<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE> 2
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 1, 1998
------------------------
Norwalk, Connecticut
May 5, 1998
TO THE HOLDERS OF COMMON STOCK
OF ELECTRONIC RETAILING SYSTEMS
INTERNATIONAL, INC.:
The Annual Meeting of the Stockholders of ELECTRONIC RETAILING SYSTEMS
INTERNATIONAL, INC., will be held at the offices of Zilkha & Company, 767 Fifth
Avenue-46th Floor, New York, New York on Monday, June 1, 1998 at 10:00 A.M.,
local time, for the following purposes, as more fully described in the
accompanying Proxy Statement:
1. To elect five directors of the Company for the ensuing year.
2. To consider and take action upon a proposal to approve and adopt an
amendment, heretofore approved by the Board of Directors, to the
Company's 1993 Employee Stock Option Plan in order to increase the
number of shares issuable pursuant to the exercise of options granted
under said plan from 1,775,000 to 3,500,000 shares of the Common Stock
of the Company.
3. To consider and take action upon a proposal to approve and adopt an
amendment, heretofore approved by the Board of Directors, to the
Company's 1993 Director Stock Option Plan in order to increase the
number of shares issuable pursuant to the exercise of options granted
under said plan from 150,000 to 750,000 shares of the Common Stock of
the Company.
4. To transact such other business as may properly come before the Meeting
or any adjournment or adjournments thereof.
The close of business on April 28, 1998 has been fixed by the Board of
Directors as the record date for the determination of stockholders entitled to
notice of, and to vote at, the Meeting.
By Order of the Board of Directors
NORTON GARFINKLE,
Chairman of the Board and Secretary
You are cordially invited to attend the meeting in person. If you do not
expect to be present, please mark, sign and date the enclosed form of Proxy and
mail it in the enclosed return envelope which requires no postage if mailed in
the United States, so that your vote can be recorded.
<PAGE> 3
PROXY STATEMENT
GENERAL
This Proxy Statement, which will be mailed commencing on or about May 5,
1998 to the persons entitled to receive the accompanying Notice of Annual
Meeting of Stockholders, is provided in connection with the solicitation of
proxies on behalf of the Board of Directors of Electronic Retailing Systems
International, Inc. for use at the Annual Meeting of Stockholders (the
"Meeting") to be held on June 1, 1998 and at any adjournment or adjournments
thereof, for the purposes set forth in such Notice. The Company's executive
office is located at 488 Main Avenue, Norwalk, Connecticut 06851.
VOTING
At the close of business on April 28, 1998, the record date stated in the
accompanying Notice, the Company had outstanding 21,230,247 shares of common
stock, $.01 par value (the "Common Stock"), each of which is entitled to one
vote with respect to each matter to be voted on at the Meeting. The Company has
no class or series of voting stock outstanding other than the Common Stock.
A majority of the issued and outstanding shares of Common Stock present in
person or by proxy will constitute a quorum for the transaction of business at
the Meeting. Directors are elected by a plurality vote. Neither the proposed
amendment to the Company's employee stock option plan, nor the proposed
amendment to the Company's director stock option plan, will be made effective
until it is approved and adopted by the holders of a majority of shares of
Common Stock present in person or represented by proxy and entitled to vote at
the Meeting.
Abstentions and broker non-votes (as hereinafter defined) are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. For the purpose of determining the vote required for approval of
matters to be voted on at the Meeting, shares held by stockholders who abstain
from voting will be treated as being "present" and "entitled to vote" on the
matter and, thus, an abstention has the same legal effect as a vote against the
matter. In the case of a broker non-vote, such shares will not be treated as
"present" and "entitled to vote" on the matter. Accordingly, in the election of
directors, and in the determination of whether to approve and adopt the
amendments to the Company's employee stock option plan and its director stock
option plan, respectively, a broker non-vote will have no effect on the outcome
of the vote on the matter. A "broker non-vote" refers to shares represented at
the Meeting in person or by proxy by a broker or nominee where such broker or
nominee (i) has not received voting instructions on a particular matter from the
beneficial owner or persons entitled to vote; and (ii) the broker or nominee
does not have the discretionary voting power on such matter.
At April 28, 1998, Norton Garfinkle, Chairman of the Board of the Company,
together with two affiliated limited partnerships, and Bruce F. Failing, Jr.,
the Company's Vice Chairman of the Board and Chief Executive Officer, together
with a trust established for the benefit of his children, beneficially owned
approximately 52% of the outstanding Common Stock of the Company. Messrs.
Garfinkle and Failing have entered into an agreement relating to the voting and
disposition of such shares. Accordingly, Messrs. Garfinkle and Failing, acting
together, will be in a position to elect all of the Company's directors and to
take action requiring stockholder approval. See "I. Election of
Directors -- Information Concerning Certain Stockholders" below.
I. ELECTION OF DIRECTORS
Five directors will be elected at the Meeting, each to serve for one year
and until a successor shall have been chosen and qualified. It is the intention
of each of the persons named in the accompanying form of Proxy to vote the
shares represented thereby in favor of the five nominees listed in the following
table, unless otherwise instructed in such Proxy. Each such nominee is presently
serving as a director. The Board of Directors has no reason to believe that any
person named will be unable or will decline to serve. In case any of the
nominees is unable or declines to serve, such persons reserve the right to vote
the shares represented by
1
<PAGE> 4
such Proxy for another person duly nominated by the Board of Directors in such
nominee's stead, or, if no other person is so nominated, to vote such shares
only for the remaining nominees. Certain information concerning the nominees for
election as directors is set forth below. Such information was furnished by them
to the Company.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
OWNED BENEFICIALLY
NAME OF NOMINEE AND CERTAIN AS OF PERCENT
BIOGRAPHICAL INFORMATION APRIL 1, 1998(1) OF CLASS
--------------------------- ------------------ --------
<S> <C> <C>
PAUL A. BIDDELMAN, age 52; President, Hanseatic Corporation
(private investment company) since 1997, and Treasurer
from prior to 1993 to 1997; Director: Insituform
Technologies, Inc., Celadon Group, Inc., Premier Parks
Inc., Petroleum Heat & Power Company, Inc., and Star Gas
Corporation (general partner of Star Gas Partners, L.P.);
Director of the Company since 1993........................ 1,010,300(2)(3) 4.8%
DAVID DIAMOND, age 39; Executive Vice President of Marketing
and New Applications, Catalina Marketing Corp., since
1997; consultant to suppliers of products and services to
the supermarket industry from 1994 until 1997; President
of Lamaze Publishing Company, Inc. (publisher of material
on neonatal care) from prior to 1993 until 1994; Director
of the Company since 1996................................. 7,250(4) (5)
BRUCE F. FAILING, JR., age 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......... 3,145,637(6)(7) 14.8
NORTON GARFINKLE, age 67; founder of the Company in 1990,
and its Chairman of the Board; Chairman of Cambridge
Management Corporation (manufacturer and marketer of DAP
series of massively parallel processing computers) since
prior to 1993, and Chairman of its affiliates (engaged in
the research and development of new technologies),
including Oxford Management Corporation, during such
period; Director of the Company since 1990(8)............. 7,890,758(6)(9) 37.2
DONALD E. ZILKHA, age 46; President, Zilkha & Company
(private investment advisor) since prior to 1993; Director
of the Company since 1993................................. 107,472(3) (5)
</TABLE>
- ---------------
(1) Such persons have sole voting and investment power with respect to all
outstanding shares of Common Stock shown as being beneficially owned by
them, subject to the information contained in the footnotes to this table.
(2) Includes 969,300 shares held by Hanseatic Americas LDC, a Bahamian limited
duration company in which the sole managing member is Hansabel Partners,
L.L.C., a Delaware limited liability company in which the sole managing
member is Hanseatic Corporation, of which Mr. Biddelman is an officer.
(3) Includes 10,000 shares issuable upon exercise of stock options granted by
the Company exercisable within 60 days of April 1, 1998.
(4) 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.
(5) Less than 1%.
(6) Such stockholders are party to a stockholders agreement among Norton
Garfinkle, Bruce F. Failing, Jr., certain family trusts and partnerships,
and Elizabeth Z. Failing, as described under "Information Concerning Certain
Stockholders" below.
(7) Includes 1,318,489 shares 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.
2
<PAGE> 5
(8) In December 1995, pursuant to an agreement with New York State authorities,
Mr. Garfinkle admitted to a misdemeanor relating to his 1989 New York State
return and paid all taxes required by the agreement.
(9) Includes 600,000 shares held by Garfinkle Limited Partnership I and
6,489,970.5 shares held by Garfinkle Limited Partnership II, both Delaware
limited partnerships with respect to each of which G.F. Management Corp.
(all of the shares of which are held by Norton Garfinkle) acts as sole
general partner.
No family relationship exists between any of the directors or executive
officers of the Company.
BOARD MEETINGS AND COMMITTEES
During the year ended December 31, 1997, the Board of Directors of the
Company met six times and took action by unanimous written consent on seven
occasions. Each current director of the Company attended at least 75% of the
meetings of the Board of Directors and meetings of any committees of the Board
on which such person served which were held during the time that person served.
The members of the Audit Committee of the Board of Directors of the Company
are Norton Garfinkle, Paul A. Biddelman and Donald E. Zilkha. The Audit
Committee is responsible for overseeing that management fulfills its
responsibilities in connection with the preparation of the consolidated
financial statements of the Company and its subsidiaries. The Committee's
functions include making recommendations to the Board regarding the engaging and
discharging of the Company's independent accountants, reviewing with the
independent accountants the plan and the results of the auditing engagement,
approving the professional services provided by the independent accountants,
reviewing the independence of the independent accountants, and reviewing the
adequacy of the Company's system of internal accounting controls. The Audit
Committee did not meet during the year ended December 31, 1997.
The members of the Compensation Committee of the Board of Directors are
Norton Garfinkle, Paul A. Biddelman and Donald E. Zilkha. The functions of the
Compensation Committee include making recommendations to the Board of Directors
of the Company regarding the salaries, bonuses, fringe benefits or compensation
of any kind for the officers of the Company. Prior to 1997 when such
responsibilities were assumed by the Board of Directors of the Company, the
Compensation Committee was also responsible for the administration of the
Company's 1993 Employee Stock Option Plan and determined the persons who were
eligible to receive options thereunder, the number of shares to be subject to
each option and the other terms and conditions upon which options under such
plans were granted and made exercisable. The Compensation Committee held two
meetings during the year ended December 31, 1997 and acted by written consent on
one occasion.
The Company has not appointed a nominating committee of the Board of
Directors.
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 (the "Initial Public Offering") of 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. For a description of the Director Option Plan,
see "III. Amendment to the 1993 Director Stock Option Plan" below.
Paul A. Biddelman, David Diamond and Donald Zilkha, in addition to George
B. Weathersby (a director who will not continue in office after the Meeting),
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
3
<PAGE> 6
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 Oxford for 1998, through April,
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 $100,000 during the most recent fiscal year, and (iii) two additional
individuals who would have been among the four such other most
highly-compensated executive officers during the most recent fiscal year, but
were not executive officers at the end of such year:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES ALL
-------------------- UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)
--------------------------- ---- --------- -------- ------------ ---------------
<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 President, 1996 -- -- -- --
Chief Operating Officer(1) 1995 -- -- -- --
Lester S. Briney...................... 1997 113,573 -- 100,000 --
Vice President, 1996 -- -- -- --
Chief Technical Officer(2) 1995 -- -- -- --
Michael R. Valiton.................... 1997 149,423 -- -- --
Senior Vice President(3) 1996 140,942 -- 100,000(4) --
1995 108,000 -- 30,000 --
Paul M. Patrick....................... 1997 149,423 -- -- --
Vice President(5) 1996 147,404 -- -- --
1995 150,000 -- -- --
William B. Fischer.................... 1997 137,500 25,000 -- --
Vice President(6) 1996 121,750 -- 50,000 --
1995 102,305 -- 10,000 --
</TABLE>
4
<PAGE> 7
- ---------------
(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.
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:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
-------------------------------------------------- ANNUAL RATES OF
NUMBER OF % OF TOTAL MARKET STOCK PRICE
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE PER SHARE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE ON DATE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) OF GRANT($) DATE 5%($) 10%($)
---- ---------- ------------ -------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce F. Failing,
Jr. ................ -- -- -- -- -- -- --
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.... -- -- -- -- -- -- --
</TABLE>
- ---------------
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. These gains
are based on arbitrarily assumed rates of stock price appreciation of 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. See "Certain Agreements with Executive
Officers" for information concerning the extent to which such options
remained exercisable in the context of Mr. Erdman's severance arrangements.
(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.
5
<PAGE> 8
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:
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
SHARES FISCAL YEAR-END(#) AT YEAR-END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($)(1) 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 -- -- -- --
</TABLE>
- ---------------
(1) Calculated on the basis of the fair market value of the underlying
securities at the exercise date or at year-end, as the case may be, less the
respective exercise prices.
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. For a
description of the Employee Option Plan, see "II. Amendment to the 1993 Employee
Stock Option Plan" below.
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 (covering 37,500 shares),
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.
6
<PAGE> 9
PERFORMANCE GRAPH
The following performance graph compares the total stockholder return on
the Company's Common Stock to the S&P 500 Index and to the NASDAQ Computer &
Data Processing Index from the commencement of the Initial Public Offering on
April 30, 1993 to December 31, 1997. The graph assumes that $100 was invested in
the Common Stock and each such Index on April 30, 1993 and that all dividends
were reinvested.
COMPARISON OF CUMULATIVE RETURN
<TABLE>
<CAPTION>
'ELECTRONIC NASDAQ
MEASUREMENT PERIOD RETAILING SYSTEMS COMPUTER & DATA
(FISCAL YEAR COVERED) INTERNATIONAL, INC.' S&P 500 INDEX PROCESSING INDEX
<S> <C> <C> <C>
4/30/93 100 100 100
12/31/93 45 108 108
12/31/94 42 110 132
12/31/95 19 151 201
12/31/96 32 185 248
12/31/97 34 247 304
</TABLE>
Notwithstanding anything set forth in any of the Company's previous filings
under the Securities Act of 1933 or the Securities Exchange Act of 1934 which
might incorporate future filings, including this Proxy Statement, in whole or in
part, the preceding performance graph and the report that follows shall not be
deemed incorporated by reference into any such filings.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors makes recommendations
to the Board of Directors regarding the compensation arrangements for executive
officers of the Company, and, until the assumption of such responsibilities by
the Board of Directors in July 1997, administered the Company's stock-based
employee compensation plans. The Compensation Committee's objectives in
formulating the Company's executive compensation program are: (i) to offer
levels of compensation which are competitive with those offered by other
companies in similar businesses; (ii) to compensate executives based on each
executive's level of responsibility and contribution to the Company's business
goals; (iii) to link compensation with the Company's financial performance; and
(iv) to align the interests of the Company's executives with the interests of
the Company's stockholders.
In the case of executive officers other than the Company's chief executive
officer, who is a founder and principal stockholder of the Company, the
Compensation Committee acts upon information provided to it by the Company's
chief executive officer in response to the requirements of the Company's
operations. During
7
<PAGE> 10
the fiscal year ended December 31, 1997, a principal objective of the
Compensation Committee remained the construction of arrangements that would be
effective in attracting executive management so as to build an organization
sufficient to support a larger customer base and anticipated sales growth. In
1997, the Company successfully recruited personnel to its key executive
positions, for example, Michael Persky, as Vice President -- Marketing (who
became President-Chief Operating Officer in April 1998), Michael Luetkemeyer as
chief financial officer and Lester Briney as chief technical officer.
The compensation program for the Company's executives consists of: (i) base
salary; (ii) cash bonuses; and (iii) stock options. The Company's chief
executive officer has not been awarded any bonus amounts since the inception of
the Company, and has not participated in the Company's stock option program.
(i) Base Salary. The Compensation Committee determines executive base
salaries by level of responsibility, individual performance and Company
performance, as well as by the need to provide a competitive package that allows
the Company to retain key executives. After reviewing individual and Company
performance and available information on salaries at other companies of similar
size, the chief executive officer makes recommendations to the Compensation
Committee concerning the base salaries of executive officers. The Compensation
Committee reviews and, with any changes it deems appropriate, approves these
recommendations for submission to the Board of Directors of the Company. Base
salary of the Company's chief executive officer during 1997 was approximately
$207,000 per annum. Base salary for the chief executive officer (a founder and
principal stockholder of the Company) was established at the inception of the
Company and, through February 1993, modified by annual cost of living
adjustments. During the three most recent fiscal years, base salary of the
Company's chief executive officer was adjusted downwards from the prior year,
consistent with the Company's cash conservation measures and the recruiting of
additional executive management.
(ii) Cash Bonuses. The Company has in the past and may in the future award
cash bonuses to key management personnel based on the achievement of corporate
goals recommended by senior executive management and approved by the Board of
Directors of the Company, individual objectives established for executive
management by the Compensation Committee in discussions with the employee, and
an evaluation of executive management by the Compensation Committee. For the
fiscal year ended December 31, 1997, in view of the Company's objective of
conserving cash, the Company did not implement a cash bonus program (except in
connection with new hires and departures), and relied on its stock option
program for additional discretionary incentives.
(iii) Stock Options. The primary purpose of the Company's stock option
program is to align the interests of the Company's executive officers more
closely with the interests of the Company's stockholders by offering the
executives an opportunity to benefit from increases in the market price of the
Common Stock. The Company's stock option program provides long-term incentives
that have enabled the Company to attract and retain key employees by encouraging
their ownership of Common Stock. In order more effectively to provide incentives
to option recipients, the Compensation Committee, in 1996, modified its approach
so that new grants will typically become exercisable based on a quarterly
vesting schedule.
Each of the Company's executive officers during 1997 (other than Mr.
Failing), held options granted under the Employee Option Plan. In selecting
individuals for options under the plan and determining the terms thereof, the
Company took into consideration present and potential contributions to the
success of the Company. During 1997, the Company's policy was, generally, to
award options either in connection with new hires or upon promotion of an
employee to a position of enhanced responsibility.
During the year ended December 31, 1997, option grants were made to
officers named in the Summary Compensation Table under "Executive Compensation"
above covering 500,000 shares of Common Stock, representing options with respect
to approximately 45% of the Common Stock covered by options granted that year.
The Compensation Committee believes that its stock option program provides
opportunities to executives that are consistent with the returns that are
generated on behalf of the Company's stockholders.
------------------------
Section 162(m) ("Section 162") of the Internal Revenue Code of 1986, as
amended (the "Code"), generally limits federal income tax deductions paid after
1993 to the chief executive officer and to the four
8
<PAGE> 11
other most highly compensated officers of the Company to a total of $1 million
per year, but contains an exception for performance based compensation that
satisfies certain conditions. The Company has not adopted an absolute policy
regarding Section 162 and is currently studying the implications of Section 162
on its compensation programs. In making compensation decisions, the Company will
consider the net cost of compensation to it and whether it is practicable and
consistent with other compensation objectives to qualify the Company's incentive
compensation under the applicable exemption of Section 162. The Company
anticipates that deductibility of compensation payments will be one among a
number of factors used in ascertaining appropriate levels or modes of
compensation, and that the Company will make its compensation decision based
upon an overall determination of what it believes to be in the best interests of
its stockholders.
Compensation Committee
Norton Garfinkle
Paul A. Biddelman
Donald E. Zilkha
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1997, the members of the Company's
Compensation Committee were Norton Garfinkle, Paul A. Biddelman and Donald E.
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 and a director 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.
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 for 1998, through April, 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.
9
<PAGE> 12
INFORMATION CONCERNING CERTAIN STOCKHOLDERS
The stockholders (including any "group" as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934) who, to the knowledge of the
Board of Directors of the Company, owned beneficially more than 5% of any class
of the outstanding voting securities of the Company as of April 1, 1998 and all
directors and executive officers as a group, and their respective stockholdings
as of such date (according to information furnished by them to the Company), are
set forth in the following table:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
- ---------------- --------------------- --------
<S> <C> <C>
Norton Garfinkle............................................ 7,890,758(3) 37.2%
133 East 62nd Street
New York, NY 10021(2)
Bruce F. Failing, Jr........................................ 3,145,637(4) 14.8
230 Round Hill Road
Greenwich, CT 06831(2)
Fidelity International Limited.............................. 2,099,000(5) 9.9
Pembroke Hall
42 Crow Lane
Hamilton, Bermuda
Connecticut Development Authority........................... 1,288,578(6) 5.7
845 Brook Street
Rocky Hill, CT 06067
Directors and executive officers as a group (ten persons)... 12,335,167(7) 57.6
</TABLE>
- ---------------
(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 "Other Information Concerning
Directors, Officers and Stockholders" below.
(7) Includes 200,000 shares issuable upon exercise of stock options granted by
the Company exercisable within 60 days of April 1, 1998.
10
<PAGE> 13
As of April 1, 1998, no executive officer or former executive officer of
the Company named in the Summary Compensation Table under "Executive
Compensation" above (according to information furnished by them to the Company)
owned beneficially any shares of Common Stock, except for Bruce F. Failing, Jr.,
a nominee for election as director at the Meeting, and except as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENT
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
- ---------------- --------------------- --------
<S> <C> <C>
William W. Erdman........................................ 37,500(2) (3)
Lester S. Briney......................................... 12,500(2) (3)
Michael Valiton.......................................... 43,750(2) (3)
Paul M. Patrick.......................................... 56,100(4) (3)
William B. Fischer....................................... 3,125 (3)
</TABLE>
- ---------------
(1) Except as otherwise indicated, as of April 1, 1998 all of such shares are
owned with sole voting and investment power.
(2) Represents shares issuable upon exercise of stock options granted by the
Company exercisable within 60 days of April 1, 1998.
(3) Less than one percent.
(4) Includes 1,100 shares issuable upon exercise of stock options granted by the
Company exercisable within 60 days of April 1, 1998.
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 (or such lesser number equivalent to the then
current number of directors) will be designated by Mr. Garfinkle and Mr. Failing
in proportion to the respective beneficial holdings of shares of Common Stock of
the Garfinkle Stockholder Group and the Failing Stockholder Group, (ii) except
for sales effected pursuant to Rule 144 and transfers to affiliates, family
members or related trusts, no such Stockholder Group may transfer any shares of
Common Stock to any third party without first offering such shares to the other
Stockholder Group at the same price as offered by such third party, (iii)
through the year 2003, in the event a Stockholder Group proposes to transfer
shares of Common Stock to a third party in a transaction pursuant to which
control of the Company would change, the other Stockholder Group will have the
right, on the same terms, to participate in such transaction, and (iv) through
the year 2003, Mr. Garfinkle has the option to acquire at fair market value all
shares held by the Failing Stockholder Group upon the death or incapacity of Mr.
Failing, which option may be assigned to the Company, subject to the Company's
acceptance of such option. Such arrangements terminate in the event either
Stockholder Group owns less than ten percent of the outstanding Common Stock, or
if Messrs. Garfinkle and Failing are unable to elect at least a majority of the
Board of Directors of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of copies of reports received by it pursuant to
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), and
the written representations of its directors and officers, and holders of more
than ten percent of any registered class of the Company's equity securities, the
Company believes that, during 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 Annual
Report on Form 5 subsequent to its due date disclosing one grant of stock
options under the Company's employee stock option plan previously exempt from
reporting.
11
<PAGE> 14
OTHER INFORMATION CONCERNING DIRECTORS, OFFICERS AND STOCKHOLDERS
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 "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.
In addition, see "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.
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.
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.
II. AMENDMENT TO THE 1993 EMPLOYEE STOCK OPTION PLAN
At the Meeting, the Company will propose an amendment of the Employee
Option Plan in order to increase the number of shares of Common Stock issuable
pursuant to the exercise of options granted under such plan from 1,775,000 to
3,500,000.
In May 1993 as part of the Reorganization, the Company assumed 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.
SUMMARY OF EMPLOYEE OPTION PLAN
Under the Employee Option Plan, options to purchase shares of Common Stock
may be granted to key employees, including executive officers, of the Company or
any subsidiary thereof, and to consultants and
12
<PAGE> 15
other individuals providing services to the Company, through March 31, 2003.
Options may not be granted under the Employee Option Plan to any member of the
Board of Directors of the Company (whether or not a key employee or consultant
of the Company or any subsidiary).
The Employee Option Plan is administered by the Board of Directors of the
Company. The Board of Directors determines the persons who are to receive
options under the Employee Option Plan, the number of shares subject to each
option and whether such options will be incentive stock options or non-qualified
stock options. In selecting individuals for options and determining the terms
thereof, the Board of Directors of the Company may take into consideration any
factors it deems relevant, including present and potential contributions to the
success of the Company. Options granted under the Employee Option Plan must be
exercised within a period fixed by the Board of Directors of the Company, which
may not exceed ten years from the date of the grant of the option or, in the
case of incentive stock options granted to any holder on the date of grant of
more than ten percent of the total combined voting power of all classes of stock
of the Company, five years from the date of grant of the option. Options may be
made exercisable in whole or in installments, as determined by the Board of
Directors of the Company.
Options under the Employee Option Plan may not be transferred other than by
will or by the laws of descent and distribution, and during the lifetime of an
optionee may be exercised only by the optionee. The exercise price of an option
under the Employee Option Plan may not be less than the par value per share of
the Common Stock, provided that no incentive stock options may be granted at an
option price which is less than the market value per share of the Common Stock
on the date of grant. In the case of incentive stock options granted to any
holder on the date of grant of more than ten percent of the total combined
voting power of all classes of stock of the Company, the exercise price may not
be less than 110% of the fair market value of the Common Stock on the date of
grant. Unless designated as "incentive stock options" intended to qualify under
Section 422 of the Code, options which are granted under the Employee Option
Plan are intended to be "non-qualified stock options". The exercise price may be
paid in cash, shares of Common Stock owned by the optionee, or a combination of
both.
The Employee Option Plan provides that, in the event of changes in the
corporate structure of the Company or certain events affecting the Common Stock,
the Board of Directors of the Company may, in its discretion, make adjustments
with respect to the number and kind of shares which may be issued under the
Employee Option Plan or which are covered by outstanding options, in the
exercise price per share, or both. The Employee Option Plan further provides
that, in connection with any merger or consolidation in which the Company is not
the surviving corporation or any sale or transfer by the Company of all or
substantially all of its assets or any tender offer or exchange offer for or the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then outstanding voting securities of the Company, all outstanding
options under the Employee Option Plan will, at the election of the Board of
Directors, become exercisable in full on and after (i) 15 days prior to the
effective date of such merger, consolidation, sale, transfer or acquisition or
(ii) the date of commencement of such tender offer or exchange offer, as the
case may be.
The Board of Directors may terminate the Employee Option Plan at any time.
No termination or amendment of the Employee Option Plan may, without the consent
of the optionee, adversely affect the rights of such optionee under any option
held by such optionee.
TAX STATUS OF EMPLOYEE STOCK OPTIONS
For federal income tax purposes, an optionee under the Employee Option Plan
will not recognize any income upon the grant of a non-qualified or incentive
stock option. Upon the exercise of a non-qualified stock option granted under
the Employee Option Plan, the optionee will recognize ordinary income in an
amount equal to the excess, if any, of the fair market value of the option stock
at the time of exercise over the exercise price of the option. In certain
circumstances, where the shares are subject to a substantial risk of forfeiture
when acquired or where the optionee is an officer or 10% stockholder of the
Company, the date of taxation may be deferred unless the optionee files an
election under Section 83(b) of the Code. Subject to the limitations of Section
162(m) of the Code, the Company will be entitled to a tax deduction in the same
amount and at the same time as the optionee realizes such income. Upon the sale
of shares purchased upon
13
<PAGE> 16
such exercise, the optionee will realize capital gain or loss measured by the
difference between the amount realized on the sale and the fair market value of
the option stock at the time of exercise of the option. Such capital gain or
loss may be short-term or long-term, depending upon the length of time such
shares were held by the optionee.
In contrast, an optionee will not be taxed upon exercise of an incentive
stock option granted under the Employee Option Plan, and the Company will not be
entitled to a deduction from income in respect thereof. If the optionee retains
the shares transferred to him upon exercise of an incentive stock option granted
under the Employee Option Plan for more than one year after the date of issuance
of the stock and two years after the date of grant of the option, any gain or
loss realized on a subsequent sale of the shares by the optionee will be treated
as long-term capital gain or loss. If, on the other hand, the optionee sells the
shares within one year after the date of transfer or two years after the date of
grant of the option, the optionee will realize ordinary income, and the Company
will be entitled to a deduction from income, to the extent of the excess of the
value of the shares on the date of exercise or the amount realized on the sale
(whichever is less) over the exercise price. Any excess of the sale price over
the value of the shares on the date of exercise will be treated as capital gain.
The spread between the fair market value of the shares on the date of exercise
and the exercise price constitutes a tax preference item for purposes of the
alternative minimum tax which, under certain circumstances, could cause tax
liability as a result of the exercise.
The foregoing statements are based upon current federal income tax laws and
regulations and are subject to change if the tax laws and regulations, or
interpretations thereof, change.
NEW PLAN BENEFITS
The grant of options pursuant to the additional authorization proposed
under the Employee Option Plan to eligible employees and consultants, including
the individuals named in the Summary Compensation Table under "I. Election of
Directors -- Executive Compensation", is currently subject to the discretion of
the Board of Directors of the Company. As of the date of this Proxy Statement,
there has been no action taken by the Board of Directors of the Company with
respect to awards under the additional authorization proposed under the Employee
Option Plan, except for the grant, subject to stockholder approval and adoption
of amendments to such plan to be proposed at the Meeting, of options covering
480,500 shares of Common Stock.
14
<PAGE> 17
The following table sets forth certain information regarding options
granted by the Company under the Employee Option Plan, subject to stockholder
approval and adoption of amendments to such plan to be proposed at the Meeting,
and also regarding options granted by the Company under the Director Option
Plan, subject to stockholder approval and adoption of amendments to such plan to
be proposed at the Meeting (as described under the caption "III. Amendment to
the 1993 Director Stock Option Plan" below), to: (i) the individuals named in
the Summary Compensation Table, (ii) each other individual who received 5% of
the options so granted under such plans, respectively, and (iii) the other
groups specified below:
NEW PLAN BENEFITS
<TABLE>
<CAPTION>
EMPLOYEE OPTION PLAN DIRECTOR OPTION PLAN
---------------------- ----------------------
NUMBER OF NUMBER OF
SECURITIES SECURITIES
DOLLAR UNDERLYING DOLLAR UNDERLYING
VALUE(1) OPTIONS(#) VALUE(1) OPTIONS(#)
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Bruce F. Failing, Jr. ........................... -- -- -- --
Chief Executive Officer(2)
William W. Erdman................................ -- -- -- --
Executive Vice President, Chief Operating
Officer(3)
Lester S. Briney................................. -- -- -- --
Vice President, Chief Technical Officer
Michael R. Valiton............................... -- -- -- --
Senior Vice President
Paul M. Patrick.................................. -- -- -- --
Vice President(4)
William B. Fischer............................... -- -- -- --
Vice President, Chief Financial Officer(5)
Executive Group.................................. $6.00 200,000 -- --
4.88 60,000
Non-Executive Director Group(6).................. -- -- $5.69 50,000
Non-Executive Officer Employees Group............ 4.88 220,500 -- --
Additional Nominees for Election as Director:
Norton Garfinkle............................... -- -- -- --
Paul A. Biddelman.............................. -- -- -- --
David Diamond.................................. -- -- -- --
Donald Zilkha.................................. -- -- -- --
Associates of Directors, Executive Officers or
Nominees....................................... -- -- -- --
Others who received 5% or more of total options
granted:
George B. Weathersby(6)........................ -- -- 5.69 50,000
Michael Luetkemeyer............................ 6.00 200,000 -- --
Vice President, Chief Financial Officer
Michael Persky(7).............................. 4.88 60,000 -- --
Vice President, Marketing
Vincent Spinelli............................... 4.88 50,000 -- --
Vice President, Regional Sales Manager,
Eastern Region
Walter Wilson.................................. 4.88 50,000 -- --
Vice President, Regional Sales Manager,
Western and Central Regions
Anthony P. Fernandez........................... 4.88 30,000 -- --
Director of Consulting, Eastern Region
</TABLE>
- ---------------
(1) Represents exercise price per share of Common Stock subject to option, in
each case equal to the fair market value thereof at the date of grant. At
April 20, 1998, the closing price per share of the Common Stock, as quoted
on The Nasdaq Stock Market, was $3.63.
15
<PAGE> 18
(2) Mr. Failing is also a nominee for election as director.
(3) Mr. Erdman ceased to be an executive officer of the Company in January 1998.
(4) Mr. Patrick ceased to be an executive officer of the Company in October
1997.
(5) Mr. Fisher ceased to be an executive officer of the Company in July 1997.
(6) Mr. Weathersby, who ceased to be an executive officer in March 1998,
currently serves as a director and will not continue in office after the
Meeting.
(7) Mr. Persky became President-Chief Operating Officer in April 1998.
AMENDMENT OF THE EMPLOYEE OPTION PLAN
As of April 1, 1998, an aggregate of 1,309,957 shares of Common Stock
remained subject to options granted and outstanding under the Employee Option
Plan (480,500 shares of which were subject to options granted subject to
stockholder approval and adoption of the amendment to the Employee Option Plan
described herein). As of such date, 474,433 shares of Common Stock had been
issued under the Employee Option Plan from its inception. On April 1, 1998, the
Company had approximately 110 full-time employees and 14 part-time employees.
There will be presented to the stockholders at the Meeting, a proposal to
amend the Employee Option Plan to increase from 1,775,000 to 3,500,000 the
number of shares of Common Stock available for options under the Employee Option
Plan as set forth below.
Section 3 of the Employee Option Plan would be amended so that the first
sentence thereof would provide as follows:
There shall be available for options under the Plan a total of
3,500,000 shares of Common Stock, subject to any adjustments which may
be made pursuant to Section 5(f) hereof.
The amendment to the Employee Option Plan will not be made effective unless
it is approved and adopted by the holders of a majority of the shares of the
Company's Common Stock present in person or represented by proxy and entitled to
vote at the Meeting. The Board of Directors regards the number of shares
remaining available under the Employee Option Plan for new options as
insufficient for the future requirements of the Company. The Board of Directors
believes that the benefits of stockholder approval and adoption of the amendment
to the Employee Option Plan are desirable for the Company and will assist in
effectuating the objectives of the Employee Option Plan. Accordingly, the Board
urges stockholders to vote FOR approval and adoption of the amendment to the
Employee Option Plan.
III. AMENDMENT TO THE 1993 DIRECTOR STOCK OPTION PLAN
At the Meeting, the Company will propose an amendment of the Director
Option Plan in order to increase the number of shares of Common Stock issuable
pursuant to the exercise of options granted under such plan from 150,000 to
750,000.
In May 1993 as part of the Reorganization, the Company assumed 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. 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 Common Stock available for
issuance under the Director Option Plan to 750,000 shares.
SUMMARY OF DIRECTOR OPTION PLAN
Under the Director Option Plan, options to purchase shares of Common Stock
may be granted to directors of the Company, including officers, key employees
and consultants providing services to the Company, through March 31, 2003.
16
<PAGE> 19
The Director Option Plan is administered by the Board of Directors of the
Company. The Board of Directors of the Company determines the persons who are to
receive options under the Director Option Plan, the number of shares to be
subject to each option and whether such options will be incentive stock options
or non-qualified stock options. In selecting individuals for options and
determining the terms thereof, the Board of Directors of the Company may take
into consideration any factors it deems relevant, including present and
potential contributions to the success of the Company. Options granted under the
Director Option Plan must be exercised within a period fixed by the Board of
Directors of the Company, which may not exceed ten years from the date of the
grant of the option or, in the case of incentive stock options granted to any
holder on the date of grant of more than ten percent of the total combined
voting power of all classes of stock of the Company, five years from the date of
grant of the option. Options may be made exercisable in whole or in
installments, as determined by the Board of Directors of the Company.
Options under the Director Option Plan may not be transferred other than by
will or by the laws of descent and distribution, and during the life of an
optionee may be exercised only by the optionee. The exercise price of an option
under the Director Option Plan may not be less than par value per share of the
Common Stock provided that no incentive stock options may be granted at an
option price which is less than the market value per share of the Common Stock
on the date of grant. In the case of incentive stock options granted to any
holder on the date of grant of more than ten percent of the total combined
voting power of all classes of stock of the Company, the exercise price may not
be less than 110% of the fair market value of the Common Stock on the date of
grant. Unless designated as "incentive stock options" intended to qualify under
Section 422 of the Code, options which are granted under the Director Option
Plan are intended to be "non-qualified stock options". The exercise price may be
paid in cash, shares of Common Stock owned by the optionee, or a combination of
both.
The Director Option Plan provides that, in the event of changes in the
corporate structure of the Company or certain events affecting the Common Stock,
the Board of Directors of the Company may, in its discretion make adjustments
with respect to the number and kind of shares which may be issued under the
Director Option Plan or which are covered by outstanding options, in the
exercise price per share, or both. The Director Option Plan further provides
that, in connection with any merger or consolidation in which the Company is not
the surviving corporation or any sale or transfer by the Company of all or
substantially all of its assets or any tender offer or exchange offer for the
acquisition, directly or indirectly, by any person or group of all or a majority
of the then outstanding voting securities of the Company, all outstanding
options under the Director Option Plan will, at the election of the Board of
Directors of the Company became exercisable in full on and after (i) 15 days
prior to the effective date of such merger, consolidation, sale, transfer or
acquisition or (ii) the date of commencement of such tender offer or exchange
offer, as the case may be.
The Board of Directors may terminate the Director Option Plan at any time.
No termination or amendment of the Director Option Plan may, without the consent
of the optionee, adversely affect the rights of such optionee under any option
held by such optionee.
TAX STATUS OF DIRECTOR STOCK OPTIONS
For federal income tax purposes, an optionee under the Director Option Plan
will not recognize any income upon the grant of a non-qualified or incentive
stock option. Upon the exercise of a non-qualified stock option granted under
the Director Option Plan, the optionee will recognize ordinary income in an
amount equal to the excess, if any, of the fair market value of the option stock
at the time of exercise over the exercise price of the option. In certain
circumstances, where the shares are subject to a substantial risk of forfeiture
when acquired or where the optionee is an officer, director or 10% stockholder
of the Company, the date of taxation may be deferred unless the optionee files
an election under Section 83(b) of the Code. Subject to the limitations of
Section 162(m) of the Code, the Company will be entitled to a tax deduction in
the same amount and at the same time as the optionee realizes such income. Upon
the sale of shares purchased upon such exercise, the optionee will realize
capital gain or loss measured by the difference between the amount realized on
the sale and the fair market value of the option stock at the time of exercise
of the option. Such capital gain or loss may be short-term or long-term,
depending upon the length of time such shares were held by the optionee.
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<PAGE> 20
In contrast, an optionee will not be taxed upon exercise of an incentive
stock option granted under the Director Option Plan, and the Company will not be
entitled to a deduction from income in respect thereof. If the optionee retains
the shares transferred to him upon exercise of an incentive stock option granted
under the Director Option Plan for more than one year after the date of issuance
of the stock and two years after the date of grant of the option, any gain or
loss realized on a subsequent sale of the shares by the optionee will be treated
as long-term capital gain or loss. If, on the other hand, the optionee sells the
shares within one year after the date of transfer or two years after the date of
grant of the option, the optionee will realize ordinary income, and the Company
will be entitled to a deduction from income, to the extent of the excess of the
value of the shares on the date of exercise or the amount realized on the sale
(whichever is less) over the exercise price. Any excess of the sale price over
the value of the shares on the date of exercise will be treated as capital gain.
The spread between the fair market value of the shares on the date of exercise
and the exercise price constitutes a tax preference item for purposes of the
alternative minimum tax which, under certain circumstances, could cause tax
liability as a result of the exercise.
The foregoing statements are based upon current federal income tax laws and
regulations and are subject to change if the tax laws and regulations, or
interpretations thereof, change.
NEW PLAN BENEFITS
Employees (including individuals named in the Summary Compensation Table
under "I. Election of Directors -- Executive Compensation") who are not
directors are ineligible to participate in the Director Option Plan. The table
set forth under the caption "II. Amendment to the 1993 Employee Stock Option
Plan -- New Plan Benefits" above contains certain information regarding options
granted by the Company under the Director Option Plan, subject to stockholder
approval and adoption of the amendments to such plan to be proposed at the
Meeting (and under the Employee Option Plan, subject to stockholder approval and
adoption of the amendments to such plan to be proposed at the Meeting), to: (i)
the individuals named in the Summary Compensation Table, (ii) each other
individual who received 5% of the options so granted under such plans,
respectively, and (iii) the other groups therein specified.
AMENDMENT OF THE DIRECTOR OPTION PLAN
As of April 1, 1998, an aggregate of 172,500 shares of Common Stock were
subject to options granted and outstanding under the Director Option Plan
(50,000 shares of which were subject to options granted subject to stockholder
approval and adoption of the amendment to the Director Option Plan described
herein). As of April 1, 1998, no shares had been issued under the Director
Option Plan. On such date, the Company had six directors.
There will be presented to the stockholders at the Meeting, a proposal to
amend the Director Option Plan to increase from 150,000 to 750,000 the number of
shares of Common Stock available for options under the Director Option Plan as
set forth below.
Section 3 of the Director Option Plan would be amended so that the first
sentence thereof would provide as follows:
There shall be available for options under the Plan a total of 750,000
shares of Common Stock, subject to any adjustments which may be made
pursuant to Section 5(f) hereof.
The amendment to the Director Option Plan will not be made effective unless
it is approved and adopted by the holders of a majority of the shares of the
Company's Common Stock present in person or represented by proxy and entitled to
vote at the Meeting. The Board of Directors regards the number of shares
remaining available under the Director Option Plan for new options as
insufficient for the future requirements of the Company. The Board of Directors
believes that the benefits of stockholder approval and adoption of the amendment
to the Director Option Plan are desirable for the Company and will assist in
effectuating the objectives of the Director Option Plan. Accordingly, the Board
urges stockholders to vote FOR approval and adoption of the amendment to the
Director Option Plan.
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<PAGE> 21
IV. RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Price Waterhouse LLP, independent
accountants, as the auditors of the Company for the year ending December 31,
1998. Such firm has examined the consolidated financial statements of the
Company for the year ended December 31, 1997. The Board of Directors considers
Price Waterhouse LLP to be eminently qualified.
One or more representatives of Price Waterhouse LLP will attend the
Meeting, will have an opportunity to make a statement and will respond to
appropriate questions from stockholders.
V. OTHER MATTERS
The Board of Directors of the Company does not know of any other matters
which may be brought before the Meeting. However, if any such other matters are
properly presented for action, it is the intention of the persons named in the
accompanying form of proxy to vote the shares represented thereby in accordance
with their judgment on such matters.
VI. MISCELLANEOUS
If the accompanying form of proxy is executed and returned, the shares
represented thereby will be voted in accordance with the terms of the proxy,
unless the proxy is revoked. If no directions are indicated in such proxy, the
shares represented thereby will be voted FOR approval and adoption of the
amendment to the Employee Option Plan, FOR approval and adoption of the
amendment to the Director Option Plan and, in the election of the directors, in
favor of the nominees proposed by the Board of Directors. Any proxy may be
revoked at any time before it is exercised by giving written notice to the
Secretary of the Company prior to the actual vote at the Meeting. The casting of
a later dated ballot or proxy at the Meeting by a stockholder who may
theretofore have given a proxy will have the effect of revoking the initial
proxy.
All costs relating to the solicitation of proxies will be borne by the
Company. Proxies may be solicited by officers, directors and regular employees
of the Company and its subsidiaries personally, by mail or by telephone or
telegraph, and the Company may pay brokers and other persons holding shares of
stock in their names or those of their nominees for the reasonable expenses in
sending soliciting material to their principals.
It is important that proxies be returned promptly. Stockholders who do not
expect to attend the Meeting in person are urged to mark, sign and date the
accompanying form of proxy and mail it in the enclosed return envelope, which
requires no postage if mailed in the United States, so that their votes can be
recorded.
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997 (the "Annual Report") accompanies this Proxy Statement. The Annual
Report is not to be deemed part of this Proxy Statement.
STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1999 Annual Meeting
of Stockholders of the Company must be received by the Company by January 5,
1999 in order to be considered for inclusion in the Company's Proxy Statement
relating to such Meeting.
NORTON GARFINKLE, Chairman of
the Board and Secretary
Norwalk, Connecticut
May 5, 1998
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<PAGE> 22
Appendix 1
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
1993 EMPLOYEE STOCK OPTION PLAN
1. Purposes of Plan. The purposes of this Plan, which shall be
known as the Electronic Retailing Systems International, Inc. 1993 Employee
Stock Option Plan, and is hereinafter referred to as the "Plan", are (i) to
provide incentives for key employees of Electronic Retailing Systems
International, Inc. (the "Company") and any parent and subsidiary corporations
(within the respective meanings of Sections 424(e) and 424(f) of the Internal
Revenue Code of 1986, as amended [the "Code"], and referred to herein as
"Parent" and "Subsidiary", respectively), and to consultants and other
individuals providing services to such companies, by encouraging their ownership
of the common stock, $.01 par value (the "Common Stock"), of the Company, and
(ii) to aid the Company in retaining such key employees and other persons, upon
whose efforts the Company's success and future growth depends, and attracting
other such employees and other persons.
2. Administration. The Plan shall be administered by the 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
1
<PAGE> 23
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.
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:
(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
2
<PAGE> 24
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 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
3
<PAGE> 25
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.
(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,
4
<PAGE> 26
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.
5
<PAGE> 27
(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.
8. Amendment and Termination. Unless the Plan shall
theretofore have been terminated as hereinafter provided, the Plan
6
<PAGE> 28
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.
7
<PAGE> 29
Appendix 2
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
1993 DIRECTOR STOCK OPTION PLAN
1. Purposes of Plan. The purposes of this Plan, which shall be
known as the Electronic Retailing Systems International, Inc. 1993 Director
Stock Option Plan, and is hereinafter referred to as the "Plan", are (i) to
provide incentives for members of the Board of Directors of Electronic Retailing
Systems International, Inc. (the "Company") by encouraging their ownership of
the common stock, $.01 par value (the "Common Stock"), of the Company, and (ii)
to aid the Company in retaining such directors, upon whose efforts the Company's
success and future growth depends, and attracting other such directors.
2. Administration. The Plan shall be administered by the 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 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 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 750,000 shares of
<PAGE> 30
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 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
2
<PAGE> 31
case on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or if the Common Stock is not listed or admitted
to trading on any national securities exchange, the last sale price of the
Common Stock as reported on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") National Market System on such date, or if the
Common Stock is not so reported, the average of the closing high bid and low
asked prices of the Common Stock in the over-the-counter market on such date, as
reported on the NASDAQ system, or if there are no such prices reported on the
NASDAQ system on such date, as furnished to the Committee by a New York Stock
Exchange member selected from time to time by the Committee for such purpose. If
there is no bid or asked price reported on any such date, the market value shall
be determined by the Committee in accordance with the regulations promulgated
under Section 2031 of the Code, or by any other appropriate method selected by
the Committee. An Optionee shall have none of the rights of a stockholder until
the shares of Common Stock are issued to him. An option may not be exercised for
less than 1,000 shares of Common Stock, or the number of shares of Common Stock
remaining subject to such option, whichever is smaller.
(d) Effect of Termination of Service. An option may
not be exercised after the Optionee has ceased to be in the service of the
Company or any parent or subsidiary corporations (within the respective meanings
of Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended
[the "Code"], and referred to herein as "Parent" or "Subsidiary", respectively),
whether as a director of the Company or an employee or consultant of the Company
or any Parent or Subsidiary thereof, except in the following circumstances:
(i) if, subsequent to any vesting date specified in
the option: (x) the Optionee's service as a director is
terminated for reasons other than "cause" (as hereinafter
defined), or by the Optionee (unless the Company or any Parent
or Subsidiary thereof shall have grounds to terminate his
service for "cause") and (y) the Optionee is not an employee
or consultant of the Company or any Parent or Subsidiary
thereof; or his employment is terminated for reasons other
than "cause", or by the Optionee (unless his employer shall
have grounds to terminate his services for "cause"); the
option may be exercised by the Optionee, within the period
specified in the terms of the option after the last such
termination;
(ii) in the event of the death of the Optionee after
termination of service and/or employment covered by (i) above,
the person or persons to whom his rights are transferred by
will or the laws of descent and 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,
3
<PAGE> 32
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.
(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
4
<PAGE> 33
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 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
5
<PAGE> 34
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 stockholders at which a
proposal to amend the Plan is voted upon: (i) increase the maximum number of
shares of Common Stock for which options may be granted under the Plan, (ii)
change the formula as to minimum option prices, (iii) extend the period during
which options may be granted or exercised, or (iv) amend the requirements as to
the class of persons eligible to receive options. No termination or amendment of
the Plan may, without the consent of an 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.
6
<PAGE> 35
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
COMMON STOCK
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned hereby (1) acknowledges receipt of the notice of the Annual
Meeting of Stockholders of Electronic Retailing Systems International, Inc.
(the "Company") to be held at the offices of Zilkha & Company, 767 Fifth
Avenue-46th Floor, New York, New York on Monday, June 1, 1998 at 10:00 A.M.,
local time, and the Proxy Statement in connection therewith and (2) appoints
Norton Garfinkle and Bruce F. Failing, Jr., and each of them, his proxies with
full power of substitution, for and in the name, place and stead of the
undersigned, to vote and act with respect to all of the shares of Common Stock
of the Company standing in the name of the undersigned or with respect to which
the undersigned is entitled to vote and act, at the meeting and at any
adjournment thereof, and the undersigned directs that this proxy be voted as
specified on the reverse side:
If more than one of the proxies named above shall be present in person or by
substitute as the meeting or any adjournment thereof, all of the proxies so
present and voting, either in person or by substitute, shall exercise all of
the proxies hereby given.
The undersigned hereby revokes any proxy or proxies heretofore given to vote
upon or act with respect to such stock and hereby ratifies and confirms all
that the proxies so present and voting, their substitutes or any of them, may
lawfully do by virtue hereof.
(CONTINUED, AND TO BE SIGNED ON REVERSE SIDE)
------------------
| See Reverse |
| Side |
-------------------
<PAGE> 36
<TABLE>
<CAPTION>
<S> <C> <C> <C>
--- Please mark your
| X | votes as in this
--- example.
FOR WITHHOLD
all nominees listed at AUTHORITY
right (except as marked to vote for all
to the contrary below). nominees listed at right
(a) Election of --- --- Nominees: Paul A. Biddelman
Directors: | | | | David Diamond
--- --- Bruce F. Failing, Jr.
(Instructions: to withhold authority to vote for any individual nominee Norton Garfinkle
as a Director, write that nominee's name in the Donald E. Zilkha
space provided below.)
- ---------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR AGAINST ABSTAIN
(b) Proposal to approve and adopt an --- --- ---
amendment to the Electronic Retailing | | | | | |
Systems International, Inc. 1993 --- --- ---
Employee Stock Option Plan to increase
the number of shares of Common Stock
issuable pursuant to the exercise of
options from 1,775,000 to 3,500,000.
FOR AGAINST ABSTAIN
(c) Proposal to approve and adopt an --- --- ---
amendment to the Electronic Retailing | | | | | |
Systems International, Inc. 1993 --- --- ---
Director Stock Option Plan to increase
the number of shares of Common Stock
issuable pursuant to the exercise
of options from 150,000 to 750,000.
(d) In the discretion of the proxies on any other matter that may properly come
before the meeting or any adjournment thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE. THIS
PROXY WILL BE VOTED FOR THE MATTERS SPECIFICALLY REFERRED TO HEREON.
PLEASE DATE, SIGN AND MAIL THIS PROXY CARD IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED.
SIGNATURE; _____________________________ DATED: ________________ SIGNATURE: _________________________________ DATED: _______________
(and TITLE, if applicable) (if held jointly) (and TITLE, if applicable)
NOTE: Please date this proxy and sign your name exactly as it appears herein. Where there is more than one owner, each should
sign. When signing as an attorney, administrator, executor, guardian or trustee, please add your title as such. If
executed by a corporation, the proxy should be signed by a duly authorized officer.
</TABLE>
