SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file
December 31, 1997 number 0-21456
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ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1361276
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(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
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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 state-ments 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>
AMENDMENT NO. 1
The undersigned hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on
Form 10-K for the fiscal year ended December 31, 1997 (the "Annual
Report"), as set forth in the pages attached hereto:
Item 10. Directors and Executive Officers of the
Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial
Owners and Management
Item 13. Certain Relationships and Related
Transactions
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Certain biographical information concerning the directors of
Electronic Retailing Systems International, Inc. (the "Company")
is set forth below. Such information was furnished by them to the
Company.
<TABLE>
<CAPTION>
Name of Director Age Biographical Information
- ---------------- ---------- ------------------------
<S> <C> <C>
Paul A. Biddelman 52 President, Hanseatic Corpor-
ation (private investment
company) since prior to 1993;
Director: Insituform
Technologies, Inc., Celadon
Group, Inc., Premier Parks,
Inc., Petroleum Heat & Power
Company, Inc., Star Gas Cor-
poration (general partner of
Star Gas Partners, L.P.);
Director of the Company since
1993.
David Diamond 39 Executive Vice President of
Marketing and New Applications,
Catalina Marketing Corp. since
January 1997; consultant to
suppliers of products and
services to the supermarket
industry from 1994 until 1997;
President of Lamaze Publishing
Company, Inc. (publisher of<PAGE>
material on neonatal care) from
prior to 1993 until 1994;
Director of the Company since
1996.
Bruce F. Failing, Jr. 49 Founder of the Company in 1990,
and its Vice Chairman of the
Board and Chief Executive
Officer; President of the
Company through February 1997;
Director of the Company since
1990.
Norton Garfinkle 67 Founder of the Company in 1990,
and its Chairman of the Board;
Chairman of Cambridge Manage-
ment Corporation (manufacturer
and marketer of DAP series of
massively parallel processing
computers) since prior to 1993,
and Chairman of its affiliates
(engaged in the research and
development of new tech-
nologies), including Oxford
Management Corporation, during
such period; Director of the
Company since 1990.*
George B. Weathersby 53 President and Chief Executive
Officer of American Management
Association since February
1998; President of the Company
from 1997 to 1998; Vice
Chairman of Cambridge
Management Corporation and
affiliates, including Oxford
Management Corporation, from
1993 until 1998; Director of
the Company since 1996.
Donald E. Zilkha 46 President, Zilkha & Company
(private investment advisor)
since prior to 1993; Director
of the Company since 1993.
- -------------------
In December 1995, pursuant to an agreement with New York State
authorities, Mr. Garfinkle admitted to a misdemeanor relating to his 1989
New York State return and paid all taxes required by the agreement.
/TABLE
<PAGE>
<PAGE>
See "Item 12. Security Ownership of Certain Beneficial Owners
and Management" for information concerning arrangements between
the controlling stockholders of the Company concerning the
election of directors, which information is incorporated herein by
reference.
For information concerning the executive officers of the
Company, see pages 21 to 23 of the Company's Annual Report on Form
10-K for the year ended December 31, 1997 as originally filed,
under the caption "Item 1. Business-Executive Officers", which
information is incorporated herein by reference.
There are no family relationships among any of the executive
officers or directors of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of copies of reports received by
it pursuant to Section 16(a) of the Securities Exchange Act of
1934 (the "Exchange Act"), and the written representations of its
incumbent directors and officers, and holders of more than ten
percent of any registered class of the Company's equity
securities, the Company believes that during 1997 all filing
requirements applicable to its directors, officers and ten percent
holders under said section were satisfied, except that Lester
Briney, a Vice President of the Company, filed one report on Form
5 subsequent to its due date disclosing one grant of stock options
under the Company's stock option plan previously exempt from
reporting.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Director Compensation
In May 1993, as part of the combination (the
"Reorganization") of the Company, Electronic Retailing Systems
International, Inc. (incorporated in Connecticut in 1990 [the
"Principal Subsidiary"]), and ERS Associates Limited Partnership
(the "Partnership") effected immediately prior to the closing of
the Company's initial public offering of common stock, $.01 par
value ("Common Stock"), the Company assumed the Electronic
Retailing Systems International, Inc. 1993 Director Stock Option
Plan (the "Director Option Plan") adopted by the Board of
Directors of the Principal Subsidiary, and approved by its
stockholders, in the prior month. Under the Director Option Plan,
pursuant to amendments approved by the stockholders of the Company
in January 1997, options to purchase up to 150,000 shares of the
Company's Common Stock may be granted to directors of the Company.<PAGE>
<PAGE>
In December 1997, the Board of Directors of the Company, subject
to stockholder approval and adoption, approved an increase in the
number of authorized shares of the Company's Common Stock
available for issuance under the Director Option Plan to 750,000
shares. The Company has the ability to grant options under the
Director Option Plan to executive officers who are directors,
which are intended to be "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), provided that the option exercise price is
equal to the fair market value of the Common Stock on the date of
grant. Other options granted under the Director Option Plan will
be nonqualified options.
The Director Option Plan is administered by the Board of
Directors of the Company, which determines the persons who are to
receive options and the number of shares subject to each option.
Paul A. Biddelman, David Diamond, George B. Weathersby and Donald
Zilkha hold options granted under the Director Option Plan in June
1996 covering, respectively, 20,000 shares, 12,500 shares, 20,000
shares and 20,000 shares of Common Stock, exercisable at a price
per share equal to $1.875, the closing price per share of Common
Stock on the Nasdaq Stock Market on the date of grant, and Mr.
Weathersby holds an additional option granted under the Director
Option Plan in December 1996 covering 50,000 shares of Common
Stock, exercisable at a price per share equal to $3.38, the
closing price per share of the Common Stock on the Nasdaq Stock
Market on the date of grant. All such options expire five years
from the date of grant and are exercisable on the date of grant
with respect to one-quarter of the shares covered thereby, with an
additional one-quarter of such shares becoming exercisable
annually thereafter. Mr. Weathersby, who served as President of
the Company from February 1997 through March 1998, was also
granted a ten-year option in May 1997 covering 50,000 shares of
the Company's Common Stock, exercisable at a per share price of
$5.69, the closing price of the Company's Common Stock on The
Nasdaq Stock Market on the date of grant, which becomes
exercisable with respect to such shares after achievement by the
Company of specified performance standards.
The Company's arrangements with Mr. Weathersby during the
year ended December 31, 1997 also provided for bonus compensation
to him, in his capacity as President of the Company, in the amount
of $50,000. During 1997, the Company paid to Oxford Management
Corporation ("Oxford") the amount of $75,000 in reimbursement of
salary paid by Oxford to Mr. Weathersby for services rendered by
him as President of the Company, and in 1998 paid an additional
amount of $75,000 to Oxford for services rendered in 1997 by
Messrs. Weathersby and Garfinkle. The Company's arrangements with<PAGE>
<PAGE>
Oxford through April 1998, which are terminable at any time by the
Company or Oxford, have provided for payments in the amount per
month of $15,000 for services rendered by Mr. Garfinkle.
The Company has not adopted any director fee arrangement, but
reimburses all of its directors for their out-of-pocket expenses
incurred in the performance of their duties as directors of the
Company.
Executive Compensation
Summary Compensation Table. The following table sets forth
information concerning the annual compensation for each of the
Company's last three completed fiscal years of: (i) the Company's
chief executive officer, (ii) each of the other most highly-
compensated executive officers whose salary and bonus exceeded
$100,000 during the most recent fiscal year, and (iii) two
additional individuals who would have been among the four such
other most highly-compensated executive officers during the most
recent fiscal year, but were not executive officers at the end of
such year:
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Compensation All
Securities Other
Name and Annual Compensation Underlying Compen-
Principal Position Year Salary($) Bonus($) Options (#) sation($)
- ------------------ ---- --------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Bruce F. Failing, Jr... 1997 206,731 -- -- --
Chief Executive Officer 1996 246,567 -- -- --
1995 327,269 -- -- --
William W. Erdman...... 1997 197,115 20,000 400,000 --
Executive Vice 1996 -- -- -- --
President, Chief 1995 -- -- -- --
Operating Officer(1)
Lester S. Briney....... 1997 113,573 -- 100,000 --
Vice President, Chief 1996 -- -- -- --
Technical Officer(2) 1995 -- -- -- --
Michael R. Valiton..... 1997 149,423 -- -- --
Senior Vice 1996 140,942 -- 100,000(4) --
President(3) 1995 108,000 -- 30,000 --
Paul M. Patrick........ 1997 149,423 -- -- --
Vice President(5) 1996 147,404 -- -- --
1995 150,000 -- -- --
<PAGE>
William B. Fischer..... 1997 137,500 25,000 -- --
Vice President(6) 1996 121,750 -- 50,000 --
1995 102,305 -- 10,000 --
- ---------------------
(1) Mr. Erdman became an executive officer upon joining the Company in March 1997
and ceased to be an executive officer in January 1998.
(2) Mr. Briney became an executive officer in July 1997 after joining the Company
earlier in the year.
(3) Mr. Valiton became an executive officer in January 1995 after joining the
Company in the prior year.
(4) Such options replaced options previously granted and surrendered
contemporaneously with such replacement.
(5) Mr. Patrick served as an executive officer through his assumption of other
duties in the Company in March 1995. Mr. Patrick resumed the duties of
executive officer in March 1996 through his assumption of other duties in
October 1997 prior to his resignation from the Company.
(6) Mr. Fischer served as an executive officer from April 1995 through his
assumption of other duties in July 1997 prior to his resignation from the
Company.
</TABLE>
Option Grant Table. The following table sets forth certain
information regarding options granted by the Company during the
year ended December 31, 1997, to the individuals named in the above
compensation table:
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Potential Realizable
Individual Grants Value at Assumed
Number of % of Total Market Annual Rates of
Securities Options Price Stock Price
Underlying Granted to ExercisePer Share Appreciation for
OptionsEmployees in Price on Date Expiration Option Term (1)
Name Granted(#)Fiscal Year ($/sh)of Grant($) Date 5%($) 10%($)
- ---- ------------------------- ------ ----------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce F. Failing, Jr... -- -- -- -- -- -- --
William W. Erdman...... 400,000(2) 35.8 5.50 5.50 03/10/07 1,383,568 3,506,233
Lester S. Briney....... 50,000(3) 4.5 6.00 6.00 08/18/07 188,668 478,123
50,000(3) 4.5 6.19 6.19 09/25/07 194,643 493,263
Michael R. Valiton..... -- -- -- -- -- -- --
Paul M. Patrick........ -- -- -- -- -- -- --
William B. Fischer..... -- -- -- -- -- -- --
- ----------------------
(1) Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the
option term. These gains are based on arbitrarily assumed rates of stock price appreciation of 5% and 10% compounded
annually from the date the respective options are granted to their expiration date.
(2) One-half of such options became exercisable with respect to one-sixteenth of the shares covered thereby on June 30, 1997
with an additional one-sixteenth thereof subject to exercise every quarter thereafter; the remaining options were granted
with exercisability subject to achievement by the Company of specified performance standards.
(3) Such options became exercisable with respect to one-quarter of the shares covered thereby on or prior to the first
anniversary of grant with an additional one-sixteenth thereof subject to exercise every quarter thereafter.
</TABLE>
Aggregate Option Exercises and Year-End Option Table. The
following table sets forth certain information regarding exercises
of stock options, and stock options held as of December 31, 1997 by
the individuals named in the above compensation table.
<TABLE>
<CAPTION>
Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Acquired Value Options at Fiscal Year-End(#) at Year-End(1)
Name on Exercise (#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce F. Failing, Jr... -- -- -- -- -- --
William W. Erdman...... -- -- 37,500 362,500 -- --
Lester S. Briney...... -- -- -- 100,000 -- --
Michael R. Valiton.... -- -- 31,250 68,750 66,406 146,093
Paul M. Patrick....... 30,000 179,700 16,750 46,750 73,114 204,064
William B. Fischer.... 15,625 58,594 -- -- -- --
- -----------------------
(1) Calculated on the basis of the fair market value of the underlying securities at the exercise date or
at year-end, as the case may be, less the respective exercise prices.
</TABLE>
1993 Employee Stock Option Plan
In May 1993, as part of the Reorganization, the Company
assumed the Electronic Retailing Systems International, Inc. 1993
Employee Stock Option Plan (the "Employee Option Plan") adopted by
the Board of Directors of the Principal Subsidiary, and approved by
its stockholders, in the prior month. Under the Employee Option
Plan, pursuant to amendments approved by the stockholders of the
Company in June 1994 and December 1996, options to purchase up to
1,775,000 shares of the Company's Common Stock may be granted to
key employees of the Company and its subsidiaries, including
executive officers who are not directors. In December 1997, the
Board of Directors of the Company, subject to stockholder approval
and adoption, approved a further increase in the number of
authorized shares of the Company's Common Stock available for
issuance under the Employee Option Plan to 3,500,000 shares. The
Company is able to grant options under the Employee Option Plan
which are intended to be "incentive stock options" within the
meaning of Section 422 of the Code, provided that the option
exercise price is equal to the fair market value of the Common<PAGE>
<PAGE>
Stock on the date of grant. Other options granted under the
Employee Option Plan are nonqualified options.
The Employee Option Plan is administered by the Board of
Directors of the Company, which determines the persons who are to
receive options and the number of shares subject to each option. As
of April 1, 1998, options covering an aggregate of 1,672,457 shares
of Common Stock were outstanding pursuant to the Employee Option
Plan (480,500 shares of which were subject to options granted
subject to stockholder approval and adoption of the expansion of
the plan previously approved by the Board of Directors), and
options covering an aggregate of 474,433 shares had been exercised.
Certain Agreements with Executive Officers
The Company's severance arrangements with William W. Erdman,
who ceased to be Executive Vice President, Chief Operating Officer,
of the Company in January 1998, provide for bi-weekly payments at
the rate of Mr. Erdman's prior base salary of $9,615, to continue
for six months after his departure. Such payments would have
continued for an additional three months in the event Mr. Erdman
had not commenced other full-time employment in March 1998. Mr.
Erdman's severance arrangements also provide for exercisability
through December 1998 of certain options exercisable at the time of
his departure, coverage under the Company's benefit plans until the
earlier of commencement of other full-time employment or December
31, 1998, maintenance of confidentiality restrictions and non-
competition covenants effective for one year after departure.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1997, the members of the
Company's Compensation Committee were Norton Garfinkle, Paul
Biddelman and Donald Zilkha.
During the year ended December 31, 1997, the Company subleased
to a company owned by Mr. Garfinkle and Bruce F. Failing, Jr., Vice
Chairman of the Board and Chief Executive Officer of the Company,
certain space adjacent to its premises in Wilton, Connecticut, at
a rent equal to an allocated portion of the Company's expense
pursuant to the underlying lease, based on space occupied, and was
paid approximately $34,000 under such sublease arrangements. An
additional amount of $22,145 has been accrued under such
arrangements with respect to the year ended December 31, 1997. In
connection with the relocation of its executive offices in August
1997, the Company has terminated all such arrangements.
<PAGE>
<PAGE>
During the year ended December 31, 1997, Oxford Management
Corporation, a Company controlled by Mr. Garfinkle, was reimbursed
an aggregate amount of $75,000 for salary paid to Mr. Weathersby in
the capacity as President of the Company, and in 1998 paid an
additional amount of $75,000 for services rendered in 1997 by
Messrs. Weathersby and Garfinkle. The Company's arrangements with
Oxford through April 1998, which are terminable at any time by the
Company or Oxford, have provided for payments in the amount per
month of $15,000 for services rendered by Mr. Garfinkle.
Holders of shares of Common Stock obtained upon conversion of
the Company's previously outstanding Series A Cumulative
Convertible Preferred Stock, $1.00 par value (the "Series A
Preferred Stock"), remain entitled to certain demand and incidental
registration rights which, in the case of such demand rights,
obligate the Company to register such shares, on two occasions,
provided that the holders of at least 500,000 shares notify the
Company that they intend to offer for sale in the aggregate at
least 100,000 shares of Common Stock. Such holders include
Garfinkle Limited Partnership II (an affiliate of Mr. Garfinkle),
an affiliate of Hanseatic Corporation (in which Mr. Biddelman is an
officer), and Mr. Zilkha.
Under agreements entered into by the Company with the limited
partners of the Partnership (including Mr. Zilkha and Hanseatic
Corporation's predecessor-in-interest) and the stockholders of the
Principal Subsidiary effectuating the Reorganization, the partners
of the Partnership agreed to the termination of the partnership
agreement of the Partnership and any ongoing, related commitments,
except for certain demand and incidental registration rights and
co-sale rights to the limited partners. In addition, the former
stockholders of the Principal Subsidiary, including Messrs.
Garfinkle and Failing and their respective affiliates and related
family trusts, became entitled to certain demand and incidental
registration rights with respect to shares of Common Stock issued
to them in the Reorganization, which, in the case of such demand
registration rights, operate pursuant to the standards applicable
to the shares obtained upon conversion of Series A Preferred Stock.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------
The following table sets forth certain information as of April
1, 1998 with respect to the number of shares of Common Stock
beneficially owned by (i) each person known by the Company to own
beneficially more than 5% of the outstanding shares of Common
Stock, (ii) each director of the Company, (iii) each executive
officer and former executive officer of the Company named in the<PAGE>
<PAGE>
summary compensation table under "Item 11. Executive Compensation,"
and (iv) all directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Percent
Beneficially Owned(1) of Class
--------------------- --------
<S> <C> <C>
Norton Garfinkle
133 East 62nd Street
New York, NY 10021(2)......... 7,890,758(3) 37.2%
Bruce F. Failing, Jr.
210 Round Hill Road
Greenwich, CT 06831(2)........ 3,145,637(4) 14.8
Fidelity International Limited
Pembroke Hall
42 Crow Lane
Hamilton, Bermuda........... 2,099,000(5) 9.9
Connecticut Development
Authority
845 Brook Street
Rocky Hill, CT 06067......... 1,288,578(6) 5.7
William W. Erdman............. 37,500(7) (8)
Lester S. Briney.............. 12,500(7) (8)
Michael Valiton............... 43,750(7) (8)
Paul M. Patrick............... 56,100(9) (8)
William B. Fischer............ 3,125 (8)
Paul A. Biddelman............. 1,010,300(10)(11) 4.8
David Diamond................. 7,250(12) (8)
George B. Weathersby.......... 35,000(7) (8)
Donald E. Zilkha.............. 107,472(11) (8)
All executive officers and
directors as a group
(10 persons)................ 12,335,167(13) 57.6
- -------------------
(1) Except as otherwise indicated, as of April 1, 1998 all of such
shares are owned with sole voting and investment power.
(2) Such stockholders are party to a stockholders agreement among
Norton Garfinkle, Bruce F. Failing, Jr., certain family trusts
and partnerships, and Elizabeth Z. Failing, as described
below.
(3) Includes 600,000 shares held by Garfinkle Limited Partnership
I and 6,489,970.5 shares held by Garfinkle Limited Partnership
II, both Delaware limited partnerships and with respect to
each of which G.F. Management Corp. (all of the shares of
which are held by Norton Garfinkle) acts as sole general
partner.
(4) Includes 1,318,489 shares beneficially owned by a trust
established for the benefit of Mr. Failing's children, 168,318
shares beneficially owned by Elizabeth Z. Failing, Mr.
Failing's sister, and 20,000 shares beneficially owned jointly
by Mr. Failing and his wife, Leigh Q. Failing.
(5) In a Statement on Schedule 13D filed with the Securities and
Exchange Commission by Fidelity International Limited ("FIL"),
FIL has reported that it beneficially owns such shares as
investment adviser or the parent of the investment adviser to
a number of non-U.S. investment companies or investment
trusts.
(6) Represents (i) 699,724 shares issuable upon exercise of the
Company's warrants exercisable at April 1, 1998 and (ii)
588,854 shares issuable at such date upon conversion of the
Company's convertible promissory note in the principal amount
of $5,000,000. See "Item 13. Certain Relationships and Related
Transactions."
(7) Represents shares issuable upon exercise of stock options
granted by the Company exercisable within 60 days of April 1,
1998.
(8) Less than one percent.
(9) Includes 1,100 shares issuable upon exercise of stock options
granted by the Company exercisable within 60 days of April 1,
1998.
(10) Includes 969,300 shares held by Hanseatic Americas LDC, a
Bahamian limited duration company in which the sole managing
member is Hansabel Partners, L.L.C., a Delaware limited
liability company in which the sole managing member is
Hanseatic Corporation, of which Mr. Biddelman is an officer.
(11) Includes 10,000 shares issuable upon exercise of stock options
granted by the Company exercisable within 60 days of April 1,
1998.
(12) Includes (i) 1,000 shares beneficially owned jointly by Mr.
Diamond and his wife, and (ii) 6,250 shares issuable upon
exercise of stock options granted by the Company exercisable
within 60 days of April 1, 1998.
(13) Includes 200,000 shares issuable upon exercise of stock
options granted by the Company exercisable within 60 days of
April 1, 1998.
</TABLE>
Messrs. Garfinkle and Failing, together with certain family
trusts and partnerships, and Mr. Failing's sister (each, together
with his related parties, a "Stockholder Group"), are parties to an
agreement dated March 1993, as amended (the "Restated Stockholder
Agreement"), under which: (i) both Stockholder Groups have agreed
that, through the year 2003, they will use their best efforts to
provide that the Board of Directors of the Company will consist of
not more than seven directors, six of whom will be designated by
Mr. Garfinkle and Mr. Failing in proportion to the respective
beneficial holdings of shares of Common Stock of the Garfinkle
Stockholder Group and the Failing Stockholder Group, (ii) except
for sales effected pursuant to Rule 144 and transfers to
affiliates, family members or related trusts, no such Stockholder
Group may transfer any shares of Common Stock to any third party
without first offering such shares to the other Stockholder Group
at the same price as offered by such third party, (iii) through the
year 2003, in the event a Stockholder Group proposes to transfer
shares of Common Stock to a third party in a transaction pursuant
to which control of the Company would change, the other Stockholder
Group will have the right, on the same terms, to participate in
such transaction, and (iv) through the year 2003, Mr. Garfinkle has
the option to acquire at fair market value all shares held by the
Failing Stockholder Group upon the death or incapacity of Mr.
Failing, which option may be assigned to the Company, subject to
the Company's acceptance of such option. Such arrangements
terminate in the event either Stockholder Group owns less than ten
percent of the outstanding Common Stock, or if Messrs. Garfinkle
and Failing are unable to elect at least a majority of the Board of
Directors of the Company.
<PAGE>
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
-------------------------
At April 1, 1998, Norton Garfinkle, Chairman of the Board and
a director of the Company, together with two affiliated limited
partnerships, beneficially owned approximately 37.2% of the
outstanding Common Stock of the Company, and Bruce F. Failing, Jr.,
Vice Chairman of the Board and Chief Executive Officer and a
director of the Company, together with a trust established for the
benefit of his children, beneficially owned approximately 14.8% of
the outstanding Common Stock of the Company. See "Item 11.
Executive Compensation-Compensation Committee Interlocks and
Insider Participation" above for information concerning agreements
relating to the Company's Common Stock and Series A Preferred Stock
entered into by Mr. Garfinkle and by Paul A. Biddelman and Donald
E. Zilkha, both directors of the Company, or their affiliates, and
certain reimbursements by the Company to a company controlled by
Mr. Garfinkle, which information is incorporated herein by
reference.
In addition, See "Item 11. Executive Compensation-Compensation
Committee Interlocks and Insider Participation" above for
information concerning amounts paid to the Company during the year
ended December 31, 1997 under a sublease with a company owned by
Messrs. Garfinkle and Failing, and certain demand and incidental
registration rights to which Messrs. Garfinkle, Failing, Biddelman
and Zilkha became entitled with respect to shares of Common Stock
obtained upon conversion of Series A Preferred Stock, which
information is incorporated herein by reference.
During the year ended December 31, 1997, as a result of the
advances by the Connecticut Development Authority (the "CDA") under
the Company's convertible note (the "CDA Note"), and the
exercisability of the Company's warrant (the "CDA Warrant") held by
the CDA, the CDA was the beneficial owner of in excess of 5% of the
outstanding Common Stock. At April 1, 1998, the Company was
indebted under the CDA Note in the aggregate principal amount of
$5,000,000. All such amounts are repayable in August 1999, accrue
interest, payable monthly, at a rate of 7.4% per annum (of which
$370,000 was paid during the year ended December 31, 1997) and are
secured by the assets of the Company and the Principal Subsidiary.
Such amounts are convertible into 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. The CDA Warrant is exercisable through August 1999 with
respect to 699,724 shares of Common Stock (as adjusted through
April 1,1997), at an adjusted price calculated at $2.58 plus the
average market price of the Common Stock during the twelve months
prior to exercise.<PAGE>
<PAGE>
The Company believes that the terms of the foregoing
transactions between the Company and its affiliates were no less
favorable to the Company than it could have obtained from
unaffiliated third parties. The Company will continue to remain
indebted to the CDA in accordance with its existing arrangements.
As a matter of policy, all future transactions between the Company
and its affiliates will be on terms no less favorable to the
Company than those available with unaffiliated third parties. <PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: April 17, 1998 ELECTRONIC RETAILING SYSTEMS
INTERNATIONAL, INC.
By s/Michael Luetkemeyer
----------------------------
Michael Luetkemeyer
Vice President, Chief
Financial 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:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ------------- --------------
<S> <C> <C>
April 17, 1998
BRUCE F. FAILING, JR.*
- ----------------------
Bruce F. Failing, Jr. Vice Chairman of the
Board and Principal
Executive Officer
s/Michael Luetkemeyer April 17 , 1998
- ----------------------
Michael Luetkemeyer Vice President and
Principal Financial
and Accounting
Officer
April 17 , 1998
PAUL A. BIDDELMAN*
- ----------------------
Paul A. Biddelman Director
DAVID DIAMOND* April 17 , 1998
- ----------------------
David Diamond Director
NORTON GARFINKLE* April 17 , 1998
- ----------------------
Norton Garfinkle Director
GEORGE WEATHERSBY* April 17 , 1998
- ----------------------
George Weathersby Director
DONALD E. ZILKHA* April 17 , 1998
- ----------------------
Donald E. Zilkha Director
*By s/Michael Luetkemeyer
--------------------
Michael Luetkemeyer
(Attorney-in-Fact Pursuant
to Power of Attorney on
file with the Securities
and Exchange Commission)
</TABLE>
