket chains in
the United States. If the customers within this concentration
failed to pay according to the terms of their agreements
these receivables would be reduced to nominal value.
Note 8 -Commitments:
The Company leases its facilities under operating lease
agreements. During 1997, 1996 and 1995 rental expense
amounted to approximately $424,000, $278,000 and $295,000,
respectively.
F-14<PAGE>
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Consolidated Financial Statements
Future minimum lease payments on a calendar year basis under
non-cancelable leases, as of December 31, 1997 are, as
follows:
Total
Commitments
-----------
1998 $ 777,000
1999 751,000
2000 788,000
2001 816,000
2002 777,000
2003 and thereafter 2,988,000
----------
$6,897,000
==========
Note 9 -Research and Development:
Research and development activities were a major component of
the Company's expenditures and efforts during 1997, 1996 and
1995. The Company's research and development expenses
(including the allocation of applicable salaries) during
1997, 1996 and 1995 were $2,425,000, $1,117,000 and
$2,491,000, respectively.
During 1995 the Company had research and development
contracts with unaffiliated parties for both hardware and
software elements of its electronic shelf labeling system.
The Company reimbursed these contractors generally based on
milestone achievements or satisfactory performance.
Note 10 - Stock Option and Defined Contribution Plan:
The Company has an employee stock option plan whereby options
to purchase shares of Common Stock may be granted to key
employees of the Company. In June 1994 and December 1996, the
stockholders approved an increase in the number of authorized
shares of Common Stock available for issuance under the plan
from 850,005 to 1,225,000 and from 1,225,000 to 1,775,000,
respectively. In December 1997, the Company's Board of
Directors, subject to stockholders' approval, authorized an
increase in the number of authorized shares of Common Stock
available for issuance under the plan to 3,500,000 shares.
Options granted under the plan typically become exercisable
over a period of four years.
A summary of all option activity pursuant to the employee
stock option plan is as follows:
F-15<PAGE>
<PAGE>
<TABLE> Electronic Retailing Systems International, Inc.
Notes to Consolidated Financial Statements
<CAPTION>
Price Range Options
----------- -------
<S> <C> <C>
Options outstanding December 31, 1994 $.01 - $8.50 730,370
--------
Options granted $.01 - $5.63 480,205
Options exercised $.01 (27,766)
Options canceled $.01 - $8.50 (265,080)
--------
Options outstanding December 31, 1995 $.01 - $6.00 917,729
--------
Options granted $1.88 -$2.25 380,784
Options exercised $ .01 (65,860)
Options canceled $2.25 -$6.00 (354,161)
--------
Options outstanding December 31, 1996 $ .01 -$5.875 878,492
--------
Options granted $4.88 -$6.19 1,117,117
Options exercised $.01 -$5.00 (139,929)
Options canceled $.01 -$6.13 (120,552)
---------
Options outstanding December 31, 1997 $.01 - $6.19 1,735,128
=========
</TABLE>
The following table summarizes information about employee stock
options outstanding and exercisable at December 31, 1997:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Remaining Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- -------- ----------- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ .01 292,593 4 years $ .01 94,773 $ .01
$2.25-$3.63 244,838 9 $2.27 71,760 $2.27
$4.88-$6.19 1,197,697 9 $5.53 104,917 $5.21
--------- -------
1,735,128 271,450
========= =======
</TABLE>
Additionally, the Company has a director stock option plan
under which options covering shares of Common Stock may be
granted to directors of the Company. During 1997, 50,000
options were granted to directors of the Company to purchase
an equal number of common shares pursuant to this plan at an
option price of $5.69. In January 1997, the stockholders
approved an increase in the number of authorized shares of
Common Stock available under the plan from 50,000 to 150,000.
In December 1997, the Company's Board of Directors, subject to
stockholder approval, authorized an increase in the number of
authorized shares of Common Stock available under the plan to
750,000. As of December 31, 1997 options covering an aggregate
of 172,500 shares of Common Stock were outstanding under the
F-16<PAGE>
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Consolidated Financial Statements
plan (of which options covering 50,000 shares remain subject
to stockholder approval of the plan expansion).
The Company applies APB Opinion 25 and related interpretations
in accounting for its employee and director stock option
plans. The consolidated statement of operations for the years
ended December 31, 1996 and 1995 includes noncash stock option
compensation expense of $44,000, and $27,000, respectively,
representing compensation earned for employee service through
the periods then ended related to option grants. Had
compensation expense for the Company's employee stock option
plan been determined based on the fair value at the grant
dates of awards under the plan, consistent with FAS 123, the
Company's net loss and basic loss per common share would have
been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net loss:
As reported ($26,873,000) ($9,412,000) ($10,868,000)
Pro forma ($28,052,000) ($9,412,000) ($11,221,000)
Basic loss per common share:
As reported ($1.27) ($0.60) ($0.95)
Pro forma ($1.33) ($0.60) ($0.98)
</TABLE>
The fair value of each stock option grant was estimated on the
date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions used in 1997,
1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Expected volatility 114% 53% 53%
Risk-free interest rate 6% 7% 7%
Expected life 6 years 5 years 5 years
</TABLE>
The weighted average fair value of stock options granted
during the years ended December 31, 1997, 1996 and 1995 was
$4.82, $1.31 and $2.98, respectively.
The Company has a defined contribution profit sharing and
savings plan which qualifies under Section 401(k) of the
Internal Revenue Code for employees meeting certain service
requirements. Participants may contribute up to 30% of their
gross wages, not to exceed in any given year a limitation set
by Internal Revenue Service regulations (such limitation was
$9,500 in 1997). The plan provides for discretionary matching
F-17
<PAGE> Electronic Retailing Systems International, Inc.
Notes to Consolidated Financial Statements
contributions, as determined by the Board of Directors, to be
made by the Company. There have been no discretionary amounts
contributed to the plan as of December 31, 1997.
Note 11 -Income Taxes:
The Company has incurred net losses since inception which have
generated net operating loss carryforwards of $70.0 million
for federal income tax purposes. These carryforwards are
available to offset future taxable income and begin to expire
in the year 2008. These losses are subject to limitation on
future years utilization should certain ownership changes
occur.
The net operating loss carryforwards and temporary differences
between the carrying amounts of assets and liabilities for
financial reporting and income tax purposes result in a
noncurrent deferred tax benefit at December 31, 1997 and 1996
of $32.5 million and $21.1 million, respectively. In
consideration of the Company's accumulated losses and the
uncertainty of its ability to utilize this deferred tax
benefit in the future, the Company has recorded a valuation
allowance of an equal amount on such dates to fully offset the
deferred tax benefit amount.
Significant components of the noncurrent deferred tax asset at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net operating loss carryforwards $29,127,000 $18,256,000
Stock option compensation 2,642,000 2,566,000
Other 762,000 293,000
---------- -----------
Total deferred tax benefit 32,531,000 21,115,000
Valuation allowance (32,531,000) (21,115,000)
---------- -----------
Net noncurrent deferred tax asset $ -- $ --
========== ============
</TABLE>
In 1997, 1996 and 1995 a statutory Federal income tax rate of
34% and a state income tax rate of 7.6%, net of the Federal
tax benefit, were applicable to the Company. Due to the
Company's taxable losses the effective tax rate was nil in
each year.
The income tax provision calculated for financial reporting
purposes differs from income taxes determined by applying the
statutory Federal income tax rate to the financial statement
net loss for the years ended December 31, 1997, 1996 and 1995
as a result of the following:
F-18<PAGE>
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax benefit at Federal statutory rate$ 9,083,000$3,200,000$3,695,000
State income tax benefit, net of
Federal tax charge 2,031,000 714,000 825,000
Net loss not providing current
year tax benefit (11,063,000)(3,608,000)(4,428,000)
Other ( 51,000) (306,000) (92,000)
--------------------- ----------
Provision for income taxes $ - $ - $ -
===================== ==========
</TABLE>
Note 12 -ERS / Telepanel Combination:
On October 29, 1997, the Company and Telepanel Systems Inc.,
a company incorporated under the Canada Business Corporations
Act ("Telepanel"), executed an agreement providing for the
combination of the Company and Telepanel. The combination
agreement provides for Telepanel to be recapitalized and each
Telepanel Common Share to be exchanged for .5566 of an
Exchangeable Share of Telepanel, each share of which would
entitle the holder (i) to dividend and other rights
economically equivalent to those of one share of the Company's
Common Stock, (ii) through a voting trust, to vote at meetings
of stockholders of the Company, and (iii) at the option of the
holder, to exchange such share for one share of the Company's
Common Stock. As a result of the transaction, ERS would have
become the sole beneficial owner of the outstanding Telepanel
Common Shares.
Under the terms of the combination agreement, the obligations
of the Company and Telepanel to consummate the transaction are
subject to the satisfaction or waiver, where permissible, of
certain conditions set forth in the combination agreement,
including the receipt of certain accountants' letters relating
to the transaction's qualification for pooling-of-interests
accounting treatment, obtaining approval of the stockholders
of the Company and of Telepanel, the approval (without
material condition or costs) of the plan of arrangement
contemplated by the Combination Agreement by the Court, and
the receipt of certain consents from the holders of debt of
ERS and Telepanel.
In February 1998, as an interim arrangement pursuant to the
combination agreement, the Company and Telepanel entered into
a joint distribution agreement providing for creation of a
joint venture (the "Joint Venture") that would hold specified
distribution rights until consummation of the combination or
termination of the combination agreement, or until specified
F-19
<PAGE>
Electronic Retailing Systems International, Inc.
Notes to Consolidated Financial Statements
defaults under the joint distribution agreement. The Company
has advanced the amount of $2,000,000 to the Joint Venture, on
a revolving basis (the "Facility"), which accrues interest,
payable monthly, at the prime rate plus 2.5% per annum, is
guaranteed by Telepanel and its subsidiaries and is secured by
all of the assets of Telepanel and its subsidiaries (such
collateral subordinated in right to specified bank
indebtedness but prior in right to any other interest). All
amounts advanced by the Company to the Joint Venture, if not
earlier repaid from specified receivables of Telepanel and its
subsidiaries, are due within 180 days of termination of the
combination agreement (or earlier, in the event of specified
defaults).
Note 13 -Subsequent Events
On March 17, 1998, the Company announced that the condition to
closing contained in the combination agreement requiring
confirmation that the transaction would qualify for pooling-
of-interests accounting treatment failed to be satisfied, and
that the Company's Board of Directors has determined that it
does not intend to waive the condition to combine regarding
qualification for pooling-of-interests accounting treatment.
In addition, on March 20, 1997, the Company delivered notice
to the Joint Venture and Telepanel accelerating all
outstanding amounts under the Facility, as a result of the
failure of the Joint Venture to make payment of interest when
due and notwithstanding attempts by Telepanel on March 26,
1998 to make payment of interest after the due date therefor.
The Company and Telepanel are engaged in discussions regarding
a mutually acceptable termination of the combination
agreement.
The Company has delivered notice to the Joint Venture and
Telepanel accelerating all outstanding amounts under the
Facility, as a result of the failure of the Joint Venture to
make payment of interest when due and notwithstanding attempts
to make payment of interest after the due date therefor.
F-20<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Document Description
- ------- --------------------
3.1 - Certificate of Incorporation of the
Company (Incorporated by reference
to Exhibit 3.1 of the Registration
Statement on Form S-4 No. 333-21893).
3.2 - By-laws of the Company.
10.1 - Form of Reorganization Agreement
dated March 12, 1993 among the
Company, the Principal Subsidiary,
Norton Garfinkle, The G/N
Garfinkle Trust, Bruce F.
Failing, Jr., The Failing Trust,
Elizabeth Z. Failing, Robert D.
Power and John Stevens (Incorporated
by reference to Exhibit 10.1 to
the Registration Statement on
Form S-1 No. 33-59486).
10.2 - Form of Registration Rights Agreement
dated March 12, 1993 among the Company,
Norton Garfinkle, The G/N Garfinkle
Trust, Bruce F. Failing, Jr., The
Failing Trust, Elizabeth Z. Failing,
Robert D. Power and John Stevens
(Incorporated by reference to Exhibit
10.2 to the Registration Statement on
Form S-1 No. 33-59486).
10.3 - Form of Restated Stockholders' Agree-
ment dated March 12, 1993 among
Norton Garfinkle, The G/N Garfinkle
Trust, Bruce F. Failing, Jr., The
Failing Trust and Elizabeth Z. Failing
(Incorporated by reference to Exhibit
10.3 to the Registration Statement on
Form S-1 No. 33-59486).
10.4 - Amendment No. 1 to Restated Stockholders
Agreement dated October 29, 1997.
10.5 - Form of Reorganization Agreement
dated March 12, 1993 among the
Company, the Partnership, the
the Principal Subsidiary, and the
limited partners of the Partnership
(Incorporated by reference to
Exhibit 10.4 to the Registration
Statement on Form S-1 No. 33-59486).
E-1<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Document Description
- ------- --------------------
10.6 - Form of Registration Rights Agreement
dated March 12, 1993 among the
Company and the limited partners of
the Partnership (Incorporated by
reference to Exhibit 10.5 to
the Registration Statement on
Form S-1 No. 33-59486).
10.7 - Registration Rights Agreement dated as
of July 24, 1995 among the Company,
Donald E. Zilkha, Bruce F. Failing,
Jr., Hanseatic Corporation and Garfinkle
Limited Partnership II (Incorporated by
reference to Exhibit 5(d) of the Current
Report on Form 8-K dated July 24, 1995).
10.8 - Technical Services Agreement dated
October 1, 1985 between Telepanel, Inc.
and Amacrine International, Inc.
(Incorporated by reference to Exhibit
10.10 to the Registration Statement on
Form S-1 No. 33-59486).
10.9 - License Agreement dated January 27,
1993 between the Company and Telepanel
Systems Inc. (Incorporated by reference
to Exhibit 10.11 to the Registration
Statement on Form S-1 No. 33-59486).
10.10 - Note and Warrant Purchase Agreement
dated as of August 12, 1994 among
the Company, the Principal Subsidiary,
and the Connecticut Development
Authority (Incorporated by reference
to Exhibit 10(a) to the Quarterly
Report on Form 10-Q for the period
ended June 30, 1994), together with
7.4% Convertible Note dated August
12, 1994 executed by the Company
and the Principal Subsidiary
to the Connecticut Development
Authority (Incorporated by reference
to Exhibit 10(b) to the Quarterly
Report on Form 10-Q for the period
ended June 30, 1994), and Stock
Subscription Warrant dated
August 12, 1994 issued by the
Company to the Connecticut
Development Authority (Incorporated
by reference to Exhibit 10(c) to
the Quarterly Report on Form 10-Q
for the period ended June 30, 1994),
and Conditional Assignment and Security
E-2<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Document Description
- ------- --------------------
Agreement dated August 12, 1994 among
the Company, the Principal Subsidiary
and the Connecticut Development Authority
(Incorporated by reference to Exhibit
10(d) to the Quarterly Report on Form
10-Q for the period ended June 30, 1994).
10.11 - Placing Agreement dated July 5, 1996
between the Company and Henderson
Crosthwaite Institutional Brokers
Limited (Incorporated by reference
to Exhibit 5(c) to the Company's
Current Report on Form 8-K dated
July 11, 1996), together with
Agreement with respect to U.S. Sec-
urities Laws dated July 2, 1996
between the Company and Henderson
Crosthwaite Institutional Brokers
Limited (Incorporated by reference
to Exhibit 5(d) to the Company's
Current Report on Form 8-K dated
July 11, 1996).
10.12 - Forms of Subscription Agreement accep-
ted July 5, 1996 by the Company (Incor-
porated by reference to Exhibit 5(f)
to the Company's Current Report on
Form 8-K dated July 11, 1996, together
with Registration Rights Agreement dated
July 11, 1996 between the Company and
the subscribers parties thereto (Inc-
orporated by reference to Exhibit 5(g)
to the Company's Current Report on
Form 8-K dated July 11, 1996).
10.13 - Purchase Agreement dated as of January
20, 1997 between the Company and
Credit Suisse First Boston Corporation
and UBS Securities LLC (Incorporated by
reference to Exhibit 1.1 to the Regis-
tration Statement on Form S-4 No.
333-21893).
10.14 - Warrant Agreement dated as of January
24, 1997 between the Company and
American Stock Transfer & Trust Company
(Incorporated by reference to Exhibit
10.20 to the Registration
Statement on Form S-4 No. 333-21893).
E-3<PAGE>
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Document Description
- ------- --------------------
10.15 - Indenture dated as of January 24,
1997 between the Company and United
States Trust Company of New York (Inc-
orporated by reference to Exhibit 4.1
to the Registration Statement on
Form S-4 No. 333-21893).
10.16 - Registration Rights Agreement dated
January 20, 1997 between the Company
and Credit Suisse First Boston Corp-
oration and UBS Securities LLC (Inc-
orporated by reference to Exhibit
4.3 to the Registration Statement
on Form S-4 No. 333-21893).
10.17 - Lease Agreement dated May 30, 1997
between 488 Main Avenue Associates,
LLC and the Company, together with
Amendment No. 1 thereto.
10.18 - Lease Agreement dated October 1, 1997
between Kurian Limited Partnership and
the Company.
10.19 - Combination Agreement dated October 29,
1997 between the Company and Telepanel
Systems Inc. (Incorporated by reference
to Exhibit 5(a) of the Current Report
on Form 8-K dated October 29, 1997).
10.20 - Joint Distribution Agreement dated
February 3, 1998 between the Company
and Telepanel Systems Inc.
10.21 - Form of the Company's 1993 Employee
Stock Option Plan.
10.22 - Form of the Company's 1993 Director
Stock Option Plan.
11.1 - Statement of Computation of Per Share
Earnings.
12.1 - Statement of Computation of Ratio of
Earnings to Fixed Charges.
21 - Subsidiaries of the Company.
23.1 - Consent of Price Waterhouse LLP.
24 - Power of Attorney (See "Power of Attorney"
in this Annual Report on Form 10-K).
27 - Financial Data Schedule.
EXHIBIT 3.2
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
BY-LAWS
AS AMENDED TO OCTOBER 28, 1997
ARTICLE I
Offices
The registered office of the Corporation shall be in the City
of Dover, County of Kent, State of Delaware.
The Corporation may also have offices at such other places,
both within and without the State of Delaware, as may from time to
time be designated by the Board of Directors.
ARTICLE II
Books
The books and records of the Corporation may be kept (except
as otherwise provided by the laws of the State of Delaware) outside
of the State of Delaware and at such place or places as may from
time to time be designated by the Board of Directors.
ARTICLE III
Stockholders
Section 1. Annual Meetings. The annual meeting of the
stockholders of the Corporation for the election of Directors and
the transaction of such other business as may properly come before
said meeting shall be held at the principal business office of the
Corporation or at such other place or places either within or
without the State of Delaware as may be designated by the Board of
Directors and stated in the notice of the meeting, on the second
Thursday in June in each year, if not a legal holiday, and, if a<PAGE>
<PAGE>
legal holiday, then on the next weekday not a legal holiday, at
10:00 o'clock in the morning.
Written notice of the place designated for the annual meeting
of the stockholders of the Corporation shall be delivered personal-
ly or mailed to each stockholder entitled to vote thereat not less
than ten (10) and not more than sixty (60) days prior to said
meeting, but at any meeting at which all stockholders shall be
present, or of which all stockholders not present have waived
notice in writing, the giving of notice as above described may be
dispensed with. If mailed, said notice shall be directed to each
stockholder at his address as the same appears on the stock ledger
of the Corporation unless he shall have filed with the Secretary of
the Corporation a written request that notices intended for him be
mailed to some other address, in which case it shall be mailed to
the address designated in such request.
Section 2. Special Meetings. Special meetings of the
stockholders of the Corporation shall be held whenever called in
the manner required by the laws of the State of Delaware for
purposes as to which there are special statutory provisions, and
for other purposes whenever called by resolution of the Board of
Directors, or by the Chairman of the Board, the President, or by
the holders of a majority of the outstanding shares of capital
stock of the Corporation the holders of which are entitled to vote
on matters that are to be voted on at such meeting. Any such
special meeting of stockholders may be held at the principal
business office of the Corporation or at such other place or<PAGE>
<PAGE>
places, either within or without the State of Delaware, as may be
specified in the notice thereof. Business transacted at any special
meeting of stockholders of the Corporation shall be limited to the
purposes stated in the notice thereof.
Except as otherwise expressly required by the laws of the
State of Delaware, written notice of each special meeting, stating
the day, hour and place, and in general terms the business to be
transacted thereat, shall be delivered personally or mailed to each
stockholder entitled to vote thereat not less than ten (10) days
and not more than sixty (60) days before the meeting. If mailed,
said notice shall be directed to each stockholder at his address as
the same appears on the stock ledger of the Corporation unless he
shall have filed with the Secretary of the Corporation a written
request that notices intended for him be mailed to some other
address, in which case it shall be mailed to the address designated
in said request. At any special meeting at which all stockholders
shall be present, or of which all stockholders not present have
waived notice in writing, the giving of notice as above described
may be dispensed with.
Section 3. List of Stockholders. The officer of the Corpora-
tion who shall have charge of the stock ledger of the Corporation
shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to
vote at said meeting, arranged in alphabetical order and showing
the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the<PAGE>
<PAGE>
examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours for a period of at least
ten (10) days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at
the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the
whole time thereof, and may be inspected by any stockholder who is
present.
Section 4. Quorum. At any meeting of the stockholders of the
Corporation, except as otherwise expressly provided by the laws of
the State of Delaware, the Certificate of Incorporation or these
By-Laws, there must be present, either in person or by proxy. in
order to constitute a quorum, stockholders owning a majority of the
issued and outstanding shares of the capital stock of the Corpora-
tion entitled to vote at said meeting. At any meeting of stock-
holders at which a quorum is not present, the holders of, or
proxies for, a majority of the stock which is represented at such
meeting, shall have power to adjourn the meeting from time to time,
without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting
at which a quorum shall be present or represented any business may
be transacted which might have been transacted at the meeting as
originally noticed. If the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall<PAGE>
<PAGE>
be given to each stockholder of record entitled to vote the
meeting.
Section 5. Organization. The Chairman of the Board, or in his
absence the President, shall call to order meetings of the
stockholders and shall act as chairman of such meetings. The Board
of Directors or the stockholders may appoint any stockholder or any
other Director or officer of the Corporation to act as chairman of
any meeting in the absence of the Chairman of the Board and the
President. The Secretary of the Corporation shall act as secretary
of all meetings of the stockholders, but in the absence of the
Secretary the presiding officer may appoint any other person to act
as secretary of any meeting.
Section 6. Voting. Except as otherwise provided in the
Certificate of Incorporation or these By-Laws, each stockholder of
record of the Corporation shall, at every meeting of the stockhold-
ers of the Corporation, be entitled to one (1) vote for each share
of stock standing in his name on the books of the Corporation on
any matter on which he is entitled to vote, and such votes may be
cast either in person or by proxy, appointed by an instrument in
writing, subscribed by such stockholder or by his duly authorized
attorney, and filed with the Secretary before being voted on, but
no proxy shall be voted after three (3) years from its date, unless
said proxy provides for a longer period. If the Certificate of
Incorporation provides for more or less than one (1) vote for any
share of capital stock of the Corporation, on any matter, then any
and every reference in these By-Laws to a majority or other<PAGE>
<PAGE>
proportion of capital stock shall refer to such majority or other
proportion of the votes of such stock.
The vote on all elections of Directors and on any other
questions before the meeting need not be by ballot, except upon
demand of any stockholder. When a quorum is present at any meeting
of the stockholders of the Corporation, the vote of the holders of
a majority of the capital stock entitled to vote at such meeting
and present in person or represented by proxy shall decide any
question brought before such meeting, unless the question is one
upon which, under any provision of the laws of the State of
Delaware or of the Certificate of Incorporation, a different vote
is required in which case such provision shall govern and control
the decision of such question.
Section 7. Consent. Except as otherwise provided by the
Certificate of Incorporation, whenever the vote of the stockholders
at a meeting thereof is required or permitted to be taken in
connection with any corporate action by any provision of the laws
of the State of Delaware or of the Certificate of Incorporation,
such corporate action may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding
capital stock of the Corporation having not less than the minimum
number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written<PAGE>
<PAGE>
consent shall be given to those stockholders who have not consented
thereto in writing.
Section 8. Judges. At every meeting of the stockholders of the
Corporation at which a vote by ballot is taken, the polls shall be
opened and closed, the proxies and ballots shall be received and
taken in charge, and all questions touching the qualifications of
voters, the validity of proxies and the acceptance or rejection of
votes shall be decided by, two (2) judges. Said judges shall be
appointed by the Board of Directors before the meeting, or, if no
such appointment shall have been made, by the presiding officer of
the meeting. If for any reason any of the judges previously
appointed shall fail to attend or refuse or be unable to serve,
judges in place of any so failing to attend, or refusing or unable
to service, shall be appointed in like manner.
ARTICLE IV
Directors
Section 1. Number, Election and Term of Office. The business
and affairs of the Corporation shall be managed by the Board of
Directors. The number of Directors which shall constitute the whole
Board shall be not less than three (3) nor more than nine (9).
Within such limits, the number of Directors may be fixed from time
to time by vote of the stockholders or of the Board of Directors,
at any regular or special meeting, subject to the provisions of the
Certificate of Incorporation. Directors need not be stockholders.
Directors shall be elected at the annual meeting of the
stockholders of the Corporation, except as provided in Section 2
<PAGE>
of this Article, to serve until the next annual meeting of
stockholders and until their respective successors are duly elected
and have qualified.
In addition to the powers by these By-Laws expressly
conferred upon them, the Board may exercise all such powers of the
Corporation as are not by the laws of the State of Delaware, the
Certificate of Incorporation or these By-Laws required to be
exercised or done by the stockholders.
Section 2. Vacancies and Newly Created Directorships. Any
vacancy in the office of a Director occurring for any reason, and
any newly created Directorship resulting from any increase in the
authorized number of Directors, may, subject to the requirements of
Delaware law, be filled by a majority of the Directors then in
office or by a sole remaining Director. Directors chosen or
elected as aforesaid shall hold office until the next annual
meeting of stockholders and until their respective successors are
duly elected and have qualified.
Section 3. Removals. At any meeting of stockholders of the
Corporation called for the purpose, the holders of a majority of
the shares of capital stock of the Corporation entitled to vote at
such meeting may remove from office, with or without cause, any or
all of the Directors.
Section 4. Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and place, either
within or without the State of Delaware, as shall from time to time
be determined by resolution of the Board. <PAGE>
<PAGE>
Section 5. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President
or any two Directors on notice given to each Director, and such
meetings shall be held at the principal business office of the
Corporation or at such other place or places, either within or
without the State of Delaware, as shall be specified in the notices
thereof.
Section 6. Annual Meetings. The first meeting of each newly
elected Board of Directors shall be held as soon as practicable
after each annual election of Directors and on the same day, at the
same place at which regular meetings of the Board of Directors are
held, or at such other time and place as may be provided by
resolution of the Board. Such meeting may be held at any other time
or place which shall be specified in a notice given, as hereinafter
provided, for special meetings of the Board of Directors.
Section 7. Notice. Notice of any meeting of the Board of
Directors requiring notice shall be given to each Director by
mailing the same at least forty-eight (48) hours, or by personal
delivery, telegram or telecopy at least twenty-four (24) hours,
before the time fixed for the meeting. Attendance of a Director at
a meeting shall constitute waiver of notice of such meeting, except
when such Director attends such meeting for the express purpose of
objecting, at the beginning of such meeting, to the transaction of
any business because such meeting is not lawfully called or
convened.
<PAGE>
<PAGE>
Section 8. Quorum. At all meetings of the Board of Directors,
the presence of one-half or more of the Directors constituting the
Board (but in no event less than two Directors) shall constitute a
quorum for the transaction of business. Except as may be otherwise
specifically provided by the laws of the State of Delaware, the
Certificate of Incorporation or these By-Laws, the affirmative vote
of a majority of the Directors present at the time of such vote
shall be the act of the Board of Directors if a quorum is present.
If a quorum shall not be present at any meeting of the Board of
Directors the Directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the
meeting, until a quorum shall be present. The Chairman of the Board
shall call to order meetings of the directors and shall act as
chairman of such meetings.
Section 9. Consent. Unless otherwise restricted by the
Certificate of Incorporation or these By-Laws, any action required
or permitted to be taken at any meeting of the Board of Directors
may be taken without a meeting, if all members of the Board consent
thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board.
Section 10. Telephonic Meetings. Unless otherwise restricted
by the Certificate of Incorporation or these By-Laws, members of
the Board of Directors may participate in a meeting of the board by
means of conference telephone or similar communications equipment
by means of which all persons participating in such meeting can<PAGE>
<PAGE>
hear each other, and participation in a meeting pursuant to this
Section 10 shall constitute presence in person at such meeting.
Section 11. Compensation of Directors. Directors, as such,
shall not receive any stated salary for their services, but, by
resolution of the Board, a fixed sum and expenses of attendance, if
any, may be allowed for attendance at each regular or special
meeting of the Board; provided that nothing herein contained shall
be construed to preclude any Director from serving the Corporation
in any other capacity and receiving compensation therefor. Section
Section 12. Resignations. Any Director of the Corporation may
resign at any time by giving written notice to the Board of
Directors or to the Chairman of the Board, the President or the
Secretary of the Corporation. Any such resignation shall take
effect at the time specified therein, or, if the time be not
specified, upon receipt thereof; and unless otherwise specified
therein, acceptance of such resignation shall not be necessary to
make it effective.
ARTICLE V
Officers
Section 1. Number, Election and Term of Office. The officers
of the Corporation shall be a Chairman of the Board, Vice Chairman
of the Board, President, one or more Vice Presidents, a Secretary
and a Treasurer, and may, at the discretion of the Board of
Directors, include any other officers and agents as the interest
of the Corporation may require. Any of the Chairman of the Board,
the Vice Chairman of the Board, the President, or any other officer<PAGE>
<PAGE>
of the Corporation, or any combination of them, as authorized by
the directors, shall be the principal executive officer of the
Corporation. The officers of the Corporation shall be elected
annually by the Board of Directors at its meeting held immediately
after the annual meeting of the stockholders, and shall hold their
respective offices until their successors are duly elected and have
qualified. Any number of offices may be held by the same person.
Section 2. Chairman of the Board. The Chairman of the Board
shall preside, when present, at all meetings of the Board of
Directors and all meetings of the stockholders and will perform
such other duties as may from time to time be assigned to him by
the Board of Directors or these By-laws.
Section 2A. Vice Chairman of the Board. In the absence of the
Chairman of the Board or in the event of his death, inability or
refusal to act, the Vice Chairman of the Board shall perform the
duties of the Chairman of the Board and, when so acting, shall have
all the powers of and be subject to all the restrictions on the
Chairman of the Board. The Vice Chairman of the Board shall perform
such other duties as may be prescribed from time to time by the
Board or these by-laws.
Section 3. President. The President shall have such powers and
duties as from time to time may be assigned to him by the Board of
Directors or these By-laws, and shall see that all orders and
resolutions of the Board of Directors and the stockholders are
carried into effect. He shall have the general authority to execute
bonds, deeds, and contracts in the name of the Corporation and<PAGE>
<PAGE>
affix the corporate seal thereto, and to sign stock certificates.
Subject to authorization and approval by the Board of Directors or
pursuant to these By-laws, he shall have the authority: to cause
the employment or appointment of such employees and agents of the
Corporation as the proper conduct of operations may require, and to
fix their compensation; and to remove or suspend any employee or
agent who shall have been employed or appointed under his authority
or under authority of an officer subordinate to him.
Section 4. Vice Presidents. The Vice Presidents shall perform
such duties as the President or the Board of Directors shall
require. Any Vice President shall, during the absence or incapacity
of the President, assume and perform his duties.
Section 5. Secretary. The Secretary may sign all certificates
of stock of the Corporation. He shall record all the proceedings of
the meetings of the Board of Directors and of the stockholders of
the Corporation in books to be kept for that purpose. He shall have
custody of the seal of the Corporation and may affix the same to
any instrument requiring such seal when authorized by the Board of
Directors, and when so affixed he may attest the same by his
signature. He shall keep the transfer books, in which all transfers
of the capital stock of the Corporation shall be registered, and
the stock books which shall contain the names and addresses of all
holders of the capital stock of the Corporation and the number of
shares held by each; and he shall keep such stock and transfer
books open daily during business hours to the inspection of every
stockholder and for transfer of stock. He shall notify the<PAGE>
<PAGE>
Directors and stockholders of their respective meetings as
required by law or by these By-Laws, and shall perform such other
duties as may be required by law or by these By-Laws, or which may
be assigned to him from time to time by the Board of Directors.
Section 6. Treasurer. The Treasurer shall have charge of the
funds and securities of the Corporation. He may sign all certifi-
cates of stock. He shall keep full and accurate accounts of all
receipts and disbursements of the Corporation in books belonging to
the Corporation and shall deposit all monies; and other valuable
effects in the name and to the credit of the corporation in such
depositories as may be designated by the Board of Directors. He
shall disburse the funds of the corporation as may be ordered by
the Board, and shall render to the President or the Directors,
whenever they may require it, an account of all his transactions as
Treasurer and an account of the business and financial position of
the Corporation.
Section 7. Assistant Treasurers. The Assistant Treasurers
shall, during the absence or incapacity of the Treasurer, assume
and perform all functions and duties which the Treasurer might
lawfully do if present and not under any incapacity.
Section 8. Treasurer's Bond. The Treasurer and Assistant
Treasurers shall, if required so to do by the Board of Directors,
each give a bond (which shall be renewed every six (6) years) in
such sum and with such surety or sureties as the Board of Directors
may require.
<PAGE>
<PAGE>
Section 9. Transfer of Duties. The Board of Directors in its
absolute discretion may transfer the power and duties, in whole or
in part, of any officer to any other officer, or persons, notwith-
standing the provisions of these By-Laws, except as otherwise
provided by the laws of the State of Delaware.
Section 10. Vacancies. If the office of Chairman of the Board,
President, Vice President, Secretary or Treasurer, or of any other
officer or agent becomes vacant for any reason, the Board of
Directors may choose a successor to hold office for the unexpired
term.
Section 11. Removals. At any meeting of the Board of Directors
called for the purpose, any officer or agent of the Corporation
may be removed from office, with or without cause, by the
affirmative vote of a majority of the entire Board of Directors.
Section 12. Compensation of Officers. The officers shall
receive such salary or compensation as may be determined by the
Board of Directors.
Section 13. Resignations. Any officer or agent of the
Corporation may resign at any time by giving written notice to the
Board of Directors or to the Chairman of the Board, the President
or the Secretary of the Corporation. Any such resignation shall
take effect at the time specified therein or, if the time be not
specified, upon receipt thereof; and unless otherwise specified
therein, acceptance of such resignation shall not be necessary to
make it effective.
<PAGE>
<PAGE>
ARTICLE VI
Contracts, Checks and Notes
Section 1. Contracts. Unless the Board of Directors shall
otherwise specifically direct, all contracts of the Corporation
shall be executed in the name of the Corporation by the Chairman of
the Board or the President or a Vice President.
Section 2. Checks and Notes. All checks, drafts, bills of
exchange and promissory notes and other negotiable instruments of
the Corporation shall be signed by such officers or agents of the
Corporation as may be designated by the Board of Directors.
ARTICLE VII
Stocks
Section 1. Certificates of Stock. The certificates for shares
of the stock of the Corporation shall be in such form, not
inconsistent with the Certificate of Incorporation, as shall be
prepared or approved by the Board of Directors. Every holder of
stock in the Corporation shall be entitled to have a certificate
signed by, or in the name of the Corporation by, the Chairman of
the Board, the President or a Vice President, and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant
Secretary certifying the number of shares owned by him and the date
of issue; and no certificate shall be valid unless so signed. All
certificates shall be consecutively numbered and shall be entered
in the books of the Corporation as they are issued. Where a
certificate is countersigned (1) by a transfer agent other than
the Corporation or its employee, or, (2) by a registrar other than<PAGE>
<PAGE>
the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the
date of issue. All certificates surrendered to the Corporation
shall be cancelled and, except in the cases of lost or destroyed
certificates, no new certificates shall be issued until the former
certificates for the same number of shares of the same class of
stock shall have been surrendered and cancelled.
Section 2. Transfer of Stock. Upon surrender to the Corpora-
tion or the transfer agent of the Corporation of a certificate for
shares duly endorsed or accompanied by proper evidence of succes-
sion, assignment or authority to transfer, it shall be the duty of
the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction
upon its books.
ARTICLE VIII
Registered Stockholders
The Corporation shall be entitled to treat the holder of
record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any
equitable or other claim to, or interest in, such share or shares
on the part of any other person, whether or not it shall have<PAGE>
<PAGE>
express or other notice thereof, save as expressly provided by the
laws of the State of Delaware.
ARTICLE IX
Lost Certificates
Any person claiming a certificate of stock to be lost or
destroyed shall make an affidavit or affirmation of the fact and
advertise the same in such manner as the Board of Directors
may require, and the Board of Directors may, in its discretion,
require the owner of the lost or destroyed certificate, or his
legal representative, to give the Corporation a bond in a sum
sufficient, in the opinion of the Board of Directors, to indem-
nify the Corporation against any claim that may be made against it
on account of the alleged loss of any such certificate. A
new certificate of the same tenor and for the same number of
shares as the one alleged to be lost or destroyed may be issued
without requiring any bond when, in the judgment of the
Directors, it is proper so to do.
ARTICLE X
Fixing of Record Date
In order that the Corporation may determine the stock-
holders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent
to corporate action in writing without a meeting, or to receive
payment of any dividend or other distribution or allotment of
any rights, or to exercise any rights in respect of any change,
conversion or exchange of stock or for the purpose of any other<PAGE>
<PAGE>
lawful action, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of
directors, and which record date shall rot be more than sixty (60)
nor less than ten (10) days before the date of such meeting, nor
more than sixty (60) days prior to any other action. A determina-
tion of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a
new record date for the adjourned meeting.
ARTICLE XI
Dividends
Subject to the relevant provisions of the Certificate of
Incorporation, dividends upon the capital stock of the Corporation
may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in
property, or in shares of the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation.
Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sums as the
Directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property
of the Corporation, or for such other purpose as the Directors
shall think conducive to the interest of the Corporation, and the
Directors may modify or abolish any such reserve in the manner in
which it was created. <PAGE>
<PAGE>
ARTICLE XII
Waiver of Notice
Whenever any notice whatever is required to be given by
statute or under the provisions of the Certificate of Incorporation
or these By-Laws, a waiver thereof in writing signed by the person
or persons entitled to said notice, whether before or after the
time stated therein, shall be equivalent thereto.
ARTICLE XIII
Seal
The corporate seal of the Corporation shall have inscribed
thereon the name of the Corporation, the year of its organization
and the words "Corporate Seal of Delaware."
ARTICLE XIV
Amendments
Subject to the provisions of the Certificate of Incorporation,
these By-Laws may be altered, amended or repealed or new By-Laws
may be adopted by the stockholders or by the Board of Directors at
any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the
Board of Directors if notice of such alteration, amendment or
repeal of the By-Laws or of adoption of new By-Laws be contained in
the notice of such special meeting.
EXHIBIT 10.4
SUPPLEMENT TO STOCKHOLDERS' AGREEMENT
Amendment No. 1 dated as of October 29, 1997 to the
Stockholders' Agreement dated as of March 12, 1993 (the
"Stockholders' Agreement") among Norton Garfinkle, The G/N
Garfinkle Trust, Bruce F. Failing, Jr., The Failing Trust, and
Elizabeth Z. Failing.
W I T N E S S E T H:
WHEREAS, the parties hereto are parties to the Stockholders'
Agreement whereunder they have agreed to certain rights and
restrictions with respect to the common stock, $.01 par value, of
Electronic Retailing Systems International, Inc., a Delaware
corporation (the "Company"), held thereby, as well as certain other
obligations with respect to the Company; and
WHEREAS, the Company is contemporaneously herewith entering
into a combination agreement dated this date (the "Combination
Agreement") with Telepanel Systems Inc., pursuant to Section 4.15
of which certain corporate governance arrangements are contemplated
effective at the Effective Time (as defined thereunder); and
WHEREAS, in furtherance of the Combination Agreement,
effective at the Effective Time, the parties hereto desire to
modify certain terms of the Stockholders' Agreement in accordance
with this Amendment No. 1;
NOW, THEREFORE, in consideration of the mutual premises and
agreements hereinafter set forth, the parties hereto hereby agree
as follows:
1. Effective at the Effective Time and until the second
anniversary thereof, section 5 of the Stockholders' Agreement
is hereby amended by deleting the references to "7" and "6"
therein and inserting in lieu thereof references to "9" and
"5", respectively.
2. Except as set forth or amended herein, the Stockholders'
Agreement shall remain in full force and effect, without
waiver of or abridgment of any rights of any party, and
continue to bind the parties hereto.
3. This Agreement may be executed in counterparts, each of which
shall be deemed to be an original, but all of which taken
together shall constitute one and the same agreement.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment
No. 1 as of the date first above written.
GARFINKLE LIMITED PARTNERSHIP I
By: G.F. Management Corp.
s/Norton Garfinkle By s/Norton Garfinkle
- --------------------------- -----------------------------
Norton Garfinkle
THE G/N GARFINKLE TRUST GARFINKLE LIMITED PARTNERSHIP II
By: G.F. Management Corp.
By s/Norton Garfinkle By s/Norton Garfinkle
------------------------- -----------------------------
Norton Garfinkle, Trustee
s/Bruce F. Failing, Jr.
- ---------------------------
Bruce F. Failing, Jr.
THE FAILING TRUST
By s/Leigh Q. Failing
-------------------------
Leigh Q. Failing
By s/Elizabeth F. Failing
-------------------------
Elizabeth F. Failing
s/Elizabeth Z. Failing
- ---------------------------
Elizabeth Z. Failing
Exhibit 10.17
LEASE AGREEMENT
This sets forth a Lease Agreement made as of this 30th day of
May, 1997 between 488 Main Avenue Associates, L.L.C., a
Connecticut limited liability corporation with an address of P.0.
Box 2870 Westport, Connecticut 06880 (the "Landlord") and
Electronic Retailing Systems International, Inc., a Delaware
corporation with an address of 488 Main Avenue, Norwalk,
Connecticut 06851 (the "Tenant").
In consideration of mutual covenants, the parties hereby
agree as follows:
1. Premises
(a) Landlord leases to Tenant and Tenant hereby rents from
Landlord premises being the entire third floor of a building (the
"Building") located at 488 Main Avenue, Norwalk, Connecticut (the
Land and Building being hereinafter referred to as "488 MAIN").
The premises to be leased ("Leased Premises") is stipulated to be
17,500 rentable square feet.
(b) Together with the Leased Premises, Landlord grants to the
Tenant for the term of this Lease the use of the land, the common
areas of the Building, parking areas and access ways of 488 MAIN
in common with other tenants, their employees, guests and
invitees.
(c) The Leased Premises shall not be deemed to include either
the land beneath 488 MAIN or the exterior walls or roof of the
Building, or any area beyond the exterior of any interior wall.
Landlord reserves unto itself, its successors and assigns, access
to the Leased Premises and the use of such land, walls and roof of
the Building, for the right to install, maintain, use, repair and
replace pipes, ducts, conduits, wires and structural elements
leading through the Leased Premises and interior partitions
between the Leased Premises.
(d) The land, parking areas, and accessways of 488 MAIN shall
be subject to Landlord's exclusive management and control, and
Landlord expressly reserves the right without limitation from time
to time to construct, maintain, replace and operate facilities and
equipment on the common areas; change the location, arrangement,
and size of parking areas and traffic lanes; close temporarily all
or any portion of the common areas for maintenance, repairs or
construction; and establish and modify reasonable regulations
concerning use of the common areas. Landlord shall have no
liability to Tenant for any change in the size, location or
arrangement of the common areas or the facilities.
<PAGE>
<PAGE>
2. Use of Premises
Tenant shall use the Leased Premises for office and related
purposes including (but not limited to) executive and
administrative offices; sale (but not to the general public),
display, storage, service, repair, testing, and research and
development of Tenant's products and equipment; engineering,
education and training of Tenant's customers and employees, and
any other office use legally permitted under the City of Norwalk
Zoning Code. Tenant's obligations hereunder are conditioned upon
its ability to use the Leased Premises for the above uses; in no
event shall Tenant use the Leased Premises for retail or related
purposes or for medical office or related purposes.
3. Term of Lease
(a) The term of this Lease Agreement (the "Lease Term") shall
be ten years and two months, commencing June 1, 1997 (the
"Commencement Date") and ending on the later of (i) July 31, 2007
or (ii) the day preceding the tenth anniversary plus two months of
the Commencement Date (the "Termination Date").
(b) Landlord shall deliver the Leased Premises to Tenant on
or before June 1, 1997 and Tenant agrees to accept the Leased
Premises in "as is" condition. In the event that the Landlord is
not able to deliver the Leased Premises to Tenant by June 1, 1997,
then the Commencement Date of this Lease shall be delayed until
the date that Landlord is able to deliver the Leased Premises to
the Tenant and the rent due from Tenant shall not begin until
sixty days after the Commencement Date. Notwithstanding the
foregoing, if Landlord fails to deliver the Leased Premises to
Tenant on or before July 1, 1997, then Tenant may terminate the
herein Lease Agreement, in which event Landlord shall return to
Tenant all amounts paid by Tenant hereunder to Landlord and,
Landlord shall indemnify Tenant for all damages incurred by
Tenant, including reasonable attorneys fees, as a result of
Landlord's failure to deliver possession of the Leased Premises to
the Tenant.
(c) At the time of the expiration or earlier termination of
this Lease, Tenant agrees to surrender the Leased Premises in good
condition, broom clean, reasonable wear and tear and damage by
fire or casualty excepted.
4. Rent
(a) Throughout the Lease Term, as the same may be extended or
renewed, Tenant shall pay rent monthly in advance on the first day
of each month, and without prior demand, deduction, or set-off.
(b) During the Lease Term, Tenant shall pay the annual rent
(the "Rent") as follows (subject to extension of said dates by the
period of delay in delivering the Leased Premises to the Tenant):<PAGE>
<PAGE>
June 1, 1997 - July 31, 1997: No rent due.
August 1, 1997 - July 31, 1998: $266,875 payable in equal
months installments of $22,239.58.
August 1, 1998 - July 31, 1999: $280,000 payable in equal
months installments of $23,333.33.
August 1, 1999 - July 31, 2000: $297,500 payable in equal
monthly installments of $24,791.67.
August 1, 2000 - July 31, 2001: $310,625 payable in equal
monthly installments of $25,885.42.
August 1, 2001 - July 31, 2002: $323,750 payable in equal
monthly installments of $26,979.17.
August 1, 2002 - July 31, 2003: $350,000 payable in equal
monthly installments of $29,166.67.
August 1, 2003 - July 31, 2004: $363,125 payable in equal
monthly installments of $30,260.42.
August 1, 2004 - July 31, 2005: $380,625 payable in equal
monthly installments of $31,718.75.
August 1, 2005 - July 31, 2006: $393,750 payable in equal
monthly installments of $32,812.50.
August 1, 2006 - July 31, 2007: $406,875 payable in equal
monthly installments of $33,906.25.
(c) A "Lease Year" shall be defined as any twelve month
period during the Lease Term beginning with the first day of the
month after the Commencement Date and ending with the date 365
days thereafter.
(d) Tenant's pro rata share, as used hereinafter, shall be
50%.
(e) In addition to the Rent described above, beginning with
the Commencement Date, Tenant shall pay for all electric
consumption at the Leased Premises and, prior to taking occupancy
of the Leased Premises, Tenant shall put into its name the
electric meters which measure electric provided to the Leased
Premises, it being the intent of this Lease Agreement that the
Tenant shall pay for all utilities provided to the Leased
Premises, including all heat and air-conditioning, but excluding
water which shall be an operating expense of the property.
<PAGE>
<PAGE>
(f) (i) In addition to the Rent, Tenant shall pay to Landlord
its pro rata share of the increases in the real estate taxes
actually paid at 488 MAIN over the real estate taxes actually paid
in the tax year July 1, 1997 - June 30, 1998 (the "Real Estate Tax
Increase"). Landlord may bill Tenant for the Real Estate Tax
Increase at the end of the tax year, the first bill being in July,
1999 for any increase in the real estate taxes for the tax year
July, 1998 - June, 1999 over the tax year July, 1997 - June, 1998.
Thereafter, Landlord may bill the Tenant 1/12 of this amount on a
monthly basis and which monthly sum may be increased in the event
of additional real estate tax increases in subsequent years.
Notwithstanding the foregoing, Tenant shall not be responsible for
(x) any taxes for improvements to areas other than the Leased
Premises and Common Areas or (y) any Real Estate Tax Increase not
attributable to the Lease Term.
(f)(ii) In consideration of Tenant's undertaking to reimburse
Landlord for the Real Estate Tax Increase, Tenant shall have the
right, by appropriate proceedings, to protest any assessment or
reassessment or any special assessment, or any change in the tax
rate, or the validity of any of the foregoing.
(f)(iii) Landlord shall notify Tenant in writing of all
assessments and the tax rates and any proposed changes to them.
Tenant shall notify Landlord in writing within fifteen (15)
business days after receipt of Landlord's notice if Tenant wants
to file a protest. If Landlord fails to give notice to Tenant of
any tax rate or assessment and, as a result, Tenant is unable to
review the change, and if it so desires, to file a protest, Tenant
shall not be obligated to reimburse Landlord for any Real Estate
Tax Increase resulting therefrom.
(f)(iv) In the tax proceedings, Tenant may act in its own
name and/or the name of Landlord and Landlord will, at Tenant's
request and provided Landlord is not put to any expense thereby,
cooperate with Tenant in any way Tenant may reasonably require in
connection with such-protest. Any protest conducted by Tenant--
hereunder shall be at Tenant's expense and if interest or late
charges become payable with respect to the Real Estate Tax
Increase as a result, Tenant shall reimburse Landlord for the
same. However, Landlord shall be solely responsible for any
penalties, interest or late charges imposed on Landlord through no
fault of Tenant.
(f)(v) If Landlord shall receive a reduction or refund for
any year for which Tenant paid to Landlord a Real Estate Tax
Increase, then Landlord shall reimburse Tenant in an amount equal
to Tenant's pro rata share of the refund or reduction. Landlord
agrees to keep Tenant apprised of all tax protest filings and
proceedings undertaken by Landlord or others to obtain a tax
reduction or refund. If the refund or reduction resulted from
Tenant's efforts, Landlord shall also reimburse Tenant for
reasonable attorneys' fees and any other reasonable expenses<PAGE>
<PAGE>
incurred by Tenant in connection with the protest. Otherwise,
Landlord may deduct from the total refund any reasonable
attorneys' fees and other reasonable expenses incurred by Landlord
therefor.
(g) In addition to the Rent and Real Estate Tax Increase,
Tenant shall pay to Landlord its pro rata share of the increases
in operating expenses payable at 488 MAIN over the operating
expenses payable in the calendar year 1997 (the "Operating Expense
Increase"). Landlord may bill Tenant for the Operating Expense
Increase at the end of the calendar year, the first bill being in
January, 1999 for any increase in operating expenses in the
calendar year 1998 over the calendar year 1997. Thereafter,
Landlord may bill the Tenant 1/12 of this amount on a monthly
basis and which monthly sum may be increased in the event of
additional Operating Expense Increases in subsequent years.
Operating expenses shall be defined as the actual, normal and
ordinary costs of operating and maintaining 488 MAIN including,
but not limited to, insurance, cleaning, trash removal, landscape
and snowplow, repair and maintenance, painting, HVAC maintenance,
water, elevator maintenance, security, supplies, management and
common area electric.
Operating expenses shall not include capital expenditures,
debt service on mortgages or rental under ground leases; work in
leasable or leased premises as opposed to work done for the common
benefit of all building tenants; costs associated with
professional fees for disputes or litigation with tenants;
Landlord advertising or promotional expenses; costs for casualty
that would have been reimbursable by insurance had Landlord
carried full value insurance; real estate taxes; leasing
commissions; salaries and fringe benefits that are above
comparable salaries and fringe benefits for comparable employees;
salaries of personnel that are shared among other buildings
(unless, however, the salaries are adjusted pro rata for the
amount of time such personnel spend at each building and so long
as said salaries are reasonable) or those above the grade of
building manager; fees or costs in excess of the comparable market
value; any type of line item service that the Landlord is
generally providing to 488 MAIN, but not to the Tenant; any type
of operating expense resulting from the negligence of the
Landlord; costs, fines or penalties resulting from Landlord's
violation of any law, rule or regulation of a governmental
authority; license, permit or inspection fees imposed on Landlord;
or tax on rent or rents received by Landlord from 488 MAIN or
assessments against 488 MAIN for municipal improvements or
otherwise.
(h)(i) The term "Landlord's Statement" shall mean a
statement, prepared internally by Landlord, and which shall be
prepared according to generally accepted accounting principles and
which shall be furnished to Tenant simultaneously with the bills
referred to in sections (f) and (g) hereof setting forth in detail<PAGE>
<PAGE>
the amount of each item included in the Real Estate Tax Increase
and the Operating Expense Increase.
(h)(ii) Landlord shall, at Tenant's request, make available
to Tenant for inspection and examination the books and records
that relate to Landlord's Statement. However, if after request by
Tenant the books and records are not made promptly available at
Landlord's offices during Landlord's normal business hours, the
amounts due in that year with respect to any Real Estate Tax
Increase or Operating Expense Increase shall not be payable
earlier than thirty (30) days after the Tenant's request is
honored. If Tenant disputes any portion of Landlord's Statement
and the parties cannot resolve their differences within thirty
(30) days thereafter, the matter shall be resolved by arbitration
conducted in accordance with the Commercial Arbitration Rules of
the American Arbitration Association.
(h)(iii) If the Operating Expenses Increase as estimated in
advance by Landlord and paid by Tenant are less than the share of
Operating Expenses Increase which Tenant should have paid, then
the excess paid by Tenant shall be repaid by Landlord to Tenant in
a lump sum within thirty (30) days following the date Landlord
renders Landlord's Statement to Tenant.
(h)(iv) If the Real Estate Tax Increase as estimated in
advance by Landlord and paid by Tenant are less than the share of
Real Estate Tax Increase which Tenant should have paid, then the
excess paid by Tenant shall be repaid by Landlord to Tenant in a
lump sum within thirty (30) days following the date Landlord
renders Landlord's Statement to Tenant.
(h)(v) If Tenant has not received Landlord's Statement by the
end of twelve (12) months following the year (whether calendar or
fiscal) in which the Operating Expense Increase or Real Estate Tax
Increase are payable by Tenant, Landlord agrees that Landlord has
waived its claim against Tenant for Tenant's share of any increase
in Operating Expenses and Real Estate Taxes for such year.
(h)(vi) This Article shall survive the expiration or earlier
termination of this Lease Agreement.
(i) If Tenant shall fail to pay any monthly installment of
Rent within ten days of its due date, or if Tenant shall fail to
pay any monthly installment of Real Estate Tax Increase or
Operating Expenses Increase within ten days after Landlord has
notified Tenant that said payment(s) is (are) due, then Tenant
shall pay to Landlord a service charge of Five Per Cent (5%) of
the monthly installment. This fee is not a penalty but reflects
the parties' estimate as to the expected costs and damages
incurred by the Landlord by reason of Tenant's late payment. This
provision shall not be construed to modify in any way either any
due dates specified in this Lease Agreement, or the default
provisions of Paragraph 15 below.<PAGE>
<PAGE>
5. Improvements
(a) All fit-up of the Leased Premises is to be done by Tenant
and Tenant agrees to accept the Leased Premises in "as is"
condition. During Lease Term, Landlord shall provide Tenant, its
agents and contractors, reasonable access to the Building, the
elevators and the Leased Premises for purposes of their performing
Tenant's fit-up.
(b) Landlord agrees to install at Landlord's expense (which
shall not be included in the Operating Expense Increase) electro-
static filters on the HVAC units servicing the Leased Premises and
to renovate the restrooms within the Leased Premises. The
renovation of the restrooms shall include an upgrading or
replacement of the wall coverings, the vanity, the ceiling tiles
and the lighting. At its expense (which shall not be included in
the Operating Expense Increase), Landlord shall also renovate and
upgrade the lower lobby, upgrade the elevator cabs, reline and
repair the parking area, as necessary, and upgrade the
landscaping.
(c) Any and all construction which Tenant desires to
undertake at the Leased Premises shall be subject to Landlord's
approval, which approval shall not be unreasonably withheld or
delayed; however, as stated in Section 7(a) hereof, the Landlord
hereby approves any papering, painting or changing of floor
coverings in the interior of the Leased Premises.
6. Tenant's Operation of Business
(a) Tenant shall use the Leased Premises solely for the
purpose set forth in Paragraph 2, and only as permitted by
applicable laws and regulations.
(b) Tenant shall comply with all laws, orders and regulations
of federal, state, county and municipal authorities, with respect
to the manner in which Tenant will use or occupy the Leased
Premises, and, with any direction of any public officer or
officers which shall impose any violation, order or duty with
respect to the Leased Premises or the use or occupation thereof,
however, the Tenant's financial obligation with respect to said
violation, order or duty shall be limited to such items as shall
relate to the Tenant's specific use of the Leased Premises. In the
event that any governmental agency shall require any alterations
within or affecting the Leased Premises, Tenant shall fully
cooperate with such required alterations and agrees that there
will be no reduction in rent by reason of such required
alterations; however, notwithstanding anything to the contrary in
this sentence, the Tenant's financial obligation for said
alterations shall be limited to the first $20,000 of costs in the
aggregate incurred in connection therewith, and the Landlord shall
be responsible for any amounts in excess of the first $20,000 (in
the aggregate).<PAGE>
<PAGE>
(c) Tenant shall not use or permit any part of the Leased
premises to be used for any unlawful purpose; nor shall the Tenant
use or occupy or permit the Leased Premises to be used or
occupied, nor do or permit anything to be done in or on the Leased
Premises which will make void or voidable any insurance then in
force with respect thereto, or which will make it impossible to
obtain fire or other insurance required to be furnished by
Landlord or Tenant, or which will cause or be likely to cause
structural damage to the Building or any part thereof, or which
will constitute a public or private nuisance, or which will
violate any law or regulation of any governmental authority.
7. Fixtures and Alterations
(a) Tenant may at its own expense paint, paper and change
floor coverings in the interior of the Leased Premises, provided
that (i) the structure of the Building or building systems are not
affected and (ii) the exterior of the Building is not changed.
(b) Except as provided in (a) above, Tenant shall not make
any changes, improvements, additions or alterations (collectively
"Alterations") to nor do any work to the Leased Premises or to 488
MAIN without first obtaining Landlord's prior consent, which work,
if approved by Landlord, Tenant agrees to do in a workmanlike
manner. Landlord shall not be under any obligation to review a
request for its consent until such time as Tenant supplies
Landlord with the identities of all person supplying materials or
services to the Leased Premises or the Property and, with
mechanics lien waivers from all such persons or entities as set
forth below.
(c) Upon Tenant's vacating the Leased Premises, all
Alterations shall become the property of the Landlord unless same
can be and are removed by Tenant without damaging the Leased
Premises and, upon said removal, Tenant shall restore the Leased
Premises to the condition which existed prior to the removal of
said Alterations. However, if Landlord so directs, Tenant shall
remove all Alterations (excepting those constituting fixtures) at
its expense and promptly repair all damage to the Leased Premises
caused by the original installation of any Alterations and/or
their subsequent removal. Any personalty of the Tenant not removed
within ten days (after Landlord's demand to do so) following the
termination of this Lease shall become, at Landlord's option, the
property of the Landlord.
8. Signs
(a) Subject to conformity with all applicable laws,
ordinances and municipal regulations, Landlord agrees to provide
(at its expense) at 488 MAIN such exterior signage as shall
identify the location. In addition, and to the extent permitted by
City of Norwalk zoning regulations, Landlord shall install a sign
on the exterior side of the Building facing Main Avenue, and<PAGE>
<PAGE>
denoting Tenant's name, and with appropriate illumination such
that such sign shall be visible at night.
(b) Landlord, at its expense, and in accordance with
reasonable Building standards, shall make space available to
Tenant in the building directory and at other such locations where
direction signs are installed, for corporate identification as
specified by Tenant. At least 50% of the Building directory shall
be allocated to identify Tenant, its officers and employees.
(c) Tenant shall have the right, at its expense, to install
signs on the entry doors to the Leased Premises, which sign shall
be uniform with other signs in the Building and which sign shall
be subject to Landlord's prior approval.
(d) Tenant shall not install or place, or permit to be
installed, placed or maintained any other sign, decorations,
advertising matter or symbol on the Building, or in any location
visible from the exterior of the Leased Premises. In addition to
any other remedies of Landlord, Landlord may remove any sign or
other article installed by Tenant in violation of this Paragraph,
and charge Tenant for the reasonable cost of such removal, without
liability to Tenant.
9. Repairs and Maintenance
(a) Tenant agrees to maintain the Leased Premises in good
order and condition including all maintenance, upkeep and
cleaning. Tenant shall procure any licenses or permits mandated
for Tenant's use of or alteration to the Leased Premises. Tenant
shall also comply promptly with and execute all rules, order,
regulations and recommendations of the Board of Fire Underwriters,
Rating Board and Landlord's insurance company with respect to the
prevention of fires and the exposure of liability risks, and shall
install and maintain all necessary safety appliances, but only to
the extent such appliances are necessary because of Tenant's
particular use of the Leased Premises.
(b) If either party hereto is required to do any act under
this Paragraph 9, said party shall promptly comply and, if said
party shall neglect to act with reasonable dispatch after such
demand by the other party, then the party requesting said act
shall be free to perform same and the party responsible for said
act shall thereafter immediately pay to the other the reasonable
cost of any such acts.
(c) Tenant shall be responsible for the replacement of all
light bulbs and ballasts in the Leased Premises.
(d) Nothing in this Section shall be construed to impose upon
Landlord, in the event of damage to the Leased Premises caused by
casualty any obligations other than those contained in Paragraph
12 below.<PAGE>
<PAGE>
(e) Landlord shall, at its expense and subject to Section
4(g) hereof, furnish to Tenant the following services, utilities,
supplies and facilities throughout the Lease Term:
(i) access to the Leased Premises twenty-four (24) hours
a day, seven (7) days a week;
(ii) passenger elevator service twenty-four(24) hours a
day, seven (7) days a week;
(iii) (x) heat, ventilation and air conditioning
("HVAC") on business days from 8:00 A.M. to 8:00 P.M. and on
Saturdays from 8:00 A.M. to 1:00 P.M. (hereafter "Business
Hours") and, at Tenant's request, at all other times as
hereinafter provided in this Article. Landlord represents and
warrants that during the Lease Term the Building's HVAC
systems will have the capacity, flexibility and ability to
maintain the Leased Premises in reasonably comfortable
condition which, taking the average of temperatures in
various sections of the Leased Premises at various points in
time, shall average not more than 76 degrees Fahrenheit
during the summer months and not less than 70 degrees
Fahrenheit during the winter months.
(y) Landlord shall furnish HVAC beyond the above-stated
hours provided that notice requesting such service is
delivered to Landlord before noon on the business day when
such service is required for that evening, and by noon of the
preceding business day when such service is required on
Saturday, Sunday or a federal holiday. This service shall be
furnished at "Landlord's Costs" which shall mean the actual
labor and utility costs incurred by Landlord to provide such
overtime service, without markup of any kind. Landlord's
Costs shall be paid by Tenant when billed by Landlord.
Landlord shall bill Tenant on or before the last day of the
month following the month in which Landlord's Costs are
incurred, and shall submit with its invoice a tabulation of
the hours and the dates on which the overtime HVAC was
furnished. Tenant shall reimburse Landlord therefor within
thirty (30) days after receipt of the invoice and other data
supporting the charges that Tenant may reasonably request. If
Landlord has not billed Tenant for Landlord's Costs within
two (2) months after the end of the year (whether calendar or
fiscal) in which Landlord claims Landlord's Costs accrued,
Landlord agrees that Landlord has waived its right to be paid
such charges.
(iv) Cleaning and janitor services in the common
building facilities and building parking area in accordance
with Exhibit A, and including the removal of rubbish placed
in receptacles outside the building.
<PAGE>
<PAGE>
(v) Hot and cold running potable water in the restrooms
for Tenant's purposes.
(vi) Electricity for lighting the common building
facilities and Building parking area.
(vii) Provision, installation and replacement of light
bulbs, tubes and ballasts in the common building facilities
and Building parking area.
(viii) Removal of ice and snow from the common building
facilities and Building parking area.
(ix) Vermin extermination and repair and replacement of
any item in the Building damaged by vermin.
(x) Security for 488 MAIN by installation of a key punch
or other system which shall limit access to the Building in
non-Business Hours; Landlord shall endeavor to coordinate the
system it installs controlling access to the Building with
any system installed by Tenant controlling access to the
Leased Premises so that one key or access card will control
access to both the Building and the Leased Premises.
(f) If the Landlord fails in its obligation herein to provide
utilities, services or facilities or, make the repairs,
restoration or replacements which it is required to make under
this Lease Agreement, and if after written notice from Tenant to
Landlord and a reasonable opportunity to cure same, the Landlord
does not remedy said failure, then the Tenant may allege that the
Landlord is in default hereof and seek reimbursement from Landlord
for damages incurred by Tenant or, make said repairs, restoration
or replacements as a result of Landlord's failure to provide said
utilities, services or facilities and seek reimbursement from
Landlord for said repairs, restoration or replacements.
(g) Landlord shall perform all maintenance and make all
repairs, restoration and replacements to 488 MAIN not specifically
imposed upon Tenant by the provisions hereof. Without limiting the
generality of the foregoing sentence or the following, Landlord
shall maintain, repair and replace, as necessary, and keep in good
order, safe and clean condition (however, Landlord's obligation as
to regular cleaning services shall be limited to subparagraph (e)
(iv) above): (1) all structural portions of the Building and
exterior walls; (2) the roof of the Building; (3) the plumbing,
sprinkler, HVAC and electrical and mechanical lines and equipment
associated therewith, elevators and boilers, broken or damaged
glass and damage by vandals; (4) utility and trunk lines, tanks
and transformers; (5) the interior walls, ceilings, and floor
coverings (including carpets and tiles) of the common Building
facilities (i.e. excluding the Leased Premises); (6) improvements
to the Land, including ditches shrubbery, landscaping and fencing;
and (7) the common building facilities located within or outside<PAGE>
<PAGE>
the Building, including the common entrances, corridors, interior
and exterior doors and windows, stairways, lavatory facilities and
the Building parking area and access ways therefor. Further,
Landlord shall perform all repairs and restoration required
elsewhere under this Lease Agreement. Notwithstanding anything
herein to the contrary, Landlord shall have no obligation to
repair any damage caused by any act or omission of Tenant, its
agents, employees, customers, contractors and licensees.
(h) At its expense, Tenant shall make all repairs and
replacements to the Leased Premises which are specifically agreed
upon in this Lease to be Tenant's obligations. Without limitation,
Tenant shall not be liable for repairs or replacements
necessitated by ordinary wear and tear, damage by fire or other
casualty and damage caused by Landlord, its agents, employees,
customers, contractors and licensees.
(i) If by reason of an emergency, repairs, restoration or
replacements become necessary and by the provisions hereof are the
responsibility of Landlord, Tenant may make such repairs,
restoration or replacements which, in the opinion of Tenant, are
necessary for the preservation of the Leased Premises, or of the
safety or health of the occupants therein, or of Tenant's
property, or are required by law; provided, however, that Tenant
shall first make a reasonable effort to inform Landlord before
making them.
(j) The remedies set forth in this Article shall be in
addition to other remedies granted to Tenant elsewhere in this
Lease Agreement or at law or in equity, and shall not affect any
claim for actual or constructive eviction or other claim for
damages or relief to which Tenant may be entitled.
(k) If Landlord disputes any default declared by Tenant
pursuant to this Section or the reasonableness of time granted to
cure the default, Landlord may submit the disputed matter to
arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association.
10. Indemnification by Tenant
Landlord and Tenant each agree to indemnify and save the
other harmless from any and all claims for bodily injury
(including death) or property damage made against one party hereto
if (1) arising from any breach or default by the other party
hereto (including its agents, invitees, employees or contractors)
in the performance of any covenant or agreement on its part to be
performed pursuant to the provisions of this Lease, or (2)
occurring within 488 MAIN and arising from the misconduct or gross
negligence of the other party (including its agents, invitees,
employees or contractors). This indemnity shall include all court
costs, attorneys' fees, expenses and liabilities incurred by the
indemnified party against which the claim is made. If any action<PAGE>
<PAGE>
or proceeding is brought against either Landlord or Tenant by
reason of any such claim, the indemnifying party agrees to defend
the action or proceeding at its expense upon notice from the party
to be indemnified.
11. Insurance
(a) Allocation of Risks. The parties desire, to the extent
permitted by law, to allocate certain risks of personal injury,
bodily injury or property damage, and risks of loss of real or
personal property by reason of fire, explosion or other casualty,
and to provide for the responsibility for insuring those risks. It
is the intent of the parties that, to the extent any event is
insured for or required herein to be insured for, any loss, cost,
damage or expense, arising from such event, including, without
limitation, the expense of defense against claims or suits, be
covered by insurance, without regard to the fault of Tenant, its
officers, employees or agents ("Tenant Protected Parties"), and
without regard to the fault of Landlord, its shareholders,
members, agents, directors, officers and employees ("Landlord
Protected Parties"). As between Landlord Protected Parties and
Tenant Protected Parties, such risks are allocated as follows:
(i) Tenant shall bear the risk of bodily injury,
personal injury or death, or damage to property of third
persons occasioned by events occurring on or about the Leased
Premises, regardless of the party at fault. Said risks shall
be insured as provided in Section 11(b) hereof.
(ii) Landlord shall bear the risk of bodily injury,
personal injury, or death or damage to the property of third
persons occasioned by events occurring on or about 488 MAIN
other than the Leased Premises. Said risk shall be insured
against as provided in Section 11(c) hereof.
(iii) Tenant shall bear the risk of damage to Tenant's
contents, trade fixtures, machinery, equipment, furniture and
furnishings in the Leased Premises arising out of loss by the
events required to be insured against pursuant to Section
11(b)(ii) hereof.
(iv) Landlord shall bear the risk of damage to 488 MAIN
arising out of loss by events required to be insured against
pursuant to Section 11(c) hereof.
Notwithstanding the foregoing, provided the party required to
carry insurance under Section (b)(i) or Section (c)(i) hereof does
not default in its obligation to do so, if and to the extent that
any loss occasioned by any event exceeds the coverage or the
amount of insurance required to be carried under this Lease
Agreement or such greater coverage or amount of insurance as is
actually carried, or results from an event not required to be<PAGE>
<PAGE>
insured against or not actually insured against, the party at
fault shall pay the amount not actually covered.
(b) Tenant's Insurance. Tenant shall procure and maintain
policies of insurance, at its own cost and expense, insuring:
(i) the Landlord Protected Parties (as "named
insureds"), and Landlord's mortgagee, if any, of which Tenant
is given written notice, and Tenant Protected Parties, from
all claims, demands or actions made by or on behalf of any
person or persons, firm or corporation and arising from,
related to or connected with the Leased Premises, for bodily
injury to or personal injury to or death of any person, or
property damage. The minimum limits of liability of such
insurance shall be One Million ($1,000,000) Dollars for
injury or death to any one person, Two Million ($2,000,000)
Dollars for injury or death to more than one person, and Five
Hundred Thousand ($500,000) Dollars with respect to damage to
property. If at any time during the term of this Lease
Agreement, Tenant owns or rents more than one location, the
policy shall contain an endorsement to the effect that the
aggregate limit in the policy shall apply separately to each
location owned or rented by Tenant. If Tenant is unable,
despite reasonable efforts in good faith, to cause its
liability insurer to insure the Landlord Protected Parties as
"named insureds", Tenant shall nevertheless cause the
Landlord Protected Parties to be insured as "additional
insureds" and in such event, Tenant will protect, indemnify
and save harmless the Landlord Protected Parties from and
against any and all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses
(including without limitation reasonable attorney's fees and
expenses) imposed upon or incurred by or asserted against the
Landlord Protected Parties, or any of them, by reason of any
bodily injury to or personal injury to or death of any person
or more than one person or for damage to property, occurring
on or about the Leased Premises, caused by any party
including, without limitation, any Landlord Protected Party,
to the extent of the amount of the insurance required to be
carried under this Section 11.1(b)(i) or such greater amount
of insurance as is actually carried. Tenant shall cause its
liability insurance to include contractual liability coverage
fully covering the indemnity hereinabove set forth.
(ii) All contents and Tenant's trade fixtures,
machinery, equipment, furniture and furnishings in the Leased
Premises to the extent of at least ninety percent (90%) of
their replacement cost under Standard Fire and Extended
Coverage Policy and all other risks of direct physical loss
as insured against under Special Form ("all risk" coverage).
Said insurance shall contain an endorsement waiving the
insurer's right of subrogation against any Landlord Protected
Party, provided that such waiver of the right of subrogation<PAGE>
<PAGE>
shall not be operative in any case where the effect thereof
is to invalidate such insurance coverage or increase the cost
thereof, except that Landlord shall have the right, within
thirty (30) days following written notice, to pay such
increased cost, thereby keeping such waiver in full force and
effect.
Tenant Protected Parties from all worker's compensation and
disability benefits claims as required by law.
(c) Landlord's Insurance. Landlord shall procure and maintain
policies of insurance insuring:
(i) All claims, demands or actions made by or on behalf
of any person or persons, firm or corporation and arising
from, related to or connected with 488 MAIN, other than the
Leased Premises for bodily or personal injury to or death or
property damage. The minimum limits of liability of such
insurance shall be One Million ($1,000,000) Dollars for
injury or death to any one person, Two Million ($2,000,000)
Dollars for injury or death to more than one person, and Five
Hundred Thousand ($500,000) Dollars with respect to damage to
property. If at any time during the term of this Lease,
Landlord owns more than one location, the policy shall
contain an endorsement to the effect that the aggregate limit
in the policy shall apply separately to each location owned
by Landlord.
(ii) 488 MAIN against loss or damage by fire, lightning,
wind storm, hail storm, aircraft, vehicles, smoke, explosion,
riot or civil commotion as provided by the Standard Fire and
Extended Coverage Policy and all other risks of direct phys-
ical loss as insured against under Special Form ("all risk"
coverage). The insurance coverage shall be for not less than
90% of the full replacement cost of 488 MAIN with agreed
amount endorsement. Landlord shall be named as the insured
and all proceeds of insurance shall be payable to Landlord.
Said insurance shall contain an endorsement waiving the
insurer's right of subrogation against any Tenant Protected
Party, provided that such waiver of the right of subrogation
shall not be operative in any case where the effect thereof
is to invalidate such insurance coverage or increase the cost
thereof, except that Tenant shall have the right, within
thirty (30) days following written notice, to pay such
increased cost, thereby keeping such waiver in full force and
effect.
(iii) Landlord's business income, protecting Landlord
from loss of rents and other charges during the period while
the Leased Premises are untenantable due to fire or other
casualty (for the period reasonably determined by Landlord).
<PAGE>
<PAGE>
(iv) Flood or earthquake insurance whenever, in the
reasonable judgment of Landlord, such protection is necessary
and it is available at commercially reasonable cost.
(d) Form of Insurance. All of the aforesaid insurance
shall be written by insurance companies licensed to do
business in the State of Connecticut. As to Tenant's
insurance, such insurance shall provide that it is not
subject to cancellation or non-renewal except after at least
thirty (30) days' prior written notice to Landlord. Tenant
will furnish to Landlord, upon Landlord's request, a
Certificate of Insurance issued by such insurer setting forth
the existence of such insurance and coverage.
12. Damage or Destruction of Premises
(a) If 488 MAIN or the Leased Premises shall be partially or
totally damaged or destroyed by fire or other cause (and if this
Lease shall not have been terminated as hereinafter provided), the
Landlord shall repair the damage and restore and rebuild the
Building and/or the Leased Premises, except for Tenant's
improvements and Tenant's personal property, at its expense with
reasonable dispatch in accordance with good construction practice
after notice to Landlord of the damage or destruction.
(b) If the Building or the Leased Premises shall be damaged
or destroyed by fire or other cause, then the rents payable
hereunder shall be abated to the extent that the Leased Premises
shall have been rendered untenantable or inaccessible for the
reasonable conduct of Tenant's normal business operations for the
period from the date of such damage or destruction to the earlier
of (x) the date on which Landlord substantially completes the
repair and restoration work that Landlord is required to perform
under this Article 12 and (y) the date of Tenant's occupancy of
the Leased Premises for the conduct of its normal business
following such casualty, such abatement to be granted on a pro
rata basis if only a portion of the Leased Premises is so rendered
untenantable or inaccessible; provided, however, that should
Tenant reoccupy a portion of the Leased Premises as to which the
abatement is in effect during the period the restoration work is
taking place and prior to the date that the whole of said Leased
Premises are made tenantable, rent and additional rent allocable
to such portion shall be payable by Tenant from the date of such
occupancy. Landlord shall be deemed to have substantially
completed the repair and restoration work that Landlord is
required to perform under this Article notwithstanding that (i)
punchlist work remains to be performed, the non-completion of
which does not unreasonably interfere with Tenant's ability to
perform Tenant's work and (ii) portions thereof are incomplete
which under good construction scheduling practice should be done
after the completion of the still incomplete portions of Tenant's
work (which punchlist work will be diligently completed by
Landlord as soon as reasonably practical). Notwithstanding<PAGE>
<PAGE>
anything to the contrary contained herein, in the event that
substantial completion by Landlord of such repair and restoration
work is delayed by reason of any delays caused or occasioned by
Tenant, its agents, servants, employees, architects, engineers,
servants, contractors or subcontractors, then Tenant (in addition
to paying the costs and damages Landlord may sustain by reason
thereof) agrees that substantial completion by Landlord of such
repair and restoration work shall be deemed to have occurred on
the date on which substantial completion of such work would have
occurred had not the completion of such work been so delayed by
Tenant, et al.
(c) If 488 MAIN shall be so damaged or destroyed by fire or
other cause (whether or not the Leased Premises are damaged or
destroyed) as to require a reasonably estimated expenditure made
by Landlord or a reputable contractor designated by Landlord of
more than fifty percent (50%) of the full insurable value of the
Building immediately prior to the casualty (or ten percent (10%)
if such casualty occurs during the last two years of the Term)
then Landlord may terminate this Lease by giving Tenant notice to
such effect within twenty (20) days after the date of the casualty
and upon such notice this Lease and the estate hereby granted,
whether or not the Term shall have theretofore commenced, shall
terminate as if that date was the Termination Date.
(d) In case of any damage or destruction mentioned in this
Article which Landlord is required to repair and restore, if (i)
more than fifty percent (50%) of the rentable square footage of
the Leased Premises shall be damaged or destroyed and rendered
untenantable or inaccessible, or (ii) Tenant's main computer room
is damaged or destroyed and rendered unusable (a "Substantial
Casualty") and, in the reasonable good faith opinion (the
"Estimate") of an independent licensed architect or engineer
selected by Landlord having at least five (5) years' experience in
such matters, the repair and restoration required to be performed
by Landlord pursuant to this Article cannot be substantially
completed within four (4) months after such fire or casualty then
Tenant shall be entitled to terminate this Lease on thirty (30)
days' notice to Landlord given within fifteen (15) days after
receipt of the Estimate, and upon delivery of such notice and the
expiration of such 30-day period, this Lease and the Term shall
expire as fully and completely as if such date were the date set
forth above for the termination of this Lease and Tenant shall
forthwith quit, surrender and vacate the Leased Premises in
accordance with the provisions of this Lease. The Estimate shall
set forth the date by which it is reasonably estimated that the
repair and restoration required to be performed by Landlord
pursuant to this Article will be completed and the Estimate shall
be provided by Landlord to Tenant within twenty (20) days after
such fire or casualty.
<PAGE>
<PAGE>
(e) Except for the rent abatements expressly provided for in
this Lease Agreement, no damages, compensation or claim shall be
payable by Landlord for inconvenience, loss of business or
annoyance arising from any repair or restoration of any portion of
the Leased Premises or of 488 MAIN arising from damage or
destruction caused by fire or other casualty and Landlord shall
not be required to do any such repair or restoration except on
business days from 9:00 A.M. to 5:00 P.M.
(f) Landlord is not obligated to carry separate insurance any
kind on Tenant's property, and, except as provided by law, shall
not be obligated to repair any damage thereto or replace or clean
the same, or any decorations, installations, equipment or fixtures
installed by or for Tenant at Tenant's expense.
(g) The provisions of this Article shall be considered an
express agreement governing any cause of damage or destruction of
the Leased Premises by fire or other casualty and any law
providing for such a contingency now or hereinafter erected shall
have no application in such case.
13. Eminent Domain
(a) If any part of 488 MAIN be taken by any public authority
under the power of eminent domain so as to render the remainder of
488 MAIN completely unable to be used as an office building, then
either party, at its option, may terminate this Lease on sixty
(60) days written notice to other, given within ninety (90) days
after the date of such taking.
(b) All damages awarded for such taking shall belong to and
be the property of the Landlord, whether such damages shall be
awarded as compensation for diminution in the value of the
leasehold or the fee, except that Tenant shall be entitled to
receive and retain the amount specifically awarded to it for the
taking of its fixtures and its leasehold improvements which have
not become a part of the realty, and its moving expenses. It is
understood that in the event of the termination of this Lease
pursuant to this Paragraph because of the taking by eminent
domain, Tenant shall have no claim against the Landlord for the
value of any unexpired term of its Lease and no right or claim to
any part of the award on account thereof and Tenant hereby waives
each such claim or right. Notwithstanding the foregoing, if there
is a taking hereunder, Tenant shall be entitled to receive out of
the award (or, if allowed by applicable law or rule to appear,
claim, and prove in the condemnation proceeding), any amount
specifically allocated to it by the condemning authority or the
courts: (1) the unamortized value over the term of this Lease of
Tenant's property and its improvements and alterations to the
Building, provided the same shall have been installed by or at
Tenant's expense but regardless of whether Tenant's property or
the improvements and alterations might be considered by law or
otherwise as a part of the Building or shall be or become<PAGE>
<PAGE>
Landlord's property under the provisions of this Lease Agreement;
(2) the value of Tenant's fixtures that are damaged, destroyed or
taken hereunder; (3) the cost of relocation; and (4) special
awards or allowances paid to tenants when their rental space is
taken by eminent domain.
14. Default by Tenant
This Lease Agreement is subject to the limitation that if, at
any time, any one or more of the following events (herein called
an "event of default") shall occur, then Landlord, in addition to
the other rights and remedies it may have, shall have the right
immediately to declare this Lease terminated and all of the right,
title and interest of the Tenant hereunder shall wholly cease and
expire upon receipt by Tenant of a Notice of Termination from
Landlord. Tenant shall then immediately quit and surrender the
Leased Premises to Landlord but Tenant shall remain liable to
Landlord as hereinafter provided. The events of default are:
(a) If Tenant shall make an assignment for the benefit of its
creditors; or
(b) If the leasehold estate hereby created in Tenant shall be
taken by attachment, execution or by other process of law, and
same is not released within ninety (90) days; or
(c) If any petition shall be filed against Tenant in any
court, whether or not pursuant to any statute of the United States
or of any State, in any bankruptcy, reorganization, composition,
extension, arrangement or insolvency proceedings, and Tenant shall
thereafter be adjudicated bankrupt, or such petition shall be
approved by the Court, or the Court shall assume jurisdiction of
the subject matter and if such proceeding shall not be dismissed
within one hundred and twenty (120) days after the institution of
the same, or if any such petition shall be so filed by Tenant; or
(d) If, in any proceeding, a receiver or trustee be appointed
for Tenant's property and such receivership or trusteeship shall
not be vacated or set aside within one hundred and twenty (120)
days after the appointment of such receiver or trustee; or
(e) If Tenant shall fail to pay any installment of Rent and
such failure shall continue for ten (10) days after Landlord has
given Tenant written notice of same.
(f) If Tenant shall fail to pay any installment of Real
Estate Tax Increase or Operating Expenses Increase or electrical
charges as may be due to the utility company providing same to the
Leased Premises, or any part thereof, when the same shall become
due and payable, and such failure shall continue for twenty (20)
days after Landlord has given Tenant written notice of same.
<PAGE>
<PAGE>
(g) If Tenant shall fail to pay any other charge required to
be paid by Tenant under this Lease Agreement and such failure
shall continue for thirty (30) days after Landlord has given
written notice of same.
(h) If Tenant shall fail to perform or observe any other
requirement, condition, covenant or agreement of this Lease
Agreement on the part of Tenant to be performed or observed and
such failure shall continue for thirty (30) days after Landlord
has given Tenant written notice of same.
15. Landlord's Remedies
(a) If this Lease shall be terminated as provided in
Paragraph 14, Landlord or Landlord's agents or employees may by
any suitable action or proceeding at law, repossess the Leased
Premises, together with all alterations, additions and
improvements thereto. In the event of such re-entry and
repossession, Landlord may store Tenant's property in a public
warehouse or elsewhere at the cost and for the account of Tenant.
(b) In case of any such termination, re-entry or dispossess
by summary proceedings or otherwise, all rents and other charges
required to be paid up to the time of such termination, re-entry
or dispossess, shall be paid by Tenant and Tenant shall also pay
to Landlord all reasonable expenses which Landlord may then or
thereafter incur for legal expenses and brokerage commissions and
all other reasonable costs paid or incurred by Landlord in
repossessing the Leased Premises, restoring the Leased Premises to
order and condition necessary to relet same, for reletting, and
for any other reasonable item or cost which Landlord incurs as a
result of Tenant's event of default, excluding, however, the
excess amount of the costs of fit-up to a new tenant over the
amount necessary to prepare the Leased Premises to substantially
the condition as exists as of the date of this Lease Agreement.
(c) In addition to any amounts due under subparagraph (b)
above, if the Lease be terminated as described above, Tenant
nevertheless covenants and agrees, notwithstanding any entry or
reentry by Landlord whether by summary proceedings, termination or
otherwise, to pay and be liable for on the days originally fixed
herein for the payment thereof, amounts equal to the several
installments of Rent, Real Estate Tax Increase and Operating
Expense Increase and other charges due under the terms of this
Lease Agreement, as if this Lease had not been terminated; but in
the event the Leased Premises be relet by the Landlord, Tenant
shall be entitled to a credit (but not in excess of the Rent or
other charges reserved under the terms of this Lease Agreement) of
the net amount of Rent received by Landlord after deduction by
Landlord of all reasonable expenses and costs incurred by it with
respect to such reletting. Suit or suits for the recovery of the
deficiency of damages referred to in this paragraph or for any
installment or installments of Rent or Real Estate Tax Increase or<PAGE>
<PAGE>
Operating Expense Increase hereunder, or for a sum equal to any
such installment or installments, may be brought by Landlord at
once or from time to time at Landlord's election, and nothing in
this Lease shall be deemed to require Landlord to await the date
whereon this Lease or the term hereof would have expired had there
been no such default by Tenant or no such cancellation or
termination.
(d) No failure by Landlord to insist upon the strict
performance of any covenant, agreement, term or condition of this
Lease Agreement or to exercise any right or remedy consequent upon
breach thereof, and no acceptance of full or partial rent during
the continuance of any such breach, shall constitute a waiver of
any such breach or of such covenant, agreement, term or condition.
No waiver of any breach shall affect or alter this Lease
Agreement, but each and every covenant, agreement, term and
condition of this Lease Agreement shall continue in full force and
effect with respect to any other then existing or subsequent
breach thereof.
(e) Landlord will make commercially-reasonable attempts to
mitigate damages by attempting to relet the Leased Premises.
(f) Each right and remedy of Landlord provided for in this
Lease Agreement shall be cumulative and shall be in addition to
every other right or remedy provided for in this Lease or now or
hereafter existing at law or in equity, by statute or otherwise.
16. Mechanic's Liens
(a) Tenant agrees not to perform or cause to be performed any
work on the Leased Premises or 488 MAIN without first obtaining
mechanics lien waivers from any and all contractors,
subcontractors, suppliers, materialmen or other person or entities
providing materials or services to the Property. Tenant shall
provide Landlord with copies of all mechanics lien waivers prior
to the commencement of any such work.
(b) Tenant agrees to pay when due or to bond out all sums of
money that may become due for any labor, services, materials,
supplies or equipment alleged to have been furnished to or for
Tenant in, upon or about the Leased Premises or any other part of
488 MAIN, excepting, however, when the mechanic's lien is filed by
a contractor, subcontractor, materialman or laborer of Landlord.
Except as aforesaid, if any mechanic's lien is filed against the
Leased Premises, Building or 488 MAIN, for work claimed to have
been done for, or materials furnished to Tenant, the same shall be
discharged or bonded by Tenant within sixty (60) days thereafter.
(c) If Tenant shall fail to vacate or release such lien in
the manner and within the time period aforesaid, then, in addition
to any other right or remedy of Landlord resulting from Tenant's
said default, Landlord may, but shall not be obligated to, vacate<PAGE>
<PAGE>
or release the same either by paying the amount claimed to be due
or by procuring the release of such lien by giving security or in
such other manner as may be prescribed by law. Tenant shall repay
to Landlord, within ten days of demand, all sums reasonably
disbursed or deposited by Landlord pursuant to the foregoing
provisions of this Paragraph 16, including Landlord's cost and
expenses and reasonable attorney's fees incurred in connection
therewith. Nothing contained herein shall imply any consent or
agreement on the part of Landlord or any mortgagee to subject
their respective estates or interest to liability under any
mechanic's or other lien law, whether or not the performance or
the furnishing of such work, labor, services or materials to
Tenant or anyone occupying the Leased Premises, or any part
thereof, through or under Tenant, shall have been consented to by
Landlord or any of such parties.
17. Assignment and Sublease
(a) Tenant shall not assign this Lease or sublease the Leased
Premises, or any part thereof, or mortgage, pledge or hypothecate
its leasehold interest or any part thereof, whether by operation
of law or otherwise, without the prior written consent of the
Landlord, such consent not to be unreasonably withheld. In
addition, any assignment or subletting shall be subject to the
following conditions:
(1) Tenant shall, at the time of any proposed assignment
or subletting, be in compliance in all material respects with
all terms, covenants, and conditions of this Lease Agreement,
and
(2) In the event of either an assignment or subletting,
Tenant shall until the end of the Lease Term remain primarily
obligated to Landlord to perform and comply with all the
covenants and agreements hereof, such obligation of Tenant to
be primary and not secondary, such that Landlord shall have
the right to enforce the provisions of this Lease Agreement
directly against Tenant and/or any other person, it being
specifically understood by Tenant that in no event shall
Landlord's consent to an assignment or subletting release
Tenant from any of its obligations under the herein Lease
Agreement, and
(3) In the event of any termination of this Lease
Agreement, whether by expiration, forfeiture, cancellation,
surrender or any other termination, all subleases shall, at
the option of Landlord, terminate and any dispossession of
Tenant shall, at the option of Landlord, automatically
dispossess all subtenants. Landlord shall not be bound by any
agreement, term, covenant, or condition contained in any
sublease, irrespective of whether Landlord has notice
thereof, and
<PAGE>
<PAGE>
(4) If any part of the Leased Premises is sublet, or is
occupied by other than the Tenant, Landlord may, at its
option, after default by Tenant, collect rent from any
subtenant or occupant, and apply the net amount collected to
the rent reserved herein, but such collection shall not be a
waiver of any agreement, term, covenant, or condition of this
Lease Agreement, or a release by Landlord of Tenant, or the
acceptance by the Landlord of any subtenant or occupant as
Tenant.
(b) In the event that the Landlord does approve an assignment
by the Tenant, then the Tenant shall remit to the Landlord any sum
of money or other consideration which the Tenant actually receives
for the assignment. In the event that the Landlord does approve a
subletting by the Tenant, then the Tenant shall remit to the
Landlord any sum of money or other consideration which the Tenant
actually receives in excess of the rent/square foot being paid by
the Tenant to the Landlord.
(c) Notwithstanding anything to the contrary contained
elsewhere in this Lease Agreement, Tenant shall not require
Landlord's consent (and Landlord hereby permits Tenant) to at any
time during the term of this Lease Agreement assign or sublet some
or all of the Leased Premises to Lamaze Publishing Company, Inc.
and/or The Newborn Channel, L.P., in which event Landlord shall
not be entitled to any amounts under paragraph (b) of this Section
17.
18. Security Deposit
(a) Tenant, upon execution of this Lease, shall deposit with
Landlord the sum of One Hundred Thousand ($100,000) Dollars which
sum shall constitute a security deposit (but not a limit on the
extent of the Tenant's liability in the event of its default
hereunder) for the performance by Tenant of all its obligations,
monetary and otherwise, under this Lease Agreement. Seventy-Five
Thousand ($75,000) Dollars of said security deposit shall be
returned to Tenant within five (5) days of Tenant displaying to
Landlord receipts for not less than One Hundred Thousand
($100,000) Dollars having been spent toward improvements of the
Leased Premises. In the event that the said Seventy-Five Thousand
($75,000) Dollars has been returned to Tenant, then Landlord shall
hold the remaining Twenty-Five Thousand ($25,000) Dollars as a
security deposit for the term of the Lease.
(b) Notwithstanding anything to the contrary in subparagraph
(a) hereof, in the event that the Tenant expends less than Seventy
Five Thousand ($75,000) Dollars toward improvements of the Leased
Premises, then Landlord shall return to Tenant only so much of the
security deposit as shall equal 75% of the amount actually
expended. For example, if the Tenant shall only expend Fifty
Thousand ($50,000) Dollars toward improvements of the Leased
Premises, then Landlord shall return Thirty-Seven Thousand Five<PAGE>
<PAGE>
Hundred ($37,500) Dollars of the security deposit to Tenant and
shall retain the balance as described herein.
(c) The balance of said security, or part thereof, as the
case may be, shall be returned to Tenant within ten (10) days of
Tenant vacating the Leased Premises and having performed all
obligations required of it under this Lease Agreement, and with
interest calculated at 4%/year. In the event of a sale of 488
MAIN, Landlord shall have the right to transfer the security to
the purchaser, provided that the purchaser agrees to hold the
security in accordance with the terms hereof. Upon such transfer,
the purchaser shall thereupon become liable to the Tenant and
Landlord shall thereupon be relieved by Tenant from all liability
for the return of such security.
(d) Notwithstanding anything to the contrary herein, it is
specifically stated and agreed that the herein security deposit
shall in no event constitute the full extent of or limit on
Tenant's liability to Landlord in the event of Tenant's default
hereunder.
19. Attornment
Tenant shall attorn and recognize the purchase or assignment
of Landlord's interest in 488 MAIN, for the balance then remaining
of the Lease Term, and Tenant agrees to execute and deliver such
instruments confirming such attornment as may be requested by
Landlord, its successor or assignee. As to any mortgage now or
hereafter placed against 488 MAIN the Tenant agrees that in the
event the lender of said mortgage exercises its remedies over 488
MAIN by foreclosure or otherwise, the Tenant, upon request of the
lender or other party succeeding to the interest of the lender,
will attorn to the interest of the lender and in the event that
the lender takes title to 488 MAIN by foreclosure or otherwise,
then the lender may sell said 488 MAIN and the Tenant shall attorn
to and recognize the lender's purchaser as the landlord hereunder.
If requested by lender or its successor in interest, the Tenant
shall deliver an instrument confirming said attornment.
20. Subordination
(a) This Lease Agreement shall be subordinate and subject to
any ground or underlying leases and to any mortgages now or
hereafter placed on 488 MAIN, and to all renewals, modifications
or replacements thereof; provided, however, that with respect to
any said ground lease or underlying lease and/or mortgage,
Landlord shall obtain from said ground lessor or underlying lessor
or mortgagee, a standard form Non-Disturbance Agreement which
shall reasonably protect Tenant's rights under the herein Lease
Agreement in the event of a default by Landlord of said ground or
underlying lease or mortgage. The Non-Disturbance Agreement shall
provide that so long as this Lease shall be in full force and
effect: (1) Tenant shall not be joined as a defendant in any<PAGE>
<PAGE>
proceeding which may be instituted to terminate or enforce the
ground or underlying lease or to foreclose or enforce the
mortgage; and (2) Tenant's possession and use of the Leased
Premises in accordance with the provisions of this Lease Agreement
shall not be disturbed by reason of the subordination to or any
modification of or default under the ground or underlying lease or
mortgage.
(b) Although no instrument or act on the part of Tenant shall
be necessary to effectuate the herein described subordination,
Tenant will, nevertheless, execute and deliver such further
instruments confirming such subordination of this Lease as may be
desired by the holders of such mortgages or by any of the lessors
under such ground or underlying leases. Tenant hereby appoints
Landlord its attorney in fact, irrevocably, to execute and deliver
any such instrument for Tenant. If any prospective mortgagee of
the land, Building or any leasehold interest therein requires, as
a condition precedent to issuing its loan, the modification of
this Lease Agreement in such manner as does not materially lessen
any of Tenant's rights or increase any of its obligations
hereunder, Tenant shall not delay or withhold its consent to such
modification and shall execute and deliver such confirming
documents therefor as such mortgagee requires.
21. Holdover
Should Tenant continue to occupy the Leased Premises after
the expiration of this Lease, such tenancy shall be a tenancy from
month-to-month which may be cancelled by Landlord at any time and
with thirty (30) days notice and Tenant's holdover shall not
entitle it to any lease rights and during the said holdover
period, Tenant shall pay to Landlord monthly rent of 1/12 of 200%
of the annual Rent due hereunder as of the time the holdover
commences, as well as all other charges described herein.
22. Certificates and Financial Information
Within fifteen (15) days after request by Landlord, Tenant
from time to time and without charge shall deliver to Landlord:
(a) A certificate as follows:
(1) that this Lease Agreement is unmodified and in full
force and effect, or if there has been any modification, that
the same is in full force and effect, as modified, and
identifying the date and nature of any such modification; and
(2) whether Tenant knows or does not know, as the case
may be, of any default by Landlord in the performance by
Landlord of the terms, covenants and conditions of this Lease
Agreement, and specifying the nature of such defaults, if
any; and
<PAGE>
<PAGE>
(3) whether or not there are, to Tenant's knowledge, any
then existing set-offs or defenses by Tenant to the
enforcement thereof, and if so, specifying; and
(4) the dates to which the Rent, Real Estate Tax
Increase and Operating Expense Increase have been paid; and
(5) any other information concerning this Lease
Agreement reasonably requested by Landlord or a current or
prospective lender of Landlord.
(b) Such financial information about Tenant as Landlord shall
request including, but not limited to, a Balance Statement, a
Profit and Loss Statement, tax returns and such other information
as Landlord shall reasonably request. Landlord may display said
information to its lender(s) and to prospective lenders and/or
purchasers of 488 MAIN.
23. Right of Entry
The Landlord shall have the right to enter the Leased
Premises at any time during normal business hours after reasonable
notice to Tenant for any reasonable purpose whatsoever, including
but not limited to, displaying the Leased Premises to prospective
investors, tenants, buyers, and lenders. The Landlord shall have
the right to enter the Leased Premises at any time in the event of
a bona fide emergency.
24. Notices
Any notice, demand or request required or agreed to be given
under the Lease Agreement by either party shall be sufficiently
given when mailed by certified mail, return receipt requested
addressed to the party to be notified as follows:
To Landlord: James Randel
274 Riverside Associates, L.L.C.
175 Post Road West
Westport, Connecticut 06880
To Tenant: W. W. Erdman
Electronic Retailing Systems International, Inc.
488 Main Avenue
Norwalk, Connecticut 06851
or any other such address as Landlord or Tenant may from time to
time designate in writing. Notice shall be deemed given when
postmarked.
25. N/A
26. N/A<PAGE>
<PAGE>
27. No Representations
Except as otherwise specifically provided herein, neither
Landlord nor Landlord's agents have made any representation,
warranty or promise with respect to the Leased Premises or the
Building, the use that may be made of them or their suitability
for Tenant's purposes, except as herein expressly set forth.
28. Occupancy
Landlord reserves the right to establish reasonable rules and
regulations with regard to the occupancy and usage of 488 MAIN,
and Tenant agrees to abide by all such rules and regulations,
provided that any such rules and regulations shall be in
conformity with common practice and usage in similar buildings,
are not inconsistent with the provisions of this Lease and apply
to all tenants and occupants of 488 MAIN and provided further that
a copy thereof is received by Tenant. Landlord shall (a) not
discriminate against Tenant in enforcing the Rules and
Regulations; (b) not unreasonably withhold or delay its consent to
any approval required by Tenant under the rules and regulations;
and (c) exercise its judgment in good faith in any instance when
the exercise of Landlord's judgment under the Rules and
Regulations is required. Landlord shall use its best efforts to
obtain compliance with the rules and regulations by all tenants
and other occupants within 488 MAIN, but Landlord may permit
reasonable waivers so long as such waivers do not unreasonably
interfere with or materially and adversely affect Tenant in the
conduct of its business in the Leased Premises or violate any
rights granted to Tenant under this Lease Agreement. If there is
a conflict between or ambiguity created by the provisions of this
Lease Agreement and rules and regulations published pursuant to
this Article, the provisions of this Lease Agreement shall control
and be binding on the parties hereto.
29. Successors and Assigns
This Agreement is binding on the parties, their heirs,
successors and assigns, except as otherwise provided herein.
30. Consent to Jurisdiction
This Agreement shall be deemed to have been made in the State
of Connecticut, and shall be interpreted, and the rights and
liability of the parties here determined, in accordance with the
laws of that State and as part of the consideration for the
Landlord's executing this Lease, Tenant hereby agrees that all
actions or proceedings arising directly or indirectly from this
Lease Agreement shall be litigated only in the courts of the State
of Connecticut and Tenant hereby consents to the jurisdiction of
any court located within Connecticut.
<PAGE>
<PAGE>
31. Brokerage
Tenant represents that it dealt with no brokers in connection
with this Lease Agreement except CB Commercial Real Estate
Services and Rostenberg-Doern/ESG. Landlord shall be responsible
for paying the brokerage commission which may be due, if any, with
respect to the herein transaction.
32. Entire Agreement
This Lease Agreement contains the entire agreement between
the parties and it may not be changed orally or by any agreement
between the parties unless in writing, signed and acknowledged by
the parties or their successors.
33. Notice of Lease
Neither Tenant nor Landlord shall record this Lease
Agreement, but Tenant and Landlord agree to execute a Notice of
Lease drawn in accordance with the statutes of the State of
Connecticut and to permit either party to file such Notice of
Lease.
34. No Offset
In the event that the Tenant believes that the Landlord is
not providing services as required hereunder or, is in some other
way in default of the herein Lease Agreement, it shall institute
a separate action against the Landlord and hereby waives any
rights it may have to offset Rent as is due and payable monthly
hereunder. In addition, the Tenant hereby waives any rights it may
have to counterclaim against a summary process action by the
Landlord and/or to set up as a defense any alleged breach of the
herein Lease Agreement by the Landlord.
35. Right of First Offer
Prior to leasing any other space in the Building, Landlord
shall first offer said space to Tenant for the remainder of the
Lease Term. The terms and conditions at which this space is
offered to Tenant shall be in accord with what Landlord may be
receiving or may be able to receive for comparable space in the
Building. Tenant shall then have twenty days in which to decide
whether it wishes to lease the said space and, if it elects to do
so, Tenant shall sign a Lease Agreement within twenty days
thereafter, said Lease Agreement to be in substantially the same
form as the herein Lease Agreement. In the event, however, that
the Tenant does not give Landlord its decision within the
referenced ten day period, then the herein right of first offer
shall be deemed waived by the Tenant and the Landlord shall
thereafter be free to lease said space to any person or entity of
its selection and shall not have any obligation to Tenant as to
the herein right of first offer except as to any other space which<PAGE>
<PAGE>
it shall lease in the Building. The herein right of first offer
shall not apply to any space as to which a tenant presently in the
Building may have a right to lease.
36. Termination Rights
(a) The Tenant shall have the following rights to terminate
the herein Lease Agreement:
(1) The Tenant may terminate the herein Lease Agreement
as of July 31, 2002 by: (i) giving Landlord not less than six
months prior written notice, (ii) by depositing with the
Landlord at the time it gives said notice a check in the
amount of $150,000 (which said funds shall be in addition to
monthly Rent due through July 31, 2002), and (iii) by
complying with each and every term and condition of the
herein Lease Agreement through July 31, 2002. In the event
that the Tenant terminates the Lease Agreement as provided
herein, then as of July 31, 2002 the rights and obligations
of the parties to each other shall terminate and the Tenant
shall vacate the Leased Premises as of July 31, 2002.
(2) The Tenant may terminate the herein Lease Agreement
as of July 31, 2004 by: (i) giving Landlord not less than six
months prior written notice, (ii) by depositing with the
Landlord at the time it gives said notice a check in the
amount of $125,000 (which said funds shall be in addition to
monthly Rent due through July 31, 2004), and (iii) by
complying with each and every term and condition of the
herein Lease Agreement through July 31, 2004. In the event
that the Tenant terminates the Lease Agreement as provided
herein, then as of July 31, 2004 the rights and obligations
of the parties to each other shall terminate and the Tenant
shall vacate the Leased Premises as of July 31, 2004.
(b) Notwithstanding anything herein to the contrary, in the
event that the Tenant exercises a Right of First Offer as
described in Paragraph 35 to occupy space on the second floor of
the Building, then Tenant's right to terminate said space shall be
as follows:
(i) Tenant shall have the right to terminate its Lease
Agreement of said space as of the same dates as described in
subparagraph (a) above.
(ii) Tenant shall give Landlord not less than nine (9)
months prior written notice of its election to terminate said
space.
(iii) Tenant shall pay to Landlord as of the date it
gives said written notice, a termination fee (which shall be
in addition to Rent due through the remainder of the Term,
i.e. to either July 31, 2002 or July 31, 2004) which equals<PAGE>
<PAGE>
the pro rata amount of the rentable square footage which
Tenant occupies on the second floor times the amount of the
termination fee described in subparagraph (a) above. For
example, if Tenant elects to terminate 5,000 square feet
which it occupies on the second floor than it shall pay a
termination fee equal to 5,000/17,500 (being the stipulated
rentable square footage of the second floor) times $150,000
(should Tenant elect to terminate by July 31, 2002) or
$125,000 (should Tenant elect to terminate by July 31, 2004).
37. Landlord's Work to the Common Areas
Not later than six months after the Commencement Date, the
Landlord shall complete its renovation and upgrade of the main
lobby of and entrance into the Building, and upgrade the elevator
cabs, and shall make such repairs and relines to the parking area
as shall be necessary, and upgrade the landscaping as required
under Section 5(b) hereof.
38. N/A
39. No Offer
The herein Lease Agreement is not intended as an offer to
lease by the Landlord and shall not be binding on the Landlord
until such time as signed by a representative of the Landlord and
returned to the Tenant. All negotiations, discussions, and
correspondence to date are acknowledged to be non-binding on
either party and there shall be no contractual agreement between
the parties until the herein document is signed by both parties
and exchanged.
40. Title; Compliance with Laws; Calculation of Rentable Area
(a) Landlord represents and warrants as a condition of this
Lease Agreement that it is a contract purchaser of 488 MAIN under
a valid and binding contract of sale entered into with the current
owner of 488 MAIN; that all contingencies under said contract of
sale have been satisfied or waived; that it shall possesses good
marketable fee title to 488 MAIN on or before July 1, 1997,
subject only to Section 40(c); that it is authorized to make this
Lease Agreement for the term aforesaid; that the provisions of
this Lease Agreement do not and will not conflict with or violate
the provisions of existing or future agreements between Landlord
and third parties; that the certificate of occupancy for the third
floor of 488 MAIN allows Tenant to use and enjoy the Leased
Premises and common buildings facilities for the purpose set forth
in this Lease Agreement; that the Leased Premises and common
building facilities and the uses thereof for the purpose specified
in this Lease are, and on the Commencement Date and throughout the
Term of this Lease Agreement will be, in conformity with all
applicable laws and ordinances; and that the Landlord will deliver<PAGE>
<PAGE>
the Leased Premises and Tenant's parking spaces to Tenant, free of
all tenants and occupants and claims thereto.
(b) Landlord represents and warrants that as of the date
hereof there are no pending or, to the best of its knowledge,
threatened claims, causes of action, lawsuits or judgements
against 488 MAIN or Landlord which may affect title or Tenant's
use of 488 MAIN as herein provided. If any such lawsuit is filed
or threatened, Landlord shall notify Tenant within fifteen (15)
days of Landlord's knowledge thereof.
(c) Landlord has delivered to Tenant a copy of Landlord's
title insurance commitment for 488 MAIN and represents and
warrants that the commitment is a true and complete copy of the
original; that as of the date hereof there have been no changes
thereto, and that during the term of this Lease Agreement the
title policy to be issued to Landlord will be in full force and
effect.
(d) Landlord represents and warrants that the rentable square
footage has been calculated based on the measurements of the
attached floor plan and on Tenant's share of the common building
areas.
41. Parking
(a) Throughout the Lease term Landlord shall, at its expense,
provide to the Building not less than 90 parking spaces of which
approximately 50 shall be covered by the Building. Landlord
represents that it is purchasing land adjacent to the Building for
the purpose of providing additional parking to the Building
although the number and location of these spaces shall be entirely
within the Landlord's discretion and, in addition, it is
understood and agreed that Landlord may, at some future date, use
this additional parking to apply for governmental approval to
increase the size of the Building.
(b) Landlord agrees to assign Tenant one half of the parking
spaces under the Building. In the event that the Landlord assigns
spaces to other tenants in the Building, which are not under the
Building, then Landlord will assign one half of these spaces to
Tenant.
(c) The Building parking area shall be available for use
twenty-four (24) hours a day, every day of the year during the
term of this Lease Agreement and shall be illuminated when
necessary to maintain a safe environment. Further, Landlord shall,
at its expense, keep and maintain the parking areas in a clean and
safe condition.
(d) If Tenant, its employees, licensees or guests are not
able to use the parking areas and access ways thereto because of
unauthorized use thereof by others, Landlord shall take whatever<PAGE>
<PAGE>
steps are necessary to end and prevent further unauthorized use
including, if appropriate, posting signs, distributing parking
stickers and towing away unauthorized vehicles.
(e) In the event that Tenant shall lease additional space in
the Building, the number of parking spaces assigned to Tenant
under the Building (as well as in other parking areas if Landlord
elects to assign these spaces) shall be increased pro rata
according to the proportion of rentable square footage of the
second floor which the Tenant occupies times one half the total
number of spaces which are assigned. For example, should the
Tenant occupy 8,000 rentable square footage on the second floor,
then it shall be entitled to additional parking spaces equal to
one half the total space times 8,000/17,500.
(f) Landlord shall designate an area of the parking lot for
visitor parking.
42.Antenna
So long as Tenant shall enter an Indemnification and Hold
Harmless Agreement with Landlord, whereby Tenant insures Landlord
that Tenant will be responsible for any and all damage which
Tenant may cause to the roof or other systems or structures of 488
MAIN, then, subject to Landlord's approval as described below,
Tenant shall have the right to install, and once install, modify
a microwave, satellite or other antenna communications system on
the roof of 488 MAIN for use in connection with Tenant's business.
Tenant shall furnish detailed plans and specifications for the
system (or modification) to Landlord for approval, which approval
shall not be unreasonably withheld or delayed. Upon approval, the
system shall be installed, at Tenant's expense. Tenant is hereby
granted such easements and licenses for (a) use of any Building
shafts and other Common Building Facilities required to install
the electrical or communication wiring, (b) access to the roof at
all reasonable times and in emergencies, and (c) use of a mutually
agreed upon area of the roof to install and operate the system.
Tenant shall be responsible for procuring whatever licenses or
permits may be required from third persons for the use or
operation of the system, and Landlord makes no warranties or
representations as to the permissibility of the system under
applicable Laws. The system shall not constitute a nuisance or
unreasonably interfere with the operations of Landlord or other
tenants occupying the Project. Landlord agrees that its consent to
additional such systems on the Roof, by other tenants, will take
into account the possibility of interference with the Tenant's
system.
43. Miscellaneous
(a) No remedy or election given by any provision in the Lease
shall be deemed exclusive unless so indicated, but each shall,
whenever possible, be cumulative in addition to all other remedies<PAGE>
<PAGE>
at law or in equity which either party may have arising out of an
event of default of the other party.
(b) Whenever Landlord's consent or approval is required under
this Lease, such consent or approval shall not be unreasonably
withheld or delayed.
(c) If Landlord shall default in the observance or
performance of any term or covenant on Landlord's part to be
observed or performed under any of the terms or provisions of this
Lease, then Tenant shall have the right to remedy such default for
the account of Landlord, immediately and without notice in case of
emergency, or in any non-emergency case if Landlord shall fail to
remedy such default within twenty (20) days after Tenant has
notified Landlord in writing of such default or, in the case of a
default which cannot with due diligence be cured within a period
of twenty days, Landlord shall not have duly instituted within
said twenty (20) day period, and thereafter diligently and
continuously prosecuted to completion, all steps necessary to
remedy the same and, if Tenant, in performing the steps herein
described makes any expenditures or incurs any obligations for the
payment of money in connection with such default, including
without limitation, reasonable attorneys' fees in instituting,
prosecuting or defending any action or proceeding, such sums paid
or obligations incurred, with interest from the date paid or
incurred, shall be paid by Landlord to Tenant within fifteen (15)
business days after rendition of a bill to Landlord therefor.
(d) This Lease Agreement may be signed in counterparts which,
taken together, shall constitute one document which will become
binding when counterparts are executed and which shall in total
contain the signatures of Landlord and Tenant.
This Lease Agreement has been executed as follows:
Landlord:
s/Jim Randel
- --------------------------
488 Main Avenue Associates, LLC
By: Jim Randel
Its: Manager
Tenant:
s/William W. Erdman
- --------------------------
Electronic Retailing Systems
International, Inc.
By: William W. Erdman
Its: Executive Vice President
<PAGE>
<PAGE>
COUNTY OF FAIRFIELD )
) ss.: WESTPORT
STATE OF CONNECTICUT )
Personally appeared James Randel this 30th day of May, 1997,
who swore that he is the Manager of the 488 Main Avenue
Associates, LLC and that his signature hereon is his free act and
deed and that of the 488 Main Avenue Associates, LLC, before me,
s/Joyce E. Mahoney
-----------------------------
Notary Public
COUNTY OF FAIRFIELD )
) ss.: WILTON
STATE OF CONNECTICUT )
Personally appeared William W. Erdman this 30th day of May,
1997, who swore that he is the Executive V.P. of Electronic
Retailing Systems International, Inc. and this his signature
hereon is made with the full authority of the Board of Directors
and that it is his free act and deed and that of the said
corporation, before me,
s/Elizabeth A. Cappadona
-----------------------------
Notary Public
<PAGE>
<PAGE>
EXHIBIT A -- CLEANING SPECIFICATIONS FOR COMMON AREAS (LOBBY,
ELEVATORS AND PARKING AREAS):
DAILY (M - F):
o Sweep, damp mop or vacuum, as appropriate, the floor areas;
remove materials such as gum and tar which has adhered to the
floor.
o Empty and damp wipe all ashtrays, waste baskets and
containers and remove all trash.
o Damp wipe all telephones, smudges, smears on glass areas or
wall areas.
o Damp wipe elevator landing doors.
o Clean all baseboards.
WEEKLY:
o Wash glass in building directory, entrance doors and frames
and show windows, both sides.
o Remove all litter from the parking area and grounds.
O Sweep all stairway areas.
MONTHLY:
o Scrub and recondition resilient floor areas using buffable
non-slip type floor finish.
o Vacuum all ceiling and wall air supply and exhaust diffusers
or grills.
o Clean all area roof drains.
o Wash all interior glass, both sides.
o Wash all stairwell landings and treads.
SEMI-ANNUALLY:
o Wash both sides of all building exterior glass.
ANNUALLY:
o Wash all light fixtures.
o Wash all interior walls/pressure wash all exterior walls.
<PAGE>
<PAGE>
AMENDMENT NO. 1 TO LEASE AGREEMENT
WHEREAS, 488 Main Avenue Associates, L.L.C. a Connecticut
Limited Liability Company with an address of P.0. Box 2870,
Westport, Connecticut 06880 (hereafter "Landlord") and Electronic
Retailing Systems International, Inc. a Delaware corporation with
an address of 488 Main Avenue, Norwalk, Connecticut 06851
(hereafter "Tenant") are the parties to a Lease Agreement dated
May 30, 1997 (the "Lease Agreement") for a portion of the Building
located at 488 Main Avenue, Norwalk, Connecticut; and
WHEREAS, the Landlord and Tenant wish to amend the said Lease
Agreement, according to the terms and conditions of this
Amendment, in order to increase the size of the Leased Premises;
IT IS HEREBY AGREED:
1. That it is the intent of this Amendment No. 1 to Lease
Agreement to increase the size of the Leased Premises
progressively as Tenant rents additional space on the second floor
of the Building, the three areas being denoted as Area #1, Area #2
and Area #3 on the floor plan attached hereto as Exhibit B. Tenant
agrees herein that it will eventually rent all of the second floor
of the Building except the spaces now occupied by PSI and by Allan
Davis Companies (unless, however, Landlord does not deliver the
said Areas within the time frames provided for in the attached
Exhibits and the Tenant elects not to lease said Areas as
permitted in the said Exhibits) and that as the Tenant rents
additional space from the Landlord on the second floor of the
Building, pursuant to the schedule provided herein, the Rent to be
paid by the Tenant to the Landlord shall increase in the
increments as indicated in Exhibits C, D and E attached hereto. By
way of example, when the Tenant rents the Expressway and Safe
Harbor spaces indicated on Exhibit B (Area #1) it shall pay Rent
to Landlord equal to the total of the Rent indicated in Paragraph
4 of the Lease Agreement plus the Rent indicated in Exhibit C
attached hereto. And, by way of further example, when the Tenant
rents all of the spaces on the second floor referenced as Areas
#1, #2 and #3 on Exhibit B, it shall pay Rent to Landlord equal to
the total of the Rent indicated in Paragraph 4 of the Lease
Agreement plus the Rent indicated in Exhibit C, plus the Rent
indicated in Exhibit D and plus the Rent indicated in Exhibit E.
In addition, upon renting space on the second floor of the
Building Tenant shall pay to Landlord a "Utility Charge" as
referenced in new Paragraph l(e)(2). The Utility Charge which
Tenant shall pay shall increase as Tenant rents additional space
from the Landlord on the second floor of the Building and the
Utility Charge shall increase in the increments as indicated in
Exhibits C and D. By way of example, when the Tenant rents the
Expressway and Safe Harbor spaces indicated on Exhibit B (Area #1)
it shall pay the Utility Charge indicated in Exhibit C. By way of
further example, when the Tenant subsequently rents the ABC space <PAGE>
<PAGE>
indicated on Exhibit B (Area #2), it shall pay the total of the
Utility Charge indicated in Exhibit C plus the Utility Charge
indicated in Exhibit D. It is further the intent of this Agreement
that the Landlord shall separately meter the portion of the second
floor of the Building leased by Tenant for the measurement of
electricity consumed by the Tenant and that the Landlord shall
complete this separate metering on or before January 1, 1998 and
that thereafter the Tenant shall pay for the electricity consumed
by it directly to the utility company providing same, after which
time the Tenant shall no longer pay the Utility Charge to the
Landlord.
2. That Paragraph l(a) of the Lease Agreement is hereby
deleted in its entirety and the following substituted in its
place:
(a) Landlord leases to Tenant and Tenant hereby rents from
Landlord premises being the entire third floor and portions
of the second floor of a building (the "Building") located at
488 Main Avenue, Norwalk, Connecticut (the Land and Building
being hereinafter referred to as "488 MAIN"). The portions of
the second floor being leased by Tenant are specifically
described in Paragraph l(e) below. The premises to be leased
on the third floor of the Building is stipulated to be 17,500
rentable square feet.
3. That Paragraph 1 of the Lease Agreement is hereby amended
by adding the following subparagraph (e):
(e)(1) Tenant shall lease portions of the second floor of the
Building, which spaces are shown on the attached Exhibit B.
Landlord shall deliver portions of such space on the second
floor of the Building to Tenant, as indicated below, at
various times. In each instance, the definition of the
"Leased Premises" shall be amended to include the additional
space on the second floor of the Building being leased by the
Tenant. In addition, each time the Leased Premises is
expanded to include the additional spaces on the second floor
of the Building (referred to as Areas #1 and #2 on Exhibit B
attached hereto), the Utility Charge (as defined below),
shall be increased to include Areas #1 and #2 of the second
floor being rented by Tenant.
(e)(2)(i) The Tenant shall be responsible for the cost of all
utilities which it consumes at those spaces on the second
floor which are added to the Leased Premises as referenced
herein. The Utility Charge shall include all utilities
provided to Areas #1 and #2 of the second floor of the
Building then being rented by the Tenant, it being the intent
of this Lease Agreement that the Tenant shall pay for all
utilities provided to the portions of the second floor of the
Building then being rented by the Tenant, including all heat
and air-conditioning, but excluding water which shall be an<PAGE>
<PAGE>
operating expense of the property. Since the spaces on the
second floor which become part of the Leased Premises are not
presently separately metered, the parties hereto agree that
through December 31, 1997, the Utility Charge shall
approximate the cost of the electricity consumed by the
Tenant (while occupying Areas #1 and #2 prior to December 31,
1997) and that thereafter the Tenant shall pay for the
electricity which it consumes directly to the utility company
providing same, and that not later than January 1, 1998, the
Landlord shall take steps to provide for a separate metering
of all second floor spaces which are or to be leased by the
Tenant (Area #1, Area #2 and Area #3) and Tenant shall put
into its name the electric meters which measure these said
areas, and Tenant shall thereafter pay the utility company
directly.
(e)(2)(ii) It is understood and agreed that the Utility
Charge as noted on Exhibits C and D is an estimate which will
be adjusted as of December 31, 1997, based on actual electric
charges for the second floor and with Tenant's share thereof
being calculated on a pro rata basis (based on the amount of
rentable square feet of the second floor of the Building
which Tenant rented during the period July 1, 1997 - December
31, 1997 divided by total rentable square feet of 17,500). In
the event that the aggregate amount of the Utility Charge
paid by Tenant during the period July 1, 1997 - December 31,
1997 is greater than the actual electric charges incurred by
Tenant for this period, then the Landlord shall remit any
excess to Tenant, if any, by February 1, 1998.
(e)(2)(iii) It is understood and agreed that as the area
separately metered for electric by the Landlord may include
space on the second floor of the Building which is occupied
by one other tenant, PSI. Landlord represents that it is
currently collecting $80/month from PSI for electric charges
and that during the period when Tenant is paying for the
electricity consumed in an area which includes the PSI space,
then Landlord will remit said $80/month (as well as any
additional money, if any, which Landlord collects from PSI
for electricity charges during the period that Tenant is
paying the electricity for space on the second floor of the
Building occupied by PSI) to Tenant.
(e)(3) As of the Commencement Date, Landlord shall deliver to
Tenant the two spaces denoted on Exhibit B as "Expressway"
and "Safe Harbor" (Area #1), which spaces Landlord shall
deliver to Tenant in "as is" condition, and Tenant accepts
same in said condition and agrees that any and all renovation
or alteration to be done to these spaces shall be done at the
Tenant's expense. It is stipulated that the rentable square
footage of these two spaces is 4253 (which square footage
Landlord represents and warrants to have been calculated
based on the measurements of the attached floor plan, Exhibit<PAGE>
<PAGE>
B, and on Tenant's share of the common building areas).
Landlord shall lease these spaces to Tenant and Tenant shall
rent these spaces from Landlord pursuant to the terms and
conditions of the Lease Agreement. The Rent for these two
spaces shall be as shown on the attached Exhibit C.
(e)(4) On November 1, 1997, Landlord shall deliver to Tenant
the space denoted on Exhibit B as "ABC" (Area #2), which
space Landlord shall deliver to Tenant in substantially the
same condition as presently exists, and Tenant accepts same
in said condition and agrees that any and all renovation or
alteration to be done to this space shall be done at Tenant's
expense. It is stipulated that the rentable square footage of
this space is 1460 (which square footage Landlord represents
and warrants to have been calculated based on the
measurements of the attached floor plan, Exhibit B, and on
Tenant's share of the common building areas). Landlord shall
lease this space to Tenant and Tenant shall rent this space
from Landlord pursuant to the terms and conditions of the
Lease Agreement. The Rent for Area #2 shall be as shown on
Exhibit D.
(e)(5) On January 1, 1998, Landlord shall deliver to Tenant
the spaces denoted on Exhibit B as "Banana Design" and
"Phoenix" (Area #3), which spaces Landlord shall deliver to
Tenant in substantially the same condition as presently
exists, and Tenant accepts same in said condition and agrees
that any and all renovation or alteration to be done to these
spaces shall be done at Tenant's expense. It is stipulated
that the rentable square footage of these two spaces is 6215
(which square footage Landlord represents and warrants to
have been calculated based on measurements of the attached
floor plan, Exhibit B, and on Tenant's share of the common
building areas). Landlord shall lease these spaces to Tenant
and Tenant shall rent these spaces from Landlord pursuant to
the terms and conditions of the Lease Agreement. The Rent for
these spaces shall be as shown on Exhibit E.
4. That Paragraph 3(a) of the Lease Agreement is hereby
amended to indicate that the Lease Term relative to the spaces
taken on the second floor of the Building shall be the period
beginning with the time when the Tenant rents said spaces as
referenced herein and ending with the Termination Date.
5. That Paragraph 3(b) of the Lease Agreement is hereby
amended but only relative to the delivery of spaces on the second
floor which shall be as described in Paragraph l(e) above.
6. That Paragraph 4 of the Lease Agreement is amended to
include Rent which is payable for the spaces leased on the second
floor of the Building. These Rents are shown on Exhibits C, D and
E attached hereto.
<PAGE>
<PAGE>
7. That Paragraph 4(d) of the Lease Agreement is amended to
increase Tenant's pro rata share as additional space is leased by
Tenant on the second floor of the Building. As of the date when
Tenant leases Area #1, the Tenant's pro rata share shall be
increased to 62.0%. As of the date when Tenant leases Area #2, the
Tenant's pro rata share shall be increased to 67%. As of the date
when Tenant leases Area #3, the Tenant's pro rata share shall be
increased to 83%. In the event, however, that the Tenant does not
lease one or more of the said Areas, because Landlord does not
deliver same within the time frames provided for in the attached
Exhibits and the Tenant elects not to lease said Area(s) as
permitted in the said Exhibits, then the herein pro rata share
will be adjusted accordingly.
8. That Paragraph 4(e) of the Lease Agreement is deleted in
its entirety and the following substituted in lieu thereof:
In addition to the Rent described above, beginning with the
Commencement Date, Tenant shall pay for all electrical
consumption on the Third Floor of the Building and, prior to
taking occupancy of the Third Floor of the Building, Tenant
shall put into its name the electric meters which measure
electricity provided to the Third Floor of the Building, it
being the intent of this Lease Agreement, that the Tenant
shall pay for all utilities provided to the Third Floor of
the Building including all heat and air-conditioning, but
excluding water which shall be an operating expense of the
property. The Tenant also agrees that it shall be responsible
for all electricity consumed by it on the Second Floor of the
Building and that such obligation shall be governed by
Section 1(e)(2) of the Lease Agreement.
9. That Paragraph 18 of the Lease Agreement shall be amended
to reflect an increase in the security deposit by $17,000. This
increase shall arise by further amending the said Paragraph 18
such that Landlord's obligation to return to Tenant moneys
previously delivered shall be reduced by $17,000.
10. All capitalized terms utilized in this Amendment No. 1
which are not defined herein shall be defined to have the meanings
given such terms in the Lease Amendment.
11. That all other terms and conditions of the Lease
Agreement shall remain in full force and effect.
<PAGE>
<PAGE>
This Amendment to Lease Agreement has been executed as
follows:
Landlord: Tenant:
s/Jim Randel s/William W. Erdman
- -------------------------- -----------------------------
488 Main Avenue Associates, Electronic Retailing Systems
L.L.C. International, Inc.
By: Jim Randel By: William W. Erdman
Its: Manager Its: Executive Vice President
<PAGE>
<PAGE>
COUNTY OF FAIRFIELD )
) ss.: Westport
STATE OF CONNECTICUT )
Personally appeared James Randel this 3rd day of July, 1997,
who swore that he is the Manager of the 488 Main Avenue
Associates, LLC and that his signature hereon is his free act and
deed and that of the 488 Main Avenue Associates, L.L.C., before
me,
s/Joyce E. Mahoney
------------------------------
Notary Public
COUNTY OF FAIRFIELD )
) ss.: Wilton
STATE OF CONNECTICUT )
Personally appeared William W. Erdman this 30th day of June,
1997, who swore that he is the Executive Vice President of
Electronic Retailing Systems International, Inc. and that his
signature hereon is made with the full authority of the Board of
Directors and that it is his free act and deed and that of the
said corporation, before me,
s/Elizabeth A. Cappadora
------------------------------
Notary Public
<PAGE>
<PAGE>
EXHIBIT C
The following represents the Rent due for the two spaces
Expressway and Safe Harbor (Area #1) on the second floor which
Tenant agrees to rent from Landlord beginning on July 1, 1997. It
is acknowledged that these two spaces are not contiguous.
July 1, 1997 - August 31, 1997: No rent due.
September 1, 1997 - August 31, 1998: $64,858 payable in equal
monthly installments of $5,404.83.
September 1, 1998 - August 31, 1999: $68,048 payable in equal
monthly installments of $5,670.67.
September 1, 1999 - August 31, 2000: $72,301 payable in equal
monthly installments of $6,025.08.
September 1, 2000 - August 31, 2001: $75,490 payable in equal
monthly installments of $6,290.90.
September 1, 2001 - August 31, 2002: $78,680 payable in equal
monthly installments of $6,556.71.
September 1, 2002 - August 31, 2003: $85,060 payable in equal
monthly installments of $7,088.33.
September 1, 2003 - August 31, 2004: $88,249 payable in equal
monthly installments of $7,354.15.
September 1, 2004 - August 31, 2005: $92,502 payable in equal
monthly installments of $7,708.56.
September 1, 2005 - August 31, 2006: $95,692 payable in equal
monthly installments of $7,974.38.
September 1, 2006 - August 31, 2007: $98,882 payable in equal
monthly installments of $8,240.19.
The Utility Charge for the Expressway and Safe Harbor spaces
(Area #1) is $10,632.50/year which shall be payable monthly in
equal monthly installments of $886.04.
<PAGE>
<PAGE>
EXHIBIT D
The following represents the Rent due for the ABC space (Area
#2) on the second floor which Tenant agrees to rent from Landlord
beginning on November 1, 1997. In the event that the Landlord is
unable to deliver Area #2 to the Tenant by January 1, 1998, then
the dates indicated herein shall be delayed until the date when
the Landlord does, in fact, deliver Area #2 to the Tenant;
however, in the event that the Landlord does not deliver Area #2
to Tenant within ninety (90) days of November 1, 1997, then the
Tenant shall have the right to cancel its herein obligation to
rent Area #2 so long as it gives Landlord written notice of its
election to do so on or before ten (10) days after the expiration
of said ninety-day period.
November 1, 1997 - December 31, 1997: No rent.
January 1, 1998 - August 31, 1998: $1,855.42/month.
September 1, 1998 - August 31, 1999: $23,360 payable in equal
monthly installments of $1,946.67.
September 1, 1999 - August 31, 2000: $24,820 payable in equal
monthly installments of $2,068.33.
September 1, 2000 - August 31, 2001: $25,915 payable in equal
monthly installments of $2,159.58.
September 1, 2001 - August 31, 2002: $27,010 payable in equal
monthly installments of $2,250.83.
September 1, 2002 - August 31, 2003: $29,200 payable in equal
monthly installments of $2,433.33.
September 1, 2003 - August 31, 2004: $30,295 payable in equal
monthly installments of $2,524.58.
September 1, 2004 - August 31, 2005: $31,755 payable in equal
monthly installments of $2,646.25.
September 1, 2005 - August 31, 2006: $32,850 payable in equal
monthly installments of $2,737.50.
September 1, 2006 - August 31, 2007: $33,945 payable in equal
monthly installments of $2,828.75.
The Utility Charge for the ABC space (Area $2) is $3,650/year
which shall be payable in equal monthly installments of $304.17.
<PAGE>
<PAGE>
EXHIBIT E
The following represents the Rent due for the two spaces Banana
Design and Phoenix (Area #3) which Tenant agrees to rent from
Landlord beginning on January 1, 1998. In the event that the
Landlord is unable to deliver Area #3 to the Tenant by January 1,
1998, then the dates indicated herein shall be delayed until the
date when the Landlord does, in fact, deliver Area #3 to Tenant;
however, in the event that the Landlord does not deliver Area #3
to Tenant within ninety (90) days of January 1, 1998, then the
Tenant shall have the right to cancel its herein obligation to
rent Area #3 so long as it gives Landlord written notice of its
election to do so on or before ten (10) days after the expiration
of said ninety-day period.
January 1, 1998 - February 28, 1998: No rent
March 1, 1998 - August 31, 1998: $7,898.23/month.
September 1, 1998 - August 31, 1999: $99,440 payable in equal
monthly installments of $8,288.67.
September 1, 1999 - August 31, 2000: $105,655 payable in
equal monthly installments of $8,804.58.
September 1, 2000 - August 31, 2001: $110,316 payable in
equal monthly installments of $9,193.02.
September 1, 2001 - August 31, 2002: $114,977 payable in
equal monthly installments of $9,581.46.
September 1, 2002 - August 31, 2003: $124,300 payable in
equal monthly installments of $10,358.33.
September 1, 2003 - August 31, 2004: $128,961 payable in
equal monthly installments of $10,746.77.
September 1, 2004 - August 31, 2005: $135,176 payable in
equal monthly installments of $11,264.69.
September 1, 2005 - August 31, 2006: $139,837 payable in
equal monthly installments of $11,653.13.
September 1, 2006 - August 31, 2007: $144,498 payable in
equal monthly installments of $12,041.56.
Exhibit 10.18
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") is dated as of Oct. 01,
1997, by and between KURIAN LIMITED PARTNERSHIP, a Massachusetts
limited partnership, of 1300 Mass Ave, Boxborough, Massachusetts,
01719 (Tel: 978-263-4994, Fax 978-266-2784) ("Landlord") and
Electronic Retailing Systems International, Inc. (ERS) a Delaware
Corporation, (Tel: 203-849-2500, fax 203-849-2501) ("Tenant").
ARTICLE I
DEFINITIONS
1.01 Building: A Single story office/Light assembly building
containing forty five thousand five hundred (45,308) square feet
of rentable area, known as 330 Codman Hill Rd., Boxborough,
Massachusetts, 01719 and located on certain land (the "Land")
together with related parking areas and facilities (whether in or
near the Building), roadways and driveways and other amenities.
1.02 Premises: Approximately 22,512 square feet of rentable area,
on the northerly end of the Building and as outlined in Exhibit A,
attached hereto and incorporated by reference herein.
1.03 Intentionally deleted.
1.04 Lease Term: Five (5) Years.
1.05 Lease Commencement Date: The latter of Oct. 01, 1997, or upon
Landlord delivering premises to Tenant.
1.06 Gross Rent: Payable monthly, in advance, commencing the Lease
Commencement Date, and as stipulated below:
<TABLE>
<CAPTION>
Base Rental Rate Monthly Annual
<S> <C> <C> <C>
Year 1 $8.00 NNN $22,305.64 $267,667.68
Year 2 $8.00 NNN $22,305.64 $267,667.68
Year 3 $8.50 NNN $23,243.64 $278,923.68
Year 4 $8.75 NNN $23,712.64 $284,551.68
Year 5 $9.00 NNN $24,181.64 $290,179.68
</TABLE>
1.07 Intentionally deleted
1.08 Amount due at execution of lease: First months rent, plus an
amount equal to the last month of the last year (year 5) as the
Lease Deposit, totaling $46,487.28
1.09 Brokers. Landlord's: New England Industrial Properties.
Tenant's : New England Industrial Properties.
<PAGE>
<PAGE>
1.10 Tenant Address for Notices: Electronic Retailing Systems
International, Inc., 488 Main Avenue, Norwalk, CT 06851-1007
1.11 Landlord Address for Notices: Kurian Limited Partnership,
1300 Mass Ave, Boxborough, MA, 01775.
1.13 Intentionally deleted.
ARTICLE II
PREMISES
2.1 Tenant exclusively leases the Premises from Landlord upon the
terms stated herein. Tenant will have non-exclusive right to use
for their intended purpose, the areas of the Building designated
by Landlord from time to time as common and public space.
2.2 On the Lease commencement date, Tenant shall occupy and shall
pay rent as provided in section 1.06 above.
2.3 Intentionally deleted.
2.4 Intentionally deleted.
2.5 Intentionally deleted.
ARTICLE III
LEASE TERM
3.1 The terms and conditions of this Lease shall be effective from
the latter of the date of execution of this Lease by Landlord and
Tenant or the date set forth in Section 1.05. The Lease Term shall
commence on the Lease Commencement Date specified by Section 1.05
hereinabove. If the Lease Commencement Date is not the first day
of the month, then the Lease Term shall be the period set forth in
Section 1.04 hereinabove plus the partial month in which the Lease
Commencement Date occurs. The Lease Term shall also include any
properly exercised renewal or extension of the term of this Lease.
3.2 Lease Year shall mean a period of twelve (12) consecutive
months, commencing on the Lease Commencement Date and each
successive twelve (12) month period thereafter; provided however,
that if the Lease Commencement Date is not the first day of a
month, then the second Lease Year shall commence on the first day
of the month in which the first anniversary of the Lease
Commencement Date occurs.
3.3 Intentionally deleted.
3.4 Intentionally deleted.
3.5 Intentionally deleted.
<PAGE>
<PAGE>
ARTICLE IV
GROSS RENT
4.1 During each Lease Year during the Lease Term, Tenant shall pay
to Landlord as annual rent for the Premises, without set-off,
deduction or demand, the Gross Rent stated in section 1.06. The
Gross Rent shall be divided into twelve (12) equal monthly
installments and each such monthly installment shall be due and
payable in advance on the first day of each month during each
Lease Year. Notwithstanding the provisions of Article 19.6
payments made later than the tenth (10th) day of any month shall
be deemed late. If the Lease Commencement Date is not the first
day of the month, then the Gross Rent from the Lease Commencement
Date until the first day of the following month shall be prorated
on a per diem basis at the rate of one-thirtieth (1/30) of the
monthly installment of the Gross Rent payable during the first
Lease Year, and Tenant shall pay such prorated installment in
advance on the Lease Commencement Date.
4.2 Intentionally Deleted.
4.3 Intentionally Deleted.
4.4 All sums payable by Tenant shall be paid to Landlord in legal
tender of the United States, at the address to which notices to
Landlord are to be given or to such other party or such other
address as Landlord may designate in writing. Landlord's
acceptance of rent after it shall have become due and payable
shall not excuse a delay upon subsequent occasions nor constitute
a waiver of rights, not withstanding any endorsement or
restriction that Tenant may include with such payment.
ARTICLE V
TAX AND OPERATING EXPENSES
5.1 The Gross Rent described in section 1.06 includes an annual
factor for real estate taxes, common area maintenance, property
management fees, utilities, insurance and electricity (HVAC,
lights and outlets). Tenant agrees to pay as additional rent, its
proportionate share, which is equal to the ratio of the area of
the Premises to the area of the Building and which for purposes of
this Lease is 49 and 69 hundredths percent (49.69%), of any
increase in the following expenses over the base for these
expenses.
Expenses Base
Fire and Casualty Insurance $0.15 per rentable sq.ft.
Real Estate Taxes $0.64 per rentable sq.ft.
Common Area Maintenance $1.00 per rentable sq.ft.
Snow plowing, landscaping, fire
protection, parking lot lights,
security, fire protection,
parking maintenance, dumpster
<PAGE>
Property Management $0.30 per rentable sq.ft.
Utilities
Water $0.25 per rentable sq.ft.
Gas (Heat & AC) $0.55 per rentable sq.ft.
Electricity $1.00 per rentable sq.ft.
-----
Totals $3.89 per rentable sq.ft.
The operating expenses include, but are not limited to, real
estate taxes assessed by the Town of Boxborough on the Building
and Land on which the Building is situated, insurance required
under this Lease and as may be required by Landlord's Mortgagee,
electricity, heating, cooling, water, sewage, fire-protection,
operations, management, maintenance, landscaping, snow-plowing and
such other expense the Landlord may reasonably incur in operating
and maintaining the Building and Land. Tenant agrees, within
thirty (30) days of receipt of a bill from Landlord, to pay as
additional rent, Tenant's proportionate share of any increase in
the tax and operating expenses; provided however, that any
increase or decrease in Tenant's proportionate share during one
billing period shall be set off against any decrease or increase
during a succeeding period.
At the conclusion of the first year of the lease term, the tax and
operating expense base shall be adjusted as necessary to reflect
the actual expenses experienced during the first year.
ARTICLE VI
USE OF PREMISES
6.1 Tenant shall use the Premises solely for purposes of General
Office and Light manufacturing, and for no other use or purpose.
Tenant shall not use the Premises for any unlawful purpose or in
any manner that the Landlord's opinion will constitute waste,
nuisance or unreasonable annoyance to Landlord or any tenant of
the Building. Tenant shall comply at it's expense with all present
and future laws, ordinances, regulations and orders (including,
without limitation, any regulation requiring the sorting or
separation of refuse and trash) concerning the use, occupancy and
condition of the Premises and all machinery, equipment and
furnishings therein. If any such law, ordinance, regulation or
order requires an occupancy or use permit for the Premises, then
Tenant shall obtain and keep current such permit at Tenant's
expense and promptly deliver a copy thereof to Landlord. Use of
the Premises is subject to all covenants, conditions and
restrictions of record and which have been disclosed to Tenant.
Landlord agrees to give Tenant copies of any such laws,
ordinances, regulations and orders currently in effect and of
which it becomes aware from time to time during the term of this
agreement.
<PAGE>
<PAGE>
6.2 Tenant shall pay before delinquency any business, rent or
other tax or fee that is now or hereafter assessed or imposed upon
Tenant's use or occupancy of the Premises, the conduct of Tenant's
business in the Premises or Tenant's personal property, equipment,
fixtures, furnishings or inventory. If any such tax or fee is
enacted or altered so that such tax or fee is imposed upon
Landlord or so that Landlord is responsible for collection or
payment thereof, then Tenant shall pay the amount of such tax or
fee within ten (10) business days after Landlords demand thereof.
6.3 Tenant shall not in the Building and/or Premises generate,
store, handle, release, discharge, or otherwise deal with any
material classified as "hazardous material" for purposes of the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended from time to time (CERCLA) or the Resource
Conservation and Recovery Act of 1976, as amended from time to
time (RCRA), or any similar or related federal, state, or local
statutes, rules, regulations or ordinances. Provided, however,
that this provision shall not limit Tenant's use of the Premises,
provided further that such use is in compliance with provisions of
this paragraph. Without limiting the generality of the foregoing,
Tenant expressly covenants and agrees that it shall not, nor shall
it permit anyone to:
(A) Use asbestos or any asbestos-containing materials in the
Premises or in the Building;
(B) Use any liquid-filled transformers in the Premises or in
the Building, unless consented to by Landlord in writing and
confirmed by an outside authoritative source to be free of
polychlorinated biphenyl's (PCB's);
(c) Install any underground storage tanks, unless consented
to by Landlord in writing specifically approved and certified to
be in compliance with applicable code requirements;
(D) Store any opened containers of combustible products, such
as cleaning solvents, in other than metal containers and cabinets
approved by the Landlord in writing.
Tenant shall protect, indemnify, and save Landlord and its
officers, agents, servants and employees harmless from and against
any and all obligations, liabilities, costs, damages, claims and
expenses of whatsoever nature arising from or in connection with
any violation of this section 6.3.
ARTICLE VII
ASSIGNMENT AND SUBLETTING
7.1 Tenant shall not assign this Lease or any Tenant's rights or
obligations hereunder, or sublet or permit anyone to occupy the
Premises except in accordance with Article 7.2
<PAGE>
<PAGE>
7.2 Tenant may transfer, assign or sublease all or a portion of
Tenant's interest in the leased Premises and the improvements on
the leased Premises, but only to some responsible party or
parties, provided that all rents, taxes, assessments, liens,
insurance, and other charges of every kind that Tenant has
covenanted to pay shall be fully paid to the date of the
assignment, and all covenants and agreements contained in this
lease agreement to be kept and performed by Tenant shall be fully
complied with to the date of the assignment. In no event shall
Tenant's interest in the leased Premises and the improvements on
the Premises be assigned otherwise than by an instrument fully
executed and acknowledged in which the assignee shall expressly
assume all the obligations of Tenant under this lease agreement,
or unless there shall be placed in the hands of Landlord or
delivered to the party then authorized to receive the rent for
Landlord, not less than ten (10) days before the transfer is to be
made, a copy of the instrument of assignment. Any assignment,
except by devise or descent, or by operation of law, not made as
required in this lease agreement to be made, shall, if Landlord so
elects, be void, and Tenant shall remain bound to perform all of
Tenant's obligations, under this lease agreement in spite of such
an assignment. Written consent by Landlord to an assignment of any
interest under this lease agreement shall be deemed to be a
satisfaction of the requirements of this provision. Tenant agrees
to reimburse Landlord for Landlords reasonable attorney fees and
related costs incurred in connection with the processing, review,
or documentation of any requested transfer, assignment, subletting
of this lease agreement or of Tenant's interest in and to the
leased Premises. Notwithstanding any of the foregoing to the
contrary, notice of any assignment or subletting of all or a
portion of the leased premises shall be given in writing to the
Landlord and for a period of 30 days Landlord may exercise it's
right ("Landlord's Preferential Right") to lease such assigned or
sublet space to any other Tenant and Landlord will exercise this
right by giving Tenant written notice within said time period, and
there upon the Lease of said space by Tenant will end. Should
landlord exercise such Preferential Right, Tenant shall be
released from any further obligation, cost or liability as to that
portion of the Leased Premises in which Landlord leases or sublets
to a third party. Should landlord not lease or sublet the entire
Leased Premises, Tenant shall be free to pursue a transfer,
assignment or sublease of the remaining Leased Premises as
aforesaid in this Section 7.2 free from Landlord's Preferential
Right, and this Lease Agreement shall terminate as to Tenant for
such portion of the Leased Premises in which Landlord leases or
sublets to a third party.
7.3 Intentionally deleted.
7.4 Intentionally deleted.
7.5 Intentionally deleted.
<PAGE>
<PAGE>
ARTICLE VIII
MAINTENANCE AND REPAIRS
8.1 Tenant shall keep and maintain the Premises and all fixtures
and equipment located therein in clean, safe and sanitary
condition and in compliance with all legal requirements, shall
take good care thereof and make all reasonably necessary repairs
thereto, shall suffer no waste or injury thereto, and at the
expiration or earlier termination of the Lease Term, shall
surrender the Premises in the same order and condition in which
they were on the Lease Commencement Date (ordinary wear and tear
consistent with the permitted use hereunder excepted). All injury,
breakage, and damage to the Premises and to any other part of the
Building or the Land caused by an act or omission of any invitee,
agent, employee, subtenant, assignee, contractor, client, family
member, licensee, customer or guest of Tenant (collectively
"Invitee") or Tenant, shall be repaired or replaced (as
applicable) by and at Tenant's expense, except that Landlord shall
have the right at Landlord's option to make any such repair or
replacement and to charge Tenant for all reasonable costs and
expenses incurred in connection therewith upon receipt of notice
thereof by Tenant and upon Tenant's failure to do so.
8.2 (a) Landlord shall keep the exterior walls, load bearing
elements, foundations, pipes, and conduits, roof and common areas
that form a part of the building, and the building standard
mechanical, electrical, HVAC and plumbing systems that are
provided by Landlord in the operation of the Building, clean and
in safe, sanitary and good operating condition and, in compliance
with all legal requirements, and subject to Section 8.1, shall
make all required repairs thereto.
(b) Notwithstanding any of the foregoing to the contrary,
maintenance and repair of special Tenants area, facilities,
finishes and equipment relating solely to the Premises (including,
but not limited to, any special fire equipment, telecommunications
and computer equipment, kitchen/galley/coffee equipment or air
conditioning equipment serving the Premises only and all other
furniture, finishing and equipment of Tenant and any Alterations
(as hereinafter defined) made by Tenant shall be the sole
responsibility of Tenant.
8.3 Landlord shall provide one dumpster/compactor, common with
other tenants of the Building, for purpose of receiving Tenant's
normal office waste. Tenant shall not use this facility for trade,
industrial or any waste other than normal office waste.
8.4 During the term of this Lease agreement and any extension
thereof Landlord shall cause the parking area to be properly
operated and maintained and all entrances, exits, driveways and
walkways kept in good repair, such operation and maintenance to
include, without limitation, lighting, traffic control signage, <PAGE>
<PAGE>
timely removal of snow, ice and debris, and surfacing and
resurfacing with a hard surface.
ARTICLE IX
ALTERATIONS
9.1 The initial improvement of the Premises shall be accomplished
by Landlord in accordance with Exhibit D (Demising walls),
Landlord is under no obligation to make any alterations,
decorations, additions, improvements, demolition's or other
changes (collectively "alterations") in or to the Premises except
as set forth in Exhibit D.
9.2 Tenant shall not make or permit anyone to make any Alteration
in or to the Premises or the Building without Landlord's prior
written consent, which consent may not be unreasonably withheld.
Any Alteration which Landlord permits Tenant to make shall be
made: (a) in a good, workmanlike, first-class and prompt manner;
(b) using new materials only; (c) by a contractor of Tenant's
choice and approved by Landlord and in accordance with plans and
specifications consented to in writing by Landlord; (d) in
accordance with legal requirements (including, without limitation,
the Americans With Disabilities Act) and requirements of any
insurance company insuring the Building; (e) after obtaining any
required consent of the holder(s) of any Mortgage; (f) after
obtaining a workmen's compensation insurance policy approved by
Landlord, wherein such approval is not unreasonably withheld; and
(g) in compliance with such other reasonable requirements as
Landlord might impose. If any lien (or a petition to establish a
lien) is filed in connection with any Alteration, then such lien
(or petition) shall be discharged by Tenant at Tenant's expense
within ten (10) days thereafter by the payment thereof or filing
of a bond acceptable to Landlord. Landlord's consent to the making
of an Alteration shall be deemed not to constitute Landlord's
consent to subject its interest in the Premises or the Building or
the Land to liens which may be connection therewith.
9.3 If any Alteration is made without Landlord's prior consent,
then Landlord shall have the right, in addition to exercising all
other available remedies, at Tenant's expense to remove and
correct such Alteration, and restore the Premises and the Building
to their condition immediately prior thereto or to require Tenant
to do the same. Unless Landlord elects otherwise pursuant to this
Section 9.3, all Alterations, except additions of removable
furniture, equipment, and furnishings, and trade fixtures, to the
Premises or the Building made by either party shall immediately
become Landlord's property (provided, however, that during the
Lease Term Tenant shall retain an insurable interest in such
Alterations) and shall remain upon and be surrendered with the
Premises at the expiration or earlier termination of the Lease
Term; provided, however, that if Tenant is not in default under
this Lease, then Tenant shall have the right to remove, prior to
the expiration or earlier termination of the Lease Term, all<PAGE>
<PAGE>
movable or removable furniture, equipment and furnishings, and
trade fixtures installed on the Premises solely at Tenant's
expense. Notwithstanding anything of the foregoing to the contrary
in this Section 9.3, Tenant shall also be required to remove all
Alterations, removable or attached, at Landlords discretion, to
Premises or the Building and all non-trade fixtures and equipment
which Landlord has not previously approved for installation and
which Landlord designates in writing for removal (which
designation shall be provided to Tenant prior to the expiration or
earlier termination of the Lease Term) and Tenant shall be
required to remove all telephone and data cabling installed by or
on behalf of Tenant not used by or accepted by subsequent Tenants
(collectively "Cabling"). Movable or removable furniture,
equipment and furnishings, and trade fixtures shall be deemed to
exclude any item which would normally be removed or detached from
the Premises with the assistance of any tool or machinery other
than a hand truck equipped with rubber tires and other devices
used by professional movers. Landlord shall have the right to
repair or replace at Tenant's reasonable expense all damage to the
Premises or the Building caused by any such removal or to require
Tenant to do the same. If any such furniture, furnishings or trade
fixtures is not removed by Tenant prior to the expiration or
earlier termination of the Lease Term, then the same shall, at
Landlord's option, become Landlord's property and shall be
surrendered with the Premises as a part thereof; provided,
however, that Landlord shall have the right to remove from the
Premises at Tenant's Expense such furniture, equipment and
furnishings, or trade fixtures and any Alteration, non-trade
fixture or equipment (which Landlord designates in writing for
removal) and any Cabling.
ARTICLE X
SIGNS
10.1 Landlord will list Tenant's name on a Building directory
at the entrance to the Codman Hill property and a standard signage
near the suite entry door. Tenant shall not paint, affix or
otherwise display on any part of the exterior or interior of the
Building (or any part of the Premises which is visible from
outside the Premises) any other sign, advertisement or notice
without the prior written approval of Landlord, which approval
shall not be unreasonably withheld and without the securing of all
necessary Sign Permits from the Town of Boxborough. If any such
item that has not been approved by Landlord is so displayed, then
Landlord shall have the right to remove such item at Tenant's
expense or to require Tenant to do the same.
10.2 Except by United States mail, Tenant shall not distribute any
advertisements or notices within the building or on the Land.
Landlord reserves the right to prohibit any advertisement which in
Landlord's reasonable opinion tends to impair the reputation or
desirability of the Building.
<PAGE>
<PAGE>
ARTICLE XI
LEASE DEPOSIT
11.1 Concurrently with Tenant's execution of this Lease,
Tenant shall deposit with Landlord an amount equal to one (1)
monthly installment of the Gross Rent payable during the fifth
lease year ($24,181.64) as the Lease Deposit to secure Tenant's
full and faithful performance of all the obligations herein set
forth. Landlord shall not be required to pay interest on the Lease
Deposit or to maintain the Lease Deposit in a separate account. If
any sum payable by Tenant to Landlord shall be due and unpaid, or
if Landlord makes any payments on behalf of Tenant, or if Landlord
suffers any loss, cost or expense as a result of Tenant's non-
performance of any obligation or covenant herein, then Landlord,
at its option and without limiting any other remedy, may use and
apply any part of the Lease Deposit to compensate Landlord for the
payments not made or the loss, cost or expense suffered by
Landlord and notify Tenant of Landlord's intended use thereof
prior to such use. Within thirty (30) days after written notice of
Landlord's use of the Lease Deposit, Tenant shall deposit with
Landlord cash in an amount sufficient to restore the Lease Deposit
to its prior amount. Within approximately ninety (90)) days after
the later of (a) the expiration or earlier termination of the
Lease Term, or (b) Tenant's vacating the Premises, Landlord shall
return the Lease Deposit less such portion thereof as Landlord may
have used to satisfy Tenant's obligations and less such other sums
as are reasonably due from Tenant. If Landlord transfers the Lease
Deposit to a transferee of the Building or Landlord's interest
therein, then such transferee (and not Landlord) shall be liable
for its return. The holder of any Mortgage shall not be liable for
the return of the Lease Deposit unless such holder actually
receives the Lease Deposit. Tenant shall not transfer or assign
the Lease Deposit or any interest therein without Landlord's prior
written consent, which consent Landlord may not unreasonably be
withheld.
ARTICLE XII
HOLDING OVER
12.1 Tenant acknowledges that if Tenant fails to surrender
Premises at the expiration of the Lease Term, then it will be
conclusively presumed that the value to Tenant of remaining in
possession, and the loss that will be suffered by Landlord as a
result thereof, far exceed the Gross Rent and additional rent that
would have been payable had the Lease Term continued during such
holdover period. Therefore, if Tenant does not immediately
surrender the Premises upon the expiration of the Lease Term, then
the Gross Rent shall be increased to equal to double the Gross
Rent, and other sums that would have been payable pursuant to the
provisions of the Lease if the Lease Term had continued during
such holdover period. Such rent shall be computed on a monthly
basis and shall be payable on the first day of such holdover
period and the first day of each calendar month thereafter during<PAGE>
<PAGE>
such holdover period until the Premises has been vacated.
Landlord's acceptance of such rent shall not in any manner
adversely affect Landlord's other rights and remedies, including
Landlord's right to evict Tenant and recover damages. Tenant
agrees to hold Landlord harmless from and against all loss and
damages, direct and consequential, which Landlord may suffer or
incur in connection with claims by other parties against Landlord
arising out of the holding over by Tenant, including, without
limitation, reasonable attorney's fees which may be incurred by
Landlord in defense of such claims. Except as otherwise
specifically provided in this Article, all terms of this Lease
shall remain in full force and effect during such holdover period.
ARTICLE XIII
INSURANCE
13.1 Tenant shall not conduct any activity or place any item in or
about the Building which may increase the rate of any insurance on
the Building. If any increase in the rate of such insurance is due
to any such activity or item, then (whether or not Landlord has
consented to such activity or item and without waiving Landlord's
right to require such activities to cease), Tenant shall pay the
amount of such increase. The statement of any insurance company or
insurance rating organization regularly providing service to the
building (or other organization exercising similar functions in
connection with the prevention of fires or the correction of
hazardous conditions) that such an increase is due to any such
activity or item shall be conclusive evidence thereof.
13.2 Tenant shall maintain throughout the Lease Term with a
company licensed to do business in Massachusetts, approved by
Landlord and having a rating equal to or exceeding A:11 in Best's
Insurance Guide (a) broad form comprehensive general liability
insurance and (b) all-risk property insurance. Such liability
insurance shall be in minimum amounts typically carried by prudent
tenants engaged in similar operations, but in no event shall be in
an amount less than one million ($1,000,000) dollars combined
single limit per occurrence. Such property insurance shall be in
an amount not less than required to replace all Alterations and
all other contents of the Premises, excluding only the work and
materials considered to be building standard finishes. All such
insurance shall name Landlord as additional named insured; contain
an endorsement that such insurance shall remain in full force and
effect regardless of whether Tenant has waived any claim against
Landlord, under this Lease, or any other person; provide that the
insurer waives all right of recovery by way of subrogation against
Landlord, its agents and employees; and contain an endorsement
prohibiting cancellation, failure to renew, reduction in amount of
insurance or change of coverage as to the interests of Landlord by
reason of any act or omission of Tenant without the insurer's
giving Landlord thirty (30) days prior written notice of such
action. Landlord reserves the right from time to time to require
Tenant to obtain higher minimum amounts or different types of<PAGE>
<PAGE>
insurance. Tenant shall deliver a certificate of such insurance
and receipts evidencing payment of the premium for such insurance
to Landlord on or before the Lease Commencement Date and at least
annually thereafter.
13.3 Landlord shall maintain general comprehensive and all hazards
(storm, flood, water, wind, etc.) as well as fire insurance with
extended coverage insuring the base Building (but not any
Alterations or any personal property or other property of any
tenant, including Tenant). Landlord here by waives its right of
recovery against Tenant if the damage, loss or destruction was not
caused by the gross negligence or willful act or omission of
Tenant or any Invitee, but only to the extent that Landlord
receives insurance proceeds with respect to such damage, loss or
destruction.
ARTICLE XIV
SERVICES AND UTILITIES
14.1 Landlord will furnish to the Premises heating, ventilation
and air conditioning ("HVAC") during the seasons they are required
in Landlord's reasonable judgment at temperatures and as are
typically provided to similar types of buildings in the area.
Landlord shall not be liable for any failure to maintain
comfortable atmosphere conditions in all or any portion of the
Premises due to excessive heat generated by any equipment or
machinery installed by Tenant (with or without Landlord's consent)
or due to any impact that Tenant's furniture, equipment, machinery
or millwork may have upon the delivery of HVAC to the Premises.
For purposes of this Section 14.1, excessive heat shall be deemed
to result from (a) the installation of machinery or equipment,
other than normal office machinery and equipment or light
manufacturing or software engineering equipment, in an area not
engineered for such equipment, or (b) the installation and
concurrent operation of a number of normal office machines or
pieces of equipment in an area not engineered for such a
concentration. For example, a typical light manufacturing and
engineering facility will provide comfortable temperatures for its
occupant when a normal personal computer and other operational
equipment, or a number of smaller computers are installed and
operated in that area. The normal hours of operation of the
Building will be 8:00 a.m. to 6:00 p.m. on Monday through Friday
(except such holidays) and such other hours, if any, as Landlord
determines.
14.2 If Tenant requires lighting, air conditioning or heat beyond
the normal hours of operation (8AM to 6PM Monday through Friday),
then Landlord will furnish the same. Tenant agrees to pay
Landlord, as Additional Rent for such extra service, $70.00 per
hour for use of Premises beyond the normal hours. Tenant
acknowledges that this amount represents use of utilities for
normal office operations only and does not include use of
utilities for any other purpose.<PAGE>
<PAGE>
14.3 Tenant shall promptly reimburse Landlord on demand for the
cost of any excess utility usage in or in connection with the
Premises (including, but not limited to, water, sewer and chiller
usage). Excess and/or disproportionate usage shall be determined
by joint consultation of Landlord and Tenant's independent
mechanical contractors, and pursuant to measurement of such usage
by Landlord's energy management system.
14.4 Landlord reserves the right to curtail or suspend any
utility, service or Building system when necessary or desirable in
the reasonable judgment of Landlord, except in cases of emergency,
with forty-eight (48) hours prior written notice to Tenant, by
reason of accident, emergency, repairs, alterations, replacements
or improvements, until such cause has been removed or remedied. In
the event of Landlord's failure or inability to furnish any of the
utilities or services required to be furnished by Landlord
hereunder, Landlord shall not have any liability to Tenant;
provided, however, that Landlord shall use good faith efforts to
restore such failure or inability so long as such failure or
inability is within Landlord's reasonable control, and Tenant's
rent is reduced in prorate share to such curtailment or suspension
of any utility services or building system if due to landlords
willful misconduct.
14.5 If any public utility or governmental body requires Landlord
or Tenant to restrict the consumption of any utility or reduce any
service to the Premises or the Building, Landlord and Tenant shall
comply with such requirements whether or not utilities and
services referred to in this Article XIV are thereby reduced or
otherwise affected, without any abatement, deduction, set-off,
rebate or adjustment to the Gross Rent or additional rent payable
hereunder.
ARTICLE XV
LIABILITY OF LANDLORD
15.1 Except for the gross negligence or willful misconduct and to
the extent not covered by either party's insurance any damage,
injury, loss or claim based on or arising out of an act or
omission of the Landlord, its employees or agents, Landlord, its
employees and agents shall not be liable to Tenant, any Invitee or
any other person or entity for any damage (including indirect and
consequential damage), injury, loss or claim (including claims for
the interruption of or loss of business) based on or arising out
of any cause whatsoever (except as otherwise provided in this
Section), including without limitation the following; repair to
any portion of the Premises or the Building; interruption in the
use of the Premises or any equipment therein; any accident or
damage resulting from any use or operation (by Landlord, Tenant or
any other person or entity) of elevators or heating, cooling,
electrical, sewerage, or plumbing or mechanical equipment or
apparatus; termination of this Lease by reason of damage to the
Premises or the Building; fire, robbery, theft, vandalism,<PAGE>
<PAGE>
mysterious disappearance or any other casualty; actions of any
other tenant of the Building or of any other person or entity;
failure or inability to furnish any service specified in this
Lease; and leakage in any part of the Premises or the Building
from water, rain, snow, ice or other cause that may leak into, or
flow from, any part of the Premises or the Building or the Land.
If any condition exists which may be the basis of a claim of
constructive eviction, then Tenant shall give Landlord written
notice thereof and a reasonable opportunity to correct such
condition, and in the interim Tenant shall not claim that it has
been constructively evicted or is entitled to a rent abatement.
Any property placed by Tenant or Invitees in or about the
Premises, the Building or the Land shall be at the sole risk of
Tenant, and Landlord shall not in any manner be responsible
therefor. If any employee of Landlord receives any package or
article delivered for Tenant, then such employee shall be acting
as Tenant's agent for such purpose and not as Landlord's agent.
15.2 Tenant shall reimburse Landlord for, and shall indemnify,
defend upon request and hold Landlord, its employees and agents
harmless from and against, all reasonable costs, damages, claims,
liabilities, expenses (including reasonable attorney's fees),
actual losses and court costs suffered by or claimed against
Landlord, directly or indirectly, based on or arising out of, in
whole or in part, (a) Tenant's use and occupancy of the Premises
or the business conducted therein, (b) any negligent or willful
act or omission of Tenant or Invitee, (c) any breach of Tenant's
obligations under this Lease, including failure to surrender the
Premises upon the expiration or earlier termination of the Lease
Term, or (d) any unreasonable or unauthorized entry by Tenant or
any Invitee upon Land prior to the Lease Commencement Date.
15.3 If any Landlord hereunder transfers the Building or such
Landlord's interest therein, then such Landlord shall not be
liable for any obligation or liability based on or arising out of
any event or condition occurring after such transfer. Tenant shall
attorn to such transferee and, within Ten (10) days after request,
shall execute, acknowledge and deliver any document submitted to
Tenant confirming such attornment.
15.4 Tenant shall not have the right to offset or deduct any
amount allegedly owed to Tenant pursuant to any claim against
Landlord from any rent or sum payable to Landlord. Tenant's sole
remedy for recovering upon such claims shall be to institute an
independent action against Landlord.
15.5 If Tenant or any Invitee is awarded a money judgment against
Landlord, then recourse for satisfaction of such judgment shall be
limited to execution against Landlord's estate and interest in the
Building and the Land. No other asset of Landlord, any partner,
director or officer of Landlord (collectively "Officer") or any
other person or entity shall be available to satisfy or subject to
such judgment, nor shall any Officer or other person or entity<PAGE>
<PAGE>
have personal liability for satisfaction of any claim or judgment
against Landlord or any Officer.
ARTICLE XVI
RULES
16.1 Tenant and Invitees shall observe the rules specified in
Exhibit C attached hereto. Tenant and Invitees shall also observe
any other rule that Landlord may reasonably promulgate for the
operation or maintenance of the Building, provided that notice
thereof is given and such rule is not inconsistent with the
provisions of this Lease or otherwise inconsistent with law.
Landlord shall have no duty to enforce such rules or any
provisions of any other lease against any other Tenant, except to
the extent that Tenants are tenants of the Building.
ARTICLE XVII
DAMAGE OR DESTRUCTION
17.1 If the Premises or the Building are totally or partially
damaged or destroyed thereby rendering the Premises totally or
partially untenantable, then Landlord shall repair and restore the
Premises (except as hereinafter provided) and the Building to
substantially the same condition in which they were in prior to
such damage or destruction; provided, however, that if in
Landlord's judgment such repair and restoration cannot be
completed within ninety (90) days after the occurrence of such
damage or destruction (taking into account the time needed for
effecting a satisfactory settlement with any insurance company
involved, removal of debris, preparation of plans and issuance of
all required permits), then Landlord shall have the right, at its
sole option, to terminate this Lease as of the sixtieth (60th) day
after such damage or destruction by giving written notice of
termination within forty-five (45) days after the occurrence of
such damage and destruction. In such event the Gross Rent and any
other sums owed to Landlord shall be abated as of the date the
Premises was rendered inaccessible to Tenant. If the Premises or
any part thereof are damaged or destroyed by fire or any other
cause, Tenant shall give prompt notice thereof to Landlord. Tenant
shall be responsible for any additional expenses incurred in the
event that Tenant does not promptly provide such notice. If this
Lease is terminated pursuant to this Article, then rent shall be
apportioned (based on the portion of the Premises which is usable
after such damage or destruction) and paid to the date of
termination. If this Lease is not terminated as a result of such
damage or destruction, then until such repair and restoration of
the Premises are substantially complete, Tenant shall be required
to pay Gross Rent and additional rent only for the portion of the
Premises that is usable while such repair and restoration are
being made. If this Lease is not terminated as a result of damage
or destruction, then Landlord shall bear the expenses of such
repair and restoration of the Premises and the Building; provided,
however, that if such damage or destruction was caused by the<PAGE>
<PAGE>
negligent or willful act or omission of Tenant or any Invitee,
then Tenant shall pay the amount by which such expenses exceed the
insurance proceeds, if any, actually received by Landlord on
account of such damage or destruction; and provided further,
however, that in no event shall Landlord be required to repair or
restore any work and materials not deemed by Landlord to be
building standard work and materials, any Alteration previously
made by Tenant or any of Tenant's trade fixtures, furnishings,
equipment or personal property.
Notwithstanding anything herein to the contrary, Landlord or
Tenant shall have the right to terminate this Lease if (a)
Landlord's insurance is insufficient to pay the full cost of such
repair or restoration, (b) the holder of any Mortgage fails or
refuses to make such insurance proceeds available for such repair
and restoration, (c) zoning or other applicable laws or regulation
do not permit such repair and restoration, or (d) the Building is
damaged by fire or casualty (whether or not the Premises has been
changed) to such an extent that Landlord decides, in its sole and
absolute discretion, not to rebuild or reconstruct the Building.
ARTICLE XVIII
CONDEMNATION
18.1 If one-third or more of the Premises or occupancy thereof
shall be taken or condemned by any governmental or quasi-
governmental authority for any public or quasi-public use or
purpose or sold under threat of such taking or condemnation
(collectively, "condemned"), then this Lease shall terminate on
the date title vests in such authority and rent shall be
apportioned as of such date. If less than one-third of the
Premises or occupancy thereof is condemned. then this Lease shall
continue in full force and effect as to the part of the Premises
not condemned, except that as of the date title vests in such
authority Tenant shall only be required to pay the Gross Rent and
additional rent with respect to the part of the Premises not
condemned. Notwithstanding anything herein to the contrary, if any
portion of the Land or the Building is condemned, and the entire,
location or extent of such condemnation is such that Landlord
elects, in its sole and absolute discretion, to demolish the
Building (in whole or in part), then Landlord may terminate this
Lease by giving sixty (60) days prior written notice of such
termination to the Tenant at any time after such condemnation and
this Lease shall terminate on the date specified in such notice
and rent shall be adjusted to such date.
18.2 Except for awards made for Tenant's fixtures and/or Tenant
owned improvements, all awards, damages and other compensation
paid by such authority on account of such condemnation shall
belong to Landlord, and Tenant assigns to Landlord all rights to
such awards, damages and compensation. Tenant shall not make any
claim against Landlord or the authority for any portion of such
award, damages or compensation attributable to damage of the<PAGE>
<PAGE>
Premises, value of the unexpired portion of the Lease Term, loss
of profits or goodwill, leasehold improvements or severance
damages. Nothing contained herein, however, shall prevent Tenant
from pursuing a separate claim against the authority for the value
of furnishings, trade fixtures or Tenant improvements installed in
the Premises at Tenant's expense and for relocation expenses,
provided that such claim is stated separately from any award to
Landlord and provided further that such claim shall in no way
diminish the award, damages or compensation otherwise payable to
Landlord in connection with such condemnation.
ARTICLE XIX
DEFAULT
19.1 An Event of Default is any one or more of the following: (a)
Tenant's failure to make when due, any payment of the Gross Rent,
additional rent or other sum due hereunder; (b) Tenant's failure
to perform or observe any other term, covenant or condition hereof
and such failure continues for a period of fifteen working days
after written notice from Landlord excepting however Tenant's
failure to comply with Hazardous Materials provisions of this
Lease or Tenant's violation of any health laws, zonal or building
codes; (c) Tenant's failure to occupy continuously the Premises;
(d) an Event of Bankruptcy as specified in Article XX; or (e)
Tenant's dissolution or liquidation.
19.2 If there shall be an Event of Default, including an Event of
Default prior to the Lease Commencement Date, then the provisions
of this Section shall apply. Landlord shall have the right, at its
sole option, to terminate this Lease. In addition, with or without
terminating this Lease, Landlord may re-enter, terminate Tenant's
right of possession and take possession of the Premises. If
necessary, Landlord may proceed to recover possession of the
Premises under applicable laws, by such other proceedings,
including re-entry and possession, or by using such force as may
be necessary. If Landlord elects to terminate this Lease and/or
elects to terminate Tenant's right of possession, then everything
in this Lease to be done by Landlord shall cease, without
prejudice, subject however, to Tenant's liability for all rent and
other sums due hereunder. Landlord may relet the Premises or any
part thereof, alone or together with other premises, for such
term(s) (which may extend beyond the date on which the Lease Term
would have expired but for Tenant's default) and on such terms and
conditions (which may include concessions or free rent and
alteration of the Premises) as Landlord, in its sole discretion,
may determine, but Landlord shall not be liable for, nor shall
Tenant's obligations be diminished by reason of, Landlords failure
to relet the Premises or collect any rent due upon such reletting.
If Landlord relets the Premises and collects rent in excess of the
Gross Rent and additional rent owed by Tenant hereunder, Landlord
shall be entitled to retain any such excess and Tenant shall be
entitled to a credit therefor. Whether or not this Lease is
terminated, Tenant nevertheless shall remain liable for the Gross<PAGE>
<PAGE>
Rent, additional rent and damages which may be due or sustained,
and all costs, fees and expenses (including without limitation
attorney's fees brokerage fees and expenses incurred in placing
the Premises in first class rentable condition) incurred by
Landlord in pursuit of its remedies and in renting the Premises to
others from time to time. Tenant shall be liable for all rent
(limited to 12 months) that would have applied to any period of
occupancy of the Premises (whether or not any such period has
elapsed) for which Tenant was hereunder granted occupancy with out
any obligation to pay such rent (if any). Tenant shall also be
liable for additional damages which at Landlord's election shall
be either: (a) an amount equal to the Gross Rent and additional
rent which would have become due during the remainder of the Lease
Term, less the amount of rental, if any which Landlord receives
during such period from others to whom the Premises may be rented
(other than any additional rent payable as a result of any failure
of such other person to perform any of its obligations), in which
case such damages shall be computed and payable in monthly
installments, in advance, on the first day of each calendar month
following Tenant's default (provided, however, that if at the time
of any reletting of the Premises there exists other space in the
Building available for leasing, then the Premises shall be deemed
the last space rented, even though the Premises may be relet prior
to the date such other space is leased and provided further
however, that separate suits may be brought to collect such
damages for any month(s), and such suits shall not in any manner
prejudice Landlord's right to collect any such damages for any
subsequent month(s), or Landlord may defer any such suit until
after the expiration of the Lease Term); or (b) an amount equal to
the present value (as of the date of Tenant's default) of the
Gross Rent and additional rent which would have become due through
the date on which the Lease Term would have expired but for
Tenant's default, which damages shall be payable to Landlord in a
lump sum on demand. For purpose of this section, present value
shall be computed by discounting at a rate equal to one (1) whole
percentage point above the discount rate then in effect at the
Federal Reserve in Boston. Tenant waives any right of redemption,
reentry or restoration of the operation of this Lease under any
present or future law, including any such right which Tenant would
otherwise have if Tenant shall be dispossessed for any cause. As
used in the preceding sentence, the words "redemption",
"re-entry", and "dispossessed", shall not be deemed restricted to
their technical or legal meanings. Whether or not this Lease
and/or Tenant's rights of possession is terminated, Landlord shall
have the right to terminate by written notice any renewal or
expansion right contained in this Lease and to grant or withhold
any consent or approval pursuant to this Lease so long as it is
not unreasonable.
19.3 Landlord's rights and remedies set forth in this Lease are
cumulative and in addition to Landlord's other right's and readies
at law or in equity, including those available as a result of any
anticipatory breach of this Lease. Landlord's exercise of any such<PAGE>
<PAGE>
right or remedy shall not prevent the concurrent or subsequent
exercise of any other right or remedy. Landlord's delay or failure
to exercise or enforce any of Landlord's rights or remedies or
Tenant's obligations shall not constitute a waiver of such rights,
remedies or obligations. Landlord shall not be deemed to have
waived any default unless such waiver expressly is set forth in an
instrument signed by Landlord. Any such waiver shall not be
construed as a waiver of any covenant or condition except as to
the specific circumstances described in such waiver. Neither
Tenant's payment of an amount less than a sum due nor Tenant's
endorsement or statement on any check or letter accompanying such
payment shall be deemed an accord and satisfaction.
Notwithstanding any request or designation by Tenant, Landlord may
apply any payment received from Tenant to any payment then due.
Landlord may accept the same without prejudice to Landlord's right
to recover the balance of such sum or to pursue other remedies.
Re-entry and acceptance of keys shall not be considered an
acceptance of a surrender of this Lease.
19.4 If more than one natural person and/or entity shall
constitute Tenant or any Guarantor, then the liability of each
person or entity shall be joint and several. If Tenant or any
Guarantor is a general partnership or other entity, the partners
or members of which are subject to personal liability, then the
liability of each such partner or member shall be joint and
several.
19.5 If Tenant fails with respect to this Lease to make any
payment to any third party and the Landlord is notified by that
party or to do any act herein required to be made or done by
Tenant, then Landlord may, but shall not be required to, make such
payment or do such act. Landlord's taking such action shall not be
considered a cure of such failure by Tenant nor prevent Landlord
from pursuing any remedy it is otherwise entitled to in connection
with such failure. If Landlord elects to make such payment or do
such act, then all expenses incurred, plus interest therein at the
Default Rate (as hereinafter defined) from the date incurred to
the date of payment thereof by Tenant, shall constitute additional
rent. The Default Rate shall equal the rate per annum which is the
lesser of eighteen percent (18%) or the highest rate permitted by
law.
19.6 If Tenant fails to make any payment of the Gross Rent,
additional rent or any other sum payable to Landlord on or before
the date such payment is due or payable, the Tenant shall pay a
late charge equal to five percent (5%) of the amount of such
payment, beginning 10 days after the payment is due. Such payment
and such late fee shall bear interest at the Default Rate from the
date such payment was due to the date of payment. If Tenant is in
default of this Lease for the same or substantially the same
reason more than twice during any Lease Year, then at Landlord's
election, Tenant shall not have the right to cure such repeated
default; provided however, that if Tenant is in default on account<PAGE>
<PAGE>
of Tenant's failure to make any payment of Gross Rent or
additional rent when due, and any such occurrence of default does
not exceed fifteen working days, then Tenant shall have the right
to cure such default twice during any Lease Year and four (4)
times during the Lease Term. In the event of Landlord's election
not to allow a cure of a repeated default, Landlord shall have all
rights and remedies provided herein and by law. In addition,
following each second consecutive monthly installment of rent that
remains unpaid for longer than fifteen working days beyond the
date on which the same is due and payable, Landlord may, in
addition to all other rights and remedies provided herein and by
law, require that Tenant increase the amount of the security
deposited with Landlord by an amount equal to two (2) months rent.
If Tenant shall deliver to Landlord a check that is returned
unpaid for any reason, such payment shall be deemed never to have
been made and, additionally, Tenant shall pay Landlord One Hundred
Dollars ($100.00) for Landlords expense in connection therewith
(plus reasonable out-of-pocket expenses incurred in connection
therewith) and said charge shall be payable to Landlord on the
first day of the next succeeding month as additional rent.
19.7 intentionally deleted.
ARTICLE XX
BANKRUPTCY
20.1 An Event of Bankruptcy is: (a) Tenant's, a Guarantor's or any
general partner ("General Partner") of Tenant's becoming
insolvent, as that term is defined in Title II of the United
States Code (the "Bankruptcy Code"), or under the insolvency laws
of any state (the "Insolvency Laws"); (b) appointment of a
receiver or custodian for any property of Tenant, a Guarantor or
a General Partner, or the institution of a foreclosure or
attachment action upon any property of Tenant, a Guarantor or a
General Partner; (c) filing of a voluntary petition by Tenant, a
Guarantor or a General Partner under the provisions of the
Bankruptcy Code or Insolvency Laws; (d) filing of an involuntary
petition against Tenant, a Guarantor or a General Partner as the
subject debtor under the Bankruptcy Code or Insolvency Laws, which
either (1) is not dismissed within thirty (30) days after filing,
or (2) results in the issuance of an order for relief against the
debtor; (e) Tenant's a Guarantor's or a General Partner's making
or consenting to an assignment for the benefit of creditors or a
composition of creditors; or (f) a material and adverse change in
the financial condition or status of Tenant, a General Partner or
a Guarantor.
20.2 Upon occurrence of an Event of Bankruptcy, Landlord shall
have all rights and remedies available pursuant to Article XIX;
provided, however, that while a case (the "Case") in which Tenant
is the subject debtor under the Bankruptcy Code is pending,
Landlord's right to terminate this Lease shall be subject, to the
extent required by the Bankruptcy Code, to any rights of Tenant or<PAGE>
<PAGE>
its trustee in bankruptcy (collectively "Trustee") to assume or
assign this Lease pursuant to the bankruptcy code. To the extent
permitted by the Bankruptcy Code, Trustee shall not have the right
to assume or assign this Lease unless Trustee promptly (a) cures
all defaults under this Lease, (b) compensates Landlord for all
damages incurred as a result of such defaults, (c) provides
adequate assurance of future performance on the part of Tenant as
debtor in possession or Tenant's assignee, and (d) complies with
all other requirements of the Bankruptcy Code. To the extent
permitted by the Bankruptcy Code, if trustee fails to assume or
assign this Lease in accordance with the requirements of the
Bankruptcy Code within sixty (60) days after the initiation of the
Case, then Trustee shall be deemed to have rejected this Lease. To
the extent permitted by the Bankruptcy Code, adequate assurance of
future performance shall require that, at a minimum, all of the
following minimum criteria be met: (1) Tenant's gross income (as
defined by generally accepted accounting principles) during the
thirty (30) days preceding the filing of the Case must be greater
than ten (10) times the next monthly installment of the Gross Rent
and additional rent; (2) Both the average and median of Tenant's
monthly gross income (as defined by generally accepted accounting
principles) during the seven (7) months preceding the filing of
the Case must be greater than ten (10) times the next monthly
installment of the Gross Rent and additional rent; (3) Trustee
must pay its estimated prorate share of cost of all services
performed or provided by Landlord (whether directly or through
agents or contractors and whether or not previously included as
part of the Gross Rent) in advance of the performance or provision
of such services; (4) Trustee must agree that Tenant's business
shall be conducted in a first-class manner and that no liquidation
sale, auction or other non-first-class business operation shall be
conducted on the Premises; (5) Trustee must agree that the use of
the Premises as stated in this Lease shall remain unchanged and
that no prohibited use shall be permitted; (6) Trustee must agree
that the assumption or assignment of this Lease shall not violate
or affect the rights of other Tenant's in the Building; (7)
Trustee must pay at the time the next monthly installment of the
Gross Rent is due, in addition to such installment, an amount
equal to the monthly installments of the Gross Rent and additional
rent due for the next six (6) months thereafter, such amount to be
held as a security deposit; (8) Trustee must agree to pay, at any
time Landlord draws on such security deposit, the amount necessary
to restore security deposit to its original amount; and (9) All
assurances of future performance specified in the Bankruptcy Code
must be provided.
ARTICLE XXI
SUBORDINATION
21.1 This Lease is subject and subordinate to the lien,
provisions, operation and effect of all mortgage, deeds or trust,
ground leases or other security instruments which may not or
hereafter encumber the Building or the Land (individually,<PAGE>
<PAGE>
"Mortgage" and collectively, "Mortgages"), to all funds and
indebtedness intended to be secured thereby, and to all renewals,
extensions, modifications, recasting or refinancing thereof. The
holder of any Mortgage to which this Lease is subordinate shall
have the right (subject to any required approval of the holders of
any superior Mortgage) at any time to declare this Lease to be
superior to the lien, provisions, operation and effect of such
Mortgage and Tenant shall execute, acknowledge and deliver all
confirming documents required by such holder.
21.2 In confirmation of the foregoing subordination, Tenant
shall at Landlord's request promptly execute any requisite or
appropriate document. Tenant appoints Landlord as Tenant's
attorney-in-fact to execute any such document for Tenant if Tenant
fails to execute same within ten (10) days after request therefor.
Tenant waives the provisions of any statute or rule of law now or
hereafter in effect which may give or purport to give Tenant any
right to terminate or otherwise adversely affect this Lease or
Tenant's obligations in the event any such foreclosure proceeding
is prosecuted or completed or in the event the Land, the Building
or Landlord's interest therein is sold at a foreclosure sale or by
deed in lieu of foreclosure. If this Lease is not extinguished
upon such sale or by the purchase following such sale, then, at
the request of such purchaser, Tenant shall attorn to such
purchaser and shall recognize such purchaser as the Landlord under
this Lease which shall be liable for all Landlord covenants and
obligations hereunder. Upon such attornment such purchaser shall
not be (a) bound by any payment of the Gross Rent or additional
rent more than one (1) month in advance, except as provided for in
par 4.1 above, (b) bound by any amendment of this Lease made
without the consent of the holder of each Mortgage existing as of
the date of such amendment, (c) liable for damages for any breach,
act or omission of any prior Landlord, or (d) subject to any
offsets or defenses which Tenant might have against prior
Landlord. Within five (5) days after receipt, Tenant shall
execute, acknowledge and deliver any requisite or appropriate
document submitted to Tenant confirming such attornment.
21.3 If any lender providing financing secured by the Building
requires as a condition of such financing that modifications to
this Lease be obtained, and provided that such modifications (a)
are reasonable, (b) do not adversely affect in a material manner
Tenant's use of the Premises as herein permitted, and (c) do not
increase the rent and other sums to be paid by Tenant, then
Landlord may submit to Tenant an amendment to this Lease
incorporating such modifications. Tenant shall execute,
acknowledge and deliver such amendment to Landlord within fifteen
(15) days after receipt.
21.4 Landlord will request any holders of mortgages on the
Premises to execute a non disturbance agreement that has been
submitted by any Tenant to Landlord for submission to mortgage
holder. The failure of mortgage holder to execute such non<PAGE>
<PAGE>
disturbance agreement will in no case affect any of Tenant's
obligations or agreements hereunder.
ARTICLE XXII
COVENANTS OF LANDLORD
22.1 Landlord covenants that if Tenant shall perform timely all of
its obligations under this Lease, then subject to the provisions
of this Lease, Tenant shall during the Lease Term peaceably and
quietly occupy and enjoy possession of the Premises without
hindrance by Landlord or other tenants or anyone claiming through
Landlord.
22.1.5 Landlord covenants that it shall provide such services as
are identified in Article XIV of this Lease.
22.2 Landlord reserves the right to: (a) change the Street address
and name of the Building, provided however that Landlord will
reimburse Tenant for all reasonable cost involved in such changes
if the change is at the election of Landlord; (b) change the
arrangements and location of entrances, passageways, doors,
doorways, corridors, elevators, stairs, toilets or other public
parts of the Building and in connection with such work, to
temporarily close door entry ways, common or public spaces and
corridors of the Building so long as the Premises remain
reasonably accessible; (c) erect, use and maintain pipes and
conduits in and through the Premises; (d) grant to anyone the
exclusive right to conduct any particular business in the Building
not inconsistent with the permitted use of the Premises or
provisions of this Lease save renting to one of the competitors of
Tenant listed below (e) use or lease exclusively the roof areas
and other exterior areas excluding Building Common Areas; (f)
resubdivide the Land or the combine the Land with other lands; (g)
construct improvements (including kiosks) on the Land and in the
public and common areas of the Building; (h) relocate or change
roads, driveways and parking areas and to alter the means of
access to all or any portion of the Building; (I) install and
display signs, advertisements and notices on any part of exterior
or interior of the Building; (j) install such security systems and
devices as Landlord deems appropriate; (k) create easements over
the Premises and in the entrances, aisles and stairways of any
parking area for utilities, telephone lines, sanitary sewer, storm
sewer, water lines, pipes, conduits, drainage ditches, sidewalks,
pathways, emergency vehicles, and ingress and egress for the use
and benefit of others so as to not to substantially affect
Tenant's use or enjoyment of the Premises, with Tenant joining in
the execution thereof and the Lease shall automatically be subject
and subordinate thereto; and (1) alter the site plan, landscaping,
repairs, and maintenance provided however that any such right
shall be performed consistent with, and so as to not substantially
affect Tenant's use or enjoyment of the Premises. Exercise of any
such right shall not be considered a constructive eviction or a
disturbance of Tenant's business or occupancy.<PAGE>
<PAGE>
Competitors of Tenant: Telepanel, Pricer, NCR, Intellidge.
ARTICLE XXIII
GENERAL PROVISIONS
23.1 Tenant acknowledges that neither Landlord or any Broker,
agent or employee of Landlord has made any representation or
promise with respect to the Premises or the Building or the Land
except as expressly set forth herein, and no right is being
acquired by Tenant except as expressly set forth herein. This
Lease contains the entire agreement of the parties and supersedes
all prior agreements, negotiations, letters of intent, proposals,
representations, warranties and discussions between the parties.
This Lease may be changed in any manner only by an instrument
signed by both parties.
23.2 Nothing contained in this Lease shall be constructed as
creating any relationship between Landlord and Tenant other than
that of Landlord and tenants.
23.3 Landlord and Tenant each warrants that in connection with
this Lease it has not employed or dealt with any broker, agent or
finder or other than the Broker(s) named herein and shall
indemnify and hold each other harmless from and against any claim
for brokerage or other commissions asserted by any other broker,
agent or finder employed by Tenant or Landlord or with whom Tenant
or Landlord has dealt. Landlord shall pay broker's fee of
Landlord's and Tenant's broker described in section 1.9.
23.4 From time to time upon Ten (10) days prior written notice,
Tenant and each subtenant, assignee or occupant of Tenant shall
execute, acknowledge and deliver to Landlord and any designee of
Landlord a written statement certifying if applicable: (a) that
this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and stating the
modifications); (b) the dates to which rent and any other charges
have been paid; (c) that Landlord is not in default in the
performance of any obligation (or specifying the nature of any
default); (d) the address to which notices are to be sent; (e)
that this Lease is subject and subordinate to all Mortgages; (f)
that Tenant has accepted the Premises and all work thereto has
been completed (or specifying the incomplete work); and (g) such
other matters as Landlord may reasonably request. Tenant shall
make reasonable and expeditious attempts to respond to the request
within the 10 day period.
23.5 Intentionally Deleted.
23.6 All notices or other communications shall be in writing and
shall be deemed duly given only when delivered in person (with
receipt therefor), or when sent by certified or registered mail,
return receipt requested, postage prepaid, to the following
address: (a) if to Landlord, at the Landlord Address for Notices;<PAGE>
<PAGE>
or (b) if to Tenant, at the Tenant Address for Notices. Either
party may change its address for the giving of notices by notice
given in accordance with this Section. If Landlord or the holder
of any Mortgage notifies Tenant that a copy of each notice to
Landlord shall be sent to such holder at a specified address, then
Tenant shall send in the manner specified in this Section and at
the same time such notice is sent to Landlord, a copy of each such
notice to such holder, and no such notice shall be considered duly
sent unless such copy is so sent to such holder. If Tenant claims
that Landlord has breached any obligation, then Tenant shall send
such holder notice specifying the breach and permit such holder
reasonable opportunity to cure the breach.
23.7 Each provision of this Lease shall be valid and enforceable
to the fullest extent permitted by law. If any provision or its
application to any person or circumstance shall to any extent be
invalid or unenforceable, then such provision shall be deemed to
be replaced by the valid and enforceable provision most
substantively similar thereto, and the remainder of this Lease and
the application of such provision to other persons or
circumstances shall not be affected.
23.8 Feminine, masculine and neuter pronouns shall be substituted
for those of another form, and the plural or singular shall be
substituted for the other number, in any place in which the
context may require.
23.9 The provisions of this Lease shall be binding upon and inure
to the benefit of the parties and their respective
representatives, successors, and assigns, subject to the
provisions herein restricting assignment or subletting.
23.10 Except for emergency, upon twenty-four (24) hours prior
written notice to Tenant, Landlord and it designees may enter the
Premises at any time, without charge therefor and without
diminution of the rent payable by Tenant, to inspect and exhibit
the Premises and make such alterations and repairs as Landlord may
deem necessary (including, but not limited to, alterations and
repairs for a new tenant during the last (60) days of the Lease
Term if Tenant has vacated the Premises). Landlord and its
employees shall preserve in strict confidence and not disclose to
third parties any non-public information or Tenant products
witnessed by Landlord or its employees or obtained or received
from Tenant while in the Premises.
23.11 This Lease shall be governed by the laws of the Commonwealth
of Massachusetts.
23.12 Headings are used for convenience and shall not be
considered when construing this Lease.
<PAGE>
<PAGE>
23.13 The submission of a copy of this document to Tenant shall
not constitute an offer or option to lease. This Lease shall
become effective and binding only upon execution and delivery by
both Landlord and Tenant.
23.14 Time is of the essence with respect to each obligation of
Tenant and Landlord.
23.15 This Lease may be executed in multiple counterparts, each of
which is deemed an original and all of which constitute one and
the same document.
23.16 This Lease shall not be recorded.
23.17 Landlord reserves the right to make reasonable changes to
the plans and specifications for the Building without Tenant's
consent, provided such changes do not alter the Premises or the
character of the Building as a first-class light manufacturing and
engineering facility, and reasonable notice is given to tenant.
23.18 Except as otherwise provided in this Lease, any additional
rent or other sum owed by Tenant to Landlord, and any cost,
expense, damage, or liability incurred by Landlord for which
Tenant is liable, shall be considered additional rent payable
pursuant to this Lease and paid by Tenant no later than fifteen
working days after the date Landlord notified Tenant of the amount
thereof.
23.19 Tenant's rights and liabilities existing as of the
expiration or earlier termination of the Lease Term shall survive
such expiration or earlier termination.
23.20 If Landlord is in any way delayed or prevented from
performing any obligation due to fire, act of God, governmental
act or failure to act, labor dispute, inability to procure
materials or any cause beyond Landlords reasonable control
(whether similar or dissimilar to the foregoing events), then the
time for performance of such obligation shall be excused for the
period of such delay or prevention and extended for the time
necessary to compensate for the period of such delay or
prevention.
23.21 The deletion of any printed, typed or other portion of this
Lease shall not evidence an intention to contradict such deleted
portion. Such deleted portion shall be deemed not to have been
inserted in this Lease.
23.22 The person executing this Lease on Tenant's behalf warrants
that such person is duly authorized to so act.
23.23 Intentionally deleted.
<PAGE>
<PAGE>
23.24 If Landlord requires the services of an attorney to cause
Tenant to cure any default, to evict Tenant or to pursue any other
remedies to which Landlord is entitled hereunder, Tenant shall pay
the reasonable fees of such attorney (including in-house
attorneys) together with all reasonable costs and expenses
incurred by Landlord in connection with such matters, whether or
not any legal proceeding has commenced.
23.25 Intentionally Omitted.
23.26 Landlord agrees to make readily achievable modifications in
order to comply with applicable laws and regulations pertaining to
access by handicapped persons, including, but not limited to, the
Americans with Disabilities Act ("ADA"), with respect to the
Building and the parking lot and other common area, but excluding
the Premises. Tenant accepts the Premises in its present condition
with respect to satisfaction of the ADA and all other laws, and
shall be solely responsible for compliance therewith during the
term of this Lease.
ARTICLE XXIV
PARKING
24.1 During the Lease Term, Tenant shall have the right to use (on
a non-exclusive first-come, first served basis during the lease
term) the Parking Lot for the parking of passenger automobiles in
the parking areas designed from time to time by Landlord for the
use of Tenant's of the Building, in a ratio of 3.5 permittable
spaces per one thousand rentable square feet leased, for a total
of seventy nine (79) spaces or more, for the term of the lease.
Included in this allotment, twenty four parking spaces in front of
the building, will be exclusively allocated to the Tenant during
the term of the lease. Tenant will be granted the right to park
overnight, in designated areas in the rear of the building, for
the purpose of business activities and such parking will be
limited in duration to one (1) week at a time. Parking
requirements beyond this must be requested from the landlord,
whose approval will not be unreasonably withheld.
24.2 Landlord reserves the right to reasonably establish and
modify or amend rules and regulations governing the use of such
parking areas. Landlord shall have the right to revoke a user's
parking privilege in the event such user fails to abide by the
rules and regulations governing the use of such parking areas.
Tenant shall be prohibited from using such parking areas for
purposes other than for parking registered vehicles. The storage
or repair of vehicles in such parking areas shall be prohibited.
Tenant shall be allowed to use additional parking spaces so long
as it obtains Landlord's prior consent and such use does not
unreasonably infringe on the use, enjoyment or rights of any other
tenant to the additional spaces.
<PAGE>
<PAGE>
24.3 Tenant shall not assign or sublet any parking rights granted
to Tenant herein, nor use parking space exceeding its share. Any
attempted assignment or sublease shall be null and void.
24.4 Intentionally Deleted.
24.5 Except to the extent caused by Landlord's negligent, willful
act or omission, Landlord shall not be liable for any damages or
loss to any automobile (or property therein) parked in, on or
about such parking areas, or for any injury sustained by any
person in, on or about such areas. If Landlord, in its sole and
absolute discretion, deems it necessary to repair and maintain
such parking areas, Landlord shall reserve the right to substitute
use of other parking areas.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease
as of the date first above written.
ARTICLE XXV
QUIET ENJOYMENT
25. Landlord warrants that Tenant shall be granted peaceable and
quiet enjoyment of the demised premised free from any eviction or
interference by Landlord if Tenant pays the rent and other charges
provided in this lease agreement, and otherwise fully and
punctually performs the terms and conditions imposed on Tenant.
ARTICLE XXVI
OPTION TO RENEW
26.0 Landlord grants to Tenant an option to extend this Lease for
one additional three year term. Tenant may exercise such option by
giving Landlord written notice six (6) months prior to the
expiration of the Lease Term. The Base Rent (Gross Rent less Tax
and Operating Expense factor identified in Article 5.1) for the
three year Renewal Term shall be the Base Rent for the fifth year
of the Lease Term increased by an amount equal to the increase in
the Cost of Living Index for all items, Boston, MA published by
the United States Department of Labor's Bureau of Labor
Statistics, as compared between October 1 of the Lease -
Commencement Date and October 1, of the year of expiration of the
initial Lease Term. If the index should increase by greater than
4% during any year(s) of the initial Lease Term, then the amount
of increase used for that year(s) in calculating the overall
increase for the Renewal Term shall not exceed four percent (4%).
The resulting rate shall be fixed as the Base Rent Rate for the
three year Renewal Term. All other terms of the Lease shall remain<PAGE>
<PAGE>
unchanged for the renewal period, except there shall be no further
option to extend.
WITNESS: LANDLORD:
Kurian Limited Partnership
s/John E. Grady, Jr. By: s/Thampy Kurian
- ------------------------- -----------------------------
Name : Thampy Kurian
Title: General Partner
Date : 10/3/97
WITNESS: TENANT:
Electronic Retailing Systems
International, Inc.
s/Patricia A. Carroll By: s/William Erdman
- ------------------------ ------------------------------
Officer duly authorized.
Name: William W. Erdman
Title: Chief Operating Officer
Date : 10/2/97
Exhibit 10.20
JOINT DISTRIBUTION AGREEMENT
THIS JOINT DISTRIBUTION AGREEMENT is entered into as of
February 3, 1998, between Electronic Retailing Systems
International, Inc. ("ERS"), a Delaware corporation having a place
of business at 488 Main Avenue, Norwalk, Connecticut 06851-2500,
and Telepanel Systems Inc. ("Telepanel"), a corporation
incorporated under the Canada Business Corporations Act having a
place of business at 245 Riviera Drive, Markham, Ontario, Canada
L3R SJ9.
W I T N E S S E T H:
WHEREAS, Telepanel has developed and in the ordinary course
of business is engaged in the manufacture, distribution and
installation of an electronic shelf labeling system, utilizing
wireless techniques to transmit information to liquid crystal
display labels at the shelf edge, for use in the retail industry
(as developed by or on behalf of Telepanel, the "Telepanel
System"); and
WHEREAS, ERS has developed and in the ordinary course of
business is engaged in the manufacture, distribution and
installation of an electronic shelf labeling system, utilizing
wireless techniques to transmit information to liquid crystal
display labels at the shelf edge, for use in the retail industry
(as developed by or on behalf of ERS, the "ShelfNet System"; each
of the Telepanel System and ShelfNet System also referred to
herein as a "system"); and
WHEREAS, Telepanel has developed as a part of the Telepanel
System, among other items, the software which controls the
Telepanel System (the "Telepanel Software") and an attachment
mechanism (the "Telepanel Clip") to secure electronic shelf labels
to the retail shelf edge; and
WHEREAS, ERS and Telepanel have entered into a Combination
Agreement dated October 29, 1997 (the "Combination Agreement")
pursuant to the terms and subject to the conditions of which ERS
and Telepanel have proposed to combine as set forth in a plan of
arrangement under Canadian law; and
WHEREAS, pending consummation of the transactions
contemplated under the Combination Agreement, Telepanel desires,
upon the terms and subject to the conditions hereof, to appoint
ERS as its non-exclusive representative in connection with the
distribution of the Telepanel System in the territory hereinafter
described, and to appoint the Joint Venture (as hereinafter
defined) as its exclusive representative in connection with
installation of the Telepanel Systems in such territory; and
<PAGE>
<PAGE>
WHEREAS, pending consummation of the transactions
contemplated under the Combination Agreement, ERS desires, upon
the terms and subject to the conditions hereof, to appoint the
Joint Venture as its non-exclusive representative in connection
with the distribution of the ShelfNet System in the territory
hereinafter described;
WHEREAS, pending consummation of the transactions
contemplated under the Combination Agreement, Telepanel desires,
upon the terms and subject to the conditions hereof, to grant to
ERS a worldwide, non-exclusive license to exploit the Telepanel
Software and the Telepanel Clip; and
WHEREAS, pending consummation of the transactions
contemplated under the Combination Agreement, the parties desire
to arrange for working capital for the Joint Venture, upon the
terms and subject to the conditions hereinafter set forth (without
limitation, including the guaranty of Telepanel and the additional
security arrangements hereinafter identified);
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the parties agree as follows:
ARTICLE I
Formation of Joint Venture
ERS and Telepanel hereby agree to the formation of a joint
venture (the "Joint Venture") in the form of a corporate entity,
90% of the voting stock of which, for nominal value, shall be
subscribed by Telepanel and ten percent of the voting stock of
which, for nominal value, shall be subscribed by ERS. The articles
of incorporation and by-laws of the Joint Venture shall be in the
respective forms annexed hereto as Exhibit A and Exhibit B, and
shall be accompanied by the shareholder agreement in the form
annexed hereto as Exhibit C (such articles of incorporation, by-
laws, shareholder agreement and related documentation, hereinafter
referred to as the "Joint Venture Documentation").
ARTICLE II
Appointment of Representative
(a) Telepanel Distribution Representative. Subject to the
terms and conditions hereinafter set forth, and for the Term
hereinafter defined, Telepanel (on behalf of itself and its
subsidiaries) hereby appoints ERS as its non-exclusive
representative within and throughout the territory comprised of
the United States of America (the "Territory"), to solicit orders
for installation of the Telepanel System pursuant to such terms as
are from time to time formulated by Telepanel, in its sole
discretion.
<PAGE>
<PAGE>
(b) ERS Distribution Representative. Subject to the terms
and conditions hereinafter set forth, and for the Term hereinafter
defined, ERS (on behalf of itself and its subsidiaries) hereby
appoints the Joint Venture as its non-exclusive representative
within and throughout the Territory, to solicit orders for the
installation of the ShelfNet System pursuant to such terms as are
from time to time formulated by ERS, in its sole discretion.
(c) Distribution Non-Exclusivity. Each party hereto
recognizes that the other party at any time and from time to time
may appoint other representatives relative to the distribution of
its system, or directly solicit orders, in the Territory; and
that: (i) each party shall not be held accountable or liable to
the other (or to the Joint Venture) for any activities, whether
within or outside of the Territory, of any other representatives
relative to the distribution of the Telepanel System or the
ShelfNet System, as the case may be, and (ii) customers located
within the Territory may, without utilizing the services of the
non-exclusive representative appointed pursuant to this Agreement,
directly or indirectly place orders for Telepanel Systems with
Telepanel or ShelfNet Systems with ERS, or with any other
representatives of the Telepanel System or ShelfNet System, as the
case may be, and each party may fill all or any of such orders for
its system at its sole election without reference to the
provisions of this Agreement.
(d) Installation Representative. Subject to the terms and
conditions hereinafter set forth, and for the Term hereinafter
defined, Telepanel hereby appoints the Joint Venture as its
exclusive representative within and throughout the Territory
(without limitation, including as to Telepanel), for the
installation of the Telepanel System, and the components thereof,
it being acknowledged and agreed that the Joint Venture shall
subcontract any and all such rights to ERS unless in any case ERS
shall have notified Telepanel that it waives such appointment with
respect to any specified installation or installations (which
right ERS shall exercise acting reasonably). Pursuant to such
appointment, and subject to the terms and provisions of this
Agreement, the Joint Venture (or ERS as subcontractor, as the case
may be) shall undertake the initial installation of the network
infrastructure components and modules in respect of the
installations so undertaken, and the initial installation of the
Telepanel System software on one computer in each such location.
Notwithstanding the foregoing, Telepanel shall be solely
responsible for the maintenance of the Telepanel System at each
such location and shall further be responsible for the
installation of any and all replacement or additional parts and
the provision of any and all additional elective services ordered
by a customer at any such location subsequent to the initial
installation.
<PAGE>
<PAGE>
ARTICLE III
Grant of License
Subject to and in consideration of the terms and provisions
of this Agreement (without limitation, the appointment granted by
ERS under Paragraph (b) of Article II hereof, the installation
assistance under Paragraph (d) of Article II hereof, and the
working capital arrangements under Paragraph (d) of Article IV
hereof), Telepanel hereby grants to ERS a non-exclusive, fully-
paid, worldwide license (the "License") to develop, use,
manufacture, sell and in all respects commercialize and exploit
the Telepanel Software and the Telepanel Clip, and each of them
and all components or portions thereof, together with all
improvements thereto and modifications and extensions thereof, for
the Term hereinafter specified. Without limiting the generality of
the foregoing, the parties understand and agree that ERS, in the
exercise of its rights under the License, shall have the right to
copy and distribute all Telepanel Software and to manufacture all
Telepanel Clips, in such quantities as shall be required to
satisfy the market for the systems, or any of them, and Telepanel
shall provide ERS with all materials, equipment, technology,
object or source codes, tools or dies, patterns and designs
necessary to replicate and utilize the Telepanel Software and to
manufacture and use the Telepanel Clips.
ARTICLE IV
Payments
(a) Telepanel Sales Commissions. ERS shall, on the fifteenth
day of each month after the date hereof, pay to the Joint Venture
a commission of ten percent of ERS Net Sales (as hereinafter
defined) resulting from ShelfNet Systems installed in the
Territory during the Term pursuant to firm purchase orders
procured by the Joint Venture, for which payment shall have been
received by ERS during the immediately preceding calendar month;
provided, however, that ERS, in its sole discretion, shall have
the right to accept or reject any and all orders for ShelfNet
Systems. The Joint Venture shall be responsible for all expenses
incurred by it in connection with its appointment under Paragraph
(a) of Article II hereof, except as otherwise specifically
provided herein. For purposes of this Agreement, the term "ERS Net
Sales" shall mean all amounts received by ERS with respect to a
specified period from customers in respect of sales of the
ShelfNet System, less (I) amounts in respect of reimbursement for
local, state, provincial and national taxes and other governmental
fees paid by ERS, (II) costs of shipment (III) discounts and (IV)
amounts allowed on returns.
(b) ERS Sales Commissions. During the Term, Telepanel shall,
on the fifteenth day of each month after the date hereof, pay to
ERS a commission of ten percent of Telepanel Net Sales (as <PAGE>
<PAGE>
hereinafter defined) resulting from Telepanel Systems installed
inthe Territory during the Term pursuant to firm purchase orders
procured by ERS for which payment shall have been received by
Telepanel during the immediately preceding calendar month;
provided, however, that Telepanel, in its sole discretion, shall
have the right to accept or reject any and all orders for
Telepanel Systems. ERS shall be responsible for all expenses
incurred by it in connection with its appointment under Paragraph
(b) of Article II hereof, except as otherwise specifically
provided herein. For purposes of this Agreement, the term
"Telepanel Net Sales" shall mean all amounts received by Telepanel
with respect to a specified period from customers in respect of
sales of the Telepanel System, less (I) amounts in respect of
reimbursement for local, state, provincial and national taxes and
other governmental fees paid by Telepanel, (II) costs of shipment,
(III) discounts and (IV) amounts allowed on returns.
(c) Installation Costs. During the Term, Telepanel shall,
within ten days of each delivery by the Joint Venture of its
invoice therefor, pay to ERS an amount equal to the actual cost
for materials and labor incurred by the Joint Venture in
connection with its activities pursuant to the appointment under
Paragraph (d) of Article II hereof, plus ten percent thereof, in
addition to all sales, use, excise, value added or similar tax
relative thereto; and the Joint Venture shall, within ten days of
each delivery by ERS of its invoice therefor pay to ERS an amount
equal to the actual cost for materials and labor incurred by ERS
in connection with its activities pursuant to the subcontract
under Paragraph (d) of Article II hereof, plus ten percent
thereof, in addition to all sales, use, excise, value added or
similar tax relative thereto.
(d) Working Capital. (i) From time to time during the Term
(but in no event prior to the delivery by Telepanel to ERS of the
consents contemplated by the last sentence of Paragraph (c) of
Article VI hereof, and unless Telepanel or the Joint Venture shall
be in breach of any of their respective obligations under this
Agreement or under the Combination Agreement), within 15 days of
each certification in the form annexed hereto as Exhibit D to ERS
by Telepanel, at its discretion, of: (x) the net dollar value
(determined at the lower of cost on a LIFO basis or current market
value) of inventory owned by Telepanel (or its subsidiaries) and
relating to Telepanel Systems dedicated for installation within
the Territory, and/or (y) receivables owned by Telepanel (or its
subsidiaries) arising from installations within the Territory and
not outstanding for more than 90 days (and to the extent, in each
case under clauses (x) or (y) immediately preceding, that such
inventory and receivables otherwise conform to the criteria set
forth in the Security Agreement [as hereinafter defined]), ERS
shall deliver to the Joint Venture an amount equal to: (I) 50% of
the net dollar value of the inventory so specified, plus (II) 90%
of the amount of the receivables so specified (each, a "Working
Capital Advance"), but in no event greater than the borrowing <PAGE>
<PAGE>
contemporaneously requested by the Joint Venture in the form
annexed hereto as Exhibit E; provided, however, that:
(A) prior to the initial Working Capital Advance, ERS
and Telepanel shall have completed and entered into the Joint
Venture Documentation;
(B) prior to the initial Working Capital Advance, the
Joint Venture shall have executed and delivered to ERS a
guaranteed, secured promissory note (the "Note"), in the form
annexed hereto as Exhibit F, in evidence of the Working
Capital Advances to be made pursuant hereto, such advances to
bear interest at a rate per annum from time to time equal to
the prime rate for 90-day loans to substantial commercial
customers at The Bank of New York, plus 2.5%, payable
monthly, subject to repayment as hereinafter described;
(C) prior to the initial Working Capital Advance,
Telepanel and each of its subsidiaries shall have executed
and delivered to ERS a guaranty (collectively, the
"Guaranty"), in the form annexed hereto as Exhibit G
(appropriately modified in the case of each such subsidiary),
of the obligations of the Joint Venture to ERS under the Note
and this Agreement;
(D) prior to the initial Working Capital Advance, the
Joint Venture shall have executed and delivered to ERS a
collateral security agreement in the form annexed hereto as
Exhibit H-1, and Telepanel and each of its subsidiaries shall
have executed and delivered to ERS a collateral security
agreement in the form annexed hereto as Exhibit H-2
(appropriately modified in the case of each such subsidiary;
the foregoing security agreements under this clause (D),
collectively, referred to as the "Security Agreement, and the
Note, the Guaranty and the Security Agreement, collectively,
referred to as the "Working Capital Documentation"), in
evidence of the security interest described under Paragraph
(e) of this Article IV and containing such reasonable
representations and covenants concerning such collateral
requested by ERS, together with such other documentation
reasonably requested by ERS in order to perfect or evidence
or evaluate such interest and the inventory and receivables
certified under clauses (x) or (y) immediately preceding;
(E) Telepanel shall not deliver any certification under
clauses (x) and (y) immediately preceding, and ERS shall not
be obligated to make any Working Capital Advance to the Joint
Venture, in the event Telepanel's outstanding indebtedness to
The Toronto-Dominion Bank is in excess of its borrowing base
relative to said bank;
<PAGE>
<PAGE>
(F) prior to each Working Capital Advance, each of the
Joint Venture and Telepanel shall deliver to ERS such
additional certificates, in form and substance reasonably
satisfactory to ERS, with respect to the absence of any
breach by the Joint Venture, Telepanel or any Telepanel
subsidiary of this Agreement or the documents contemplated
hereby or the Combination Agreement, and the continued
accuracy of the representations and warranties of the Joint
Venture and Telepanel set forth in this Agreement and the
documents contemplated hereby and in the Combination
Agreement; and
(G) at the request of ERS, the Joint Venture and
Telepanel shall each provide such information and
documentation as shall reasonably be requested by ERS with
respect to any inventory or receivables so certified, as a
prior condition to the advance by ERS of any such amount, and
of the absence of assignment to the Ontario Development
Corporation of any receivable so certified or otherwise
arising from any installation incorporating such inventory,
and such additional documents, instruments, certificates and
other information, in form and substance reasonably
satisfactory to ERS, as ERS may reasonably request.
Without limiting any other provision contained herein, Telepanel
hereby covenants and agrees that, subsequent to the date hereof,
it shall not increase the amount of any aggregate outstanding
indebtedness to The Toronto-Dominion Bank to more than U.S. $1
million (or, without limiting any provision in the Combination
Agreement, such other bank as shall provide terms not less
favorable to Telepanel than those currently provided by The
Toronto-Dominion Bank) (such permitted amount hereinafter referred
to as the "Exempted Proceeds"), nor shall it in any manner incur
any indebtedness in respect of the 5% Senior Convertible Notes (as
defined in the Combination Agreement), or any of them; and that
each Telepanel subsidiary created at any time subsequent to the
date hereof shall be subject to the obligations of Telepanel's
subsidiaries as if in existence on the date hereof, and that each
current Telepanel subsidiary shall enter into the Guaranty and the
Security Agreement and the other commitments contemplated of it
hereunder at the times specified herein or at such later time as
shall be expressly allowed by ERS. The proceeds of all Working
Capital Advances shall be used as set forth in the Joint Venture
Documentation. Notwithstanding any other provision contained in
this Agreement, the aggregate amount of all Working Capital
Advances made by ERS to the Joint Venture and then outstanding
shall, at no time, exceed the sum of 50% of the aggregate amount
of inventory certified under clause (x) of this Paragraph (d)(i)
then outstanding, plus 90% of the aggregate amount of all
receivables certified under clause (y) of this Paragraph (d)(i)
then outstanding; and shall not, at any time, exceed
U.S.$2,000,000 then outstanding. In the event outstanding Working
Capital Advances at any time are in excess of the foregoing, such<PAGE>
<PAGE>
excess, together with interest thereon, shall immediately be
prepaid to ERS.
(ii) In consideration of the foregoing, and without limiting
any provision contained in the Note: (x) a sum equal to the entire
amount of each payment on account of any receivable certified as
aforesaid, or upon any receivables directly or indirectly relating
to inventory certified as aforesaid, shall immediately be
delivered to ERS as a prepayment on account of the Working Capital
Advances upon each such payment by the customer, and (y) an amount
equal to all Offering Proceeds (as hereinafter defined) shall
immediately be delivered to ERS as a prepayment on account of the
Working Capital Advances upon each receipt thereof by Telepanel or
any subsidiary thereof; provided, however, that all amounts
evidenced by the Note shall mature and be paid by the Joint
Venture to ERS within 180 days after the expiration or termination
of the Term. For purposes hereof, "Offering Proceeds" shall be
defined as all net proceeds derived by the Joint Venture,
Telepanel or any subsidiary of Telepanel from the issuance in
exchange for cash of any equity security or any evidence of
indebtedness, except for the Exempted Proceeds. Furthermore,
unless the Term shall have been terminated by Telepanel as a
result of a Default (as hereinafter defined) occasioned by ERS, or
the Combination Agreement shall have been terminated pursuant to
Sections 8.1(a) or (b) thereof:
(x) if within six months after termination of the
Combination Agreement Telepanel consummates any Telepanel
Competing Transaction (as defined in the Combination
Agreement), other than with ERS, or Telepanel enters into a
Telepanel Acquisition Agreement (as defined in the
Combination Agreement) relating to a Telepanel Competing
Transaction, other than with ERS, and such transaction is
within such period or thereafter consummated, Telepanel
shall, upon consummation, pay to ERS an additional amount
(the "Additional Amount") equal to U.S.$2,000,000; and
(y) if the Combination Agreement shall have been
terminated following the disapproval thereof by the Telepanel
shareholdersand the Note shall not have been satisfied within
90 days after the expiration or termination of the Term, or
following the disapproval by the ERS stockholders and the
Note shall not have been satisfied when due, Telepanel shall
thereupon be obligated to pay to ERS an amount equal to 15%
of the Additional Amount; and
(z) if the Combination Agreement shall have been
terminated following any material breach thereof by
Telepanel, and the Note shall not have been satisfied when
due, Telepanel shall thereupon be obligated to pay to ERS an
amount equal to 15% of the Additional Amount.
<PAGE>
<PAGE>
Telepanel and ERS agree that, in view of the nature of the issues
likely to arise in the event of termination in the circumstances
described under clauses (x) or (y) immediately preceding, it would
be impracticable or extremely difficult to determine the detriment
to ERS resulting from such termination, for which the parties
agree ERS should be made whole, and proving such detriment,
causation and foreseeability in the case of such termination would
be costly, inconvenient and difficult. In requiring payment of the
foregoing percentage of the Additional Amount, it is the intent of
the parties to provide, as of the date of this Agreement, for a
liquidated amount. Such liquidated amount shall be deemed full and
adequate payment for such termination and is not intended by
either party to be a penalty.
(e) Collateral Interest. As security for the Guaranty or, in
the case of the interest granted by the Joint Venture, for the
Note), Telepanel (on behalf of itself and each of its
subsidiaries) hereby grants to ERS a security interest in all its
and its subsidiaries' undertaking and business and all its and
their property and assets and rights for the time being, both
present and future, of whatsoever nature and kind and wheresoever
situate, including, without limiting the generality of the
foregoing, all of its and their present and future goodwill,
franchises, privileges, benefits, immunities, rents, revenues,
incomes, moneys, contracts, book debts, accounts receivable,
negotiable and non-negotiable instruments, judgments, securities,
choses in action, inventories and all other property and things of
value of every kind and nature, tangible and intangible, legal or
equitable, of which it or its subsidiaries may be possessed or to
which it may be entitled or that may in the future be acquired by
it or its subsidiaries; such interest to be subordinated only to
any interest therein of The Toronto-Dominion Bank and to be prior
to any other security interest granted by Telepanel or any of its
subsidiaries; it being expressly understood and agreed that in the
event of any deficiency in realization on any collateral so
pledged, the Joint Venture and each obligor under the Guaranty
shall remain obligated for payment to ERS upon the terms set forth
herein and therein. In furtherance of the foregoing, Telepanel (on
behalf of itself and each subsidiary) further constitutes and
appoints ERS, and its successors and assigns, as the agent and
true and lawful attorney or attorneys, with full power of
substitution, for it and its subsidiaries and in its and their
name and stead or otherwise, but at the sole expense and on behalf
of and for the benefit of ERS, its successors and assigns, to
collect all amounts payable to Telepanel or any of its
subsidiaries under any receivables pledged as aforesaid and to
assert or enforce any claim, right or title of any kind in and to
such payments, and, generally to do any and all such acts and
things in relation thereto as ERS, its successors or assigns,
shall deem advisable. The parties agree that the appointment
hereby made and the powers hereby granted are coupled with an
interest and shall be irrevocable.
<PAGE>
<PAGE>
ARTICLE V
Term
(a) This Agreement (including the License granted hereby)
shall commence on the date hereof and shall terminate, upon the
earliest to occur of: (i) the closing under the Combination
Agreement, (ii) the termination of the Combination Agreement
pursuant to the terms thereof, (iii) an election by a party to
terminate this Agreement, exercised as hereinafter set forth,
following a Default (as hereinafter defined) occasioned by the
other party, or a change in control in the other party as set
forth under Paragraph (b) of Article XIV hereto, or (iv) the
failure to organize and maintain the Joint Venture as a Joint
Venture within the meaning of (and, without limitation, to engage
in such business as set forth under) the ERS Indenture (as defined
in the Combination Agreement) or of any payments by ERS under
Paragraph (d) of Article IV hereof to conform to the provisions of
Section 4.05(b)(vii) of the ERS Indenture (such period herein
referred to as the "Term"). Notwithstanding the foregoing, for
purposes solely of the License, the Term shall extend to such
additional period or periods as shall be reasonably necessary for
ERS to manufacture and deliver systems subject to purchase orders
received prior to the expiration or termination of the Term
without reference to this sentence, and shall in all events,
insofar as the subject matter of the License is utilized by any
customer of ERS, extend to cover such usage.
(b)(i) Any of the following shall constitute a default (a
"Default") hereunder:
(A) a party fails to perform or observe any covenant,
condition or agreement under this Agreement, the Working
Capital Documentation or the Joint Venture Documentation and
(in the case of any such failure not relating to any
provision of Article X hereof) fails to cure such breach
within ten days after notice; or a party fails to perform or
observe Article X hereof; or a party fails to pay any amounts
to the other party which become due hereunder;
(B) any representation or warranty made by a party
hereunder, or incorporated by reference herein, or in any
other instrument provided to the other party by such party,
proves to have been incorrect in any material respect when
made;
(C) a proceeding under any bankruptcy, reorganization,
arrangement of debts, insolvency or receivership law or
assignment for creditors is filed by or against a party;
<PAGE>
<PAGE>
(D) a party becomes insolvent or fails generally to pay
its debts as they become due, or any items of a system in the
possession of a selling or installing party are levied
against or seized, or a bulk sale of the selling or
installing party's inventory or assets is about to take place
(or, in the case of Telepanel, The Toronto-Dominion Bank
demands payment of any indebtedness, or any other
indebtedness is accelerated prior to the stated maturity
thereof); and
(E) a party voluntarily dissolves or is dissolved or
its existence is otherwise terminated.
(ii) If a Default occurs, the party not causing or otherwise
the subject of the Default shall have the right immediately to
terminate this Agreement.
(c) No right or remedy accrued prior to the expiration or
termination of this Agreement shall be impaired as a result of any
such expiration or termination. Without limiting the generality of
the foregoing, the expiration or other termination of the Term
shall in no manner impair or limit: (x) the obligation of either
party to pay commissions under Paragraphs (a) or (b) of Article IV
hereof, as the case may be, on the fifteenth day of the calendar
month following expiration or termination, in respect of ERS Net
Sales or Telepanel Net Sales, as the case may be, resulting from
sales during the period prior to expiration or termination, (y)
the obligation of Telepanel to pay amounts to the Joint Venture,
or of the Joint Venture to pay amounts to ERS, under Paragraph (c)
of Article IV upon presentation of invoices, following expiration
or termination, in respect of installation expenses prior to
expiration or termination, or (z) the obligation of the Joint
Venture or any obligor under the Guaranty to pay the amounts
required under Paragraph (d) of Article IV, or under the Note, or
any other obligation under said paragraph, or the Note, or
Paragraph (e) of Article IV, or the security interest of ERS
thereunder or under the Security Agreement, the agency created
under said paragraphs or the Security Agreement. No remedy of a
party hereunder shall be exclusive of any other remedy herein or
by law provided, but each shall be cumulative and in addition to
every other remedy.
(d) Upon the expiration or termination of the Term, each
party (and the Joint Venture) shall promptly return to the other
any and all sales literature or other promotional materials
theretofore delivered hereunder.
ARTICLE VI
Representations and Warranties of ERS
ERS represents, warrants and covenants to Telepanel that:
<PAGE>
<PAGE>
(a) It is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its
incorporation and has the full corporate power and authority to
enter into this Agreement and perform its agreements and covenants
to be performed hereunder.
(b) The execution and delivery of this Agreement by it and
the performance by it of its covenants and agreements hereunder
have been duly authorized by all necessary corporate action and,
when executed and delivered by it, this Agreement shall constitute
its valid and legally binding agreement, enforceable against it in
accordance with its terms, except as may be limited by bankruptcy,
insolvency, or other laws affecting generally the enforceability
of creditors' rights and by limitations on the availability of
equitable remedies.
(c) Neither the execution and delivery of this Agreement nor
the consummation or performance by it of the transactions
contemplated herein will violate any provision of its certificate
of incorporation or by-laws or any law, rule, regulation, writ,
judgment, injunction, decree, determination, award, or other order
of any court, government or governmental agency or
instrumentality, domestic or foreign, binding upon it or conflict
with or result in any breach of any of the terms of or the
creation or imposition of any mortgage, deed of trust, pledge,
lien, security interest or other charge or encumbrance of any
nature pursuant to the terms of any contract or agreement to which
it is a party or by which it, or any of its assets and properties
is bound.
ARTICLE VII
Representations and Warranties of Telepanel
Telepanel represents, warrants and covenants to ERS that:
(a) It is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its
incorporation and has the full corporate power and authority to
enter into this Agreement and perform its agreements and covenants
to be performed hereunder.
(b) The execution and delivery of this Agreement by it and
the performance by it of its covenants and agreements hereunder
have been duly authorized by all necessary corporate action and,
when executed and delivered by it, this Agreement shall constitute
its valid and legally binding agreement, enforceable against it in
accordance with its terms, except as may be limited by bankruptcy,
insolvency, or other laws affecting generally the enforceability
of creditors' rights and by limitations on the availability of
equitable remedies.
<PAGE>
<PAGE>
(c) Neither the execution and delivery of this Agreement nor
the consummation or performance by it of the transactions
contemplated herein will violate any provision of its articles of
incorporation or by-laws or any law, rule, regulation, writ,
judgment, injunction, decree, determination, award, or other order
of any court, government or governmental agency or
instrumentality, domestic or foreign, binding upon it or conflict
with or result in any breach of any of the terms of or the
creation or imposition of any mortgage, deed of trust, pledge,
lien, security interest or other charge or encumbrance of any
nature pursuant to the terms of any contract or agreement to which
it is a party or by which it, or any of its assets and properties
is bound. Without limiting the generality of the foregoing,
Telepanel has delivered to ERS (or prior to the operation of the
provisions of Paragraph (d) of Article IV hereof or any Working
Capital Advance shall deliver to ERS) appropriate consents, in
form and substance reasonably satisfactory to ERS, to the
operation of this Agreement executed by The Toronto-Dominion Bank,
Ontario Development Corporation, Royal Bank Corporation and The
VenGrowth Investment Fund, Inc.
(d) There is no outstanding indebtedness of Telepanel or any
of its subsidiaries to the Ontario Development Corporation;
neither Telepanel nor any subsidiary has any additional ability
to, and shall not further, borrow any amounts under any facilities
with the Ontario Development Corporation; and the Ontario
Development Corporation has released its interest in any and all
assets of Telepanel and its subsidiaries.
ARTICLE VIII
Certain Covenants
(a) Nothing contained in this Agreement shall confer on ERS
any right or authority to formulate the terms of any Telepanel
System sale, or amend the same, or enter into any agreement, or
accept any order on behalf of Telepanel, all of which Telepanel,
in its sole discretion, shall determine. Without limiting the
generality of the foregoing, ERS shall not have any authority to,
and shall not, make any representation or warranty on behalf of
Telepanel (other than communication of commitments furnished by
Telepanel). Telepanel shall have the sole discretion to accept or
reject any order with respect to the Telepanel Systems, subject to
the terms of this Agreement.
(b) Nothing contained in this Agreement shall confer on the
Joint Venture or Telepanel any right or authority to formulate the
terms of any ShelfNet System sale, or amend the same, or enter
into any agreement, or accept any order on behalf of ERS, all of
which ERS, in its sole discretion, shall determine. Without
limiting the generality of the foregoing, neither the Joint
Venture nor Telepanel shall have any authority to, and shall not,
make any representation or warranty on behalf of ERS (other than<PAGE>
<PAGE>
communication of commitments furnished by ERS). ERS shall have the
sole discretion to accept or reject any order with respect to the
ShelfNet System, subject to the terms of this Agreement.
(c) Each party shall, upon the request of its representative
under Paragraphs (a) or (b) of Article II hereof, furnish such
representative with copies of its sales literature, in adequate
quantities at cost therefor, and the requesting party shall use
such literature only in the best interests of the furnishing
party. Each party shall further have the right reasonably to
require its sales representative hereunder to use certain notices
or promotional material in connection with the promotion of its
system.
(d) From time to time, at the request of either party (or
the Joint Venture) reasonably made, the requested party shall,
from time to time, at the requesting party's expense, consult with
the requesting party regarding training and promotion relating to
the sale (and in the case of the Telepanel System, the
installation) of the requested party's system. Such consultation
shall involve the management, employees and sales agents of the
requested party.
(e) Subject to the provisions of this Agreement, each party
hereby undertakes promptly to manufacture and deliver all systems
pursuant to orders solicited by its sales representatives
hereunder, provided that such order has been accepted pursuant to
the terms of this Agreement by the party supplying and
manufacturing such systems, and promptly send an invoice to the
person for which such system was installed.
ARTICLE IX
Trademarks and Tradenames
(a) Telepanel hereby grants to ERS, and ERS hereby grants to
the Joint Venture, the non-exclusive right to use any and all of
its trademarks, tradenames and service marks (collectively, the
"Trademarks", and, individually, a "Trademark") as are specified
in writing by the supplying party for the sole purpose of
advertising and promoting its system in connection with
performance hereunder, subject to withdrawal from time to time by
the supplying party of any and all such rights which the supplying
party wishes to discontinue the use of generally upon reasonable
advance notice to the other. ERS shall submit to Telepanel, and
the Joint Venture shall submit to ERS, for its approval prior to
use, all advertising, marketing and other promotional material
using any such Trademarks of the supplying party. Each party
hereby agrees that neither it nor the Joint Venture shall,
directly or indirectly, use or permit or cause the use of the
Trademarks of the supplying party, or any of them, or any variant
thereof, singly or in combination with any other term, except as
expressly authorized by this Agreement. Except as expressly<PAGE>
<PAGE>
authorized by this Agreement, upon the expiration or termination
of the Term, irrespective of the reason therefor, each party and
the Joint Venture shall abandon immediately all use of each
Trademark of the supplying party, or any variant thereof, singly
or in combination with any other term.
(b) Each party hereby agrees that, in the event that during
the Term, any infringement of any Trademark relating to the sale
and/or distribution of the other party's system shall occur, or
litigation shall be commenced in which such Trademark is alleged
to have infringed any rights held by a third party, or in any way
involving any liability in connection with the products or the
activities of such party hereunder, it and the Joint Venture
shall, promptly after learning thereof, advise such other party of
such matter and furnish to such other party, at such other party's
expense, all necessary or appropriate assistance, at the election
of such other party, for the prompt and effective elimination of
such infringement or defense of such litigation, as the case may
be.
ARTICLE X
Confidentiality
(a) For purposes hereof the term "Confidential Material"
shall be defined to mean all proprietary or confidential
information heretofore or hereafter furnished to a party hereto or
to the Joint Venture, or any of its directors, officers, employees
or agents (each hereinafter referred to as a "Receiving Party"),
by the other party hereto, or any of its directors, officers,
employees or agents (each hereinafter referred to as a "Disclosing
Party") or in any manner relating to the Disclosing Party or the
system of the Disclosing Party or any component thereof or the
proprietary plans, policies, business or affairs of the Disclosing
Party, including, without limitation, data, drawings, materials
and other communications concerning any manufacturing or
production or other process or any research and development or
marketing and/or sales plans or results related to the business of
the Disclosing Party. Notwithstanding the foregoing, the term
"Confidential Material" shall not include information which: (i)
becomes generally available to the public other than as a result
of a disclosure by the Disclosing Party, (ii) was, prior to its
disclosure to the Receiving Party by the Disclosing Party,
available to the Receiving Party on a non-confidential basis from
a third party not bound by confidentiality to the Disclosing
Party, (iii) becomes available to the Receiving Party on a
non-confidential basis from a source other than the Disclosing
Party, provided that such source is not bound by confidentiality
to the Disclosing Party, or (iv) was independently developed by
the Receiving Party as conclusively evidenced in writing.
<PAGE>
<PAGE>
(b) In connection with and as a condition to the Disclosing
Party furnishing Confidential Material to the Receiving Party, the
parties hereby agree that, during the Term and thereafter, the
Receiving Party shall treat all Confidential Material
confidentially and not disclose, reproduce, publish, distribute or
by any other means disseminate, in whole or in part, any
Confidential Material except in accordance herewith.
Notwithstanding the foregoing or any other provision contained
herein, unless otherwise agreed to by the parties hereto, the
Receiving Party may not in any manner use any Confidential
Material for any purpose other than in connection with performance
of this Agreement.
(c) In the event that the Receiving Party is required (by
oral questions, interrogatories, requests for information or
documents, subpoena, civil investigative demand or similar
process) to disclose any Confidential Material, the Receiving
Party shall provide the Disclosing Party with prompt notice
thereof so that the Disclosing Party may seek an appropriate
protective order and/or waive compliance by the Receiving Party
with the provisions hereof; provided, however, that, if in the
absence of a protective order or the receipt of waiver hereunder,
the Receiving Party is, in the opinion of its counsel, compelled
to disclose Confidential Material not otherwise disclosable
hereunder to any legislative, judicial or regulatory body, agency
or authority, or else be exposed to liability for contempt, fine
or penalty, or to other censure, such Confidential Material may be
so disclosed.
(d) In view of the irreparable harm and damage which would
be incurred by either ERS or Telepanel in the event of any
violation of any of the provisions of this Article X or the
preceding Article IX, each of ERS and Telepanel hereby consents
and agrees that, if it or the Joint Venture or any of their
respective shareholders, directors, officers, employees or agents
violates any such provision, the non-breaching party shall be
entitled to an injunction or similar equitable relief to be issued
by any court of competent jurisdiction restraining the breaching
party (including the Joint Venture) and its shareholders,
directors, officers, employees and agents from committing or
continuing any such violation.
ARTICLE XI
Indemnification
During the Term and thereafter, each of the parties (an
"Indemnifying Party") hereby agrees to indemnify and hold
harmless, absolutely, unconditionally and forever, the other
party, and its directors, officers, employees and agents and their
respective legal representatives, successors and assigns (each, an
"Indemnified Party"), from and against any and all damages, costs,
expenses, losses, claims, demands, liabilities and/or obligations,<PAGE>
<PAGE>
including, without limitation reasonable attorney's fees
(collectively, "Damages"), resulting from: (i) any breach by the
Indemnifying Party (or, in the case of Telepanel as Indemnifying
Party, by the Joint Venture) of any warranty, representation,
agreement or covenant set forth in this Agreement or the
documentation contemplated hereby; (ii) the installation,
marketing, distribution, sale and/or use of its system, or any
component thereof, including, without limitation, any Damages
incurred due to product defects in its system; or (iii) any claim
of infringement of any patents, trademarks or copyrights, or for
alleged unfair competition resulting from similarity of design,
trademark, or appearance of goods arising from the installation,
marketing, distribution, sale and/or use of its system, or any
component thereof, either alone or in combination with any other
materials (without limitation, in the case of ERS, in its exercise
of its rights under the License).
ARTICLE XII
Title
Each party shall continue to own and retain title to its
system, and all components thereof, and the software included
therein, at all times during the Term and thereafter and nothing
herein contained shall be construed as conveying to the other
party any right, title or interest in the other party's system, or
any component thereof, or any software included therein, except as
otherwise set forth in the License granted pursuant to Article III
of this Agreement and the security granted pursuant to Article IV
hereof.
ARTICLE XIII
Relationship of the Parties
It is understood between the parties that their relationship
hereunder is that of independent contractors and under no
circumstances shall the employees or consultants of one party be
deemed to be employees or consultants of the other party. This
Agreement shall not be construed as authority for either party to
act for, or make any commitment on behalf of, the other party,
except as expressly set forth hereunder.
ARTICLE XIV
Miscellaneous
(a) Notices. All notices, requests or instructions hereunder
shall be in writing and delivered personally or sent by registered
or certified mail, or by nationally recognized overnight courier,
postage prepaid, to the addresses hereinabove specified. Any
notice so addressed and mailed, shall be deemed to be given when
so mailed. Any notice so addressed and otherwise delivered shall<PAGE>
<PAGE>
be deemed to be given when actually received by the addressee. Any
of the above addresses may be changed at any time by notice given
as provided above; provided, however, that any such notice of
change of address shall be effective only upon receipt.
(b) Assignment. Neither party has any right to sell,
transfer or assign any interest it has in this Agreement, by
operation of law or otherwise; it being understood and agreed that
ERS may subcontract any and all installation and related
obligations hereunder or sublicense its rights under the License
to any vendor or subcontractor and to its customers. In the event
of any such action (except as aforesaid), or in the event of any
direct or indirect change in the ownership of either party so as
to result in a change in control therein, this Agreement, at the
election of the other party, shall be terminated forthwith.
(c) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Connecticut
applicable in the case of agreements made and to be performed
entirely within such state.
(d) Captions. The captions appearing herein are for the
convenience of the parties only and shall not be construed to
affect the meaning of the provisions of this Agreement.
(e) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no
way be affected, impaired or invalidated.
(f) Entire Agreement. This Agreement and the exhibits
hereto, together with the Joint Venture Documentation, the Note,
the Guaranty, the Security Agreement and any other documents
contemplated hereunder, contain the entire agreement between the
parties hereto with respect to the transaction contemplated
hereby, and supersede all prior understandings, arrangements and
agreements with respect to the subject matter hereof; provided,
however, that the respective representations and warranties of the
parties contained under Articles 2 and 3 of the Combination
Agreement, and their respective covenants contained under Sections
4.1, 4.7 and 4.11 of the Combination Agreement, are hereby
incorporated by reference herein. Without limiting the generality
of the foregoing, this Agreement supersedes and substitutes for
the provisions of Section 4.16 of the Combination Agreement, which
shall have not further effect. No modification hereof shall be
effective unless in writing and signed by the party against which
it is sought to be enforced. No oral or other statement, proposal
or agreement shall be binding upon either of the parties hereto.
<PAGE>
<PAGE>
(g) Further Action. Each party agrees to cooperate fully
with the other party and to take such further action as shall be
reasonably requested by the other party to accomplish the
commitments set forth herein.
(h) No Waiver. No waiver of any provision hereof shall be
valid unless it is in writing and signed by the entity seeking
enforcement of such provision. No waiver of any provision hereof
shall constitute a waiver of any other provision hereof, or of
such provision at any other time.
(i) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all
of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto entered into this
Agreement as of the day and year first written above.
ELECTRONIC RETAILING SYSTEMS TELEPANEL SYSTEMS INC.
INTERNATIONAL, INC.
By s/Michael Luetkemeyer By s/John Heaven
-------------------------- ----------------------------
Name: Michael Luetkemeyer Name: John Heaven
Title: Chief Financial Office Title: Vice President Finance
and Secretary
<PAGE>
<PAGE>
EXHIBIT A
For Ministry Use Only
A l'usage exclusif du ministere
Ontario Corporation Number
Numero de la societe en
Ontario
1258040
Ministry of Consumer and Ministere de la Consommation
Commercial Relations Consommation et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les
articles are effective on presents statuts entrent
en vigueur le
SEPTEMBER 29 SEPTEMBRE, 1997
- --------------------------------------------------
Director/Directeur
Business Corporation Act/Loi sur les societe par actions
ARTICLES OF INCORPORATION
STATUTS CONSTITUTIFS
<TABLE>
<S> <C> <C>
Form 1 1. The name of the corporation Denomination sociale de la
Business is: societe:
Corporat- 1258040 ONTARIO LIMITED
ions Act
2. The address of the registered Adresse du siege social:
office:
Formule 1
loi sur SUITE 3000, AETNA TOWER, TORONTO-DOMINION CENTRE
les -------------------------------------------------
societe (Street & Number, or R.R. Number & if Multi-Office Building
par give Room No.)
actions (Rue et numero, ou numero de la R.R. et, s'il s'agit d'un
edifice a bureaux, numero du bureau)
TORONTO, ONTARIO M5K1N2
------------------------------------------------------------
(Name of Municipality or Post Office) (Postal Code)
(Nom de la municipalite ou du bureau (Code postal)
de poste)
3. Number (or minimum and Nombre (ou nombres minimal
maximum number) of directors et maximal)
is: d'administrateurs:
MINIMUM OF 1; MAXIMUM OF 10
/TABLE
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
The first Premier(s) Resident
director(s) is/are: administrateur(s): Canadian
State
Yes or No
<S> <C> <C>
First name, initials Residence address, Resident
and surname giving Street & No. canadian
Prenom, initiales or R.R. No., Oui/Non
at nom de famille Municipality and
Postal Code
Adresse personnelle,
y compris la rue et le
numero de la R.R., le nom
de la municipalite et le
code postal
JEAN D. DUGUAY 408-60 MOUNTVIEW AVENUE YES
TORONTO, ONTARIO
M6P 2L4
</TABLE>
5. Restrictions, if any, on Limites, s'il y a lieu,
business the corporation imposees aux activites
may carry on or on powers commerciales ou aux
the corporation may exercise. pouvoirs de la societe.
no restrictions
6. The classes and any maximum Categories et nombre maximal,
number of shares that the s'il y a lieu, d'actions que
corporation is authorized la societe est autorisee a
to issue: emettre:
an unlimited number of common shares.
7. Rights, privileges, Droits, privileges, restrictions
restrictions and et conditions, s'il y a lieu,
conditions (if any) rattache a chaque categorie
attaching to each class d'action et pouvoirs des
of shares which may be administrateurs relatifs a
issued in series: chaque categorie d'actions qui
peut etre emise en serie:
not applicable.
8. The issue, transfer or L'emission, le transfert ou la
ownership of shares is/is propriete d'actions est/n est
not restricted and the pas restreint. Les restrictions,
restrictions (if any) s'il y a lieu, sont les
are as follows: suivantes:
<PAGE>
<PAGE>
The right to transfer shares of the Corporation is restricted in
that no share shall be transferred except with the consent of
the Board of Directors of the Corporation, to be expressed
either by a resolution passed at a meeting of the Board of
Directors or by an instrument or instruments in writing signed
by a majority of the directors.
9. Other provisions, if any, Autres dispositions, s'il y
are: a lieu:
(a) The number of shareholders of the Corporation, exclusive
of persons who are in its employment and exclusive of
persons who having been formerly in the employment of the
Corporation, were, while in that employment, and have
continued after the termination of that employment to be,
shareholders of the Corporation, is limited to not more
than fifty, two or more persons who are the joint
registered owners of one or more shares being counted as
one shareholder.
(b) Any invitation to the public to subscribe for securities
of the Corporation is prohibited.
10. The names and addresses of Nom et adresse des fondateurs
the incorporators are Full residence address or
First name, initials and address of registered office
surname or corporate name or of principal place of
Prenom, initiale et nom de business giving street & No.
famille ou denomination or R.R. No., municipality and
sociale postal code
Adresse personnelle au complet,
adresse du siege social ou
adresse de l'etablissement
principal, y compris la rue
et le numero, le numero de la
R.R.,le nom de la municipalite
et le code postal
Jean D. DuGuay 408-60 Mountview Avenue
Toronto, Ontario
M6P 2L4
These articles are signed Les presents statuts sont signes
in duplicate en double exemplaire
Signatures of incorporators
(signatures des fondateurs)
s/Jean D. DuGuay
---------------------------
Jean D. DuGuay<PAGE>
<PAGE>
For Ministry Use Only
A l'usage exclusif du ministere
Ontario Corporation Number
Numero de la societe en
Ontario
1258040
Ministry of Consumer and Ministere de la Consommation
Commercial Relations Consommation et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les
articles are effective on presents statuts entrent
en vigueur le
December 17 DECEMBRE, 1997
- --------------------------------------------------
Director/Directeur
Business Corporation Act/Loi sur les societe par actions
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
<TABLE>
<S> <C> <C>
Form 3 1. The name of the corporation Denomination sociale de la
Business is: societe:
Corporat- 1258040 ONTARIO INC.
ions Act
Formule 3 2. The name of the corporation Nouvelle denomination
Loi sur is changed to (if sociale de la societe
les applicable): (s'il y a lieu):
societes
par TELEPANEL/ERS JOINT VENTURE, INC.
actions
3. Date of incorporation/ Date de la constitution
amalgamation: ou de la fusion:
1997 September 29
(Year, Month, Day)
(annee, mois, jour)
4. The articles of the corporation Les statuts de la societe
are amended as follows: sont modifies de la facon
suivante.
</TABLE>
<PAGE>
<PAGE>
1. To change the name of the Corporation from 1258040
Ontario Limited to Telepanel/ERS Joint Venture,
Inc.
2. To change the designation of the common shares to
Class A common shares.
3. To delete the rights, privileges, restrictions and
conditions attached to the Class A common shares
and substitute therefor the rights, privileges,
restrictions and conditions set forth in the
attached page 1A.
4. To create a new class of shares to be designated
Class B common shares and to have attached thereto
the rights, privileges, restrictions and
conditions set forth in the attached page 1A.
5. To provide that the maximum number of Class B
common shares that the Corporation is authorized
to issue shall be unlimited.
<PAGE>
<PAGE>
Rights, Privileges, Restrictions and Conditions
Attaching to the Class A Common and Class B Common Shares
---------------------------------------------------------
Common Shares
The rights, privileges, restrictions and conditions attaching
to the Class A Common Shares and the Class B Common Shares are as
follows:
Voting Rights
The holders of Class A Common Shares and Class B Common shares
shall be entitled to receive notice of, and to attend, and to cast
one vote for each such Class A Common Share or Class B Common Share
held, at all meetings of shareholders except meetings at which only
holders of a specified class or series of shares of the Corporation
are entitled to vote.
Rights Upon Dissolution
After payment to the holders of shares ranking senior to the
Class A Common Shares and Class B Common Shares of the amount or
amounts which they may be entitled, the holders of the Class A
Common Shares and the Class B Common Shares shall be entitled to
receive the remaining property of the Corporation upon dissolution.
Dividend Rights
Subject to the prior rights of the holders of any shares
ranking senior to the Class A Common Shares with respect to
priority in the payment of dividends, the holders of Class A Common
Shares shall be entitled to receive and the Corporation shall pay
thereon, as and when declared by the board of directors of the
Corporation out of monies of the Corporation properly applicable to
the payment of dividends, such dividends of the board of directors
of the Corporation may, from time to time, determine.
Other Rights
Except as set out above, each Class A Common Share and Class
B Common share shall have the same rights and attributes and shall
be the same in all respects.
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
5. The amendment has been duly La modification a ete dumant
authorized as required by autorisee conformement aux
Sections 168 and 170 (as articles 168 et 170 (selon le
applicable) of the Business cas) de la Loi sur les societes
Corporations Act. par actions.
6. The resolution authorizing Les actionnaires ou les
the amendment was approved administrateurs (selon le cas)
by the shareholders/directors de la societes ont approuve la
(as applicable) of the cor- modification le
poration on
1997 December 17
-----------------------------------------------------------------
(Year, Month, Day)
(annee, mois, jour)
These articles are signed in Les presents status sont
duplicate. signes en double examplaire
1258040 Ontario Limited
-----------------------
(Name of Corporation)
(Denomination soclase de la societes)
By:/Par: s/Jean D. DuGuay
----------------------------
(Signature) (Description of Office)
(Signature) (Foncion)
Jean D. DuGuay - President and
Secretary
</TABLE>
<PAGE>
<PAGE>
EXHIBIT B
BY-LAW NO. 1
OF
1258040 ONTARIO LIMITED
(the "Corporation")
1. INTERPRETATION
1.1 Expressions used in this By-law shall have the same meanings
as corresponding expressions in the Business Corporations Act
(Ontario) (the "Act").
2. CORPORATE SEAL
2.1 Until changed by the directors, the corporate seal of the
Corporation shall be in the form impressed in the margin hereof.
3. FINANCIAL YEAR
3.1 Until changed by the directors, the financial year of the
Corporation shall end on the last day of December in each year.
4. DIRECTORS
4.1 Number. The number of directors shall be not fewer than the
minimum and not more than the maximum provided in the articles. At
each election of directors the number elected shall be such number
as shall be determined from time to time by special resolution or,
if the directors are empowered by special resolution to determine
the number, by the directors.
4.2 Quorum. A quorum of directors shall be two-fifths of the
number of directors or such greater number as the directors or
shareholders may from time to time determine.
4.3 Calling of Meetings. Meetings of the directors shall be held
at such time and place within or outside Ontario as the Chairman
of the Board, the President or any two directors may determine. A
majority of meetings of directors need not be held within Canada
in any financial year.
4.4 Notice of Meetings. Notice of the time and place of each
meeting of directors shall be given to each director by telephone
not less than 48 hours before the time of the meeting or by
written notice not less than four days before the date of the
meeting, provided that the first meeting immediately following a
meeting of shareholders at which directors are elected may be held
without notice if a quorum is present. Meetings may be held
without notice if the directors waive or are deemed to waive
notice.
<PAGE>
<PAGE>
4.5 Chairman. The Chairman of the Board, or in his absence the
President if a director, or in his absence a director chosen by
the directors at the meeting, shall be chairman of any meeting of
directors.
4.6 Voting at Meetings. At meetings of directors each director
shall have one vote and questions shall be decided by a majority
of votes. In case of an equality of votes the Chairman of the
meeting shall have a second or casting vote.
5. OFFICERS
5.1 General. The directors may from time to time appoint a
Chairman of the Board, a President, one or more Vice-Presidents,
a Secretary, a Treasurer and such other officers as the directors
may determine.
5.2 Chairman of the Board. The Chairman of the Board, if any,
shall be appointed from among the directors and when present shall
be chairman of meetings of directors and shareholders and shall
have such other powers and duties as the directors may determine.
5.3 President. Unless the directors otherwise determine the
President shall be appointed from among the directors and shall be
the chief executive officer of the Corporation and shall have
general supervision of its business and affairs and in the absence
of the Chairman of the Board shall be chairman of meetings of
directors and shareholders when present.
5.4 Vice-President. A Vice-President shall have such powers and
duties as the directors or the chief executive officer may
determine.
5.5 Secretary. The Secretary shall give required notices to
shareholders, directors, auditors and members of committees, act
as secretary of meetings of directors and shareholders when
present, keep and enter minutes of such meetings, maintain the
corporate records of the Corporation, have custody of the
corporate seal and shall have such other powers and duties as the
directors or the chief executive officer may determine.
5.6 Treasurer. The Treasurer shall keep proper accounting records
in accordance with the Act, have supervision over the safekeeping
of securities and the deposit and disbursement of funds of the
Corporation, report as required on the financial position of the
Corporation, and have such other powers and duties as the
directors or the chief executive officer may determine.
5.7 Assistants. Any of the powers and duties of an officer to
whom an assistant has been appointed may be exercised and
performed by such assistant unless the directors or the chief
executive officer otherwise direct.
<PAGE>
<PAGE>
5.8 Term of Office. Each officer shall hold office until his
successor is elected or appointed, provided that the directors may
at any time remove any officer from office but such removal shall
not affect the rights of such officer under any contract of
employment with the Corporation.
6. INDEMNIFICATION AND INSURANCE
6.1 Indemnification of Directors and Officers. The Corporation
shall indemnify a director or officer, a former director or
officer or a person who acts or acted at the Corporation's request
as a director of officer of a body corporate of which the
Corporation is or was a shareholder or creditor, and the heirs and
legal representative of such a person to the extent permitted by
the Act.
6.2 Insurance. The Corporation may purchase and maintain for the
benefit of any person referred to in the preceding section to the
extent permitted by the Act.
7. SHAREHOLDERS
7.1 Quorum. A quorum for the transaction of business at a meeting
of shareholders shall be two persons present and each entitled to
vote at the meeting.
7.2 Casting Vote. In case of an equality of votes at a meeting of
shareholders the Chairman of the meeting shall have a second or
casting vote.
7.3 Scrutineers. The Chairman at any meeting of shareholders may
appoint one or more persons (who need not be shareholders) to act
as scrutineer or scrutineers at the meeting.
8. DIVIDENDS AND RIGHTS
8.1 Declaration of Dividends. Subject to the Act, the directors
may from time to time declare dividends payable to the
shareholders according to their respective rights and interest in
the Corporation.
8.2 Cheques. A dividend payable in money shall be paid by cheque
to the order of each registered holder of shares of the class or
series in respect of which it has been declared and mailed by
prepaid ordinary mail to such registered holder at the address of
such holder in the Corporation's securities register, unless such
holder otherwise directs. In the case of joint holders the cheque
shall, unless such joint holders otherwise direct, be made payable
to the order of all of such joint holders and mailed to them at
their address in the Corporation's securities register. The
mailing of such cheque as aforesaid, unless the same is not paid
on due presentation, shall satisfy and discharge the liability for
the dividend to the extent of the sum represented thereby plus the<PAGE>
<PAGE>
amount of any tax which the Corporation is required to and does
withhold.
8.3 Non-Receipt of Cheques. In the event of non-receipt of any
dividend cheque by the person to whom it is sent as aforesaid, the
Corporation shall issue to such person a replacement cheque for a
like amount on such terms as to indemnity, reimbursement of
expenses an evidence of non-receipt and of title as the directors
may form time to time prescribe, whether generally or in any
particular case.
8.4 Unclaimed Dividends. Any dividend unclaimed after a period of
six years from the date on which the same has been declared to be
payable shall be forfeited and shall revert to the Corporation.
9. EXECUTION OF INSTRUMENTS
9.1 Deeds, transfers, assignments, agreements, proxies and other
instruments may be signed on behalf of the Corporation by any two
directors or by a director and an officer or by one of the
Chairman of the Board, the President and a Vice-President together
with one of the Secretary and the Treasurer or in such other
manner as the directors may determine; except that insider trading
reports may be signed on behalf of the Corporation by any one
director or officer of the Corporation.
10. NOTICE
10.1 A notice mailed to a shareholder, director, auditor or
member of a committee shall be deemed to have been given when
deposited in a post office or public letter box.
10.2 Accidental omission to give any notice to any shareholder,
director, auditor or member of a committee or non-receipt of any
notice or any error in a notice not affecting the substance
thereof shall not invalidate any action taken at any meeting held
pursuant to such notice.
RESOLVED THAT the foregoing by-law is made a by-law of the
Corporation by the signature hereto of the sole director of the
Corporation pursuant to the Business Corporations Act (Ontario),
this 29th day of September, 1997.
s/Jean D. DuGuay
----------------------------
Jean D. DuGuay
<PAGE>
<PAGE>
RESOLVED THAT the foregoing by-law is confirmed as a by-law
of the Corporation by the signature hereto of the sole shareholder
of the Corporation pursuant to the Business Corporations Act
(Ontario), this 29th day of September, 1997.
s/Jean D. DuGuay
----------------------------
Jean D. DuGuay
<PAGE>
<PAGE>
EXHIBIT C
SHAREHOLDERS AGREEMENT
AGREEMENT dated as of February 3, 1998 by and among
Telepanel/ERS Joint Venture, Inc., a corporation incorporated
under the Business Corporations Act (Ontario) (the "OBCA") having
a place of business at 245 Riviera Drive, Markham, Ontario, Canada
L3R SJ9 (the "Joint Venture"), Electronic Retailing Systems
International, Inc., a Delaware corporation having a place of
business at 488 Main Avenue, Norwalk, Connecticut 06851-2500
("ERS"), and Telepanel Systems Inc., a corporation incorporated
under the Canada Business Corporations Act having a place of
business at 245 Riviera Drive, Markham, Ontario, Canada L3R SJ9
("Telepanel" and, together with ERS, hereinafter referred to,
collectively, as the "Stockholders", and, individually, as a
"Stockholder") .
W I T N E S S E T H:
WHEREAS, the Stockholders have entered into a Joint
Distribution Agreement dated February 3, 1998 (the "Distribution
Agreement") whereunder the Stockholders agreed to form the Joint
Venture for certain purposes set out in the Distribution
Agreement; and
WHEREAS, the Stockholders have caused the incorporation of
the Joint Venture under the OBCA; and
WHEREAS, pursuant to its articles of incorporation, the Joint
Venture is authorized to issue an unlimited number of Class A
Common Shares, without par value (hereinafter referred to as the
"Class A Common Shares"), and an unlimited number of Class B
shares, without par value (hereinafter referred to as the "Class
B Common Shares"); and
WHEREAS, the Stockholders desire to enter into agreements
with respect to certain aspects of the management and operation of
the Corporation, and certain restrictions on the transfer of the
Class A Common Shares and the Class B Common Shares;
NOW, THEREFORE, in consideration of the premises and the
covenants and agreements hereinafter set forth, the parties hereto
hereby agree as follows:
1. Governing Documents. The Stockholders acknowledge that
the Articles of Incorporation of the Joint Venture and its By-
laws, are in the respective forms of Exhibit A and Exhibit B
annexed hereto. Neither the Articles of Incorporation nor the By-
laws of the Joint Venture, nor any provision contained therein,
may be amended, modified, supplemented or cancelled without the
consent of each Stockholder.<PAGE>
<PAGE>
2. Purposes. The Stockholders agree that the Joint Venture
shall (i) serve as ERS' non-exclusive representative for the
distribution of the ShelfNet System (as such term is defined in
the Distribution Agreement) within the United States of America
(the "Territory"), pursuant to the terms set forth in the
Distribution Agreement; (ii) serve as Telepanel's exclusive
representative for the installation of the Telepanel System (as
such term is defined in the Distribution Agreement) in the
Territory, pursuant to the terms set forth in the Distribution
Agreement (and subject to the subcontract requirements
thereunder); and (iii) engage in such other activities as shall
from time to time be determined by written consent of each of the
Stockholders. Notwithstanding the foregoing, the parties hereto
agree that each shall take all action necessary and within its
control to maintain the Joint Venture as a Joint Venture defined
in the Indenture dated as of January 24, 1997 between ERS and
United States Trust Company of New York.
3. Subscription Agreement; Funds. Telepanel hereby
subscribes for and agrees to purchase 900 Class A Common Shares,
and ERS hereby subscribes for and agrees to purchase 100 Class B
Common Shares, from the Corporation for a purchase price of Cdn.
$.01 per share. The Joint Venture shall maintain one or more bank
accounts in its own name in which shall be deposited such sums and
the receipts and income received by the Joint Venture from its
operations (including all Working Capital Advances pursuant to the
Joint Distribution Agreement). The Stockholders hereby agree that
the Joint Venture may not issue any additional Class A Common
Shares or Class B Common Shares, or any other security, or any
option or warrant or other right with respect thereto, or any
rights convertible into any such securities, or enter into any
agreements with respect to the foregoing, without the prior
written consent of each Stockholder.
4. Board of Directors. Each of the Stockholders hereby
agrees that ERS shall at all times have the right to designate at
least one member of the Board of Directors of the Joint Venture.
5. Transfer of Shares.
(a) General. Each of the Stockholders agree that no
Class A Common Shares or Class B Common Shares (or options or
rights with respect thereto) shall be sold, assigned, transferred,
pledged, hypothecated, extended, granted or otherwise disposed of,
whether voluntarily or by operation of law, except as specifically
provided under this Section 5. Any purported disposition of Class
A Common Shares or Class B Common Shares in violation of this
Agreement shall be void.
(b) A Stockholder (hereinafter referred to as the
"Selling Stockholder") may sell all, but not less than all, of its
Class A Common Shares and Class B Common Shares in accordance with
the following terms and conditions:<PAGE>
<PAGE>
(i) The Stockholder proposing to sell such shares
pursuant to a bona fide offer for the purchase thereof shall
give written notice (hereinafter referred to as the "Notice")
to the other Stockholder (hereinafter referred to as the
"Notified Stockholder") to that effect. The Notice shall
specify the name of the person or persons to whom the Selling
Stockholder desires to transfer such Class A Common Shares or
Class B Common Shares, the dollar value per share of the
consideration offered for such shares and the other terms of
the proposed transfer. The Notified Shareholder shall have
the right and option to purchase all, but not less than all,
such Common Shares for a purchase price equal to the fair
market value thereof (determined by an independent appraiser
reasonably acceptable to each Stockholder). Such right and
option shall be exercised by the Notified Shareholder by
giving written notice of exercise to the Selling Stockholder
within 30 days (hereinafter referred to as the "Reply
Period") after the receipt of the Notice.
(ii) If the Notified Shareholder shall not have
exercised its right and option within the Reply Period, the
Selling Stockholder shall thereafter be free for a period of
60 days to sell, assign and transfer the Class A Common
Shares or Class B Common Shares to which the right and option
related, on terms no less favorable to the Selling
Stockholder than the terms specified in the Notice.
(iii) Upon the Notified Stockholder's giving notice that
it intends to exercise its right and option to purchase the
Class A Common Shares or the Class B Common Shares of the
Selling Stockholder, the Selling Stockholder shall for all
purposes cease to be a stockholder of the Joint Venture. Upon
receipt of such notice, the Selling Stockholder shall
forthwith, and in any event within 15 days, deliver to the
Notified Stockholder the certificates representing the Class
A Common Shares or the Class B Common Shares to be purchased
by the Notified Stockholder and thereupon, subject to
determination of the purchase price thereof, the Notified
Stockholder shall pay the Selling Stockholder the purchase
price thereof.
6. Representations of the Stockholders. Each Stockholder
represents, warrants and covenants to the other Stockholder that:
(a) It is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its
incorporation and has the full corporate power and<PAGE>
<PAGE>
authority to enter into this Agreement and perform its agreements
and covenants to be performed hereunder.
(b) The execution and delivery of this Agreement by it and
the performance by it of its covenants and agreements hereunder
have been duly authorized by all necessary corporate action and,
when executed and delivered by it, this Agreement shall constitute
its valid and legally binding agreement, enforceable against it in
accordance with its terms, except as may be limited by bankruptcy,
insolvency, or other laws affecting generally the enforceability
of creditors' rights and by limitations on the availability of
equitable remedies.
(c) Neither the execution and delivery of this Agreement nor
the consummation or performance by it of the transactions
contemplated herein will violate any provision of its certificate
of incorporation or articles of incorporation, as the case may be,
or by-laws or any law, rule, regulation, writ, judgment,
injunction, decree, determination, award, or other order of any
court, government or governmental agency or instrumentality,
domestic or foreign, binding upon it or conflict with or result in
any breach of any of the terms of or the creation or imposition of
any mortgage, deed of trust, pledge, lien, security interest or
other charge or encumbrance of any nature pursuant to the terms of
any contract or agreement to which it is a party or by which it,
or any of its assets and properties is bound other than pursuant
to the Distribution Agreement and the documents referred to
therein prepared in connection therewith.
7. Legends. Each stock certificate representing Class A
Common Shares or Class B Common Shares shall contain upon its face
or upon the reverse side thereof a legend to the following effect:
"This stock certificate represents shares which are
subject to the terms and conditions of a Stockholders'
Agreement dated as of February 3, 1998 (a copy of which
is on file at the principal office of Telepanel/ERS
Joint Venture, Inc.), and no sale, assignment, transfer,
pledge, hypothecation or other disposition of such
shares or any interest therein shall be made except in
compliance with the terms and conditions of said
Agreement."
8. Miscellaneous.
(a) All notices, requests or instructions hereunder
shall be in writing and delivered personally or sent by registered
or certified mail, postage prepaid at the address hereinabove set
forth. Any of the above addresses may be changed at any time by
notice given as provided above; provided, however,<PAGE>
<PAGE>
that any such notice of change of address shall be effective only
upon receipt.
(b) This Agreement, the documents referred to herein
(and the documents referred to in such documents) contain the
entire agreement between the parties hereto with respect to the
transactions contemplated hereby, and no modification hereof shall
be effective unless in writing and signed by the party against
which it is sought to be enforced.
(c) Unless otherwise contemplated hereunder, this
Agreement and any rights and obligations hereunder shall not be
assignable without the written consent of all of the parties
hereto.
(d) The parties agree to use their respective best
efforts to take such actions as may be necessary or reasonably
requested by the other parties hereto to carry out and consummate
the transactions contemplated by this Agreement.
(e) Except as otherwise provided herein, each of the
parties hereto shall bear such party's own expenses in connection
with this Agreement and the transactions contemplated hereby.
(f) This Agreement shall be governed by and construed
in accordance with the laws of the Province of Ontario applicable
in the case of agreements made and to be performed entirely within
such jurisdiction.
(g) This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto as of the date first above written.
ELECTRONIC RETAILING SYSTEMS TELEPANEL SYSTEMS INC.
INTERNATIONAL, INC.
By By
-------------------------- ---------------------------
Name: Name:
Title: Title:
TELEPANEL/ERS JOINT VENTURE, INC.
By
--------------------------
Name:
Title:
<PAGE>
<PAGE>
EXHIBIT A
For Ministry Use Only
A l'usage exclusif du ministere
Ontario Corporation Number
Numero de la societe en
Ontario
1258040
Ministry of Consumer and Ministere de la Consommation
Commercial Relations Consommation et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les
articles are effective on presents statuts entrent
en vigueur le
SEPTEMBER 29 SEPTEMBRE, 1997
- --------------------------------------------------
Director/Directeur
Business Corporation Act/Loi sur les societe par actions
ARTICLES OF INCORPORATION
STATUTS CONSTITUTIFS
<TABLE>
<S> <C> <C>
Form 1 1. The name of the corporation Denomination sociale de la
Business is: societe:
Corporat- 1258040 ONTARIO LIMITED
ions Act
2. The address of the registered Adresse du siege social:
office:
Formule 1
loi sur SUITE 3000, AETNA TOWER, TORONTO-DOMINION CENTRE
les -------------------------------------------------
societe (Street & Number, or R.R. Number & if Multi-Office Building
par give Room No.)
actions (Rue et numero, ou numero de la R.R. et, s'il s'agit d'un
edifice a bureaux, numero du bureau)
TORONTO, ONTARIO M5K1N2
------------------------------------------------------------
(Name of Municipality or Post Office) (Postal Code)
(Nom de la municipalite ou du bureau (Code postal)
de poste)
3. Number (or minimum and Nombre (ou nombres minimal
maximum number) of directors et maximal)
is: d'administrateurs:
MINIMUM OF 1; MAXIMUM OF 10
/TABLE
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
The first Premier(s) Resident
director(s) is/are: administrateur(s): Canadian
State
Yes or No
<S> <C> <C>
First name, initials Residence address, Resident
and surname giving Street & No. canadian
Prenom, initiales or R.R. No., Oui/Non
at nom de famille Municipality and
Postal Code
Adresse personnelle,
y compris la rue et le
numero de la R.R., le nom
de la municipalite et le
code postal
JEAN D. DUGUAY 408-60 MOUNTVIEW AVENUE YES
TORONTO, ONTARIO
M6P 2L4
</TABLE>
5. Restrictions, if any, on Limites, s'il y a lieu,
business the corporation imposees aux activites
may carry on or on powers commerciales ou aux
the corporation may exercise. pouvoirs de la societe.
no restrictions
6. The classes and any maximum Categories et nombre maximal,
number of shares that the s'il y a lieu, d'actions que
corporation is authorized la societe est autorisee a
to issue: emettre:
an unlimited number of common shares.
7. Rights, privileges, Droits, privileges, restrictions
restrictions and et conditions, s'il y a lieu,
conditions (if any) rattache a chaque categorie
attaching to each class d'action et pouvoirs des
of shares which may be administrateurs relatifs a
issued in series: chaque categorie d'actions qui
peut etre emise en serie:
not applicable.
8. The issue, transfer or L'emission, le transfert ou la
ownership of shares is/is propriete d'actions est/n est
not restricted and the pas restreint. Les restrictions,
restrictions (if any) s'il y a lieu, sont les
are as follows: suivantes:
<PAGE>
<PAGE>
The right to transfer shares of the Corporation is restricted in
that no share shall be transferred except with the consent of
the Board of Directors of the Corporation, to be expressed
either by a resolution passed at a meeting of the Board of
Directors or by an instrument or instruments in writing signed
by a majority of the directors.
9. Other provisions, if any, Autres dispositions, s'il y
are: a lieu:
(a) The number of shareholders of the Corporation, exclusive
of persons who are in its employment and exclusive of
persons who having been formerly in the employment of the
Corporation, were, while in that employment, and have
continued after the termination of that employment to be,
shareholders of the Corporation, is limited to not more
than fifty, two or more persons who are the joint
registered owners of one or more shares being counted as
one shareholder.
(b) Any invitation to the public to subscribe for securities
of the Corporation is prohibited.
10. The names and addresses of Nom et adresse des fondateurs
the incorporators are Full residence address or
First name, initials and address of registered office
surname or corporate name or of principal place of
Prenom, initiale et nom de business giving street & No.
famille ou denomination or R.R. No., municipality and
sociale postal code
Adresse personnelle au complet,
adresse du siege social ou
adresse de l'etablissement
principal, y compris la rue
et le numero, le numero de la
R.R.,le nom de la municipalite
et le code postal
Jean D. DuGuay 408-60 Mountview Avenue
Toronto, Ontario
M6P 2L4
These articles are signed Les presents statuts sont signes
in duplicate en double exemplaire
Signatures of incorporators
(signatures des fondateurs)
s/Jean D. DuGuay
---------------------------
Jean D. DuGuay<PAGE>
<PAGE>
For Ministry Use Only
A l'usage exclusif du ministere
Ontario Corporation Number
Numero de la societe en
Ontario
1258040
Ministry of Consumer and Ministere de la Consommation
Commercial Relations Consommation et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie que les
articles are effective on presents statuts entrent
en vigueur le
December 17 DECEMBRE, 1997
- --------------------------------------------------
Director/Directeur
Business Corporation Act/Loi sur les societe par actions
ARTICLES OF AMENDMENT
STATUTS DE MODIFICATION
<TABLE>
<S> <C> <C>
Form 3 1. The name of the corporation Denomination sociale de la
Business is: societe:
Corporat- 1258040 ONTARIO INC.
ions Act
Formule 3 2. The name of the corporation Nouvelle denomination
Loi sur is changed to (if sociale de la societe
les applicable): (s'il y a lieu):
societes
par TELEPANEL/ERS JOINT VENTURE, INC.
actions
3. Date of incorporation/ Date de la constitution
amalgamation: ou de la fusion:
1997 September 29
(Year, Month, Day)
(annee, mois, jour)
4. The articles of the corporation Les statuts de la societe
are amended as follows: sont modifies de la facon
suivante.
</TABLE>
<PAGE>
<PAGE>
1. To change the name of the Corporation from 1258040
Ontario Limited to Telepanel/ERS Joint Venture,
Inc.
2. To change the designation of the common shares to
Class A common shares.
3. To delete the rights, privileges, restrictions and
conditions attached to the Class A common shares
and substitute therefor the rights, privileges,
restrictions and conditions set forth in the
attached page 1A.
4. To create a new class of shares to be designated
Class B common shares and to have attached thereto
the rights, privileges, restrictions and
conditions set forth in the attached page 1A.
5. To provide that the maximum number of Class B
common shares that the Corporation is authorized
to issue shall be unlimited.
<PAGE>
<PAGE>
Rights, Privileges, Restrictions and Conditions
Attaching to the Class A Common and Class B Common Shares
---------------------------------------------------------
Common Shares
The rights, privileges, restrictions and conditions attaching
to the Class A Common Shares and the Class B Common Shares are as
follows:
Voting Rights
The holders of Class A Common Shares and Class B Common shares
shall be entitled to receive notice of, and to attend, and to cast
one vote for each such Class A Common Share or Class B Common Share
held, at all meetings of shareholders except meetings at which only
holders of a specified class or series of shares of the Corporation
are entitled to vote.
Rights Upon Dissolution
After payment to the holders of shares ranking senior to the
Class A Common Shares and Class B Common Shares of the amount or
amounts which they may be entitled, the holders of the Class A
Common Shares and the Class B Common Shares shall be entitled to
receive the remaining property of the Corporation upon dissolution.
Dividend Rights
Subject to the prior rights of the holders of any shares
ranking senior to the Class A Common Shares with respect to
priority in the payment of dividends, the holders of Class A Common
Shares shall be entitled to receive and the Corporation shall pay
thereon, as and when declared by the board of directors of the
Corporation out of monies of the Corporation properly applicable to
the payment of dividends, such dividends of the board of directors
of the Corporation may, from time to time, determine.
Other Rights
Except as set out above, each Class A Common Share and Class
B Common share shall have the same rights and attributes and shall
be the same in all respects.
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C>
5. The amendment has been duly La modification a ete dumant
authorized as required by autorisee conformement aux
Sections 168 and 170 (as articles 168 et 170 (selon le
applicable) of the Business cas) de la Loi sur les societes
Corporations Act. par actions.
6. The resolution authorizing Les actionnaires ou les
the amendment was approved administrateurs (selon le cas)
by the shareholders/directors de la societes ont approuve la
(as applicable) of the cor- modification le
poration on
1997 December 17
-----------------------------------------------------------------
(Year, Month, Day)
(annee, mois, jour)
These articles are signed in Les presents status sont
duplicate. signes en double examplaire
1258040 Ontario Limited
-----------------------
(Name of Corporation)
(Denomination soclase de la societes)
By:/Par: s/Jean D. DuGuay
----------------------------
(Signature) (Description of Office)
(Signature) (Foncion)
Jean D. DuGuay - President and
Secretary
</TABLE>
<PAGE>
<PAGE>
EXHIBIT B
BY-LAW NO. 1
OF
1258040 ONTARIO LIMITED
(the "Corporation")
1. INTERPRETATION
1.1 Expressions used in this By-law shall have the same meanings
as corresponding expressions in the Business Corporations Act
(Ontario) (the "Act").
2. CORPORATE SEAL
2.1 Until changed by the directors, the corporate seal of the
Corporation shall be in the form impressed in the margin hereof.
3. FINANCIAL YEAR
3.1 Until changed by the directors, the financial year of the
Corporation shall end on the last day of December in each year.
4. DIRECTORS
4.1 Number. The number of directors shall be not fewer than the
minimum and not more than the maximum provided in the articles. At
each election of directors the number elected shall be such number
as shall be determined from time to time by special resolution or,
if the directors are empowered by special resolution to determine
the number, by the directors.
4.2 Quorum. A quorum of directors shall be two-fifths of the
number of directors or such greater number as the directors or
shareholders may from time to time determine.
4.3 Calling of Meetings. Meetings of the directors shall be held
at such time and place within or outside Ontario as the Chairman
of the Board, the President or any two directors may determine. A
majority of meetings of directors need not be held within Canada
in any financial year.
4.4 Notice of Meetings. Notice of the time and place of each
meeting of directors shall be given to each director by telephone
not less than 48 hours before the time of the meeting or by
written notice not less than four days before the date of the
meeting, provided that the first meeting immediately following a
meeting of shareholders at which directors are elected may be held
without notice if a quorum is present. Meetings may be held
without notice if the directors waive or are deemed to waive
notice.
<PAGE>
<PAGE>
4.5 Chairman. The Chairman of the Board, or in his absence the
President if a director, or in his absence a director chosen by
the directors at the meeting, shall be chairman of any meeting of
directors.
4.6 Voting at Meetings. At meetings of directors each director
shall have one vote and questions shall be decided by a majority
of votes. In case of an equality of votes the Chairman of the
meeting shall have a second or casting vote.
5. OFFICERS
5.1 General. The directors may from time to time appoint a
Chairman of the Board, a President, one or more Vice-Presidents,
a Secretary, a Treasurer and such other officers as the directors
may determine.
5.2 Chairman of the Board. The Chairman of the Board, if any,
shall be appointed from among the directors and when present shall
be chairman of meetings of directors and shareholders and shall
have such other powers and duties as the directors may determine.
5.3 President. Unless the directors otherwise determine the
President shall be appointed from among the directors and shall be
the chief executive officer of the Corporation and shall have
general supervision of its business and affairs and in the absence
of the Chairman of the Board shall be chairman of meetings of
directors and shareholders when present.
5.4 Vice-President. A Vice-President shall have such powers and
duties as the directors or the chief executive officer may
determine.
5.5 Secretary. The Secretary shall give required notices to
shareholders, directors, auditors and members of committees, act
as secretary of meetings of directors and shareholders when
present, keep and enter minutes of such meetings, maintain the
corporate records of the Corporation, have custody of the
corporate seal and shall have such other powers and duties as the
directors or the chief executive officer may determine.
5.6 Treasurer. The Treasurer shall keep proper accounting records
in accordance with the Act, have supervision over the safekeeping
of securities and the deposit and disbursement of funds of the
Corporation, report as required on the financial position of the
Corporation, and have such other powers and duties as the
directors or the chief executive officer may determine.
5.7 Assistants. Any of the powers and duties of an officer to
whom an assistant has been appointed may be exercised and
performed by such assistant unless the directors or the chief
executive officer otherwise direct.
<PAGE>
<PAGE>
5.8 Term of Office. Each officer shall hold office until his
successor is elected or appointed, provided that the directors may
at any time remove any officer from office but such removal shall
not affect the rights of such officer under any contract of
employment with the Corporation.
6. INDEMNIFICATION AND INSURANCE
6.1 Indemnification of Directors and Officers. The Corporation
shall indemnify a director or officer, a former director or
officer or a person who acts or acted at the Corporation's request
as a director of officer of a body corporate of which the
Corporation is or was a shareholder or creditor, and the heirs and
legal representative of such a person to the extent permitted by
the Act.
6.2 Insurance. The Corporation may purchase and maintain for the
benefit of any person referred to in the preceding section to the
extent permitted by the Act.
7. SHAREHOLDERS
7.1 Quorum. A quorum for the transaction of business at a meeting
of shareholders shall be two persons present and each entitled to
vote at the meeting.
7.2 Casting Vote. In case of an equality of votes at a meeting of
shareholders the Chairman of the meeting shall have a second or
casting vote.
7.3 Scrutineers. The Chairman at any meeting of shareholders may
appoint one or more persons (who need not be shareholders) to act
as scrutineer or scrutineers at the meeting.
8. DIVIDENDS AND RIGHTS
8.1 Declaration of Dividends. Subject to the Act, the directors
may from time to time declare dividends payable to the
shareholders according to their respective rights and interest in
the Corporation.
8.2 Cheques. A dividend payable in money shall be paid by cheque
to the order of each registered holder of shares of the class or
series in respect of which it has been declared and mailed by
prepaid ordinary mail to such registered holder at the address of
such holder in the Corporation's securities register, unless such
holder otherwise directs. In the case of joint holders the cheque
shall, unless such joint holders otherwise direct, be made payable
to the order of all of such joint holders and mailed to them at
their address in the Corporation's securities register. The
mailing of such cheque as aforesaid, unless the same is not paid
on due presentation, shall satisfy and discharge the liability for
the dividend to the extent of the sum represented thereby plus the<PAGE>
<PAGE>
amount of any tax which the Corporation is required to and does
withhold.
8.3 Non-Receipt of Cheques. In the event of non-receipt of any
dividend cheque by the person to whom it is sent as aforesaid, the
Corporation shall issue to such person a replacement cheque for a
like amount on such terms as to indemnity, reimbursement of
expenses an evidence of non-receipt and of title as the directors
may form time to time prescribe, whether generally or in any
particular case.
8.4 Unclaimed Dividends. Any dividend unclaimed after a period of
six years from the date on which the same has been declared to be
payable shall be forfeited and shall revert to the Corporation.
9. EXECUTION OF INSTRUMENTS
9.1 Deeds, transfers, assignments, agreements, proxies and other
instruments may be signed on behalf of the Corporation by any two
directors or by a director and an officer or by one of the
Chairman of the Board, the President and a Vice-President together
with one of the Secretary and the Treasurer or in such other
manner as the directors may determine; except that insider trading
reports may be signed on behalf of the Corporation by any one
director or officer of the Corporation.
10. NOTICE
10.1 A notice mailed to a shareholder, director, auditor or
member of a committee shall be deemed to have been given when
deposited in a post office or public letter box.
10.2 Accidental omission to give any notice to any shareholder,
director, auditor or member of a committee or non-receipt of any
notice or any error in a notice not affecting the substance
thereof shall not invalidate any action taken at any meeting held
pursuant to such notice.
RESOLVED THAT the foregoing by-law is made a by-law of the
Corporation by the signature hereto of the sole director of the
Corporation pursuant to the Business Corporations Act (Ontario),
this 29th day of September, 1997.
s/Jean D. DuGuay
----------------------------
Jean D. DuGuay
<PAGE>
<PAGE>
RESOLVED THAT the foregoing by-law is confirmed as a by-law
of the Corporation by the signature hereto of the sole shareholder
of the Corporation pursuant to the Business Corporations Act
(Ontario), this 29th day of September, 1997.
s/Jean D. DuGuay
----------------------------
Jean D. DuGuay
<PAGE>
<PAGE>
EXHIBIT D
<TABLE>
<CAPTION>
COLLATERAL CERTIFICATE
<S> <C>
Inventory, as described in and cal-
culated pursuant to clause (x)
of Paragraph (d)(i) of Article IV
of Joint Distribution Agreement
identified below, and otherwise
meeting the criteria under said
Paragraph (d)(i) U.S. $
--------------
Receivables, described in and cal-
culated pursuant to clause (y)
of Paragraph (d)(i) of Article IV
of Joint Distribution Agreement
identified below, and otherwise
meeting the criteria under said
Paragraph (d)(i)
--------------
Advance Limit - Lesser of (i)
U.S.$2,000,000 or (ii) sum of
50% of outstanding inventory and
90% of outstanding receivables
--------------
Outstanding borrowings of
Telepanel/ERS Joint Venture, Inc.
(the "Joint Venture")
--------------
Outstanding availability to Joint
Venture
--------------
</TABLE>
The undersigned hereby certify that they are, respectively,
the chief executive officer and chief financial officer of
Telepanel Systems Inc. ("Telepanel"), and that the above
information is true and correct. The undersigned further certify
that: there is no breach by Telepanel or any of its subsidiaries
of the Joint Distribution Agreement dated February 3, 1998 (the
"Joint Venture Agreement") between Telepanel and Electronic
Retailing Systems International, Inc., or the documents
contemplated thereby, or the Combination Agreement (as defined
therein); the respective representations and warranties of
Telepanel and its subsidiaries contained in the Joint Distribution
Agreement and the documents contemplated thereby, and in the
Combination Agreement, are true and correct as of the date hereof
with the same effect as though all such representations and
warranties were made at and as of the date hereof; and no fact or
circumstance exists which constitutes or with notice or passage of
time or otherwise would constitute a breach of or default by
Telepanel or any of its subsidiaries under the Joint Distribution<PAGE>
<PAGE>
Agreement and the documents contemplated thereby, or under the
Combination Agreement, has occurred.
TELEPANEL SYSTEMS INC.
Date: By
-------------------------------
Chief Executive Officer
By
-------------------------------
Chief Financial Officer
<PAGE>
<PAGE>
EXHIBIT E
<TABLE>
<CAPTION>
BORROWING CERTIFICATE
<S> <C>
Inventory certified by Telepanel
Systems Inc. ("Telepanel"), as
described in and calculated pur-
suant to clause (x) of Paragraph
(d)(i) of Article IV of Joint
Distribution Agreement identified
below, and otherwise meeting the
criteria under said Paragraph (d)(i) U.S. $
-------------
Receivables certified by Telepanel,
described in and calculated pur-
suant to clause (y) of Paragraph
(d)(i) of Article IV of Joint
Distribution Agreement identified
below, and otherwise meeting the
criteria under said Paragraph (d)(i)
-------------
Advance Limit - Lesser of (i)
U.S.$2,000,000 or (ii) sum of
50% of outstanding inventory and
90% of outstanding receivables
-------------
Outstanding borrowings of
Telepanel/ERS Joint Venture, Inc.
(the "Joint Venture")
-------------
Outstanding availability to Joint
Venture
-------------
Requested Borrowing
-------------
</TABLE>
The undersigned hereby certifies that they are, respectively,
the chief executive officer and chief financial officer of the
Joint Venture, and that the above information is true and correct.
The undersigned further certify that: there is no breach by the
Joint Venture of its obligations contemplated under the Joint
Distribution Agreement dated February 3, 1998 (the "Joint Venture
Agreement") between Telepanel and Electronic Retailing Systems
International, Inc., or the documents contemplated thereby; the
representations and warranties of the Joint Venture contained in
the documents contemplated by the Joint Distribution Agreement are
true and correct as of the date hereof with the same effect as
though all such representations and warranties were made at and as
of the date hereof; and no fact or circumstance exists which
constitutes or with notice or passage of time or otherwise would
constitute a breach of or default by the Joint Venture under its<PAGE>
<PAGE>
obligations contemplated under the Joint Distribution Agreement
and the documents contemplated thereby has occurred.
TELEPANEL/ERS JOINT VENTURE, INC.
Date: By
-------------------------------
Chief Executive Officer
By
-------------------------------
Chief Financial Officer
<PAGE>
<PAGE>
EXHIBIT F
TELEPANEL/ERS JOINT VENTURE INC.
GUARANTEED SECURED PROMISSORY NOTE
U.S.$2,000,000 February 3, 1998
SECTION 1. General. (a) TELEPANEL/ERS JOINT VENTURE
INC., a corporation organized and existing under the laws of
Ontario (hereinafter referred to as the "Joint Venture"), for
value received, hereby promises to pay to ELECTRONIC RETAILING
SYSTEMS INTERNATIONAL, INC., a corporation organized and existing
under the laws of the State of Delaware (hereinafter referred to
as "ERS"), or order, the aggregate principal amount of
U.S.$2,000,000 (Two Million U.S. Dollars), or such lesser amount
as shall be outstanding hereunder advanced under the Joint
Distribution Agreement (as hereinafter defined), which shall be
due and payable at the time or times set forth in Paragraph (d) of
Article IV of the Joint Distribution Agreement (subject to
prepayment in whole or in part in the manner provided in the Joint
Distribution Agreement and in Section 3 hereof), in such coin or
currency of the United States of America as at the time of payment
shall be legal tender therein for the payment of public and
private debts, and to pay interest on the unpaid balance of the
principal amount hereof monthly at a rate per annum equal to 2.5%
in excess of the Prime Rate (as hereinafter defined) from time to
time in effect, in like coin or currency, on the first day of each
calendar month from the date hereof until the obligation of the
Joint Venture with respect to the payment thereof shall be
discharged, all payments and prepayments of principal of this Note
to be made in the manner hereinbelow set forth. Interest hereon
shall be computed on the basis of a 360-day year. For purposes of
the Interest Act (Canada), whenever any interest is calculated
using a rate based on a year of 360 days, such rate determined
pursuant to such calculation, when expressed as an annual rate is
equivalent to (i) the applicable rate based on a year of 360 days,
(ii) multiplied by the actual number of days in the calendar year
in which the period for such interest is payable (or compounded)
ends, and (iii) divided by 360.
(b) The Joint Venture hereby authorizes the holder of this
Note, or its duly authorized agent, to endorse on the grid
attached as Schedule A to this Note an appropriate notation
evidencing the amount of each Working Capital Advance (as defined
in the Joint Distribution Agreement), which, in the absence of
manifest error, shall be conclusive as to the outstanding
principal amount of all such advances; provided, however, that the
failure to make such notation with respect to any such advance
shall not limit or otherwise affect the obligation of the Joint
Venture to the holder of this Note hereunder.
SECTION 2. Definitions. As used herein, the following
terms shall have the following respective meanings:<PAGE>
<PAGE>
The term "Combination Agreement" shall mean the
Combination Agreement dated October 29, 1997 between Telepanel and
ERS, as from time to time amended.
The term "Guaranties" shall mean the Unlimited
Guaranties executed to the holder of this Note by, respectively,
Telepanel and each of its subsidiaries.
The term "Joint Distribution Agreement" shall mean the
Joint Distribution Agreement dated February 3, 1998 between ERS
and Telepanel, as from time to time amended.
The term "Joint Venture" shall mean Telepanel/ERS Joint
Venture Inc., a corporation organized and existing under the laws
of Ontario, the maker of this Note.
The term "Note" shall mean this Note and any Note exe-
cuted and delivered by the Joint Venture in exchange or replace-
ment for this Note pursuant to Section 6 hereof.
The term "Person" shall mean an individual, a
corporation, a partnership, a trust, an unincorporated
organization and a government or any department, agency or
political subdivision thereof.
The term "Prime Rate" shall mean the prime rate from
time to time in effect at The Bank of New York for 90-day loans to
substantial commercial customers.
The term "Security Agreements" shall mean the Security
Agreements securing this Note and the Guaranties, respectively, as
from time to time amended.
The term "Telepanel" shall mean Telepanel Systems, Inc.,
a corporation organized and existing under the laws of Canada.
SECTION 3. Optional Prepayment. The Joint Venture shall
have the right at any time to prepay the whole, or at any time or
from time to time to prepay any part, of the unpaid principal
amount of this Note, without premium or penalty, provided that
interest on the principal amount hereof to be so prepaid accrued
to the date of such prepayment shall be paid concurrently
therewith. In the event of a prepayment of this Note in part only
(whether under this Section 3 or pursuant to the Joint
Distribution Agreement), such prepayment shall be applied in the
inverse order of maturity to the installments of principal payable
pursuant to the Joint Distribution Agreement. Notices of
prepayment under this Section 3 shall be given by the Joint
Venture by mail and shall be mailed to the holder of this Note not
less than ten days from the date fixed for prepayment. In case
this Note is to be prepaid in part only, such notice shall specify
the principal amount hereof to be prepaid, and the installments of
principal to which such prepayment is applicable. Upon giving of<PAGE>
<PAGE>
notice of prepayment as aforesaid, this Note or portion hereof so
specified for prepayment shall on the prepayment date specified in
such notice become due and payable; and from and after the
prepayment date so specified (unless the Joint Venture shall
default in making such prepayment) interest on this Note or
portion hereof so specified for prepayment shall cease to accrue,
and this Note or portion hereof so specified for prepayment shall
be paid by the Joint Venture as aforesaid.
SECTION 4. General Covenants. The Joint Venture cove-
nants and agrees with the holder of this Note as follows:
4.1 The Joint Venture shall punctually pay or cause to
be paid the principal of and interest on this Note according to
the terms hereof and of the Joint Distribution Agreement.
4.2 The Joint Venture shall:
(a) pay and discharge promptly, or cause to be paid
and discharged promptly, all taxes, assessments and gov-
ernmental charges or levies imposed upon it or upon its
income or upon any of its property, real, personal or mixed,
or upon any part thereof, as well as all claims of any kind
(including claims for labor, materials and supplies which, if
unpaid, might by law become a lien or charge upon its
property), provided, however, that the Joint Venture shall
not be required to pay any such tax, assessment, charge, levy
or claim if the amount, applicability or validity thereof
shall currently be contested in good faith by appropriate
proceedings and if the Joint Venture shall have set aside on
its books reserves (segregated to the extent required by
sound accounting practice) reasonably deemed by it adequate
with respect thereto; and
(b) do or cause to be done all things necessary or
appropriate to preserve and keep in full force and effect its
corporate existence, rights and franchises.
4.3 The Joint Venture shall not amalgamate with, merge
into or sell or otherwise dispose of all or substantially all its
properties as an entirety to, any person.
SECTION 5. Events of Default and Remedies.
5.1 The entire unpaid principal amount of this Note,
together with all accrued interest hereon, at the option of the
holder of this Note exercised by written notice to the Joint
Venture, shall forthwith become and be due and payable if any one
or more of the following events (herein called "Events of
Default") shall have occurred (for any reason whatsoever and
whether such happening shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in
compliance with any judgment, decree or order of any court or any<PAGE>
<PAGE>
order, rule or regulation of any administrative or governmental
body) and be continuing at the time of such notice, that is to
say:
(a) if default shall be made in the due and punctual
payment of the principal of this Note when and as the same shall
become due and payable, whether at maturity, by acceleration or
otherwise;
(b) if default shall be made in the due and punctual
payment of any interest on this Note when and as such interest
shall become due and payable;
(c) if the Term (as defined in the Joint Distribution
Agreement) shall have been terminated as a consequence of any
material breach by Telepanel of the Combination Agreement, or by
Telepanel or the Joint Venture or any subsidiary of Telepanel of
the Joint Distribution Agreement (other than the provisions of
Articles II, III, IV(a), (b) and (c), VII, IX or XI thereof), this
Note, the Guaranties, the Security Agreements, or the Joint
Venture Documentation (as defined in the Joint Distribution
Agreement), on the date which falls 30 days thereafter;
(d) any representation or warranty made by the Joint
Venture or the issuer of any of the Guaranties in the Joint
Distribution Agreement, the Guaranties or the Security Agreements,
or incorporated by reference therein, proves to have been
incorrect in any material respect when made;
(e) if the Joint Venture or any Guarantor shall:
(i) admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to
take advantage of any insolvency act;
(iii) make an assignment for the benefit of
creditors;
(iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its
property;
(v) on a petition in bankruptcy filed against it,
be adjudicated a bankrupt; or
(vi) file a petition or answer seeking reor-
ganization or arrangement under the federal bankruptcy laws
or any other applicable law or statute of the United States
of America or Canada or any state, district, province or
territory thereof;
<PAGE>
<PAGE>
(f) if a court of competent jurisdiction shall enter,
except at the direct or indirect request of the holder of this
Note, an order, judgment, or decree appointing, without the
consent of the Joint Venture or any Guarantor, a receiver of the
Joint Venture or such Guarantor, respectively, or of the whole or
any substantial part of its property, or approving a petition
filed against it seeking its reorganization or arrangement under
any bankruptcy laws or statute, and such order, judgment or decree
shall not be vacated or set aside or stayed within 60 days from
the date of entry thereof;
(g) if, under the provisions of any other law for the
relief or aid of debtors, any court of competent jurisdiction
shall assume custody or control of the Joint Venture or any
Guarantor or of the whole or any substantial part of its property
and such custody or control shall not be terminated or stayed
within 60 days from the date of assumption of such custody or
control;
(h) if this Note or any Guaranty or Security Agreement
shall cease to be enforceable in accordance with its terms against
the Joint Venture, or any Guarantor, or the Joint Venture, or any
Guarantor, shall so state in writing, or any collateral subject to
any Security Agreement shall be sold, resold, assigned, delivered
or possessed by or on behalf of any lender (other than ERS)
pursuant to its collateral rights therein;
(i) if (i) the Joint Venture or any Guarantor shall
default beyond any period of grace provided with respect thereto
in the payment of principal of, premium, if any, or interest on
any obligation in respect of borrowed money when due, whether by
acceleration or otherwise, or The Toronto-Dominion Bank demands
payment of any indebtedness due to it of Telepanel; or (ii) the
Joint Venture or any Guarantor shall default in the performance or
observance of any other agreement, term or condition contained in
such obligation or in any agreement under which any such
obligation is created, if the effect of any such default is to
cause or permit the holder or holders of such obligations (or a
trustee on behalf of such holder or holders) to cause such
obligation to become due prior to the date of its stated maturity;
(k) if any criminal proceeding for which the possibility
of a forfeiture of assets exists shall be instituted in any court
against the Joint Venture or any Guarantor, or if the Joint
Venture or any Guarantor shall be indicted for any crime.
5.2 In the case any one or more of the Events of Default
specified in Section 5.1 hereof shall have occurred and be
continuing, the holder of this Note may proceed to protect and
enforce its rights either by suit in equity and/or by action at
law, whether for the specific performance of any covenant or
agreement contained in this Note, or the holder of this Note may
at his option exercised by written notice to the Joint Venture<PAGE>
<PAGE>
declare the unpaid principal balance hereof, together with all
accrued interest thereon, immediately due and payable, and
otherwise proceed to enforce the payment of all sums due upon this
Note or to enforce any other legal or equitable right of the
holder of this Note. In the event an Event of Default shall have
occurred and the holder of this Note shall employ attorneys, or
incur other costs and expenses for the collection of payments due
or to become due, or for the enforcement or performance or
observance of any obligation or agreement of the Joint Venture
under this Note, the Joint Venture agrees that it will pay to the
holder, on demand, the reasonable fees of such attorney together
with all other costs and expenses incurred by the holder.
5.3 No remedy herein conferred upon the holder is
intended to be exclusive of any other remedy and each and every
such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law
or in equity or by statute or otherwise.
5.4 No course of dealing between the Joint Venture and
the holder or any delay on the part of the holder hereof in
exercising any rights hereunder shall operate as a waiver of any
rights of the holder hereof.
5.5 The Joint Venture and all endorsers of this Note
waive presentment for payment, protest and notice of dishonor
before declaring an Event of Default. The holder may delay in
enforcing its rights or in giving any notices without losing its
rights.
5.6 Any and all payments made under this Note, whether
timely or not, shall first be applied to late charges, second to
reasonable attorney fees, third to interest and the remainder
thereof to the unpaid principal of this Note.
SECTION 6. Exchange or Replacement of Note. Upon
receipt by the Joint Venture of evidence satisfactory to it of the
loss, theft, destruction or mutilation of this Note, and (in case
of loss, theft or destruction) of indemnity satisfactory to it,
and upon surrender and cancellation of this Note, if mutilated,
the Joint Venture, upon reimbursement to it of all reasonable
expenses incidental thereto, will make and deliver a new Note, of
like tenor, in lieu of this Note. Any Note made and delivered in
accordance with the provisions of this Section 6 shall be dated as
of the date to which interest has been paid on this Note.
SECTION 7. Place of Payment. All payments shall be made
payable by wire transfer as follows:
488 Main Avenue
Norwalk, Connecticut 06851-2500
<PAGE>
<PAGE>
or in such other manner as the holder may hereafter designate in
writing to the Purchaser.
SECTION 8. Notices. All notices, requests or
instructions hereunder shall be in writing and delivered
personally or sent by registered or certified mail, postage
prepaid, as follows:
(i) if to the Joint Venture:
245 Riviera Drive
Markham, Ontario L3R 5J0
with a copy to:
Barry Reiter, Esq.
Tory Tory DesLauriers & Binnington
Aetna Tower-Suite 3000
P.O. Box 270
Toronto-Dominion Centre
Toronto, Ontario M5K 1N2
(ii) if to the holder of this Note:
488 Main Avenue
Norwalk, Connecticut 06851-2500
with a copy to:
Howard Kailes, Esq.
Krugman Chapnick & Grimshaw LLP
Park 80 West - Plaza Two
Saddle Brook, New Jersey 07663
Any notice so addressed and mailed, shall be deemed to be given
when so mailed. Any notice so addressed and otherwise delivered
shall be deemed to be given when actually received by the
addressee. Any of the above addresses may be changed at any time
by notice given as provided above; provided, however, that any
such notice of change of address shall be effective only upon
receipt.
SECTION 9. Late Charge and Default Interest. The Joint
Venture shall pay on demand a late charge of five percent of each
installment overdue more than ten days (provided that if such
amount is usurious under governing law, then such amount shall be
limited so as not to exceed the amount permitted by law). If the
Joint Venture fails to pay the balance of this Note when due, or
if the holder of this Note exercises its option to accelerate the
balance due after default as provided herein, then the outstanding
principal due shall, in lieu of interest otherwise herein
provided, bear interest at the default rate equal to the Prime<PAGE>
<PAGE>
Rate plus 4.5% per annum, from and after the date of default
(provided that if such rate is usurious under governing law, then
such amount shall be limited so as not to exceed the amount
permitted by law).
SECTION 10. Taxes.
(a) All payments to the holder of this Note hereunder
shall be made free and clear of and without deduction or
withholding for any and all taxes, levies, imposts, deductions,
charges or withholdings and all related liabilities (all such
taxes, levies, imposts, deductions, charges, withholdings and
liabilities being referred to as "Taxes") imposed by any
jurisdiction (or any political subdivision or taxing authority of
it), unless such Taxes are required by applicable law to be
deducted or withheld. If the Joint Venture shall be required by
applicable law to deduct or withhold any such Taxes from or in
respect of any amount payable hereunder, (i) the amount payable
shall be increased (and for greater certainty, in the case of
interest, the amount of interest shall be increased) as may be
necessary so that after making all required deductions or
withholdings (including deductions or withholdings applicable to
any additional amounts paid under this Section 10), the holder
receives an amount equal to the amount it would have received if
no such deduction or withholding had been made, (ii) the Joint
Venture shall make such deductions or withholdings, and (iii) the
Joint Venture shall immediately pay the full amount deducted or
withheld to the relevant governmental entity in accordance with
applicable law.
(b) The Joint Venture agrees to immediately pay any
present or future stamp or documentary taxes or any other excise
or property taxes, charges, financial institutions duties, debits,
taxes or similar levies (all such taxes, charges, duties and
levies being referred to as "Other Taxes") which arise from any
payment made by the Joint Venture hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this
promissory note or security granted pursuant hereto.
(c) The Joint Venture shall indemnify the holder of
this Note for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable by the Joint Venture under this
Section 10) paid by the holder of this Note and any liability
(including penalties, interest and expenses) arising from or with
respect to such Taxes or Other Taxes, whether or not they were
correctly or legally asserted, excluding, in the case of the
holder of this Note, taxes imposed on its net income or capital
taxes or receipts and franchise taxes. Payment under this
indemnification shall be made within 30 days from the date the
holder of this Note makes written demand for it. A certificate as
to the amount of such Taxes or Other Taxes submitted to the Joint
Venture by the holder of this Note shall be conclusive evidence,<PAGE>
<PAGE>
absent manifest error, of the amount due from the Joint Venture to
the holder of this Note.
(d) The Joint Venture shall furnish to the holder of
this Note the original or a certified copy of a receipt evidencing
payment of Taxes or Other Taxes made by the Joint Venture within
30 days after the date of any payment of Taxes or Other Taxes.
(e) The provisions of this Section 10 shall survive the
termination of this promissory note.
SECTION 11. Judgment Currency.
(a) If for the purposes of obtaining judgment in any
court it is necessary to convert all or any part of any amount due
to the holder of this Note in respect of the Joint Venture's
obligations under this note in any currency (the "Original
Currency") into another currency (the "Other Currency"), the Joint
Venture, to the fullest extent that it may effectively do so,
agrees that the rate of exchange used shall be that at which, in
accordance with normal banking procedures, the holder of this Note
could purchase the Original Currency with the Other Currency on
the business day preceding that on which final judgment is paid or
satisfied.
(b) The obligations of the Joint Venture in respect of
any sum due in the Original Currency from it to the holder of this
Note shall, notwithstanding any judgment in any Other Currency, be
discharged only to the extent that on the business day following
receipt by the holder of this Note of any sum adjudged to be so
due in such Other Currency the holder of this Note, in accordance
with its normal banking procedures, purchases the Original
Currency with such Other Currency. If the amount of the Original
Currency so purchased is less than the sum originally due to the
holder of this Note in the Original Currency, the Joint Venture
agrees, as a separate obligation and notwithstanding any such
judgment, to indemnify the holder of this Note against such loss.
SECTION 12. Section Headings. The section headings
contained herein are for the purpose of convenience of reference
only and are not intended to define or limit the contents of any
such Section.
SECTION 13. Severability. In the event that one or more
of the provisions of this Note shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other
provisions of this Note, but this Note shall be construed as if
such invalid, illegal or unenforceable provision had never been
contained herein.
<PAGE>
<PAGE>
SECTION 14. Governing Law. This Note shall be governed
by and construed in accordance with the laws of the State of
Connecticut applicable to agreements made and to be performed
entirely within such state.
SECTION 15. Related Agreement. This Note is issued
pursuant to the Joint Distribution Agreement and is subject to the
provisions thereof. This Note is guaranteed pursuant to the
Guaranties, which, together with this Note, are secured by the
provisions of the Security Agreements, respectively, and entitled
to the benefits set forth thereunder. Copies of the foregoing
agreements may be obtained at the principal executive offices of
the Joint Venture, and by this reference are incorporated herein.
TELEPANEL/ERS JOINT VENTURE INC.
By
--------------------------------
<PAGE>
<PAGE>
<TABLE>
SCHEDULE A
<CAPTIONS>
Amount of Amount of
Amount of Interest Principal
Date Borrowing Paid Installment
- ---- --------- --------- -----------
<S> <C> <C> <C>
</TABLE>
<PAGE>
<PAGE>
EXHIBIT G
UNLIMITED GUARANTEE dated as of , 1998, by
Telepanel Systems, Inc., a corporation duly organized and validly
existing under the laws of Canada (hereinafter referred to as the
"Guarantor"), for the benefit of Electronic Retailing Systems
International, Inc., a corporation duly organized and validly
existing under the laws of the State of Delaware (hereinafter
referred to as "ERS").
W I T N E S S E T H:
WHEREAS, ERS has entered into a Joint Distribution Agreement
dated as of February 3, 1998 (hereinafter called the "Joint
Distribution Agreement") with the Guarantor, pursuant to which ERS
has agreed to make loans to Telepanel/ERS Joint Venture, Inc., a
corporation duly organized and validly existing under the laws of
Ontario (hereinafter referred to as the "Joint Venture"), upon the
terms and subject to the conditions set forth in the Joint
Distribution Agreement and pursuant to a Guarantied, Secured
Promissory Note dated February 3, 1998 (hereinafter referred to as
the "Note") executed by the Joint Venture to ERS; and
WHEREAS, the Guarantor will derive substantial direct and
indirect economic benefit from the execution of the Joint
Distribution Agreement and the transactions contemplated therein;
NOW, THEREFORE, in order to induce ERS to advance the sums to
the Joint Venture evidenced by the Note, and in exchange for other
valuable consideration the receipt and sufficiency of which is
hereby acknowledged by the Guarantor, the Guarantor hereby agrees
with ERS as follows:
SECTION 1. Guarantee of Obligations.
(a) Effective as of the date hereof, the Guarantor
unconditionally guarantees (i) the due and punctual payment of
principal of and interest on, and all other amounts pursuant to,
the Note, when due, whether at maturity, by acceleration, by
notice of prepayment or otherwise, and all other obligations of
the Joint Venture to ERS incurred pursuant to the Joint
Distribution Agreement, (ii) the performance and observance of all
terms, covenants, conditions, obligations and provisions to be
performed, paid or observed by the Joint Venture to ERS under the
Note and the Joint Distribution Agreement, and (iii) the due and
punctual performance of, and payment of, all other indebtedness
obligations or other liabilities presently or hereafter owing by
the Joint Venture to ERS (all the foregoing hereinafter,
collectively, referred to as the "Obligations"). To the fullest
extent permitted by law, the Guarantor further agrees that the
Obligations may be increased, modified, amended, extended or
renewed, in whole or in part, without notice or further assent
from it, and that it will remain bound upon this Guarantee<PAGE>
<PAGE>
notwithstanding any increase, modification, amendment, extension
or renewal of any Obligation.
(b) To the fullest extent permitted by law, the Guarantor
waives (i) presentation to, demand of payment from, and protest
to, the Joint Venture of any of the Obligations, (ii) acceptance
and notice of acceptance of this Guarantee, (iii) notice of
protest for nonpayment, or of any demand for payment and notice of
default or non-payment as to any Obligation, (iv) any present or
future duty of ERS to disclose material information regarding the
Joint Venture and/or the Obligations, (v) trial by jury and the
right thereto in any action or proceeding of any kind or nature,
arising on, under or by reason of or relating in any way to this
Guarantee, (vi) notice of foreclosure by ERS on any security held
for the Obligations or any of them, and (vii) all other notices to
which the Guarantor might otherwise be entitled in connection with
this Guarantee. The obligations of the Guarantor hereunder shall
not be affected by (i) the failure of ERS to assert any claim or
demand or to enforce any right or remedy against the Joint Venture
under the provisions of the Note, the Joint Distribution Agreement
or any other agreement or otherwise; (ii) any extension or renewal
of any thereof; (iii) any rescission, waiver, amendment or
modification of any of the terms or provisions of the Note, the
Joint Distribution Agreement or any other agreement; (iv) the
creation, release of, or failure to perfect any security held by
ERS for the Obligations or any of them; (v) the failure of ERS to
exercise any right or remedy against any other guarantor of the
Obligations; (vi) the exercise of rights by ERS which prevent the
Guarantor from exercising its right of subrogation against the
Joint Venture; (vii) the failure of ERS to file a claim in any
bankruptcy or reorganization proceedings with respect to the Joint
Venture or any other failure to collect the Obligations or any of
them from the Joint Venture; (viii) the running of any applicable
statute of limitations with respect to the Obligations or any
portion thereof; or (ix) any other action or failure to take
action by ERS which under applicable law would act to release the
Joint Venture regarding the Obligations.
(c) The Guarantor further agrees that this Guarantee
constitutes a guarantee of payment when due and not of collection,
and, to the fullest extent permitted by law, waives any right to
require that any resort be had by ERS to any security held for
payment of the Obligations or to any balance any deposit account
or credit on the books of ERS in favor of the Joint Venture or any
other person.
(d) To the fullest extent permitted by law, the obligations
of the Guarantor hereunder shall not be subject to any reduction,
limitation, impairment or termination for any reason, including,
without limitation, any claim of waiver, release, surrender,
alteration or compromise, and shall not be subject to any defense
of setoff, counterclaim, recoupment or termination whatsoever by
reason of the invalidity, illegality or unenforceability of the<PAGE>
<PAGE>
Obligations or otherwise. Without limiting the generality of the
foregoing, the obligations of the Guarantor hereunder, to the
fullest extent permitted by law, shall not be discharged or
impaired or otherwise affected by the failure of ERS to assert any
claim or demand or to enforce any remedy under the Note or the
Joint Distribution Agreement or any other agreement, by any waiver
or modification of any thereof, by any default, failure or delay,
wilful or otherwise, in the performance of the Obligations, or by
any other act or thing or omission or delay to do any other act or
thing which may or might in any manner or to any extent vary the
risk of the Guarantor or would otherwise operate as a discharge of
the Guarantor as a matter of law or equity.
(e) The Guarantor further agrees that this Guarantee shall
continue to be effective or be reinstated, as the case may be, if
any time payment, or any part thereof, of principal of or interest
on any Obligation is rescinded or must otherwise be restored by
ERS upon the bankruptcy or reorganization of the Joint Venture or
otherwise.
(f) In furtherance of the foregoing and not in limitation of
any other right which ERS may have at law or in equity against the
Guarantor by virtue hereof, upon the failure of the Joint Venture
to pay any Obligation when and as the same shall become due,
whether at maturity, by acceleration, after notice of prepayment
or otherwise, the Guarantor hereby promises to and will, upon
receipt of written demand by ERS, forthwith pay, or cause to be
paid, to ERS in cash the amount of such unpaid Obligations.
(g) Any and all rights and claims of the Guarantor against
the Joint Venture or any of its property, arising by reason of any
payment by the Guarantor to ERS pursuant to the provisions of this
Guarantee, shall be subordinate and subject in right of payment to
the prior payment in full of all Obligations to ERS.
SECTION 2. Representations and Warranties. The Guarantor
hereby represents, warrants and covenants to ERS that:
(a) The Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction
of its incorporation and has full corporate power and authority to
own its properties and to conduct the business in which it is now
engaged. The Guarantor is licensed or qualified to transact
business as a foreign corporation in all jurisdictions wherein it
is required to be so licensed or so qualified in order to enter
into this Guarantee and to perform its covenants and agreements
hereunder.
(b) The execution and delivery of this Guarantee by the
Guarantor, the performance by the Guarantor of its covenants and
agreements hereunder and the consummation by the Guarantor of the
transactions herein contemplated have been duly authorized by all
necessary corporate action. This Guarantee constitutes the valid<PAGE>
<PAGE>
and legally binding guarantee of the Guarantor, enforceable
against the Guarantor in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization and other
similar laws affecting generally the enforcement of creditor's
rights and by limitations on the availability of equitable
remedies.
(c) Neither the execution and delivery of this Guarantee nor
the consummation of the transactions contemplated herein will
violate any provision of the articles of incorporation or by-laws
of the Guarantor or any law, rule, regulation, writ, judgment,
injunction, decree, determination, award or other order of any
court, government or governmental agency, domestic or foreign, or
conflict with or result in any breach of any of the terms of or
constitute a default under or result in the termination of or the
creation of any lien pursuant to the terms of any contract or
agreement to which the Guarantor is a party or by which the
Guarantor or any of its assets is bound.
(d) The obligations of the Guarantor to pay the principal of
and interest and related fees on the Note and all other
obligations payable by the Guarantor hereunder, will, upon demand
for payment by ERS pursuant to Section 1 hereof, constitute
direct, unconditional and general obligations of the Guarantor and
rank in right of payment pari passu with all indebtedness and
liabilities for borrowed money, or other obligations arising out
of the extension of credit, of the Guarantor, it being
acknowledged that the security interest of ERS hereinafter
referenced shall be subordinate to the security interest of The
Toronto-Dominion Bank but prior in right to any other interest in
the assets of the Guarantor. The Guarantor has not issued any such
indebtedness or incurred any such liability or obligation which is
subordinated to any other such indebtedness, liability or
obligation but which will not be subordinated to the payment in
full of any and all amounts payable hereunder.
SECTION 3. Supplemental Documentation. In connection with the
execution and delivery of this Guarantee, the Guarantor has
furnished or caused to be furnished to ERS a certificate dated the
date hereof of the Secretary or an Assistant Secretary of the
Guarantor in form and substance satisfactory to ERS, with respect
to all corporate proceedings and authorizations in connection with
this Guarantee and the transactions contemplated hereby, the
articles of incorporation and by-laws of the Guarantor, and such
additional supporting documents as ERS may reasonably request.
SECTION 4. Setoff. In addition to and not in limitation of
any rights which ERS may have under applicable law or otherwise,
the Guarantor authorizes ERS, to the fullest extent permitted by
law, to apply any amount held on behalf of the Guarantor
outstanding in or towards satisfaction of any sum past due to ERS
from the Guarantor hereunder and in the name of the Guarantor or<PAGE>
<PAGE>
ERS to do all such acts and execute all such documents as may be
necessary or expedient for any such purpose.
SECTION 5. Modification of Agreement. No modification,
amendment or waiver of any provision of, nor any consent required
by, this Guarantee, nor any consent to any departure by the
Guarantor therefrom, shall in any event be effective unless the
same shall be in writing and signed by ERS and then such
modification, amendment, waiver or consent shall be effective only
in the specific instance and for the purpose which given. No
notice to or demand on the Guarantor in any case shall entitle the
Guarantor to any other or further notice or demand in the same,
similar or other circumstances.
SECTION 6. Remedies Cumulative. etc. No right, power or
remedy herein conferred upon or reserved to ERS is intended to be
exclusive of any other right, power or remedy or remedies, and
each and every right, power and remedy of ERS pursuant to this
Guarantee, the Joint Distribution Agreement, or the Note or now or
hereafter existing at law or in equity or by statute or otherwise
shall, to the extent permitted by law, be cumulative and
concurrent and shall be in addition to every other right, power or
remedy pursuant to this Guarantee, or the Note or now or hereafter
existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise by ERS of any one or more of
such rights, powers or remedies shall not preclude the
simultaneous or later exercise by ERS of any or all such other
rights, powers or remedies.
SECTION 7. No Waiver, etc. To the fullest extent permitted by
law, no failure or delay by ERS to insist upon the strict
performance of any term, condition, covenant or agreement of this
Guarantee, the Joint Distribution Agreement, or of the Note or to
exercise any right, power or remedy hereunder or thereunder or
consequent upon a breach hereof or thereof, shall constitute a
waiver of any such term, condition covenant, agreement, right,
power or remedy or of any such breach, or preclude ERS from
exercising any such right, power or remedy at any later time or
times.
SECTION 8. Notices. All notices, requests or instructions
hereunder shall be in writing and delivered personally or sent by
registered or certified mail, postage prepaid, or by telecopy (or
like transmission), as follows:
(1) if to the Guarantor:
245 Riviera Drive
Markham, Ontario
Canada L3R SJ9
Attention: President
<PAGE>
<PAGE>
Telecopy Number: (905) 477-9528
with a copy to:
Barry Reiter, Esq.
Tory Tory DesLauriers & Binnington
Aetna Tower-Suite 3000
P.O. Box 270
Toronto-Dominion Centre
Toronto, Ontario M5K 1N2
Telecopy Number: (416) 865-7380
(2) if to ERS:
488 Main Avenue
Norwalk, Connecticut 06851
Attention: Chairman of the Board
Telecopy Number: (203) 849-2501
with a copy to:
Howard Kailes, Esq.
Krugman Chapnick & Grimshaw LLP
Park 80 West - Plaza Two
Saddle Brook, New Jersey 07663
Telecopy Number: (201) 845-9627
Any notice so addressed and mailed shall be deemed to be given
when so mailed. Any notices addressed and otherwise delivered
shall be deemed to be given when actually received by the
addressee. Any of the above addresses may be changed at any time
by notice given as provided above; provided, however, that any
such notice of change of address shall be effective only upon
receipt.
SECTION 9. Survival of Agreement. Each representation,
warranty, covenant and agreement of the herein contained, or
contained in any certificate delivered pursuant hereto, shall
survive the making by ERS of all advances under the Joint
Distribution Agreement and the execution and delivery to ERS of
the Note, notwithstanding any investigation at any time made by or
on behalf of any party, and shall continue in full force and
effect so long as any Obligation is outstanding and unpaid.
<PAGE>
<PAGE>
SECTION 10. Taxes.
(a) All payments to ERS hereunder shall be made free
and clear of and without deduction or withholding for any and all
taxes, levies, imposts, deductions, charges or withholdings and
all related liabilities (all such taxes, levies, imposts,
deductions, charges, withholdings and liabilities being referred
to as "Taxes") imposed by any jurisdiction (or any political
subdivision or taxing authority of it), unless such Taxes are
required by applicable law to be deducted or withheld. If
Telepanel shall be required by applicable law to deduct or
withhold any such Taxes from or in respect of any amount payable
hereunder, (i) the amount payable shall be increased (and for
greater certainty, in the case of interest, the amount of interest
shall be increased) as may be necessary so that after making all
required deductions or withholdings (including deductions or
withholdings applicable to any additional amounts paid under this
Section 10), ERS receives an amount equal to the amount it would
have received if no such deduction or withholding had been made,
(ii) Telepanel shall make such deductions or withholdings, and
(iii) Telepanel shall immediately pay the full amount deducted or
withheld to the relevant governmental entity in accordance with
applicable law.
(b) Telepanel agrees to immediately pay any present or
future stamp or documentary taxes or any other excise or property
taxes, charges, financial institutions duties, debits, taxes or
similar levies (all such taxes, charges, duties and levies being
referred to as "Other Taxes") which arise from any payment made by
Telepanel hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Guarantee, the
Note or any security granted pursuant hereto.
(c) Telepanel shall indemnify ERS for the full amount
of Taxes or Other Taxes (including, without limitation, any Taxes
or Other Taxes imposed by any jurisdiction on amounts payable by
Telepanel under this Section 10) paid by ERS and any liability
(including penalties, interest and expenses) arising from or with
respect to such Taxes or Other Taxes, whether or not they were
correctly or legally asserted, excluding, in the case of ERS,
taxes imposed on its net income or capital taxes or receipts and
franchise taxes. Payment under this indemnification shall be made
within 30 days from the date ERS makes written demand for it. A
certificate as to the amount of such Taxes or Other Taxes
submitted to Telepanel by ERS shall be conclusive evidence, absent
manifest error, of the amount due from Telepanel to ERS.
(d) Telepanel shall furnish to ERS the original or a
certified copy of a receipt evidencing payment of Taxes or Other
Taxes made by Telepanel within 30 days after the date of any
payment of Taxes or Other Taxes.
<PAGE>
<PAGE>
(e) The provisions of this Section 10 shall survive the
termination of this Guarantee.
SECTION 11. Judgment Currency.
(a) If for the purposes of obtaining judgment in any
court it is necessary to convert all or any part of any amount due
to ERS in respect of Telepanel's obligations under this Guarantee
in any currency (the "Original Currency") into another currency
(the "Other Currency"), Telepanel, to the fullest extent that it
may effectively do so, agrees that the rate of exchange used shall
be that at which, in accordance with normal banking procedures,
ERS could purchase the Original Currency with the Other Currency
on the business day preceding that on which final judgment is paid
or satisfied.
(b) The obligations of Telepanel in respect of any sum
due in the Original Currency from it to ERS shall, notwithstanding
any judgment in any Other Currency, be discharged only to the
extent that on the business day following receipt by ERS of any
sum adjudged to be so due in such Other Currency ERS, in
accordance with its normal banking procedures, purchases the
Original Currency with such Other Currency. If the amount of the
Original Currency so purchased is less than the sum originally due
to ERS in the Original Currency, Telepanel agrees, as a separate
obligation and notwithstanding any such judgment, to indemnify ERS
against such loss.
SECTION 12. Entire Agreement. This Guarantee contains the
entire agreement with respect to the transactions contemplated
hereby, and supersedes all prior understandings, arrangements and
agreements with respect to the subject matter hereof.
SECTION 13. Benefit of Agreement. This Guarantee shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns.
SECTION 14. Governing Law. This Guarantee shall be governed
by and construed in accordance with the laws of the State of
Connecticut applicable in the case of agreements made and to be
performed entirely within such State.
SECTION 15. Captions. The captions appearing herein are for
the convenience of the parties only and shall not be construed to
affect the meaning of the provisions of this Agreement.
SECTION 16. Severability. In the event that one or more of
the provisions of this Guarantee shall for any reason be held to
be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any
other provisions of this Guarantee, but this Guarantee shall be
construed as if such invalid, illegal or unenforceable provision
and never been contained herein. <PAGE>
<PAGE>
SECTION 17. Collateral. This Guarantee is secured by the
terms and provisions of a Security Agreement between ERS and the
Guarantor dated the date hereof and is entitled to the benefits
thereof.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee
to be duly executed, as indicated below by its duly authorized
officer, all as of the day and year first-above written.
TELEPANEL SYSTEMS INC.
By
------------------------------
ACCEPTED:
ELECTRONIC RETAILING SYSTEMS
INTERNATIONAL, INC.
By
---------------------------
<PAGE>
<PAGE>
EXHIBIT H-1
SECURITY AGREEMENT
AGREEMENT dated as of , 1998, by and between
TELEPANEL/ERS JOINT VENTURE, INC., a corporation duly incorporated
and validly existing under the laws of Ontario (hereinafter
referred to as the "Joint Venture"), and the undersigned
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC., a corporation
organized and existing under the laws of the State of Delaware
(hereinafter referred to as "ERS").
W I T N E S S E T H:
WHEREAS, under the terms and conditions of a Joint
Distribution Agreement dated February 3, 1998 (hereinafter
referred to as the "Joint Distribution Agreement") between
Telepanel Systems Inc. (hereinafter referred to as "Telepanel")
and ERS, and a Guaranteed Secured Promissory Note dated February
3, 1998 (hereinafter referred to as the "Note") executed by the
Joint Venture to ERS, ERS is obligated to make certain Working
Capital Advances (as defined in the Joint Distribution Agreement)
to the Joint Venture in the aggregate principal amount of up to
U.S.$2,000,000, with payment of the Note and any other obligations
of the Joint Venture to ERS to be guaranteed and secured as
provided for in the Joint Distribution Agreement and the Note;
NOW, THEREFORE, in consideration of the premises and
agreements hereinafter set forth, the parties hereto hereby agree
as follows:
1. Collateral. For purposes of this Agreement, the term
"Collateral" shall mean all of the Joint Venture's undertaking and
business and all its property and assets and rights for the time
being, both present and future, of whatsoever nature and kind and
wheresoever situate, including, without limiting the generality of
the foregoing, all of its present and future goodwill, franchises,
privileges, benefits, immunities, rents, revenues, incomes,
moneys, contracts, book debts, accounts receivable, negotiable and
non-negotiable instruments, judgments, securities, choses in
action, inventories and all other property and things of value of
every kind and nature, tangible and intangible, legal or
equitable, of which it may be possessed or to which it may be
entitled or that may in the future be acquired by it.
2. Creation of Security Interest. As an inducement to ERS
to make the Working Capital Advances, and to secure prompt
payment, performance and discharge in full of all of the Joint
Venture's obligations (hereinafter referred to as the
"Obligations") on the part of the Joint Venture to be paid or
performed under the Note and as contemplated under the Joint
Distribution Agreement, the Joint Venture hereby unconditionally
and irrevocably grants to ERS a continuing security interest in,
and lien upon and a right of set-off against and a mortgage and<PAGE>
<PAGE>
charge over all of the Collateral. The foregoing security interest
shall constitute a first priority lien upon all of the Collateral,
except that such lien shall be subordinate in right to the rights
in such Collateral existing on the date hereof held by The
Toronto-Dominion Bank (hereinafter referred to "T-D").
Notwithstanding the foregoing, the foregoing security interest
shall not extend to consumer goods, nor extend or apply to the
last day of the term of any lease or sublease or any agreement for
a lease or sublease now held or hereafter acquired by the Joint
Venture in respect of real property, but the Joint Venture shall
stand possessed of any such last day upon trust to assign and
dispose of it as ERS may direct. Without limiting any rights of
ERS under the Joint Distribution Agreement hereunder, the parties
acknowledge, as a matter of clarity, that prior to any payment
becoming due under the Note and remaining unpaid Telepanel may at
any time, without the consent of ERS: (a) sell, assign, transfer,
exchange, lease, consign or otherwise dispose of inventory in the
ordinary course of its business; (b) sell or otherwise dispose of
such part of its equipment which is no longer necessary or useful
in connection with its business or which has become worn out or
obsolete or unsuitable for the purpose for which it was intended;
and (c) subject to Section 5 of this Agreement, collect accounts
receivable in the ordinary course of its business. Upon the
payment, performance and discharge in full of all Obligations, the
security interest granted herein shall expire.
3. Financing Statements. The right is expressly granted to
ERS, in its sole discretion, to file one or more financing
statements without the signature of the Joint Venture under
applicable provisions in law, as enacted in any jurisdiction in
which perfection of the security interest granted to ERS hereunder
is required, naming the Joint Venture as debtor and ERS as secured
party and indicating therein the items to be secured, or any of
them, herein specified, and such other documentation shall be
required by ERS so as to perfect the security interest granted to
ERS hereunder pursuant to the laws of any jurisdiction in which
such perfection is required. The Joint Venture will, upon request
by ERS, execute such financing statements and other notices,
affidavits or other documents as ERS may deem necessary to protect
its security interest granted under Section 1 hereof. Without the
prior written consent of ERS, the Joint Venture will not file or
authorize or permit to be filed in any jurisdiction any such
financing or like statement, with respect to the Collateral in
which ERS is not named as the sole secured party or grant or
permit the placing upon the Collateral of any lien other than that
granted hereby except as expressly provided in this Agreement. All
filing costs under this Section 3 shall be borne by the Joint
Venture.
4. Representations, Warranties and Covenants. The Joint
Venture hereby represents and warrants to, and covenants with, ERS
that:
<PAGE>
<PAGE>
(a) The Joint Venture (i) has, and shall have at all
times hereafter until all of the Obligations shall have been paid
in full, good and marketable title to the Collateral, (ii) owns,
and shall own at all times hereafter until all of the Obligations
shall have been paid in full, the Collateral free and clear of all
liens, charges, encumbrances, taxes and assessments of any kind or
nature whatsoever, (other than the lien of T-D and other than
liens subordinated to the rights of ERS hereunder) and (iii)
acknowledges that: (w) value has been given, (x) it has rights in
the Collateral (other than after-acquired Collateral), (y) it has
not agreed to postpone the time of attachment of the security
interest granted herein, and (z) it has received a duplicate
original copy of this security agreement. The Joint Venture shall
preserve the Collateral and abstain from and not permit the
commission of waste with regard thereto. The Joint Venture shall
at all times maintain the liens and security interests provided
for hereunder as valid and perfected first liens and security
interests in the Collateral (subordinate, however to the lien of
T-D), and each item thereof, hereby granted to ERS, and shall
safeguard and protect the Collateral, and all items thereof, for
the account of ERS.
(b) The Joint Venture shall comply in all material
respects with all applicable national, provincial, county,
municipal and other laws, ordinances, rules, and regulations now
in force or hereafter enacted with respect to the ownership or use
of the Collateral.
(c) All inventory included in the Collateral and
certified by Telepanel to ERS under clause (x) of Paragraph (d)(i)
of Article IV of the Joint Distribution Agreement is and shall
conform to the requirements under paragraph (d) of Article IV of
the Joint Distribution Agreement of inventory certified by
Telepanel pursuant to said clause (x). Each account receivable
included in the Collateral and certified by Telepanel to ERS under
clause (y) of Paragraph (d)(i) of Article IV of the Joint
Distribution Agreement is and shall conform to the requirements
under paragraph (d) of Article IV of the Joint Distribution
Agreement of receivables certified by Telepanel pursuant to said
clause (y), and be evidenced by such invoices, shipping documents,
or other instruments ordinarily used in the trade as shall be
reasonably satisfactory to ERS; each such account receivable is
and shall be a valid and legally binding obligation of the account
debtor, not subject to credit, allowance, offset, defense,
counterclaim or adjustment by the account debtor, except discounts
allowed for prompt payment or credits or allowances in the
ordinary course of business; and all representations made by the
Joint Venture to ERS with reference to the description, content or
valuation of any or all such items is and shall be true and
correct.
<PAGE>
<PAGE>
(d) The Joint Venture shall from time to time execute
and deliver to ERS, in such form and manner required by ERS, such
confirmatory schedules of accounts receivable included in the
Collateral, and other appropriate reports designating, identifying
and describing the Collateral. The Joint Venture shall furnish ERS
with schedules of agings of such accounts receivable in such form
and at such intervals as ERS may from time to time specify. In
addition, the Joint Venture shall provide to ERS copies of
agreements with, or purchase orders from the Joint Venture's
customers and copies of invoices to customers, proof of shipment
or delivery and such other documentation and information relating
to such accounts receivable as ERS may require.
(e) The Joint Venture shall defend the Collateral
against all claims and demands of all other persons at any time
claiming the same or an interest therein and shall pay promptly
when due all taxes and assessments upon the Collateral. At its op-
tion, ERS may discharge any or all taxes, liens or other
encumbrances at any time levied against or placed on the
Collateral, all of which amounts shall become part of the
Obligations. The Joint Venture shall not compromise, discharge,
extend the time for payment or otherwise grant any indulgence or
allowance with respect to any account receivable included in the
Collateral without the prior written consent of ERS, which consent
shall not unreasonably be withheld.
(f) The Joint Venture shall maintain insurance coverage
in accordance with good business practice against loss or damage
to the Collateral by fire and other hazards, with such insurance
carriers as are reasonably satisfactory to ERS. In the event of
loss or damage in any material respect to such Collateral as shall
constitute tangible property, the Joint Venture shall give
immediate written notice thereof to ERS. In such events, the Joint
Venture shall promptly adjust or compromise any loss claims under
the insurance and replace such Collateral or apply the proceeds to
the outstanding Obligations to ERS. If the Joint Venture fails to
promptly adjust or compromise any loss claims under the insurance,
ERS shall have the right at its election, to adjust or compromise
any such loss claims under such insurance.
(g) The Joint Venture shall at all times keep accurate
and complete books and records of the Collateral in such detail,
form and scope as ERS shall reasonably require, and shall maintain
the same at its principal place of business. Such books and
records shall be maintained in accordance with recognized, good
accounting principles and practices and in a manner reasonably
satisfactory to ERS. ERS, or any of its agents shall have the
right to call at the Joint Venture's place or places of business
upon reasonable prior notice and at intervals to be determined by
ERS, and without hindrance or delay, to inspect, audit, make
verifications (including those with account debtors) and otherwise
check and make extracts from such books and records (including,
without limitation, orders, receipts, correspondence and other<PAGE>
<PAGE>
data) relating to the Collateral or to any other transactions be-
tween the parties hereto. If requested by ERS, the Joint Venture
shall mark its records concerning accounts receivable included in
the Collateral in a manner satisfactory to ERS to show the
latter's security interest therein.
(h) The Joint Venture's complete legal name is as first
set forth above, and the Joint Venture does not utilize or do
business under any tradename. The Joint Venture sole place of
business, and the location of its records of the Collateral, is as
set forth hereinafter. The Joint Venture shall not without at
least 30 days prior written notice to ERS change its principal
place of business, change the location of its records of the
Collateral, nor open any new places of business or close any
existing places of business, or change its name or any tradename,
or locate inventory or other Collateral outside of its principal
place of business, in any such case which would require the filing
of an additional financing statement or statements, or other
documentation, then or at any time in the future required to
preserve the security interest of ERS in any items of the
Collateral.
5. Action of the Joint Venture. Should any covenant, duty,
or agreement of the Joint Venture fail to be performed in
accordance with its terms hereunder, ERS may perform or attempt to
perform such covenant, duty or agreement on behalf of the Joint
Venture and any amount expended by ERS in such performance or
attempted performance together with interest thereon at the rate
then provided for in the Note, shall become a part of the
Obligations secured by this Agreement, and, at the request of ERS,
the Joint Venture covenants and agrees to promptly pay such amount
to ERS; provided, that ERS does not assume and shall never have
any liability for the performance of any duties of the Joint
Venture under or in connection with the Collateral, or any part
thereof, or under any transaction, agreement, or contract out of
which the Collateral, or any part thereof, may arise. Without
limiting any provision contained in the Joint Distribution
Agreement, in the event any payment becomes due under the Note and
remains unpaid, if requested by ERS the Joint Venture shall
forthwith notify all of its account debtors that its accounts
receivable have been assigned to and shall be payable to ERS, and
shall indicate on all billings therefor that all payments thereon
shall be made directly to ERS. Without limiting any provisions
contained in the Joint Distribution Agreement, ERS may, at any
time upon, in the event any payment becomes due under the Note and
remains unpaid, and at any time thereafter, in its own name or in
the name of the Joint Venture: (i) notify any and all account
debtors that the Joint Venture's accounts receivable have been
assigned to ERS and that any payment on account thereof shall be
made directly to ERS; (ii) collect, compromise, endorse, sell,
assign, discharge, or extend the time for payment of, any such
account; (iii) institute legal action for the collection of any
such account, and (iv) do all acts and things incidental thereto,<PAGE>
<PAGE>
all of which are hereby approved by the Joint Venture. Regardless
of any other provision hereof, however, ERS shall never be liable
for its failure to collect, or for its failure to exercise
diligence in the collection of any proceeds of an account
receivable, nor shall it be under any duty whatsoever to anyone
except to account for the funds that it shall actually receive
hereunder.
6. Default. ERS shall have all the rights and remedies of
a secured party under the Personal Property Security Act
(hereinafter referred to as the "PPSA") as in effect in the
Province of Ontario (whether or not in effect in the jurisdiction
where the rights and remedies are asserted) and/or any other
applicable law as to the Collateral, or any part thereof, of any
other jurisdiction as to the Collateral, or any part thereof,
therein located (whether or not such other law applies to the
affected Collateral) and shall further have, in addition to all
other rights and remedies provided herein, by the Note or by law,
the following rights and powers in the event any payment becomes
due under the Note and remains unpaid;
(i) ERS is authorized to take possession of the
Collateral, and any and all items thereof, and, for that
purpose, may enter, with the aid and assistance of any person
or persons, any premises where records related to the
Collateral, or any part thereof, are, or may be, placed and
remove the same;
(ii) At ERS' request, the Joint Venture shall
assemble the records related to the Collateral and make it
available to ERS at places which ERS shall select, whether at
Telepanel's premises or elsewhere;
(iii) ERS' obligation, if any, to make additional
Working Capital Advances to the Joint Venture shall
immediately terminate.
(iv) ERS shall have the right from time to time to
(A) sell, resell, assign and deliver all or any part of the
Collateral for cash, for credit or for other property, for
immediate or future delivery, and for such price or prices as
ERS shall determine, (B) adjourn any such sale or cause the
same to be adjourned from time to time to a subsequent time
and place announced at the time and place fixed for the sale,
and (C) carry out any agreement to sell the Collateral, or
any part thereof, in accordance with the terms of such
agreement, notwithstanding the fact that after ERS shall have
entered into such an agreement the Note and other Obligations
due may have been paid in full;
<PAGE>
<PAGE>
(v) Upon each such sale, ERS may, unless
prohibited by applicable statute which cannot be waived, bid
for and purchase all or any part of the Collateral being
sold, free from and discharged of all trusts, claims, right
of redemption and equities of the Joint Venture, which are
hereby waived and released;
(vi) The proceeds of any such sale or other
disposition of the Collateral, or any part thereof, shall be
applied, first, to the expenses of retaking, holding,
processing and preparing for sale, selling, and the like, and
to the reasonable attorneys' fees and legal expenses incurred
by ERS, and then to satisfaction of the Obligations, and to
the payment of any other amounts required by applicable law,
after which ERS shall account to the Joint Venture for any
surplus proceeds. If, upon the sale or other disposition of
the Obligations, or any part thereof, the proceeds thereof
are insufficient to pay all amounts to which ERS is legally
entitled, the Joint Venture will be liable for the
deficiency, together with interest thereon, at the rate
prescribed in the Note, and the fees of any attorneys
employed by ERS to collect such deficiency. To the extent
permitted by applicable law, the Joint Venture waives all
claims, damages, and demands against ERS arising out of the
repossession, removal, retention or sale of the Collateral,
or any part thereof.
7. ERS as Attorney-in-Fact. Without limiting any provision
contained in the Joint Distribution Agreement, the Joint Venture
hereby constitutes and appoints ERS, its successors and assigns,
the true and lawful attorney or attorneys of the Joint Venture,
with full power of substitution, for it and in its name and stead
or otherwise:
(a) to institute and prosecute from time to time,
any proceedings at law, in equity or otherwise, that ERS, its
successors or assigns, may deem proper in order to assert or
enforce any claim, right or title of any kind in and to the
Collateral, or any part thereof, and to defend and compromise
any and all actions, suits or proceedings in respect of the
Collateral, or any part thereof;
(b) to receive, take, endorse, sign, assign and
deliver any and all checks, notes, drafts, and other
documents or instruments relating to the Collateral, or any
part thereof;
(c) to transmit to account debtors notice of the
interest of ERS therein and to request from such customers at
any time, in the name of ERS or of the Joint Venture,
information concerning the Collateral, or any part thereof,
and the amounts owing thereon;
<PAGE>
<PAGE>
(d) in the event any payment becomes due under the
Note and remains unpaid, and thereafter, to notify account
debtors to make payment directly to ERS; and
(e) generally to do any and all such acts and
things in relation to the Collateral as ERS, its successors
or assigns, shall deem advisable, including, but not limited,
to, the execution of any and all financing statements and
instruments contemplated under Section 2 hereof.
The Joint Venture declares that the appointment hereby made and
the power hereby granted are coupled with an interest and shall be
irrevocable by the Joint Venture.
8. Appointment of Receiver and Manager. ERS may appoint in
writing any person, whether an employee or employees of ERS or
not, to be a receiver or a receiver and manager or institute
proceedings in any court of competent jurisdiction for the
appointment of a receiver (hereinafter referred to as the
"Receiver") of the Collateral or any part or parts thereof. A
Receiver so appointed shall have power or ERS may institute
proceedings in any court of competent jurisdiction: (a) to take
possession of, collect and get in the Collateral or any part
thereof and for that purpose to take any proceedings in the name
of the Joint Venture or otherwise; (b) to carry on or concur in
carrying on the business of the Joint Venture and for that purpose
to raise money on the Collateral in priority to this Agreement or
otherwise; (c) to sell or concur in selling any of the Collateral;
and (d) to make any arrangement or compromise which the Receiver
shall think expedient in the interest of ERS. Any Receiver so
appointed shall be deemed to be the agent of the Joint Venture,
and the Joint Venture shall be solely responsible for the
Receiver's acts or defaults and for the Receiver's remuneration
and expenses and ERS shall not be in any way responsible for any
misconduct or negligence on the part of the Receiver. All moneys
received by the Receiver after providing for payment of all costs,
charges and expenses of or incidental to the exercise of any of
the powers of the Receiver shall be applied in or towards
satisfaction of the Obligations. The rights and powers conferred
by this paragraph are in supplement of and not in substitution for
any rights ERS may have from time to time.
9. Dealings by Third Parties.
(a) No person dealing with ERS or an agent or Receiver
shall be required to determine (i) whether the security interest
granted herein has become enforceable, (ii) whether the powers
which such person is purporting to exercise have become
exercisable, (iii) whether any money remains due to ERS by the
Joint Venture, (iv) the necessity or expediency of the
stipulations and conditions subject to which any sale or lease is
made, (v) the proprietary or regularity of any sale or other<PAGE>
<PAGE>
dealing by ERS with the Collateral, or (vi) how any money paid to
the Lender has been applied.
(b) Any purchaser of all or any part of the Collateral
from ERS or a Receiver or agent shall hold the Collateral
absolutely, free from any claim or right of whatever kind,
including any equity of redemption, of the Joint Venture, which it
specifically waives (to the fullest extent permitted by law) as
against any such purchaser together with all rights of redemption,
stay or appraisal which the Joint Venture has or may have under
any rule of law or statute now existing or hereafter adopted.
10. Term of Agreement. This Agreement shall terminate when
all payments under the Note have been made in full and all other
Obligations have been paid or discharged, and no further Working
Capital Advances may be made under the Joint Distribution
Agreement. Upon such termination, ERS, at the request of the Joint
Venture, will join in executing any termination statement with
respect to any financing statement executed and filed pursuant to
Section 2 of this Agreement.
11. Modification of Agreement. No modification, amendment or
waiver of any provision of, nor any consent required by, this
Agreement, nor any consent to any departure by the Joint Venture
therefrom, shall in any event be effective unless the same shall
be in writing and signed by ERS and then such modification,
amendment, waiver or consent shall be effective only in the
specific instance and for the purpose which given. No notice to or
demand on the Joint Venture in any case shall entitle the Joint
Venture to any other or further notice or demand in the same,
similar or other circumstances.
12. Remedies Cumulative. etc. No right, power or remedy
herein conferred upon or reserved to ERS is intended to be
exclusive of any other right, power or remedy or remedies, and
each and every right, power and remedy of ERS pursuant to this
Agreement or the Guaranty, the Note or the Joint Distribution
Agreement or now or hereafter existing at law or in equity or by
statute or otherwise shall, to the extent permitted by law, be
cumulative and concurrent and shall be in addition to every other
right, power or remedy pursuant to this Agreement, or the
Guaranty, the Note or the Joint Distribution Agreement now or
hereafter existing at law or in equity or by statute or otherwise,
and the exercise or beginning of the exercise by ERS of any one or
more of such rights, powers or remedies shall not preclude the
simultaneous or later exercise by ERS of any or all such other
rights, powers or remedies.
13. No Waiver, etc. To the fullest extent permitted by law,
no failure or delay by ERS to insist upon the strict performance
of any term, condition, covenant or agreement of this Agreement or
of the Note or to exercise any right, power or remedy hereunder or
thereunder or consequent upon a breach hereof or thereof, shall<PAGE>
<PAGE>
constitute a waiver of any such term, condition covenant,
agreement, right, power or remedy or of any such breach, or
preclude ERS from exercising any such right, power or remedy at
any later time or times.
14. Notices. All notices, requests or instructions
hereunder shall be in writing and delivered personally or sent by
registered or certified mail, postage prepaid, or by telecopy (or
like transmission), as follows:
(1) if to the Joint Venture:
245 Riviera Drive
Markham, Ontario L3R 5J9
Attention: President
Telecopy Number: 905-477-7877
with a copy to:
Barry Reiter, Esq.
Tory Tory DesLauriers & Binnington
Aetna Tower-Suite 3000
P.O. Box 270
Toronto-Dominion Centre
Toronto, Ontario M5K 1N2
Telecopy Number: 416-865-7380
(2) if to ERS:
488 Main Avenue
Norwalk, Connecticut 06851-2500
Attention: Chairman of the Board
Telecopy Number: (203) 849-2500
with a copy to:
Howard Kailes, Esq.
Krugman Chapnick & Grimshaw LLP
Park 80 West - Plaza Two
Saddle Brook, New Jersey 07663
Telecopy Number: 201-845-9627
Any notice so addressed and mailed shall be deemed to be given
when so mailed. Any notices addressed and otherwise delivered
shall be deemed to be given when actually received by the
addressee. Any of the above addresses and telecopy numbers may be<PAGE>
<PAGE>
changed at any time by notice given as provided above; provided,
however, that any such notice of change of address shall be
effective only upon receipt.
15. Survival of Agreement. Each representation, warranty,
covenant and agreement of the herein contained, shall survive the
making by ERS of all Working Capital Advances and the execution
and delivery to ERS of the Note, notwithstanding any investigation
at any time made by or on behalf of any party, and shall continue
in full force and effect so long as any Obligation is outstanding
and unpaid.
16. Entire Agreement. This Agreement contains the entire
agreement with respect to the transactions contemplated hereby,
and supersedes all prior understandings, arrangements and
agreements with respect to the subject matter hereof.
17. Benefit of Agreement. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Province of Ontario
applicable in the case of agreements made and to be performed
entirely within such jurisdiction.
19. Captions. The captions appearing herein are for the
convenience of the parties only and shall not be construed to
affect the meaning of the provisions of this Agreement.
20. Severability. In the event that one or more of the
provisions of this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other
provisions of this Agreement, but this Agreement shall be
construed as if such invalid, illegal or unenforceable provision
and never been contained herein. Without limiting the generality
of the foregoing, if and to the extent that any provision hereof
shall conflict with any mandatory provision of the PPSA
(including, without limitation, an exclusion or purported
exclusion of a duty or onus imposed by the PPSA or a limitation or
purported limitation of the liability of or the amount of damages
recoverable from a person who has failed to discharge a duty or
obligation imposed by the PPSA), such provision of the PPSA shall
govern.
21. Counterparts. This Agreement may be signed in one or
more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one agreement.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
TELEPANEL/ERS JOINT VENTURE, INC.
By
-------------------------------
ELECTRONIC RETAILING SYSTEMS
INTERNATIONAL, INC.
By
--------------------------------
<PAGE>
<PAGE>
EXHIBIT H-2
SECURITY AGREEMENT
AGREEMENT dated as of , 1998, by and between
TELEPANEL SYSTEMS INC., a corporation duly incorporated and
validly existing under the laws of Canada (hereinafter referred to
as "Telepanel"), and the undersigned ELECTRONIC RETAILING SYSTEMS
INTERNATIONAL, INC., a corporation organized and existing under
the laws of the State of Delaware (hereinafter referred to as
"ERS").
W I T N E S S E T H:
WHEREAS, under the terms and conditions of a Joint
Distribution Agreement dated February 3, 1998 (hereinafter
referred to as the "Joint Distribution Agreement") between
Telepanel and ERS, and a Guaranteed Secured Promissory Note dated
February 3, 1998 (hereinafter referred to as the "Note") executed
by Telepanel/ERS Joint Venture, Inc. (hereinafter referred to as
the "Joint Venture") to ERS, ERS is obligated to make certain
Working Capital Advances (as defined in the Joint Distribution
Agreement) to the Joint Venture in the aggregate principal amount
of up to U.S.$2,000,000, with payment of the Note and any other
obligations of the Joint Venture to ERS to be guaranteed and
secured as provided for in the Joint Distribution Agreement and
the Note;
WHEREAS, Telepanel has executed and delivered to ERS its
Unlimited Guaranty dated , 1998 (hereinafter referred to
as the "Guaranty") and has agreed to execute and deliver to ERS
this Security Agreement, granting ERS a lien on and security
interest in the Collateral herein described to secure Telepanel's
payment and discharge of all of its obligations under the
Guaranty;
NOW, THEREFORE, in consideration of the premises and
agreements hereinafter set forth, the parties hereto hereby agree
as follows:
1. Collateral. For purposes of this Agreement, the term
"Collateral" shall mean all of Telepanel's undertaking and
business and all its property and assets and rights for the time
being, both present and future, of whatsoever nature and kind and
wheresoever situate, including, without limiting the generality of
the foregoing, all of its present and future goodwill, franchises,
privileges, benefits, immunities, rents, revenues, incomes,
moneys, contracts, book debts, accounts receivable, negotiable and
non-negotiable instruments, judgments, securities, choses in
action, inventories and all other property and things of value of
every kind and nature, tangible and intangible, legal or
equitable, of which it may be possessed or to which it may be
entitled or that may in the future be acquired by it.
<PAGE>
<PAGE>
2. Creation of Security Interest. As an inducement to ERS
to make the Working Capital Advances, and to secure prompt
payment, performance and discharge in full of all of Telepanel's
obligations (hereinafter referred to as the "Obligations") on the
part of Telepanel to be paid or performed under the Guaranty,
Telepanel hereby unconditionally and irrevocably grants to ERS a
continuing security interest in, and lien upon and a right of set-
off against and a mortgage and charge over all of the Collateral.
The foregoing security interest shall constitute a first priority
lien upon all of the Collateral, except that such lien shall be
subordinate in right to the rights in such Collateral existing on
the date hereof held by The Toronto-Dominion Bank (hereinafter
referred to "T-D"). Notwithstanding the foregoing, the foregoing
security interest shall not extend to consumer goods, nor extend
or apply to the last day of the term of any lease or sublease or
any agreement for a lease or sublease now held or hereafter
acquired by Telepanel in respect of real property, but Telepanel
shall stand possessed of any such last day upon trust to assign
and dispose of it as ERS may direct. Without limiting any rights
of ERS under the Joint Distribution Agreement hereunder, the
parties acknowledge, as a matter of clarity, that prior to any
payment becoming due under the Note and remaining unpaid Telepanel
may at any time, without the consent of ERS: (a) sell, assign,
transfer, exchange, lease, consign or otherwise dispose of
inventory in the ordinary course of its business; (b) sell or
otherwise dispose of such part of its equipment which is no longer
necessary or useful in connection with its business or which has
become worn out or obsolete or unsuitable for the purpose for
which it was intended; and (c) subject to Section 5 of this
Agreement, collect accounts receivable in the ordinary course of
its business. Upon the payment, performance and discharge in full
of all Obligations, the security interest granted herein shall
expire.
3. Financing Statements. The right is expressly granted to
ERS, in its sole discretion, to file one or more financing
statements without the signature of Telepanel under applicable
provisions in law, as enacted in any jurisdiction in which
perfection of the security interest granted to ERS hereunder is
required, naming Telepanel as debtor and ERS as secured party and
indicating therein the items to be secured, or any of them, herein
specified, and such other documentation shall be required by ERS
so as to perfect the security interest granted to ERS hereunder
pursuant to the laws of any jurisdiction in which such perfection
is required. Telepanel will, upon request by ERS, execute such
financing statements and other notices, affidavits or other
documents as ERS may deem necessary to protect its security
interest granted under Section 1 hereof. Without the prior written
consent of ERS, Telepanel will not file or authorize or permit to
be filed in any jurisdiction any such financing or like statement,
with respect to the Collateral in which ERS is not named as the
sole secured party or grant or permit the placing upon the
Collateral of any lien other than that granted hereby except as<PAGE>
<PAGE>
expressly provided in this Agreement. All filing costs under this
Section 3 shall be borne by Telepanel.
4. Representations, Warranties and Covenants. In addition
to all representations and warranties contained in or incorporated
by reference to the Guaranty and/or the Joint Distribution
Agreement, Telepanel hereby represents and warrants to, and
covenants with, ERS that:
(a) Telepanel (i) has, and shall have at all times
hereafter until all of the Obligations shall have been paid in
full, good and marketable title to the Collateral, (ii) owns, and
shall own at all times hereafter until all of the Obligations
shall have been paid in full, the Collateral free and clear of all
liens, charges, encumbrances, taxes and assessments of any kind or
nature whatsoever (other than the lien of T-D and other than liens
subordinated to the rights of ERS hereunder), and (iii)
acknowledges that: (w) value has been given, (x) it has rights in
the Collateral (other than after-acquired Collateral), (y) it has
not agreed to postpone the time of attachment of the security
interest granted herein, and (z) it has received a duplicate
original copy of this security agreement. Telepanel shall
preserve the Collateral and abstain from and not permit the
commission of waste with regard thereto. Telepanel shall at all
times maintain the liens and security interests provided for
hereunder as valid and perfected first liens and security
interests in the Collateral (subordinate, however to the lien of
T-D), and each item thereof, hereby granted to ERS, and shall
safeguard and protect the Collateral, and all items thereof, for
the account of ERS.
(b) Telepanel shall comply in all material respects
with all applicable national, provincial, county, municipal and
other laws, ordinances, rules, and regulations now in force or
hereafter enacted with respect to the ownership or use of the
Collateral.
(c) All inventory included in the Collateral and
certified by Telepanel to ERS under clause (x) of Paragraph (d)(i)
of Article IV of the Joint Distribution Agreement is and shall
conform to the requirements under paragraph (d) of Article IV of
the Joint Distribution Agreement of inventory certified by
Telepanel pursuant to said clause (x). Each account receivable
included in the Collateral and certified by Telepanel to ERS under
clause (y) of Paragraph (d)(i) of Article IV of the Joint
Distribution Agreement is and shall conform to the requirements
under paragraph (d) of Article IV of the Joint Distribution
Agreement of receivables certified by Telepanel pursuant to said
clause (y), and be evidenced by such invoices, shipping documents,
or other instruments ordinarily used in the trade as shall be
reasonably satisfactory to ERS; each such account receivable is
and shall be a valid and legally binding obligation of the account
debtor, not subject to credit, allowance, offset, defense,<PAGE>
<PAGE>
counterclaim or adjustment by the account debtor, except discounts
allowed for prompt payment or credits or allowances in the
ordinary course of business; and all representations made by
Telepanel to ERS with reference to the description, content or
valuation of any or all such items is and shall be true and
correct.
(d) Telepanel shall from time to time execute and
deliver to ERS, in such form and manner required by ERS, such
confirmatory schedules of accounts receivable included in the
Collateral, and other appropriate reports designating, identifying
and describing the Collateral. Telepanel shall furnish ERS with
schedules of agings of such accounts receivable in such form and
at such intervals as ERS may from time to time specify. In
addition, Telepanel shall provide to ERS copies of agreements
with, or purchase orders from Telepanel's customers and copies of
invoices to customers, proof of shipment or delivery and such
other documentation and information relating to such accounts
receivable as ERS may require.
(e) Telepanel shall defend the Collateral against all
claims and demands of all other persons at any time claiming the
same or an interest therein and shall pay promptly when due all
taxes and assessments upon the Collateral. At its option, ERS may
discharge any or all taxes, liens or other encumbrances at any
time levied against or placed on the Collateral, all of which
amounts shall become part of the Obligations. Telepanel shall not
compromise, discharge, extend the time for payment or otherwise
grant any indulgence or allowance with respect to any account
receivable included in the Collateral without the prior written
consent of ERS, which consent shall not unreasonably be withheld.
(f) Telepanel shall maintain insurance coverage in
accordance with good business practice against loss or damage to
the Collateral by fire and other hazards, with such insurance
carriers as are reasonably satisfactory to ERS. In the event of
loss or damage in any material respect to such Collateral as shall
constitute tangible property, Telepanel shall give immediate
written notice thereof to ERS. In such events, Telepanel shall
promptly adjust or compromise any loss claims under the insurance
and replace such Collateral or apply the proceeds to the
outstanding Obligations to ERS. If Telepanel fails to promptly
adjust or compromise any loss claims under the insurance, ERS
shall have the right at its election, to adjust or compromise any
such loss claims under such insurance.
(g) Telepanel shall at all times keep accurate and
complete books and records of the Collateral in such detail, form
and scope as ERS shall reasonably require, and shall maintain the
same at its principal place of business. Such books and records
shall be maintained in accordance with recognized, good accounting
principles and practices and in a manner reasonably satisfactory
to ERS. ERS, or any of its agents shall have the right to call at<PAGE>
<PAGE>
Telepanel's place or places of business upon reasonable prior
notice and at intervals to be determined by ERS, and without
hindrance or delay, to inspect, audit, make verifications
(including those with account debtors) and otherwise check and
make extracts from such books and records (including, without
limitation, orders, receipts, correspondence and other data)
relating to the Collateral or to any other transactions between
the parties hereto. If requested by ERS, Telepanel shall mark its
records concerning accounts receivable included in the Collateral
in a manner satisfactory to ERS to show the latter's security
interest therein.
(h) Telepanel's complete legal name is as first set
forth above, and Telepanel does not utilize or do business under
any tradename. Telepanel sole place of business, and the location
of its records of the Collateral, is as set forth hereinafter.
Telepanel shall not without at least 30 days prior written notice
to ERS change its principal place of business, change the location
of its records of the Collateral, nor open any new places of
business or close any existing places of business, or change its
name or any tradename, or locate inventory or other Collateral
outside of its principal place of business, in any such case which
would require the filing of an additional financing statement or
statements, or other documentation, then or at any time in the
future required to preserve the security interest of ERS in any
items of the Collateral.
5. Action of Telepanel. Should any covenant, duty, or
agreement of Telepanel fail to be performed in accordance with its
terms hereunder, ERS may perform or attempt to perform such
covenant, duty or agreement on behalf of Telepanel and any amount
expended by ERS in such performance or attempted performance
together with interest thereon at the rate then provided for in
the Note, shall become a part of the Obligations secured by this
Agreement, and, at the request of ERS, Telepanel covenants and
agrees to promptly pay such amount to ERS; provided, that ERS does
not assume and shall never have any liability for the performance
of any duties of Telepanel under or in connection with the
Collateral, or any part thereof, or under any transaction,
agreement, or contract out of which the Collateral, or any part
thereof, may arise. Without limiting any provision contained in
the Joint Distribution Agreement, in the event any payment becomes
due under the Guaranty, if requested by ERS Telepanel shall
forthwith notify all of its account debtors that its accounts
receivable have been assigned to and shall be payable to ERS, and
shall indicate on all billings therefor that all payments thereon
shall be made directly to ERS. Without limiting any provisions
contained in the Joint Distribution Agreement, ERS may, at any
time upon, in the event any payment becomes due under the
Guaranty, and at any time thereafter, in its own name or in the
name of Telepanel: (i) notify any and all account debtors that
Telepanel's accounts receivable have been assigned to ERS and that
any payment on account thereof shall be made directly to ERS; (ii)<PAGE>
<PAGE>
collect, compromise, endorse, sell, assign, discharge, or extend
the time for payment of, any such account; (iii) institute legal
action for the collection of any such account, and (iv) do all
acts and things incidental thereto, all of which are hereby
approved by Telepanel. Regardless of any other provision hereof,
however, ERS shall never be liable for its failure to collect, or
for its failure to exercise diligence in the collection of any
proceeds of an account receivable, nor shall it be under any duty
whatsoever to anyone except to account for the funds that it shall
actually receive hereunder.
6. Default. ERS shall have all the rights and remedies of
a secured party under the Personal Property Security Act
(hereinafter referred to as the "PPSA") as in effect in the
Province of Ontario (whether or not in effect in the jurisdiction
where the rights and remedies are asserted) and/or any other
applicable law as to the Collateral, or any part thereof, of any
other jurisdiction as to the Collateral, or any part thereof,
therein located (whether or not such other law applies to the
affected Collateral) and shall further have, in addition to all
other rights and remedies provided herein, by the Guaranty or by
law, the following rights and powers in the event any payment
becomes due under the Guaranty:
(i) ERS is authorized to take possession of the
Collateral, and any and all items thereof, and, for that
purpose, may enter, with the aid and assistance of any person
or persons, any premises where records related to the
Collateral, or any part thereof, are, or may be, placed and
remove the same;
(ii) At ERS' request, Telepanel shall assemble the
records related to the Collateral and make it available to
ERS at places which ERS shall select, whether at Telepanel's
premises or elsewhere;
(iii) ERS' obligation, if any, to make additional
Working Capital Advances to the Joint Venture shall
immediately terminate.
(iv) ERS shall have the right from time to time to
(A) sell, resell, assign and deliver all or any part of the
Collateral for cash, for credit or for other property, for
immediate or future delivery, and for such price or prices as
ERS shall determine, (B) adjourn any such sale or cause the
same to be adjourned from time to time to a subsequent time
and place announced at the time and place fixed for the sale,
and (C) carry out any agreement to sell the Collateral, or
any part thereof, in accordance with the terms of such
agreement, notwithstanding the fact that after ERS shall have
entered into such an agreement the Guaranty and other
Obligations due may have been paid in full;
<PAGE>
<PAGE>
(v) Upon each such sale, ERS may, unless
prohibited by applicable statute which cannot be waived, bid
for and purchase all or any part of the Collateral being
sold, free from and discharged of all trusts, claims, right
of redemption and equities of Telepanel, which are hereby
waived and released;
(vi) The proceeds of any such sale or other
disposition of the Collateral, or any part thereof, shall be
applied, first, to the expenses of retaking, holding,
processing and preparing for sale, selling, and the like, and
to the reasonable attorneys' fees and legal expenses incurred
by ERS, and then to satisfaction of the Obligations, and to
the payment of any other amounts required by applicable law,
after which ERS shall account to Telepanel for any surplus
proceeds. If, upon the sale or other disposition of the
Obligations, or any part thereof, the proceeds thereof are
insufficient to pay all amounts to which ERS is legally
entitled, Telepanel will be liable for the deficiency,
together with interest thereon, at the rate prescribed in the
Note, and the fees of any attorneys employed by ERS to
collect such deficiency. To the extent permitted by
applicable law, Telepanel waives all claims, damages, and
demands against ERS arising out of the repossession, removal,
retention or sale of the Collateral, or any part thereof.
7. ERS as Attorney-in-Fact. Without limiting any provision
contained in the Joint Distribution Agreement, Telepanel hereby
constitutes and appoints ERS, its successors and assigns, the true
and lawful attorney or attorneys of Telepanel, with full power of
substitution, for it and in its name and stead or otherwise:
(a) to institute and prosecute from time to time,
any proceedings at law, in equity or otherwise, that ERS, its
successors or assigns, may deem proper in order to assert or
enforce any claim, right or title of any kind in and to the
Collateral, or any part thereof, and to defend and compromise
any and all actions, suits or proceedings in respect of the
Collateral, or any part thereof;
(b) to receive, take, endorse, sign, assign and
deliver any and all checks, notes, drafts, and other
documents or instruments relating to the Collateral, or any
part thereof;
(c) to transmit to account debtors notice of the
interest of ERS therein and to request from such customers at
any time, in the name of ERS or of Telepanel, information
concerning the Collateral, or any part thereof, and the
amounts owing thereon;
<PAGE>
<PAGE>
(d) in the event any payment becomes due under the
Guaranty, and thereafter, to notify account debtors to make
payment directly to ERS; and
(e) generally to do any and all such acts and
things in relation to the Collateral as ERS, its successors
or assigns, shall deem advisable, including, but not limited,
to, the execution of any and all financing statements and
instruments contemplated under Section 2 hereof.
Telepanel declares that the appointment hereby made and the power
hereby granted are coupled with an interest and shall be
irrevocable by Telepanel.
8. Appointment of Receiver and Manager. ERS may appoint in
writing any person, whether an employee or employees of ERS or
not, to be a receiver or a receiver and manager or institute
proceedings in any court of competent jurisdiction for the
appointment of a receiver (hereinafter referred to as the
"Receiver") of the Collateral or any part or parts thereof. A
Receiver so appointed shall have power or ERS may institute
proceedings in any court of competent jurisdiction: (a) to take
possession of, collect and get in the Collateral or any part
thereof and for that purpose to take any proceedings in the name
of Telepanel or otherwise; (b) to carry on or concur in carrying
on the business of Telepanel and for that purpose to raise money
on the Collateral in priority to this Agreement or otherwise; (c)
to sell or concur in selling any of the Collateral; and (d) to
make any arrangement or compromise which the Receiver shall think
expedient in the interest of ERS. Any Receiver so appointed shall
be deemed to be the agent of Telepanel, and Telepanel shall be
solely responsible for the Receiver's acts or defaults and for the
Receiver's remuneration and expenses and ERS shall not be in any
way responsible for any misconduct or negligence on the part of
the Receiver. All moneys received by the Receiver after providing
for payment of all costs, charges and expenses of or incidental to
the exercise of any of the powers of the Receiver shall be applied
in or towards satisfaction of the Obligations. The rights and
powers conferred by this paragraph are in supplement of and not in
substitution for any rights ERS may have from time to time.
9. Dealings by Third Parties.
(a) No person dealing with ERS or an agent or Receiver
shall be required to determine (i) whether the security interest
granted herein has become enforceable, (ii) whether the powers
which such person is purporting to exercise have become
exercisable, (iii) whether any money remains due to ERS by
Telepanel, (iv) the necessity or expediency of the stipulations
and conditions subject to which any sale or lease is made, (v) the
proprietary or regularity of any sale or other dealing by ERS with
the Collateral, or (vi) how any money paid to the Lender has been
applied.<PAGE>
<PAGE>
(b) Any purchaser of all or any part of the Collateral
from ERS or a Receiver or agent shall hold the Collateral
absolutely, free from any claim or right of whatever kind,
including any equity of redemption, of Telepanel, which it
specifically waives (to the fullest extent permitted by law) as
against any such purchaser together with all rights of redemption,
stay or appraisal which Telepanel has or may have under any rule
of law or statute now existing or hereafter adopted.
10. Term of Agreement. This Agreement shall terminate when
all payments under the Note and the Guaranty have been made in
full and all other Obligations have been paid or discharged, and
no further Working Capital Advances may be made under the Joint
Distribution Agreement. Upon such termination, ERS, at the request
of Telepanel, will join in executing any termination statement
with respect to any financing statement executed and filed
pursuant to Section 2 of this Agreement.
11. Modification of Agreement. No modification, amendment or
waiver of any provision of, nor any consent required by, this
Agreement, nor any consent to any departure by Telepanel
therefrom, shall in any event be effective unless the same shall
be in writing and signed by ERS and then such modification,
amendment, waiver or consent shall be effective only in the
specific instance and for the purpose which given. No notice to or
demand on Telepanel in any case shall entitle Telepanel to any
other or further notice or demand in the same, similar or other
circumstances.
12. Remedies Cumulative. etc. No right, power or remedy
herein conferred upon or reserved to ERS is intended to be
exclusive of any other right, power or remedy or remedies, and
each and every right, power and remedy of ERS pursuant to this
Agreement or the Guaranty, the Note or the Joint Distribution
Agreement or now or hereafter existing at law or in equity or by
statute or otherwise shall, to the extent permitted by law, be
cumulative and concurrent and shall be in addition to every other
right, power or remedy pursuant to this Agreement, or the
Guaranty, the Note or the Joint Distribution Agreement now or
hereafter existing at law or in equity or by statute or otherwise,
and the exercise or beginning of the exercise by ERS of any one or
more of such rights, powers or remedies shall not preclude the
simultaneous or later exercise by ERS of any or all such other
rights, powers or remedies.
13. No Waiver, etc. To the fullest extent permitted by law,
no failure or delay by ERS to insist upon the strict performance
of any term, condition, covenant or agreement of this Agreement or
of the Note or to exercise any right, power or remedy hereunder or
thereunder or consequent upon a breach hereof or thereof, shall
constitute a waiver of any such term, condition covenant,
agreement, right, power or remedy or of any such breach, or<PAGE>
<PAGE>
preclude ERS from exercising any such right, power or remedy at
any later time or times.
14. Notices. All notices, requests or instructions
hereunder shall be in writing and delivered personally or sent by
registered or certified mail, postage prepaid, or by telecopy (or
like transmission), as follows:
(1) if to Telepanel:
245 Riviera Drive
Markham, Ontario L3R 5J9
Attention: President
Telecopy Number: 905-477-7877
with a copy to:
Barry Reiter, Esq.
Tory Tory DesLauriers & Binnington
Aetna Tower-Suite 3000
P.O. Box 270
Toronto-Dominion Centre
Toronto, Ontario M5K 1N2
Telecopy Number: 416-865-7380
(2) if to ERS:
488 Main Avenue
Norwalk, Connecticut 06851-2500
Attention: Chairman of the Board
Telecopy Number: (203) 849-2500
with a copy to:
Howard Kailes, Esq.
Krugman Chapnick & Grimshaw LLP
Park 80 West - Plaza Two
Saddle Brook, New Jersey 07663
Telecopy Number: 201-845-9627
Any notice so addressed and mailed shall be deemed to be given
when so mailed. Any notices addressed and otherwise delivered
shall be deemed to be given when actually received by the
addressee. Any of the above addresses and telecopy numbers may be
changed at any time by notice given as provided above; provided,
however, that any such notice of change of address shall be
effective only upon receipt. <PAGE>
<PAGE>
15. Survival of Agreement. Each representation, warranty,
covenant and agreement of the herein contained, shall survive the
making by ERS of all Working Capital Advances and the execution
and delivery to ERS of the Note, notwithstanding any investigation
at any time made by or on behalf of any party, and shall continue
in full force and effect so long as any Obligation is outstanding
and unpaid.
16. Entire Agreement. This Agreement contains the entire
agreement with respect to the transactions contemplated hereby,
and supersedes all prior understandings, arrangements and
agreements with respect to the subject matter hereof.
17. Benefit of Agreement. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their
respective successors and assigns.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Province of Ontario
applicable in the case of agreements made and to be performed
entirely within such jurisdiction.
19. Captions. The captions appearing herein are for the
convenience of the parties only and shall not be construed to
affect the meaning of the provisions of this Agreement.
20. Severability. In the event that one or more of the
provisions of this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other
provisions of this Agreement, but this Agreement shall be
construed as if such invalid, illegal or unenforceable provision
and never been contained herein. Without limiting the generality
of the foregoing, if and to the extent that any provision hereof
shall conflict with any mandatory provision of the PPSA
(including, without limitation, an exclusion or purported
exclusion of a duty or onus imposed by the PPSA or a limitation or
purported limitation of the liability of or the amount of damages
recoverable from a person who has failed to discharge a duty or
obligation imposed by the PPSA), such provision of the PPSA shall
govern.
21. Counterparts. This Agreement may be signed in one or
more counterparts, each of which shall be deemed to be an
original, but all of which shall constitute one agreement.
<PAGE>
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the date first above written.
TELEPANEL SYSTEMS INC.
By
---------------------------
ELECTRONIC RETAILING SYSTEMS
INTERNATIONAL, INC.
By
--------------------------
Exhibit 10.21
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 Board of Directors of the Company or, as determined by the
Board of Directors in its sole discretion, by a committee from
time to time appointed by the Board of Directors and consisting of
not less than two of its members (the Board of Directors, or such
committee, for purposes of this Plan hereinafter referred to as
the "Committee"), 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 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 <PAGE>
<PAGE>
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 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 3,500,000 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:
- -------------------
* Increase from 1,775,000 to 3,500,000 subject to stockholder
approval<PAGE>
<PAGE>
(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 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<PAGE>
<PAGE>
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
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.
<PAGE>
<PAGE>
(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
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.<PAGE>
<PAGE>
(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 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.
<PAGE>
<PAGE>
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-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.
Exhibit 10.22
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 Board of Directors of the Company or, as determined by the
Board of Directors in its sole discretion, by a committee from time
to time appointed by the Board of Directors and consisting of one
or more of its members (the Board of Directors, or such committee,
for purposes of this Plan hereinafter referred to as the
"Committee"), 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 inter-
pretations, 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 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
Committee shall constitute service as a director of the Company for
all purposes.
<PAGE>
<PAGE>
3. Stock Available for Options. There shall be
available for options under the Plan a total of 750,000 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 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
- --------------
* Increase from 150,000 to 750,000 subject to stockholder
approval.<PAGE>
<PAGE>
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
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;
<PAGE>
(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
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.
<PAGE>
<PAGE>
(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
stock option shall be issued to a director of the Company who is<PAGE>
<PAGE>
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-
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<PAGE>
<PAGE>
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.
Exhibit 11
<TABLE>
Electronic Retailing Systems International, Inc.
Computation of Basic Loss Per Common Share
<CAPTION>
Three Months Twelve Months
Ended Ended
December 31, 1997 December 31, 1997
----------------- -----------------
<S> <C> <C>
Net loss ($ 8,776,000) ($26,873,000)
============ ============
Weighted average common
shares outstanding 21,137,665 21,095,642
============ ============
Basic loss per common share ($0.42) ($1.27)
============ ============
Calculation of weighted average
common shares outstanding
- -------------------------------
Common shares issued and out-
standing at December 31, 1996 21,047,106 21,047,106
Issuance of common shares
pursuant to stock option plan 90,559 48,536
------------ ------------
Weighted average common shares
outstanding 21,137,665 21,095,642
============ ============
</TABLE>
Exhibit 12.1
<TABLE>
Electronic Retailing Systems International, Inc.
Computation of Ratio of Earnings to Fixed Charges
(Amounts in thousands of dollars)
<CAPTION>
Year Ended December 31,
----------------------------
1997 1996 1995
----------------------------
<S> <C> <C> <C>
Pre-tax loss from continuing
operations $(26,873) $(9,412) $(10,868)
-------- ------- -------
Fixed charges:
- -------------
Interest expense & amortization 14,024 382 291
Rentals:
Buildings-33% 141 93 98
Office and other leased equipment-33% 13 11 13
-------- ------- --------
Total fixed charges 14,178 486 402
-------- ------- --------
Earnings before income taxes,
minority interest and fixed charges (12,695) (8,926) (10,466)
-------- ------- -------
Ratio of earnings to fixed charges(A) -- -- --
======== ======= ========
Deficiency of earnings to fixed
charges $26,873 $ 9,412 $ 10,868
======== ======= ========
(A) As a result of losses incurred in the periods presented, the
Company was unable to cover the indicated fixed charges.
</TABLE>
Exhibit 21
<TABLE>
<CAPTION>
Place of % of Voting
Name Incorporation Securities Owned
- ---- ------------- ----------------
<S> <C> <C>
Electronic Retailing Connecticut 100%
Systems International,
Inc.
</TABLE>
Other subsidiaries of the Company are not named in the table
above. Such unnamed subsidiaries considered in the aggregate as a
single subsidiary would not be considered a significant subsidiary.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (Nos. 33-66764, 33-82482 and
33-82484) of Electronic Retailing Systems International, Inc. of
our report dated March 6, 1998, except for Note 13, which is as of
March 27, 1998, appearing on page F-2 of this Form 10-K.
PRICE WATERHOUSE LLP
Stamford, Connecticut
March 30, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC. CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AT AND FOR THE TWELVE MONTHS
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 82,400
<SECURITIES> 0
<RECEIVABLES> 432
<ALLOWANCES> (229)
<INVENTORY> 7,273
<CURRENT-ASSETS> 90,854
<PP&E> 5,055
<DEPRECIATION> (1,753)
<TOTAL-ASSETS> 100,208
<CURRENT-LIABILITIES> 2,482
<BONDS> 118,202
0
0
<COMMON> 211
<OTHER-SE> (20,687)
<TOTAL-LIABILITY-AND-EQUITY> 100,208
<SALES> 1,147
<TOTAL-REVENUES> 1,972
<CGS> 2,941
<TOTAL-COSTS> 3,699
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,024
<INCOME-PRETAX> (26,873)
<INCOME-TAX> 0
<INCOME-CONTINUING> (26,873)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,873)
<EPS-PRIMARY> (1.27)
<EPS-DILUTED> 0
</TABLE>
