Exhibit 3(a)
CERTIFICATE OF INCORPORATION
OF
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
THE UNDERSIGNED, for the purpose of forming a corporation
pursuant to the provisions of the General Corporation Law of the
State of Delaware, does hereby certify as follows:
FIRST: The name of the corporation is Electronic Retailing
Systems International, Inc. (the "Corporation").
SECOND: The address of the Corporation's registered office in
the State of Delaware is 32 Loockerman Square, Suite L-100, in the
City of Dover, in the County of Kent, 19901 and the name of the
Corporation's registered agent at such address is The Prentice
Hall Corporation System, Inc.
THIRD: The purpose for which the Corporation is organized is
to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of the State of
Delaware.
FOURTH: the total number of shares of capital stock which
the Corporation shall have authority to issue is 2,000,000 shares
of preferred stock, $1.00 par value per share ("Preferred Stock"),
and 25,000,000 shares of common stock, $.01 par value per share
("Common Stock"). The powers, designations, preferences and
relative, participating, optional or other special rights,
qualifications, limitations or restrictions of the Preferred Stock
shall be as follows:
1. (a) The Preferred Stock may be issued from time to
time as shares of one or more series of Preferred Stock, and in
the resolution or resolutions providing for the issue of shares of
each particular series, before issuance the Board of Directors of
the Corporation is expressly authorized to fix:
(i) the distinctive designation of such series and the
number of shares which shall constitute such series, which
number may be increased (except where otherwise provided by
the Board of Directors in creating such series) or decreased
(but not below the number of shares thereof then outstanding)
from time to time by like action of the Board of Directors;
(ii) the rate of dividends payable on such series,
whether or not dividends shall be cumulative, the date or
dates from which dividends shall accrue and, if cumulative,
shall be cumulative and the relationship which such dividends
shall bear to dividends payable on any other series;
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(iii) whether or not the shares of such series shall be
subject to redemption by the Corporation and, if so, the
times, prices and other terms and conditions of such
redemption;
(iv) whether or not the shares of such series shall be
subject to the operation of a sinking fund or a fund of a
similar nature and, if so, the terms thereof;
(v) the rights of the shares of each series in case of
liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, or upon any distribution of
its assets;
(vi) whether or not the shares of such series shall be
convertible into or exchangeable for shares of any other
series or class of stock of the Corporation and, if so, the
terms of conversion or exchange;
(vii) whether or not the shares of such series shall
have voting rights in addition to the voting rights provided
by law and in paragraph 5 below and, if so, the nature and
extent thereof; and
(viii) the consideration to be received by the
Corporation for the shares of such series.
(b) The shares of the Preferred Stock of any one series shall
be identical with each other in all respects except as to the
dates from which dividends thereon shall accrue or be cumulative.
(c) In case the stated dividends and the amounts, if any,
payable on liquidation, dissolution or winding up of the
Corporation are not paid in full, the shares of each series of the
Preferred Stock, after the payment in full of such dividends and
amounts to all series of the Preferred Stock ranking senior to
such series and before any payment to any series ranking junior
thereto, shall share ratably in the payment of dividends,
including accumulations, if any, in accordance with the sums which
would be payable on said shares if all dividends were declared and
paid in full, and in any distribution of assets other than by way
of dividends in accordance with the sums which would be payable on
such distribution if all sums payable were discharged in full.
(d) Upon the issuance of any series of Preferred Stock, a
certificate setting forth the resolution or resolutions (including
the designation, description and terms of such series) adopted by
the Board of Directors with respect to such series shall be made
and filed in accordance with the then applicable requirements, if
any, of the laws of the State of Delaware, or, if no certificate
is then so required, such certificate shall be signed and
acknowledged on behalf of the Corporation by its President or a
Vice President and its corporate seal shall be affixed thereto and
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attested by its Secretary or an Assistant Secretary and such
certificate shall be filed and kept on file at the principal
office of the Corporation in the State of Delaware and in such
other place or places as the Board of Directors shall designate.
2. The holders of each series of the Preferred Stock shall be
entitled to receive, when and as declared by the Board of
Directors, but only out of funds of the Corporation legally
available for the payment of dividends, dividends in cash at the
annual rate for such series provided by the Board of Directors in
the certificate made pursuant to subparagraph (d) of paragraph 1
with respect to such series, before any dividends shall be
declared and paid upon or set apart for the holders of any series
of the Preferred Stock ranking junior to such series as to
dividends or of any junior stock, payable in respect of each
calendar quarter on a date, which shall be provided by the Board
of Directors in such certificate with respect to such series,
within fifty (50) days following the end of such quarter. Such
dividends on the Preferred Stock shall be payable to holders of
such series of record on the date, not exceeding fifty (50) days
preceding the dividend payment date, fixed for the purpose by the
Board of Directors with respect to such series in advance of the
payment of each particular dividend.
3. If so provided by the Board of Directors in the
certificate made pursuant to subparagraph (d) of paragraph 1, the
Corporation, at the option of the Board of Directors (or in
accordance with the requirements of any sinking fund for any one
or more series of Preferred Stock established by the Board of
Directors), may redeem the whole or any part of the Preferred
Stock at any time outstanding, or the whole or any part of any
series thereof, at such time or times and from time to time and at
such redemption price or prices as may be provided by the Board of
Directors in such certificate together in each case with all
dividends accrued and accumulated but unpaid (other than
non-cumulative dividends from past dividend periods), but computed
without interest, and otherwise upon the terms and conditions
fixed by the Board of Directors for any such redemptions.
4. In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holders
of each series of the Preferred Stock then outstanding shall be
entitled to receive, after the payment in full of all amounts to
which the holders of all series of the Preferred Stock ranking
senior thereto are entitled, out of the assets of the Corporation,
before any distribution or payment shall be made to the holders of
any series of the Preferred Stock ranking junior to such series
upon liquidation, dissolution or winding up of the Corporation or
of any junior stock, the amount, if any, for each share provided
by the Board of Directors in the certificate made pursuant to
subparagraph (d) of paragraph 1, plus, in respect of each such
share, all dividends accrued and accumulated but unpaid (other
than non-cumulative dividends from past dividend periods), but
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computed without interest. If payment shall have been made in full
to the holders of each series of the Preferred Stock, the
remaining assets of the Corporation shall be distributed among the
holders of the junior stock, according to their respective rights
and preferences and pro rata in accordance with their respective
holdings.
5. On all matters with respect to which holders of the
Preferred Stock or of certain series thereof are entitled to vote
as a single class, each holder of Preferred Stock afforded such
class voting right shall be entitled to one vote for each share
held.
6. For purposes of this Article FOURTH, the term "junior
stock" shall mean the Common Stock and any other class of stock of
the Corporation hereafter authorized which shall rank junior to
all series of the Preferred Stock as to dividends or preference on
dissolution, liquidation or winding up of the Corporation.
FIFTH: Subject to the provisions of the General Corporation
Law of the State of Delaware, the number of Directors of the
Corporation shall be determined as provided by the By-Laws.
SIXTH: The Corporation shall indemnify and hold harmless any
director, officer, employee or agent of the Corporation from and
against any and all expenses and liabilities that may be imposed
upon or incurred by him in connection with, or as a result of, any
proceeding in which he may become involved, as a party or
otherwise, by reason of the fact that he is or was such a
director, officer, employee or agent of the Corporation, whether
or not he continues to be such at the time such expenses and
liabilities shall have been imposed or incurred, to the extent
permitted by the laws of the State of Delaware, as they may be
amended from time to time.
SEVENTH: No person who is or was at any time a director of
the Corporation shall be personally liable to the Corporation or
its stockholders for monetary damages for any breach of fiduciary
duty by such person as a director; provided, however, that, unless
and except to the extent otherwise permitted from time to time by
applicable law, the provisions of this Article SEVENTH shall not
eliminate or limit the liability of a director (i) for breach of
the director's duty of loyalty to the Corporation or its
stockholders, (ii) for any act or omission by the director which
is not in good faith or which involves intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General
Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal
benefit. No amendment to or repeal of this shall apply to or have
any effect on the liability or alleged liability of any director
of the Corporation for or with respect to any act or omission of
such director occurring prior to such amendment or repeal.
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EIGHTH: In furtherance and not in limitation of the general
powers conferred by the laws of the State of Delaware, the Board
of Directors is expressly authorized to make, alter or repeal the
By-Laws of the Corporation, except as specifically stated therein.
NINTH: Whenever a compromise or arrangement is proposed
between this Corporation and its creditors or any class of them
and/or between this Corporation and its stockholders or any class
of them, any court of equitable jurisdiction within the State of
Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this
Corporation under the provisions of Section 291 of Title 8 of the
Delaware Code or on the application of trustees in dissolution or
of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as
the case may be, to be summoned in such manner as the said Court
directs. If a majority in number representing three-fourths ln
value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the
case may be, agree to any compromise or arrangement and to any
reorganization of this Corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and
the said reorganization shall, if sanctioned by the Court to which
the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or
class of stockholders of this Corporation, as the case may be, and
also on this Corporation.
TENTH: Except as otherwise required by the laws of the State
of Delaware, the stockholders and Directors shall have the power
to hold their meetings and to keep the books, documents and papers
of the Corporation outside of the State of Delaware, and the
Corporation shall have the power to have one or more offices
within or without the state of Delaware, at such places as may be
from time to time designated by the By-Laws or by resolution of
the stockholders or Directors. Elections of Directors need not be
by ballot unless the By-Laws of the Corporation shall so provide.
ELEVENTH: The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
TWELFTH: The name and address of the incorporator is Howard
Kailes, c/o Krugman, Chapnick & Grimshaw, Park 80 West - Plaza
Two, Saddle Brook, New Jersey 07662.
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IN WITNESS WHEREOF, the undersigned, being the incorporator
hereinabove named, does hereby execute this Certificate of
Incorporation this 12th day of February 1993.
s/Howard Kailes
-------------------------------
Howard Kailes
Incorporator
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC., a
corporation organized and existing under the General Corporation
Law of the State of Delaware (the "Corporation") pursuant to the
provisions of the General Corporation Law of the State of Delaware
(the "GCL") does hereby certify as follows:
FIRST: The Certificate of Incorporation is hereby amended by
deleting the first sentence of the first paragraph of Article
FOURTH in its present form and substituting therefor a new
sentence in the following form:
"FOURTH: The total number of shares of capital
stock which the corporation shall have the authority to
issue is 2,000,000 shares of preferred stock, $1.00 par
value per share ("Preferred Stock"), and 35,000,000
shares of common stock, $.01 par value per share
("Common Stock")."
SECOND: The amendment to the Certificate of Incorporation of
the Corporation set forth in this Certificate of Amendment has
been duly adopted in accordance with the applicable provisions of
Section 242 of the GCL (a) the Board of Directors of the
Corporation having duly adopted resolutions setting forth such
amendment and declaring its advisability at a meeting of the Board
of Directors of the Corporation duly called and held on September
26, 1996 in conformity with the By-laws of the Corporation, and
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(b) the stockholders of the Corporation having duly adopted such
amendment by the affirmative vote of the holders of the majority
of the outstanding stock entitled to vote thereon on January 13,
1997, taken at the Corporation's annual meeting of stockholders
duly called and held upon notice in accordance with Section 222 of
the GCL.
IN WITNESS WHEREOF, ELECTRONIC RETAILING SYSTEMS
INTERNATIONAL, INC. has caused this certificate to be signed and
attested by duly authorized officers as of the 13th day of
January, 1997.
ELECTRONIC RETAILING SYSTEMS
INTERNATIONAL, INC.
By s/Bruce F. Failing, Jr.
--------------------------
Bruce F. Failing, Jr.
President
ATTEST:
s/Howard Kailes
-----------------------
Howard Kailes
Assistant Secretary
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CERTIFICATE OF DESIGNATION
OF SERIES A-1 CONVERTIBLE PREFERRED STOCK
OF
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
We, Bruce F. Failing, Jr., Vice Chairman of the Board and
Chief Executive Officer, and Norton Garfinkle, Secretary of
Electronic Retailing Systems International, Inc., a corporation
organized and existing under the General Corporation Law of the
State of Delaware, in accordance with the provisions of Section
103 thereof, DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors by Paragraph Fourth of the Certificate of Incorporation
of said Corporation and in accordance with the provisions of
Section 151 of the General Corporation Law of the State of
Delaware, its Board of Directors effective May 18, 2000, adopted
the following resolution designating a series of its Preferred
Stock, $1.00 par value, as Series A-1 Convertible Preferred Stock:
RESOLVED, that pursuant to the authority vested in
the Board of Directors of this Corporation in
accordance with the provisions of Paragraph Fourth of
its Certificate of Incorporation, a series of Preferred
Stock, $1.00 par value ("Preferred Stock"), of this
Corporation, be and it hereby is created, and that the
designation and amount thereof and the voting powers,
preferences, and other special rights, qualifications,
limitations and restrictions thereof are as follows:
(A) Designation and Amount. An aggregate of
40,000 shares of Preferred Stock, $1.00 par
value, of the Corporation are hereby
constituted as a series designated as
"Series A-1 Convertible Preferred Stock
(the "Series A-1 Convertible Preferred
Stock"). Subject to the provisions of
Section (F) hereinafter contained, such
number of shares may be increased or
decreased by resolution of the Board of
Directors; provided, that no decrease shall
reduce the number of shares of Series A-1
Convertible Preferred Stock to a number
less than the number of shares then
outstanding.
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(B) Liquidation, Dissolution or Winding Up.
(i) Upon any liquidation, dissolution or
winding up of the Corporation, no
distribution shall be made to the holders
of shares of Junior Stock (as hereinafter
defined) unless, prior thereto, the holders
of shares of Series A-1 Convertible
Preferred Stock shall have received $100
per share (the "Liquidation Preference per
Share"). After such payments to holders of
Series A-1 Convertible Preferred Stock, the
holders thereof, as such, shall not have
any right to participate in any further
distribution of or payment out of the
assets of the Corporation.
(ii) If upon any voluntary or
involuntary liquidation, dissolution or
winding up of the Corporation, the assets
available for distribution to holders of
shares of Series A-1 Convertible Preferred
Stock shall be insufficient to pay such
holders the full preferential amount to
which they are entitled, then such assets
shall be distributed ratably among the
shares of Series A-1 Convertible Preferred
Stock in accordance with the respective
preferential amount payable with respect
thereto.
(C) Conversion.
(i) Mandatory Conversion. All shares of
Series A-1 Convertible Preferred Stock shall be
converted (such conversion, herein referred to
as a "Mandatory Conversion") immediately upon
the consummation of the Equity Investment (as
hereinafter defined), in each case into fully-
paid and nonassessable Conversion Securities
(as hereinafter defined). The number of
Conversion Securities deliverable upon
conversion of a share of Series A-1 Convertible
Preferred Stock shall be calculated as the
quotient obtained by dividing the Liquidation
Preference per Share by the Subscription Price
(as hereinafter defined). Notwithstanding the
foregoing provisions of this paragraph (i), if
any holder on the Issuance Date (as hereinafter
defined) of Series A-1 Convertible Preferred
Stock at the time of conversion holds any
Disqualified Shares (as hereinafter defined)
and, at least 20 days prior to consummation by
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the Corporation of the Equity Investment, such
holder shall give written notice to the
Corporation thereof, specifying in such notice
the number of shares of Series A-1 Convertible
Preferred Stock held thereby and constituting
Disqualifying Shares, then such Disqualified
Shares shall not be subject to Mandatory
Conversion; provided, however, that, in the
event the number of Disqualified Shares covered
by all notices delivered as aforesaid exceeds 5%
of the issued and outstanding shares of Series
A-1 Convertible Preferred Stock, then the
foregoing exemption from Mandatory Conversion
shall apply solely to a number of Disqualified
Shares covered by each such notice determined by
multiplying the Disqualified Shares covered by
such notice by a fraction, the numerator of
which shall be a number of shares equivalent to
5% of the issued and outstanding shares of
Series A-1 Convertible Preferred Stock and the
denominator of which shall be the aggregate
number of Disqualified Shares covered by all
such notices.
(ii) Conversion Procedure. The Mandatory
Conversion of the Series A-1 Convertible
Preferred Stock shall be immediately effective
and shall be deemed to be made as of the date
of consummation of the Equity Investment. On or
prior to such date, each holder of Series A-1
Convertible Preferred Stock (other than shares
exempt from the Mandatory Conversion) shall
surrender to the Corporation, at the principal
executive offices of the Corporation at 488 Main
Avenue, Norwalk, Connecticut 06851 (or such
other office or agency of the Corporation as the
Corporation may designate by notice in writing
to the holders of record of Series A-1
Convertible Preferred Stock), the certificate
for such Series A-1 Convertible Preferred Stock
converted pursuant to the Mandatory Conversion,
accompanied by a written notice specifying the
name or names in which such holder wishes the
certificate or certificates for shares of
Conversion Securities to be issued, in each
case subject to the provisions of applicable
law. Upon a Mandatory Conversion, each
certificate representing the Series A-1
Convertible Preferred Stock shall represent the
number of Conversion Securities issuable upon
conversion of such certificate. As soon as
practicable after the receipt of the certificate
or certificates for the shares of Series A-1
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Convertible Preferred Stock to be converted, the
Corporation shall issue and shall deliver at
said offices to the holder a certificate or
certificates for the number of full Conversion
Securities issuable upon the conversion of such
share or shares of Series A-1 Convertible
Preferred Stock, and provision shall be made for
any fraction of a security as provided in
Paragraph (iii) hereof. At the time of
consummation of the Equity Investment, the
rights of the holder of such share or shares of
Series A-1 Convertible Preferred Stock shall
cease and the person or persons in whose name or
names any certificate or certificates for
Conversion Securities shall be issuable upon
such conversion shall be deemed to have become
the holder or holders of record of the
Conversion Securities represented thereby. If
any holder of Series A-1 Convertible Preferred
Stock not exempt from a Mandatory Conversion
shall fail to surrender his shares as provided
herein, the Corporation shall have the right to
cancel such shares upon its books, and any such
shares shall for all purposes be considered to
have been converted as provided herein.
(iii) Adjustment for Fractional Shares. No
fractional Conversion Securities shall be issued
upon conversion of Series A-1 Convertible
Preferred Stock. Instead of any fractional
Conversion Securities which would otherwise be
issuable upon conversion, the Corporation shall
pay a cash adjustment in respect of such
fractional share in an amount equal to the same
fraction of the Subscription Price.
(iv) Certain Definitions. For purposes
hereof:
(a) "Conversion Securities" shall
mean Equity Securities of the Corporation
and/or any of its Subsidiaries of the same
class, and having the same terms,
preferences, rights and limitations, as the
Equity Securities issued and sold by the
Corporation and/or any of its Subsidiaries
in the Equity Investment (and shall be
deemed to refer to units of Equity
Securities of the Corporation and/or any of
its Subsidiaries of the same classes, and
having the same respective terms,
preferences, rights and limitations, as the
Equity Securities issued and sold as units
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by the Corporation and/or any of its
Subsidiaries in the Equity Investment, in
the event the Equity Investment consists of
units of Equity Securities; and, further,
in the event the Equity Investment consists
of more than one transaction [as determined
in good faith by the Board of Directors of
the Corporation], shall be deemed to refer
to units of Equity Securities of the
Corporation and/or its Subsidiaries of the
same classes, and having the same
respective terms, preferences, rights and
limitations as the Equity Securities issued
and sold in all such transactions, such
Equity Securities to be included in such
units in the same proportion as the
aggregate consideration therefor in the
Equity Investment [calculated as described
under clause (g) below] bears to the
aggregate consideration for Equity
Securities in all transactions included in
the Equity Investment calculated).
(b) "Disqualified Shares" shall mean
shares of Series A-1 Convertible, Preferred
Stock which, if converted in a Mandatory
Conversion, would result in a violation by
the holder of any laws, rules, regulations
or policies of supervising regulatory
authorities applicable to such holder, or
of any provision of such holder's
certificate or articles of incorporation,
by-laws or similar governing provisions
applicable generally to ownership of Equity
Securities by such holder.
(c) "Equity Investment" shall mean any
transaction or transactions, whether or not
related, which have resulted in the receipt
by the Corporation or any of its
Subsidiaries after the Issuance Date of at
least $20 million, in cash, within any
consecutive twelve-month period, from the
investment by new or existing investors in
Equity Securities of the Corporation or any
of its Subsidiaries, excluding the effect
of issuances of any Equity Securities under
any Employee Benefit Plan (as defined under
Rule 405 [or any successor rule]
promulgated by the Securities and Exchange
Commission pursuant to the Securities Act
of 1933, as amended).
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(d) "Equity Securities" shall have
the meaning set forth under Rule 405 (or
any successor rule) promulgated by the
Securities and Exchange Commission pursuant
to the Securities Act of 1933, as amended.
(e) "Issuance Date" shall mean
July 6, 2000.
(f) "NewCheck" shall mean NewCheck
Corporation, a Delaware corporation d/b/a
Productivity Solutions, Inc., or any
successor thereto.
(g) "Subscription Price" shall mean
the consideration per share or unit of
Equity Securities, as the case may be,
payable by investors generally in the
Equity Investment (and, in the event the
Equity Investment consists of more than one
transaction [as determined in good faith by
the Board of Directors of the Corporation],
shall mean the aggregate of the
consideration per share or unit of Equity
Securities therein, in each case
appropriately weighted by the Board of
Directors of the Corporation acting in good
faith to reflect the extent to which such
Equity Securities are included in the
Conversion Securities as described under
clause (a) above); provided, however, that:
(x) in case any such Equity Securities (or
units, as the case may be) shall be issued
or sold for cash, the consideration
therefor shall be deemed to be the amount
received by the Corporation and/or any of
its Subsidiaries therefor, without
deduction therefrom of any expenses
incurred or any underwriting commissions or
concessions paid or allowed by the
Corporation and/or any of its Subsidiaries
in connection therewith; and (y) in case
any such Equity Securities (or units, as
the case may be) shall be issued or sold
for a consideration other than cash, the
amount of the consideration other than cash
received by the Corporation and/or any of
its Subsidiaries shall be deemed to be the
fair market value of such consideration as
determined in good faith by the Board of
Directors of the Corporation, without
deduction of any expenses incurred or any
underwriting commissions or concessions
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paid or allowed by the Corporation and/or
any of its Subsidiaries in connection
therewith.
(h) "Subsidiary" shall mean any
corporation, association, partnership,
limited liability company, or other
business entity of which more than 50% of
the total voting power of its voting stock
or other interests (including partnership
interests) entitled (without regard to the
occurrence of any contingency) to vote in
the election of directors, managers or
trustees thereof is at the time owned or
controlled, directly or indirectly, by (i)
the Corporation, (ii) the Corporation and
one or more Subsidiaries of the Corporation
or (iii) one or more Subsidiaries of the
Corporation, excluding, in each case,
dormant entities; and provided, however,
that in no event shall NewCheck (or any
entity owned or controlled by NewCheck) be
deemed a Subsidiary of the Corporation or
of any Subsidiary of the Corporation.
(v) Notice of Certain Actions. In case
at any time:
(a) the Corporation shall consummate
the Equity Investment; or
(b) there shall be voluntary or
involuntary dissolution, liquidation
or winding-up of the Corporation;
then, in any one or more of said cases, the
Corporation shall give written notice to each
holder of record of Series A-1 Convertible
Preferred Stock, of the date on which such
event shall take place. Such written notice
shall be given at least 40 days prior to the
action in question and not less than 40 days
prior to the record date or the date on which
the Corporation's transfer books are closed
in respect of any exchange or conversion of
shares, as the case may be, in connection
herewith. Copies of each such notice shall be
delivered to such additional persons or
addressees as shall have been directed by the
record holder to the Corporation prior to the
due date of delivery of such notice.
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(vi) Taxes. The issuance of Conversion
Securities upon the conversion of Series A-1
Convertible Preferred Stock shall be made
without charge to the holders thereof for any
issuance tax in respect thereto; provided,
however, that the Corporation shall not be
required to pay any tax which may be payable
in respect of any transfer involved in the
issuance and delivery of any certificate in a
name other than that of the holders of record
of Series A-1 Convertible Preferred Stock,
respectively.
(vii) Closing of Books. The
Corporation will at no time close its
transfer books against the transfer of any
Conversion Securities issued or issuable upon
the conversion of any shares of Series A-1
Convertible Preferred Stock in any manner
which interferes with the timely conversion
of Series A-1 Convertible Preferred Stock.
(D) Contingent Redemption or Conversion.
(i) Mandatory Redemption. In the event any
Disqualified Shares are exempt from Mandatory
Conversion, all such exempt shares (the "Redeemable
Shares") shall, at the option of the holder
exercised as hereinafter set forth, and out of funds
legally available for that purpose, be redeemed (the
"Mandatory Redemption") by the Corporation on the
date of consummation of an Equity Investment, at a
redemption price per share equal to the Liquidation
Preference Per Share, payable on the dates hereafter
set forth (each a "Payment Date"). All amounts due
in respect of the redemption of a Redeemable Share
shall be paid in twelve equal quarterly installments
commencing on the date of consummation of an Equity
Investment and thereafter on the first day of each
calendar quarter out of funds legally available for
that purpose, as determined by the Board of
Directors of the Corporation in its sole discretion;
provided, however, that, if on any such Payment Date
the Corporation shall not have funds legally
available for that purpose, determined as aforesaid,
the installment otherwise then due shall not be
payable as aforesaid and shall cumulate and be
payable at the next such Payment Date at which funds
are legally available for that purpose, determined
as aforesaid. Amounts cumulated as aforesaid shall
not bear interest. The aggregate of amounts paid
under this Section (D) on any Payment Date, if in an
amount less than the total amount of payments due
<PAGE>
except for the proviso contained in the immediately
preceding sentence shall be allocated pro rata on a
dollar-for-dollar basis among all payments due
except for such proviso.
(ii) Redemption Procedure. In the event any
holder of Redeemable Shares elects to have such
shares redeemed by the Corporation, at least 20 days
prior to consummation by the Corporation of the
Equity Investment such holder shall give written
notice to the Corporation stating that it elects to
have all Redeemable Shares held by it redeemed in
accordance with the terms hereof. In the event such
notice is delivered to the Corporation, the
Mandatory Redemption of the Redeemable Shares shall
be immediately effective and shall be deemed to be
made as of the date of consummation of the Equity
Investment. On or prior to such date, each holder of
Redeemable Shares subject to Mandatory Redemption
shall surrender to the Corporation, at its principal
executive offices as aforesaid (or such other office
or agency of the Corporation as the Corporation may
designate by notice in writing to the holders of
record of the Redeemable Shares), the certificate
for such Redeemable Shares. At the time of
consummation of the Equity Investment, the rights of
the holder of all Redeemable Shares subject to
Mandatory Redemption shall cease (except only the
right of the holder subsequently to receive the
amounts due in redemption thereof at the times
herein specified) and such shares shall no longer be
deemed outstanding. If any holder of Redeemable
Shares subject to Mandatory Redemption shall fail to
surrender his shares as provided herein, the
Corporation shall have the right to cancel such
shares upon its books, and any such shares shall for
all purposes be considered to have been redeemed as
provided herein. Any and all Redeemable Shares not
subject to Mandatory Redemption shall remain
outstanding, entitled to the preferences, rights and
limitations of the Series A-1 Convertible Preferred
Stock hereunder (it being acknowledged that,
subsequent to the consummation of the Equity
Investment, no further rights shall accrue thereto
under Sections C or D hereunder, except for the
rights under Section D hereinafter set forth).
(iii) Option to Convert. For a period of three
years subsequent to the date of consummation of the
Equity Investment (the "Option Period"), each holder
of Redeemable Shares not subject to Mandatory
Redemption (the "Option Shares") shall have the
right, exercisable as hereinafter set forth, to
<PAGE>
convert such shares into fully-paid and non-
assessable Conversion Securities, each such Option
Share convertible into a number of Conversion
Securities calculated as the quotient obtained by
dividing the Liquidation Preference per Share by the
Subscription Price then applicable (all on the same
basis as conversion of the Series A-1 Convertible
Preferred Stock into Conversion Securities upon
consummation of the Equity Investment as set forth
under Section (C), except as otherwise set forth
under this Section (D)). Furthermore, if, during the
Option Period, any holder of Options Shares assigns,
transfers or conveys any such share or shares, such
share or shares shall be converted into fully-paid
and non-assessable Conversion Shares on the same
basis as aforesaid.
(iv) Option Exercise Procedure. (a) In the event
any holder of Option Shares elects to
convert such shares into Conversion
Securities as aforesaid, such holder shall,
prior to the third anniversary of the
consummation of the Equity Investment, give
written notice to the Corporation stating
that it elects to have all Option Shares
held by it converted in accordance with the
terms hereof, such notice accompanied by
surrender to the Corporation, at the
principal executive offices of the
Corporation at 488 Main Avenue, Norwalk,
Connecticut 06851 (or such other office or
agency of the Corporation as the
Corporation may designate by notice in
writing to the holders of record of the
Option Shares), the certificate for such
Option Shares, accompanied by a written
specification of the name or names in which
such holder wishes the certificate or
certificates for shares of Conversion
Securities to be issued, in each case
subject to the provisions of applicable
law. As soon as is practicable after
receipt of such notice and the surrender of
the certificate of certificates for the
Option Shares, the Corporation shall issue
and deliver at said offices to the holder a
certificate or certificates for the number
of full Conversion Securities issuable upon
the conversion of the Option Shares, and
provision shall be made for any fraction of
a security in the same manner as provided
under Section (C)(ii) hereof. Such
conversion shall be deemed to have been
<PAGE>
effected immediately prior to the close of
business on the date on which such notice
shall have been received by the
Corporation, and at such time the rights of
the holder of such Option Shares shall
cease and the person or persons in whose
name or names any certificate or
certificates for shares of Conversion
Securities shall be issuable upon such
conversion shall be deemed to have become
the holder or holders of record of the
Conversion Securities re presented thereby.
(b) The conversion of Option Shares upon
assignment, transfer or conveyance thereof during
the Option Period shall be effective and shall be
deemed made upon surrender to the Corporation, in
the manner aforesaid, of the certificate for such
Option Shares, accompanied by appropriate
instruments of conveyance acceptable to the
Corporation, in each case subject to the provisions
of applicable law. As soon as is practicable after
receipt of such certificate, accompanied by such
instruments, the Corporation shall issue and deliver
to the transferee at its offices as aforesaid a
certificate or certificates for the number of full
Conversion Securities issuable upon the conversion
of such Option Shares, and provision shall be made
for any fraction of a security in the manner
aforesaid. At such time the rights of the holder of
such Option Shares shall cease and the transferee
shall be deemed to have become the holder or holders
of record of the Conversion Securities represented
thereby.
(v) Certain Protective Provisions.
(a) In case, during the Option Period, the
Corporation shall at any time subdivide the
outstanding Conversion Securities into a greater
number of securities, the Subscription Price in
effect immediately prior to such subdivision shall
be appropriately reduced as determined in good faith
by the Board of Directors of the Corporation, and
conversely, in case the outstanding Conversion
Securities shall be combined into a smaller number
of securities, the Subscription Price in effect
immediately prior to such combination shall be
appropriately increased as determined in good faith
by the Board of Directors of the Corporation. In
case the Corporation shall declare a dividend or
make any other distribution upon any Conversion
Securities payable in Conversion Securities, any
<PAGE>
Conversion Securities issuable in payment of such
dividend or distribution shall be deemed to have
been issued in a subdivision of outstanding shares
as provided in this paragraph (a).
(b) If any consolidation or merger of the
Corporation with another corporation, or the sale of
all or substantially all of its assets to another
corporation shall be effected during the Option
Period, or in case of any capital reorganization or
reclassification of the capital stock of the
Corporation, then, as a condition of such
consolidation, merger or sale, reorganization, or
reclassification, appropriate provision shall be
made, as determined in good faith by the Board of
Directors of the Corporation, whereby each holder of
record of the Option Shares shall thereafter have
the right to purchase and receive upon the basis and
upon the terms and conditions specified herein and
in lieu of the Conversion Securities immediately
theretofore purchasable and receivable upon the
conversion of the Option Shares, such shares of
stock, securities or assets as may be issuable or
payable with respect to or in exchange for a number
of outstanding Conversion Securities equal to the
number of Conversion Securities immediately
theretofore purchasable and receivable by such
holder had such consolidation, merger, sale,
reorganization, or reclassification not taken place.
(c) If any other event occurs as to which in
the judgment of the Board of Directors of the
Corporation, in good faith, the other provisions of
this sub-section (v) are not strictly applicable but
the lack of any adjustment would not in the opinion
of the Board of Directors of the Corporation fairly
reflect the conversion rights of the holders of the
Option Shares in accordance with the basic intent
and principles of the provisions of this sub-section
(v), then the Corporation shall make such
adjustments therein, as determined in good faith by
the Board of Directors of the Corporation, in order
to preserve, consistent with this sub-section (v),
the conversion rights of the holders of the Option
Shares.
(E) Reacquired Shares. Any shares of the Series A-1
Convertible Preferred Stock purchased or
otherwise acquired by the Corporation in any
manner whatsoever shall be retired and cancelled
promptly after the acquisition thereof. All such
shares shall upon their cancellation become
authorized but unissued as shares of Preferred
<PAGE>
Stock and may be reissued as Series A-1
Convertible Preferred Stock or as part of a new
series of Preferred Stock subject to the
conditions and restrictions of issuance set
forth herein, in the Certificate of
Incorporation or as otherwise required by law.
(F) Certain Conditions. Notwithstanding any other
provision of Section (C) or of Section (D)
hereof, conversion, redemption or transfer of
the Series A-1 Convertible Preferred Stock shall
be subject to the requirements that: (x) if at
any time the Board of Directors of the
Corporation shall determine that the
registration, listing or qualification of the
Series A Convertible Preferred Stock, the
Conversion Securities, or any payment in lieu
thereof, 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 acquisition of Conversion
Securities upon conversion or any payment in
lieu of conversion, or any transfer of the
foregoing securities, no such conversion,
payment or transfer may be effected 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 of the Corporation;
and (y) as a condition of, or in connection
with, the acquisition of Conversion Securities
upon conversion or transfer, each holder of
Series A-1 Convertible Preferred Stock shall
agree in writing reasonably satisfactory to the
Corporation (and shall be deemed to have so
agreed in the event of acceptance of any
Conversion Securities) to the terms,
preferences, rights and limitations of the
Conversion Securities in comparable manner as
investors generally in the Equity Investment.
The Corporation may require that any person
acquiring any Series A-1 Convertible Preferred
Stock, or any Convertible Securities or any
payment in lieu thereof, 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.
(G) Junior Stock. For purposes hereof, the term
"junior stock" shall mean the common stock, $.01
par value (the "Common Stock"), of the
<PAGE>
Corporation and any other class of stock of the
Corporation hereinafter authorized which shall
rank junior to the Series A-1 Convertible
Preferred Stock as to all preference on
dissolution, liquidation or winding up of the
Corporation.
(H) No Pre-Emption; Protective Rights. Except as
herein provided in the event of a Mandatory
Conversion, no right to subscribe for or to take
any stock of any class or any securities
convertible to any stock, at any time issued by
the Corporation, shall vest in or accrue to any
holder of shares of Series A-1 Convertible
Preferred Stock with respect to any shares which
he holds. The holders of shares of Series A-1
Convertible, Preferred Stock shall not be
entitled to dividends thereon. Except as set
forth in this Section (H) or as otherwise
required by law, the holders of shares of Series
A-1 Convertible, Preferred Stock shall have no
voting rights. The Certificate of Incorporation
of this Corporation shall not be amended in any
manner which would materially alter or change
the powers, preferences or special rights of the
Series A-1 Convertible Preferred Stock so as to
affect them adversely, nor shall the Corporation
create or authorize the creation of any
additional class or series of stock senior to or
ranking pari passu with the Series A-1
Convertible Preferred Stock as to the
distribution of assets on the liquidation,
dissolution or winding-up of the Corporation or
increase the authorized amount of the Series A-1
Convertible Preferred Stock, without the
affirmative vote of the holders of at least a
majority of the outstanding shares of Series A-1
Convertible Preferred Stock, voting together as
a single series.
This resolution was duly adopted by the Board of Directors of
this Corporation at a meeting thereof duly called and held on May
18, 2000, at which a quorum was present and acting throughout.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused its corporate
seal to be hereunder affixed and this Certificate of Designation
to be signed by Bruce F. Failing, Jr., its Vice Chairman of the
Board and Chief Executive Officer and attested to, by Norton
Garfinkle, its Secretary, on the 6th day of July, 2000.
ELECTRONIC RETAILING SYSTEMS
INTERNATIONAL, INC.
By s/Bruce F. Failing
-------------------------------
Bruce F. Failing, Jr.
Vice Chairman of the Board and
Chief Executive Officer
Attest:
s/Norton Garfinkle
----------------------
Norton Garfinkle
Secretary
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