UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ---------- to ----------
Commission file number 0-10786
ELECTRONIC RETAILING SYSTEMS INTERNATIONAL, INC.
--------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1361276
- ------------------------------ ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
488 Main Street
Norwalk, Connecticut 06851
- ---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 203-849-2500
------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
------------------------------------
(Title of class)
<PAGE>
Indicate by a check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period as the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K (Section 229.405 of
this chapter) is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. [ X ]
State the aggregate market value of the voting and non-
voting stock held by non-affiliates of the registrant. The
aggregate market value shall be computed by reference to the
price at which the common stock was sold, or the average bid and
asked prices of such common equity, as of a specified date within
60 days prior to the date of filing.
Aggregate market value as of March 15, 2000........$10,144,770
Indicate the number of shares outstanding of each of
the registrant's classes of common stock as of the latest
practicable date.
Common Stock, $.01 par value,
as of March 15, 2000.................21,282,637 shares
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the documents, all or portions of which are
incorporated by reference herein, and the part of the Form 10-K
into which the document is incorporated: Proxy Statement to be
filed with respect to the 2000 Annual Meeting of Stockholders-
Part III.
<PAGE>
AMENDMENT NO. 1
The undersigned hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on
Form 10-K for the fiscal year ended December 31, 1999, as set
forth in the pages attached hereto:
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial
Owners and Management
Item 13. Certain Relationships and Related
Transactions
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
Certain biographical information concerning the directors of
Electronic Retailing Systems International, Inc. (the "Company")
is set forth below. Such information was furnished by them to the
Company.
Name of Director Age Biographical Information
- ---------------- --- ------------------------
David Diamond 41 Executive Vice President,
Catalina Marketing Cor-
poration since 1997;
consultant to suppliers of
products and services to the
supermarket industry from
prior to 1995 until 1997;
Director of the Company since
1996.
Bruce F. Failing, Jr. 51 Founder of the Company in
1990, and its Vice Chairman
of the Board and Chief
Executive Officer; President
of the Company through 1997;
Director of the Company since
1990.
<PAGE>
Norton Garfinkle 69 Founder of the Company in
1990, and its Chairman of the
Board; Chairman of Cambridge
Management Corporation (manu-
facturer and marketer of DAP
series of massively parallel
processing computers) since
prior to 1995, and Chairman
of its affiliates (engaged in
the research and development
of new technologies),
including Oxford Management
Corporation, during such
period; Director: eSynch
Corporation; Director of the
Company since 1990.*
Donald E. Zilkha 49 President, Zilkha & Company
(private investment advisor)
since prior to 1995; Director
of the Company since 1993.
- ---------------
* In December 1995, pursuant to an agreement with New York
State authorities, Mr. Garfinkle admitted to a misdemeanor
relating to his 1989 New York State return and paid all
taxes required by the agreement.
See "Item 12. Security Ownership of Certain Beneficial
Owners and Management" for information concerning arrangements
between the controlling stockholders of the Company concerning
the election of directors, which information is incorporated
herein by reference.
For information concerning the executive officers of the
Company, see pages 18 to 19 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1999 as originally
filed, under the caption "Item 1. Business-Executive Officers,"
which information is incorporated herein by reference.
There are no family relationships among any of the executive
officers or directors of the Company.
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of copies of reports received by
it pursuant to Section 16(a) of the Securities Exchange Act of
1934 (the "Exchange Act"), and the written representations of its
incumbent directors and officers, and holders of more than ten
percent of any registered class of the Company's equity
securities, the Company believes that during 1999 all filing
requirements applicable to its directors, officers and ten
percent holders under said section were satisfied.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Director Compensation
The Company maintains the Electronic Retailing Systems
International, Inc. 1993 Director Stock Option Plan (the
"Director Option Plan") previously adopted by the Board of
Directors, and approved by the stockholders, of its predecessor
corporation. Under the Director Option Plan, pursuant to
amendments approved by the stockholders of the Company in January
1997 and June 1998, options to purchase up to 750,000 shares of
the Company's Common Stock may be granted to directors of the
Company. The Company has the ability to grant options under the
Director Option Plan to executive officers who are directors,
which are intended to be "incentive stock options" within the
meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), provided that the option exercise price is
equal to the fair market value of the Common Stock on the date of
grant. Other options granted under the Director Option Plan will
be nonqualified options.
The Director Option Plan is administered by the Board of
Directors of the Company, which determines the persons who are to
receive options and the number of shares subject to each option.
David Diamond and Donald Zilkha hold options granted under the
Director Option Plan: (i) in June 1996 covering, respectively,
12,500 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
(ii) in June 1998 covering, respectively, 17,500 shares and
10,000 shares of Common Stock, exercisable at a price per share
equal to $4.00, the closing price per share of 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
<PAGE>
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.
Paul A. Biddelman, who served as a director until June 1999,
held options granted under the Director Option Plan: (i) in June
1996, covering 20,000 shares of Common Stock, exercisable at a
price per share of $1.875, and (ii) in June 1998, covering 10,000
shares of Common Stock, exercisable at a price per share of
$4.00. Sheldon Weinig, who served as a director until January
2000, held options granted under the Director Option Plan in
September 1998, covering 10,000 shares of Common Stock,
exercisable at a price per share equal to $2.75. Such prices
represented the closing price per share of Common Stock on the
Nasdaq Stock Market on the date of grant. Such options were
exercisable on the date of grant with respect to one-quarter of
the shares covered thereby and with an additional one-quarter of
such shares becoming exercisable annually thereafter, and expired
without exercise upon the conclusion of such directors'
respective tenure on the Board of Directors.
During the year ended December 31, 1999, the Company paid to
Oxford Management Corporation ("Oxford") the amount of $22,500
for services rendered by Norton Garfinkle and $1,409 in
reimbursement of other expenses, and incurred an additional
$90,000 for such services and $1,053 in reimbursement of other
expenses, which was invoiced in 2000. The Company's continuing
arrangements with Oxford, which are terminable at any time by the
Company or Oxford, provide for payments in the amount per month
of $7,500 for services rendered by Mr. Garfinkle.
The Company has not adopted any director fee arrangement,
but reimburses all of its directors for their out-of-pocket
expenses incurred in the performance of their duties as directors
of the Company.
Executive Compensation
Summary Compensation Table. The following table sets forth
information concerning the annual compensation for each of the
Company's last three completed fiscal years of: (i) the Company's
chief executive officer; and (ii) each of the four other most
highly- compensated executive officers during the most recent
fiscal year:
<PAGE>
<TABLE>
Summary Compensation Table
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------------------------------------------------- ------------------
Other Securities
Name and Annual Underlying All Other
Principal Position Year Salary($) Bonus($) Compensation(2) Options(#) Compensation($)
- --------------------- ----- ---------- ----------- -------------------- --------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Bruce F. Failing, Jr.... 1999 150,000 -- -- -- --
Chief Executive Officer 1998 155,769 -- -- -- --
1997 206,731 -- -- -- --
Michael B. Persky..... 1999 234,519 -- -- -- 500(5)
President(1) 1998 214,385 -- -- 450,000(3) 500
1997 24,615 -- -- 60,000 --
Morty Bachar...... 1999 169,038 20,000 -- 175,000 500(5)
Vice President, 1998 -- -- -- -- --
Engineering(4) 1997 -- -- -- -- --
Norman Tsang...... 1999 164,769 40,000 40,000(7) 205,000 500(5)
Vice President, 1998 -- -- -- -- 500
Marketing(6) 1997 -- -- -- -- --
Paul Lavoie....... 1999 160,000 20,000 -- 125,000 500(5)
Vice President 1998 67,692 -- -- 50,000 --
Sales(8) 1997 -- -- -- -- --
</TABLE>
- ---------------
(1) Mr. Persky became an executive officer upon joining the
Company in December 1997.
(2) Excludes prerequisites and other personal benefits unless
the aggregate amount of such compensation exceeds the
lesser of either $50,000 or 10% of the total of annual
salary and bonus reported for the named executive officer.
(3) Of such amounts, options with respect to 60,000 shares
replaced options previously granted and surrendered
contemporaneously with such replacement.
(4) Mr. Bachar became an executive officer in January 1999
after joining the Company in 1998 and ceased to be an
executive officer in January 2000.
(5) Represents the Company's annual contribution to its defined
contribution plan.
<PAGE>
(6) Mr. Tsang became an executive officer upon joining the
Company in January 1999.
(7) Represents $40,000 paid to Mr. Tsang for relocation
expenses.
(8) Mr. Lavoie became an executive officer upon joining the
Company in 1998.
Option Grant Table. The following table sets forth certain
information regarding options granted by the Company during the
year ended December 31, 1999, to the individuals named in the
above compensation table:
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Individual Grants Potential Realizable
Number of % of Total Value at Assumed
Securities Options Market Price Annual Rates of Stock
Underlying Granted to Exercise Per Share Price Appreciation for
Options Employees in Price on Date of Expiration Option Term(2)
Name Granted (#)(1) Fiscal Year ($/sh) Grant($) Date 5%($) 10%($)
- ------- ----------------- ---------------- --------- ---------------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce F. Failing, Jr.. -- -- -- -- -- -- --
Michael B. Persky... -- -- -- -- -- -- --
Morty Bachar.... 100,000 7.2 2.09 2.09 01/15/09 131,439 333,092
50,000 3.6 1.35 1.35 06/04/09 42,450 107,578
25,000 1.8 0.97 0.97 12/31/09 15,251 38,648
Norman Tsang..... 130,000(3) 9.4 2.25 2.25 01/15/09 183,952 466,170
50,000 3.6 1.35 1.35 06/04/09 42,450 107,578
25,000 1.8 0.97 0.97 12/31/09 15,251 38,648
Paul Lavoie..... 100,000 7.2 1.35 1.35 06/04/09 84,901 215,155
25,000 1.8 0.97 0.97 12/31/09 15,251 38,648
</TABLE>
__________________
(1) Except as otherwise indicated, all such options become
exercisable with respect to one-quarter of the shares covered
thereby on the first anniversary of the date of grant, and
with an additional one-quarter thereof subject to exercise on
each subsequent anniversary thereafter.
<PAGE>
(2) 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.
(3) Of such options, options covering 30,000 shares become
exercisable with respect to all such shares on the first
anniversary of the date of grant.
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, 1999 by the individuals named in the above compensation
table.
<TABLE>
Aggregate Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at Fiscal Year-End (#) at Year-End(1)
Acquired on Value ------------------------------------- ----------------------------------
Name Exercise (#) Realized Exercisable Unexercisable Exercisable Unexercisable
- ------- -------------- ---------- -------------- ----------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Bruce F. Failing, Jr... -- -- -- -- -- --
Michael B. Persky.... -- -- 100,000 350,000 -- --
Morty Bachar..... -- -- 7,500 197,500 -- --
Norman Tsang... -- -- -- 205,000 -- --
Paul Lavoie..... -- -- 12,500 162,500 -- --
</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.
<PAGE>
1993 Employee Stock Option Plan
The Company maintains the Electronic Retailing Systems
International, Inc. 1993 Employee Stock Option Plan (the
"Employee Option Plan") previously adopted by the Board of
Directors, and approved by the stockholders, of its predecessor
corporation. Under the Employee Option Plan, pursuant to
amendments approved by the stockholders of the Company in June
1994, December 1996 and June 1998, options to purchase up to
3,500,000 shares of the Company's Common Stock may be granted to
key employees of the Company and its subsidiaries, including
executive officers who are not directors. The Company is able to
grant options under the Employee Option Plan which are intended
to be "incentive stock options" within the meaning of Section 422
of the Code, provided that the option exercise price is equal to
the fair market value of the Common Stock on the date of grant.
Other options granted under the Employee Option Plan are
nonqualified options.
The Employee Option Plan is administered by the Board of
Directors of the Company, which determines the persons who are to
receive options and the number of shares subject to each option.
As of April 1, 2000, options covering an aggregate of 2,051,902
shares of Common Stock were outstanding pursuant to the Employee
Option Plan and options covering an aggregate of 523,371 shares
had been exercised.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1999, the members of the
Company's Compensation Committee were Norton Garfinkle, Donald
Zilkha and, until June 1999, Paul A. Biddelman, and, subsequent
to June 1999, Sheldon Weinig.
During the year ended December 31, 1999, Oxford Management
Corporation, a company controlled by Mr. Garfinkle, was
reimbursed an aggregate amount of $22,500 for services rendered
by Mr. Garfinkle and $1,409 in reimbursement of other expenses,
and incurred an additional $90,000 for such services and $1,053
in reimbursement of other expenses, which was invoiced in 2000.
The Company's continuing arrangements with Oxford, which are
terminable at any time by the Company or Oxford, provide for
payments in the amount per month of $7,500 for services rendered
by Mr. Garfinkle.
<PAGE>
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 in 1993 with
the limited partners of a partnership affiliated with the
Company's predecessors corporation (including Mr. Zilkha and
Hanseatic Corporation's predecessor-in-interest), such partners
hold certain demand and incidental registration rights and co-
sale rights. In addition, the former stockholders of the
Company's predecessor corporation, 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 held
by them upon the Company's acquisition of its predecessor
corporation, 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.
Certain stockholders of the Company, including Mr. Failing and
Messrs. Garfinkle and Zilkha, and their respective affiliates,
became entitled to certain incidental registration rights with
respect to shares of Common Stock purchased by them in 1996 in a
private placement by the Company.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------
The following table sets forth certain information as of
April 1, 2000 with respect to the number of shares of Common
Stock beneficially owned by (i) each person known by the Company
to own beneficially more than 5% of the outstanding shares of
Common Stock, (ii) each director of the Company, (iii) each
executive officer of the Company named in the summary
compensation table under "Item 11. Executive Compensation," and
(iv) all directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
Number of Shares
of Common Stock Percent
Beneficially Owned(1) of Class
-------------------- ----------------
<S> <C> <C>
Norton Garfinkle
133 East 62nd Street
New York, NY 10021(2). . . . 7,890,758(3) 37.1%
Bruce F. Failing, Jr.
83 Pecksland Road
Greenwich, CT 06831(2) . . . 3,145,637(4) 14.8
Fidelity International Limited
Pembroke Hall
42 Crow Lane
Hamilton, Bermuda . . . . . . 2,086,000(5) 9.8
Michael B. Persky. . . . . . . 103,000(6) (7)
Morty Bachar . . . . . . . . . -- --
Norman Tsang . . . . . . . . . 55,000(8) (7)
Paul Lavoie. . . . . . . . . . 12,500(8)
David Diamond. . . . . . . . . 19,125(9) (7)
Donald E. Zilkha . . . . . . . 117,472(10) (7)
All executive officers and
directors as a group
(10 persons). . . . . . . . . 11,368,492(11) 52.9
</TABLE>
- ------------------
(1) Except as otherwise indicated, as of April 1, 2000 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 (as to
which Leigh Q. Failing and Elizabeth F. Failing, Mr.
Failing's spouse and mother, respectively, act as co-
trustees), 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 spouse.
(5) In a Statement on Schedule 13G 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) Includes 100,000 shares issuable upon exercise of stock
options granted by the Company exercisable within 60 days of
April 1, 2000.
(7) Less than one percent.
(8) Represents shares issuable upon exercise of stock options
granted by the Company exercisable within 60 days of April
1, 2000.
<PAGE>
(9) Represents (i) 1,000 shares beneficially owned jointly by
Mr. Diamond and his wife, and (ii) 18,125 shares issuable
upon exercise of stock options granted by the Company
exercisable within 60 days of April 1, 2000.
(10) Includes 20,000 shares issuable upon exercise of stock
options granted by the Company exercisable within 60 days of
April 1, 2000.
(11) Includes 205,625 shares issuable upon exercise of stock
options granted by the Company exercisable within 60 days of
April 1, 2000.
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.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS
-------------------------
At April 1, 2000, Norton Garfinkle, Chairman of the Board
and a director of the Company, together with two affiliated
limited partnerships, beneficially owned approximately 37.1% 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 (as to which Mr.
Failing's spouse and mother act as co-trustees), beneficially
owned approximately 14.8% of the outstanding Common Stock of the
Company. See "Item 11. Executive Compensation-Compensation
Committee Interlocks and Insider Participation" above for
information concerning certain demand and incidental registration
rights relating to the Company's Common Stock held by Messrs.
Garfinkle and Failing, and by Donald E. Zilkha (a director of the
Company) and Paul A. Biddelman (who served as a director until
June 1999), or their affiliates, and certain reimbursements by
the Company to a company controlled by Mr. Garfinkle, which
information is incorporated herein by reference.
During the year ended December 31, 1999, 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. Upon maturity in August 1999, the
Company was indebted under the CDA Note in the aggregate principal
amount of $5,000,000. Until repayment upon maturity, such amounts
accrued interest, payable monthly, at a rate of 7.4% per annum (of
which $227,000 was paid during the year ended December 31, 1999)
and were secured by the assets of the Company. Such amounts were
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 was exercisable through August 1999 with respect to
699,724 shares of Common Stock, at an adjusted price calculated at
$2.58 plus the average market price of the Common Stock during the
twelve months prior to exercise, and expired without exercise.
In February 2000, in exchange for payments aggregating $6.5
million, the Company acquired 262,802 shares of the newly-created
Series C Convertible Preferred Stock, $.0001 par value (the
"Senior Preferred Stock"), of NewCheck Corporation ("NewCheck"),
<PAGE>
together with NewCheck's 8% Convertible Promissory Note (the
"Convertible Note") in the aggregate principal amount of
approximately $4.6 million, convertible into an additional
613,205 shares of Senior Preferred Stock. The shares of Senior
Preferred Stock acquired by the Company at closing represented
approximately 19% of NewCheck's outstanding voting securities.
Mr. Failing is a director of NewCheck and his spouse,
individually and as trustee, holds approximately 8% of the voting
securities of NewCheck outstanding at closing, consisting of
shares of Senior Preferred Stock acquired at closing and prior
issued shares of NewCheck's Series B Preferred Stock, $.0001 par
value (the "Junior Preferred Stock").
NewCheck's Senior Preferred Stock: (i) is entitled, pursuant
to its terms, to receive preferential dividends, payable in
additional shares at the rate of 8% per annum on the liquidation
preference per share; (ii) is redeemable, at a price equal to the
greater of the original issue price or fair market value, upon
specified dates; (iii) is convertible into shares of NewCheck's
common stock, $.0001 par value (the "NewCheck Common Stock"), at
the election of the holder, and is automatically converted in
specified circumstances; (iv) in the event of specified events
will, prior to other series of preferred stock, receive an amount
equal to its liquidation preference (calculated initially as
capital invested), and then participate on an "as converted"
basis with the NewCheck Common Stock, and other participating
series, in remaining amounts available for distribution; and (v)
carries a number of votes equal to the number of shares of
NewCheck Common Stock issuable upon conversion, and votes
together with the NewCheck Common Stock and other voting
securities of NewCheck.
The Convertible Note accrues interest, payable at maturity,
at the per annum rate of 8%, matures on the fifth anniversary of
issue, is repayable (together with interest) in shares of Senior
Preferred Stock at the election of NewCheck, and is convertible
after two years (and earlier in specified circumstances) into
shares of Senior Preferred Stock. As a condition to closing, the
Junior Preferred Stock was amended so as to allow the senior
preferences of the Senior Preferred Stock, reduce the liquidation
preference of the Junior Preferred Stock, provide holders the
right to participate in the proceeds of specified events, and
eliminate certain covenants and other arrangements accruing to
the benefit solely of the Junior Preferred Stock.
<PAGE>
The Company and NewCheck have also entered into a management
agreement under which, for an initial term of five years, the
Company will manage NewCheck's operations, in exchange for
continuing reimbursements to the Company of the costs of
performance and issuance to the Company at closing of ten-year
warrants, exercisable after the first year to acquire shares of
NewCheck Common Stock equal to approximately 16% of NewCheck's
voting securities outstanding at closing (giving effect to such
warrants and to the conversion of the Convertible Note). The
Company received additional ten-year warrants that vest with
respect to specified percentages of the outstanding NewCheck
Common Stock in the event the equity value of NewCheck exceeds
specified levels during the three years after closing. NewCheck's
arrangements with the Company and the other subscribers at
closing extend, among other matters, to demand and incidental
registration rights covering NewCheck's securities and rights-of-
first offer regarding new issues of securities by NewCheck.
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. As a matter of policy, all future
transactions between the Company and its affiliates will be on
terms no less favorable to the Company than those available with
unaffiliated third parties.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: April 25, 2000 ELECTRONIC RETAILING SYSTEMS
INTERNATIONAL, INC.
By s/Jerry McAuliffe
-------------------------
Jerry McAuliffe
Vice President, Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated:
Signature Title Date
April 25, 2000
Bruce F. Failing, Jr.*
- ----------------------
Bruce F. Failing, Jr. Vice Chairman of the
Board and Principal
Executive Officer
s/Jerry McAuliffe
- ---------------------- April 25, 2000
Jerry McAuliffe Vice President and
Principal Financial
and Accounting
Officer
David Diamond* April 25, 2000
- ----------------------
David Diamond Director
<PAGE>
Norton Garfinkle* April 25, 2000
- ----------------------
Norton Garfinkle Director
Donald E. Zilkha* April 25, 2000
- ----------------------
Donald E. Zilkha Director
*By s/Jerry McAuliffe
-----------------------
Jerry McAuliffe
(Attorney-in-Fact Pursuant
to Power of Attorney on
file with the Securities
and Exchange Commission)
